Shri Ramalinga Mills Ltd., Aruppukottai V. ACIT Corporate Circle 2, Madurai

ITA 686/CHNY/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 3534 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 18-03-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R ANITAJCIT
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 115JB; 10; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI , . , % BEFORE SHRI MAHAVIR SINGH, VICE-PRESIDENT AND SHRI G.MANJUNATHA, ACCOUNTANT MEMBER ./ I.T.A.NO.686/CHNY/2019 ( / ASSESSMENT YEAR: 2014-15) M/S.SHRI RAMALINGA MILLS LTD., 212, RAMASAMY NAGAR, ARUPPUKOTTAOI-626 159. VS THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-2 MADURAI. PAN:AADCS 8769A ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : NONE /RESPONDENTBY : MR. R.ANITA,JCIT /DATE OF HEARING : 10.11.2020 /DATE OF PRONOUNCEMENT : 10.11.2020 / O R D E R PER G.MANJUNATHA, ACCOUNTANT MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAIN ST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- 1,MADURAI DATED 31.01.2019 AND PERTAINS TO THE ASS ESSMENT YEAR 2014-15. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- 1. SECTION 14A OF THE IT ACT READ WITH RULE 8D OF T HE IT RULES. 1.1. DISALLOWANCES OF RS. 1,17,42,802/-UNDER RULE 8 D{2){II) OF THE IT RULES AND RS. 12,23,566/- UNDER RULES 8D(1J(III) OF THE IT RULES TOTALING TO RS 129,66,368/- UNDER SECTION 14A OF T HE IT ACT ARE UNDER DISPUTE. 1.2.THE ASSESSING OFFICER MADE ELABORATE DISCUSSION S WHICH ARE AGAINST THE FACTS OF THE APPELLANTS CASE. 2 ITA NO.686/CHNY/2019 1.3.THE ASSESSING OFFICER TOOK VARIOUS GROUNDS WHIC H ARE NOT RELEVANT TO THE FACTS OF THE APPELLANTS CASE ARID ARE ALSO NOT IN ACCORDANCE WITH THE ACT AND RULES. 1,4.THE COMMISSIONER OF INCOME TAX (APPEALS) CONFIR MED THE DISALLOWANCES MADE BY THE ASSESSING OFFICER BY REFE RRING TO VARIOUS CASE LAWS WHICH ARE NOT APPLICABLE TO THE F ACTS OF THE APPELLANTS CASE. 1,5.THE INVESTMENTS ` 29,02,50,507/- REPRESENT AS APPLICATION OF FUNDS OUT OF APPELLANTS OWN FUNDS OUT OF APPELL ANTS SHARE CAPITAL AND RESERVES AND SURPLUS ` 115,74,02,105/-. 1.6. THE ENTIRE DIVIDENDS RS. 24,611/- WERE CREDITE D AT PAR IN APPELLANTS ACCOUNTS WITH BANKS. 1.7 THE FORMALITIES TO BE OBSERVED AND THE MAN POW ER REQUIRED IN MAKING AND MAINTAINING INVESTMENTS AS IN THE CAS E OF INVESTMENT COMPANIES AND AS DISCUSSED BY THE ASSESS ING OFFICER ARE NOT PRESENT IN FULL FORCE IN THE APPELL ANT COMPANY AS IT IS PRACTICALLY AN ONE MAN COMPANY AND THE INVESTMEN TS ARE STATIC FOR SEVERAL YEARS AND ARE INCIDENTAL TO APPELLANTS BUSINESS. 2. CLAUSE (F) OF EXPLANATION 1 TO SEC 115JB OF TIL E IT ACT: 2.1 IN COMPUTING THE BOOK PROFIT UNDER SECTION 11 5JB OF THE ACT, THE ASSESSING OFFICER ADDED RS.129,66,368/- BE ING THE DISALLOWANCE UNDER SECTION 14A OF THE IT ACT WHICH IS ALSO NOW UNDER DISPUTE (SUPRA) IN THE PRESENT APPEAL. 2.2 THE ADDITION IS NOT IN ACCORDANCE WITH CLAUSE(F ) OF EXPLANATION 1 TO SECTION 115JB OF THE ACT READING A S THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME T O WHICH SECTION 10 OTHER THAN THE PROVISIONS CONTAINED IN C LAUSE(38) THEREOF SECTION 11 OR SECTION 11 APPLY; READ WITH T HE CONCLUDING PORTION OF THE EXPLANATION AFTER CLAUSE(K) READING AS IF ANY AMOUNT REFERRED TO IN CLAUSE (A) TO (I) IS DEBITED TO THE STATEMENT OF PROFIT AND LOSS 2.3 THE EXPENDITURE DEBITED IN THE PROFIT AND LOSS ACCOUNT COULD ALONE BE ADDED IN COMPUTING THE BOOK PROFIT AND NOT OTHERS. 2.4 THE COMMISSIONER OF INCOME TAX (APPEALS) CONF IRMED THE ADDITION BY REFERRING TO CASE LAW WHICH IS NOT APPL ICABLE TO THE FACTS OF THE APPELLANTS CASE. 3 ITA NO.686/CHNY/2019 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE CO MPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF TEXTIL ES, HAND LOOM AND POWER LOOM FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014-15 ON 28.10.2014 DECLARING TO TAL INCOME OF ` 28,36,52,150/-. THE CASE WAS SELECTED FOR SCRUTIN Y AND ASSESSMENT HAS BEEN COMPLETED U/S.143(3) READ W ITH SECTION 92CA(3) OF THE ACT, AFTER MAKING ADDITION OF ` 1,29,66,368/- TOWARDS EXPENDITURE IN RELATION TO EXEMPT INCOME U/S.14A READ WITH RULE 8D OF I.T.RULES, 1962 . THE ASSESSING OFFICER HAS MADE SIMILAR ADDITIONS TOWARD S BOOK PROFIT U/S.115JB OF THE ACT . THE ASSESSEE CARRIED ON THE MATTER IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY . TH E LEARNED CIT(A) FOR THE DETAILED REASONS RECORDED IN HIS AP PELLATE ORDER DATED 31.01.2019 UPHELD THE ADDITIONS MADE BY THE A SSESSING OFFICER TOWARDS DISALLOWANCE OF EXPENDITURE INCURR ED IN RELATION TO EXEMPT INCOME UNDER SECTION 14A READ WI TH RULE 8D OF I.T.RULES, 1962, BY HOLDING THAT EVEN IN A CASE WHERE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN SO IN CURRED, THE STATUTE HAS PROVIDED FOR PRESUMPTIVE EXPENDITURE W HICH HAS TO BE DISALLOWED. THE LEARNED CIT(A) ALSO UPHELD THE A DDITIONS 4 ITA NO.686/CHNY/2019 MADE BY THE ASSESSING OFFICER TOWARDS DISALLOWANCE U/S.14A READ WITH RULE 8D OF I.T. RULES, 1962 TO BOOK PROFI T COMPUTED U/S.115JB OF THE ACT, BY FOLLOWING THE DECISION O F ITAT., MUMBAI IN THE CASE OF DCIT VS. VIRAJ PROFILES LTD (2016) 156 ITD 76. AGGRIEVED BY THE LEARNED CIT(A) ORDER, THE ASSESSEE IS APPEAL BEFORE US. 4. NONE APPEARED FOR THE ASSESSE. WE HAVE HEARD THE LEARNED DR, PERUSED THE MATERIALS AVAILABLE ON RECO RD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. T HE SOLITARY ISSUE THAT CAME UP FOR CONSIDERATION IN THE GIVEN F ACTS AND CIRCUMSTANCES OF THE CASE IS DISALLOWANCE OF EXPEND ITURE IN RELATION TO EXEMPT INCOME U/S.14A READ WITH RULE 8D OF I.T. RULES, 1962. THE FACTS BORNE OUT FROM RECORDS CLEA RLY INDICATE THAT THE ASSESSEE HAS EARNED DIVIDEND OF ` 24,611/- FOR THE IMPUGNED ASSESSMENT YEAR . IT IS A WELL SETTLED PRI NCIPLES OF LAW THAT DISALLOWANCE COMPUTED U/S.14A READ WITH RULE 8 D SHALL NOT SWALLOW ENTIRE INCOME EARNED FOR THE YEAR. IN OTHE R WORDS, DISALLOWANCE OF EXPENDITURE U/S.14A READ WITH RULE 8D SHALL NOT EXCEED EXEMPT INCOME EARNED FOR THE YEAR. THIS PRINCIPLE IS 5 ITA NO.686/CHNY/2019 SUPPORTED BY THE DECISION OF HONBLE DELHI HIGH CO URT IN THE CASE OF CHEMINVEST LTD. VS.CIT (2015) 378 ITR 33, WHERE IT WAS CLEARLY HELD THAT DISALLOWANCE OF EXPENDITURE U /S 14A SHALL NOT EXCEED EXEMPT INCOME EARNED FOR THE YEAR . A SI MILAR VIEW HAS BEEN TAKEN BY THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S.VOLTECH ENGINEERS PVT. LTD VS. DCIT (2 017) 163 ITD 469. IN THIS CASE, ALTHOUGH THE DIVIDEND INCOME EARNED FOR THE YEAR IS AT ` 24,611/-, THE ASSESSING OFFICER HAS COMPUTED DISALLOWANCE OF RS.1,29,66,368/- WHICH IS IN EXCE SS OF EXEMPT INCOME EARNED FOR THE YEAR. THEREFORE, CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND ALSO BY FOLLOWIN G THE DECISION OF THE HONBLE DELHI HIGH COURT IN THE CA SE OF CHEMINVEST LTD. (SUPRA), WE DIRECT THE ASSESSING OF FICER TO RESTRICT THE DISALLOWANCE COMPUTED U/S.14A READ WI TH RULE 8D OF I.T.RULES, 1962 TO THE EXTENT OF EXEMPT INCOME E ARNED FOR THE YEAR. 5. INSOFAR AS RECOMPUTATION OF BOOK PROFIT U/S.115 JB OF THE ACT TOWARDS DISALLOWANCE OF EXPENDITURE IN RELATI ON TO EXEMPT INCOME U/S.14A READ WITH RULE 8D OF I.T. RULES, 196 2, WE FIND ITAT., DELHI SPECIAL BENCH IN THE CASE OF ACIT VS. VIREET 6 ITA NO.686/CHNY/2019 INVESTMENTS (P) LTD. [2017] 165 ITD 27 (DELHI TRI B.) (SB) HAS CONSIDERED AN IDENTICAL ISSUE AND AFTER CONSIDERIN G RELEVANT FACTS HELD THAT COMPUTATION UNDER CLAUSE (F) OF EXP LANATION 1 TO SECTION 115JB(II) OF THE ACT IS TO BE MADE WITHOUT RESORTING TO COMPUTATION AS CONTEMPLATED U/S.14A READ WITH RULE 8D OF I.T. RULES, 1962. THEREFORE, WE ARE OF THE CONSIDERED VI EW THAT ASSESSING OFFICER CANNOT MAKE ADDITIONS TOWARDS COM PUTATION OF DISALLOWANCE U/S.14A READ WITH RULE 8D OF I.T. RULES, 1962, TO THE BOOK PROFIT COMPUTED U/S.115JB OF THE ACT. HENCE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITIO NS MADE TOWARDS 14A DISALLOWANCE TO BOOK PROFIT COMPUTED U/ S.115JB OF THE ACT. 6. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 10 TH NOVEMBER, 2020 SD/- SD/- ( ) ( . ) (MAHAVIR SINGH) (G.MANJUNATHA ) / VICE-PRESIDENT $ / ACCOUNTANT MEMBER & /CHENNAI, ' /DATED 10 TH NOVEMBER, 2020 DS )* +* /COPY TO: 1. APPELLANT 2. RESPONDENT 3. , () /CIT(A) 4. , /CIT 5. * 1 /DR 6. /GF .