DCIT, Salem V. Thriveni Earthmovers (P) Ltd., Salem

ITA 708/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86313 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-02-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 11-02-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 21-03-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S DASGUPTA
• Assessee Lawyers: G BASKAR
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . , ' $ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. ASSESS MENT YEAR APPELLANT RESPONDENT 602 & 603/ MDS/2014 2009 10 & 201011 M/S.THRIVENI EARTHMOVERS PVT. LTD., 22/110, GREENWAYS ROAD, FAIRLANDS, SALEM-636 016. PAN:AABCT6759R ADDITIONAL / JOINT COMMISSIONER OF INCOME TAX, RANGE-I, SALEM. 708/MDS/2014 2010 11 JOINT COMMISSIONER OF INCOME TAX, RANGE-I, SALEM M/S.THRIVENI EARTHMOVERS PVT.LTD. 22/110, GREENWAYS ROAD, FAIRLANDS, SALEM-636 016. PAN:AABCT6759R ASSESSEE BY : MR. G.BASKAR, ADVOCATE REVENUE BY : MR. S. DAS GUPTA, JCIT ! /DATE OF HEARING : 11 TH FEBRUARY, 2015 ! /DATE OF PRONOUNCEMENT : 25 TH FEBRUARY, 2015 / O R D E R PER BENCH: THE ASSESSEE FILED APPEALS FOR THE ASSESSMENT YEARS 2009-10 & 2010-11 IN ITA NOS.602 & 603/MDS/2014 RESPECTIVELY AGAINST THE ORDERS OF COMMISSIONER OF INCOME TAX (APPEALS), SALEM DATED 31.12.2013. REVENUE FILE D APPEAL FOR THE ASSESSMENT YEAR 2010-11 IN ITA NO.708/MDS/2014 AGAINST THE ORDER OF COMMISSIONER O F INCOME TAX (APPEALS). SALEM DATED 31.12.2013. SINCE THE ISSUE IS COMMON IN THESE APPEALS, THEY ARE HEARD TO GETHER AND DISPOSED OFF BY THIS COMMON ORDER. 2 ITA NOS.602, 603 & 708/MDS/2014 2. THE COMMON ISSUE IN BOTH THE APPEALS OF THE ASSE SSEE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN SUSTAINING A PORTION OF DISALLOWANCE MADE UNDER SEC TION 14A OF THE ACT. 3. BRIEF FACTS ARE THAT ASSESSING OFFICER WHILE COM PLETING THE ASSESSMENTS FOR BOTH THESE ASSESSMENT YEARS NOT ICED THAT ASSESSEE EARNED DIVIDEND INCOME OF ` 67,67,850/- AND ` 1,36,05,876/- RESPECTIVELY FOR THE ASSESSMENT YEAR S 2009- 10 & 2010-11 AND ASSESSEE CLAIMED EXEMPTION OF SUC H DIVIDEND EARNED. THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAS NOT DISALLOWED ANY EXPENDITURE IN EARN ING THE EXEMPT INCOME THUS, HE APPLIED RULE 8D READ WITH SE CTION 14A AND WORKED OUT THE DISALLOWANCE TO BE MADE UNDE R SECTION 14A AT ` 18,94,117/- AND ` 38,70,974/-. THE ASSESSEE CARRIED THE MATTER BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) CONTENDING THAT ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR EARNING SUCH DIVIDEND INCOME, NO DIRECT EXPENDITURE WAS INCURRED. THE ASSESSEE A LSO CONTENDED THAT INVESTMENTS MADE BY THE ASSESSEE CON SIST OF INVESTMENTS IN DOMESTIC COMPANIES AS WELL AS FOREIG N COMPANIES AND SINCE DIVIDEND INCOME FROM FOREIGN 3 ITA NOS.602, 603 & 708/MDS/2014 COMPANIES IS NOT EXEMPT FROM TAX, THOSE INVESTMENTS HAVE TO BE EXCLUDED FOR THE PURPOSE OF COMPUTING DISALLOWAN CE UNDER RULE 8D READ WITH SECTION 14A. THE COMMISSIONER OF INCOME TAX (APPEALS) EXCLUDED CERTAIN COMPANIES WHERE INVESTMENTS WERE MADE IN FOREIGN COMPANIES FOR THE PURPOSE OF COMPUTING RELIEF UNDER RULE 8D READ WITH SECTION 14A. 4. COUNSEL FOR THE ASSESSEE SUBMITS THAT COMMISSION ER OF INCOME TAX (APPEALS) HAS NOT EXCLUDED ALL THE INVES TMENTS WHICH WERE MADE IN FOREIGN COMPANIES WHOSE DIVIDEN D IS TAXABLE AND IT IS NOT EXEMPT. COUNSEL FOR THE ASSE SSEE FURTHER SUBMITS THAT ASSESSEE HAS NOT INCURRED ANY DIRECT EXPENSES AND THEREFORE ASSESSING OFFICER IS NOT JUS TIFIED IN TAKING A PORTION OF SALARY AS DIRECT EXPENSES AND A T THE SAME TIME DISALLOWING HALF PERCENT OF AVERAGE INVESTMENT S. COUNSEL SUBMITS THAT THE ASSESSING OFFICER SHOULD N OT HAVE DISALLOWED BOTH. 5. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDERS OF LOWER AUTHORITIES. 4 ITA NOS.602, 603 & 708/MDS/2014 6. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES. THERE IS FORCE IN THE SUBMISSIONS OF THE COUNSEL F OR THE ASSESSEE THAT DIVIDEND FROM FOREIGN COMPANIES IS NO T EXEMPT UNDER SECTION 10(35) OF THE ACT AND THUS INVESTMENT S IN FOREIGN COMPANIES HAVE TO BE EXCLUDED FOR THE PURPO SE OF COMPUTING DISALLOWANCE UNDER RULE 8D READ WITH SECT ION 14A. THIS VIEW IS ALSO SUPPORTED BY THE DECISION OF MUMBAI BENCH OF THIS TRIBUNAL IN THE CASE OF M/S. BIRLA GR OUP HOLDINGS LTD. VS. DCIT (13 SOT 642). FOLLOWING THE SAID DECISION, WE DIRECT THE ASSESSING OFFICER TO EXCLUD E INVESTMENTS IN FOREIGN COMPANIES FOR THE PURPOSE OF COMPUTING DISALLOWANCE UNDER SECTION 14A OF THE ACT ON VERIFICATION OF RECORDS. THE ASSESSEE MAY BE GIVEN OF OPPORTUNITY OF BEING HEARD. 7. WE ALSO FIND FROM THE ASSESSMENT ORDER THAT ASSE SSING OFFICER DISALLOWED A PART OF SALARY AS DIRECT EXPEN SES. THE ASSESSING OFFICER CANNOT DISALLOW PART OF SALARY AS DIRECT EXPENSES ON ESTIMATE BASIS. WE ALSO FIND THAT ASSES SING OFFICER DISALLOWED 0.5% OF AVERAGE INVESTMENTS UNDE R RULE 8D(3). IT IS THE CASE OF THE ASSESSEE THAT IT HAD N OT INCURRED ANY EXPENSES FOR EARNING DIVIDEND INCOME. IN SUCH 5 ITA NOS.602, 603 & 708/MDS/2014 CIRCUMSTANCES, IT CANNOT BE SAID THAT PART OF SALAR IES AND WAGES ARE DIRECT EXPENSES FALLING UNDER RULE 8D(1). THUS, WE DIRECT THE ASSESSING OFFICER TO EXCLUDE PART OF SAL ARIES AND WAGES AS DIRECT EXPENSES FOR THE PURPOSE OF COMPUT ING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D AN D AT THE SAME TIME WE HOLD THAT ASSESSING OFFICER IS JUSTIFI ED IN TAKING 0.5 PERCENT AVERAGE INVESTMENTS AS EXPENSES INCURRE D FOR EARNING DIVIDEND INCOME WHICH COVERS ALL OTHER EXPE NDITURE. 8. SINCE WE HAVE DIRECTED THE ASSESSING OFFICER TO EXCLUDE FOREIGN INVESTMENTS FOR THE PURPOSE OF COMP UTING DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D, T HE GROUNDS RAISED BY THE REVENUE IN ITA NO.708/MDS/201 4 ARE REJECTED. 9. THE ONLY OTHER ISSUE IN THE APPEAL OF THE ASSESS EE FOR THE ASSESSMENT YEAR 2010-11 IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ADDITI ON OF ` 3,38,819/- BEING RETENTION MONEY RELATING TO BAN DA WORKSITE WRITTEN OFF DURING THE YEAR. 10. THE ASSESSING OFFICER WHILE COMPLETING THE ASSE SSMENT DISALLOWED AMOUNT OF ` 3,38,819/- WHICH WAS DEBITED UNDER 6 ITA NOS.602, 603 & 708/MDS/2014 THE HEAD LICENSE FEES AND TAXES WITH THE NARRATIO N THAT RETENTION MONEY FOR BANDA WORK SITE. THE ASSESSING OFFICER DISALLOWED THE SAID AMOUNT STATING THAT IT IS A DE POSIT AND CANNOT BE CONSIDERED AS EXPENDITURE. ON APPEAL, COMMISSIONER OF INCOME TAX (APPEALS) SUSTAINED THE DISALLOWANCE. 11. COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS IS A BAD DEBT WHICH WAS WRITTEN OFF AND THEREFORE IT SHOULD BE ALLOWED AS A DEDUCTION. 12. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY SUPPORTS THE ORDER OF LOWER AUTHORITIES. DEPARTMENTAL REPRESENTA TIVE SUBMITS THAT IT IS NOT A BAD DEBT AND IT IS RETENTI ON DEPOSIT MADE BY THE ASSESSEE. 13. HEARD BOTH SIDES. THIS ASPECT OF THE MATTER WAS CONSIDERED BY THE COMMISSIONER OF INCOME TAX (APPEA LS) AND SUSTAINED DISALLOWANCE OBSERVING AS UNDER:- 6.3 THE SECOND ISSUE TO BE DECIDED IS THE DISALLOWANCE OF ` 3,38,819/- TOWARDS RETENTION MONEY FOR BANDA WORK SITE . THE SAME HAS BEEN CATEGORIZED A S LICENSE FEE & TAXES . THE ASSESSING OFFICER HAS DISALLOWED BY STATING THAT THE SAME IS NOT ALLOWABL E AS THE SAME IS A DEPOSIT AND NOT AN EXPENDITURE. 7 ITA NOS.602, 603 & 708/MDS/2014 THE APPELLANT IN HIS SUBMISSION HAS STATED THAT THE AMOUNT REPRESENTS THE RETENTION MONEY HELD BY A CUSTOMER FROM CONTRACT RECEIPTS BUILTED BY THE COMP ANY. THIS HE SAYS IS A COMMON PRACTICE. THE APPELLANT ST ATES THAT THE AMOUNT HAS ALREADY BEEN OFFERED AS INCOME AND THE SAME HAS BEEN EXPENSED AND NOW SAME HE STATES I S TO BE ALLOWED AS BAD DEBT. I HAVE CONSIDERED THE APPELLANTS SUBMISSION. IT IS TO BE NOTED THAT ANY WRITE OFF OF BAD DEBT IS A CON SCIOUS DECISION WHICH HAS TO BE TAKEN AT PRE-FINALISATION LEVEL I.E. BEFORE THE FINALIZATION OF ACCOUNTS. IT IS ALSO TO BE NOTED THAT WRITE OFF OF AN AMOUNT AS BAD DEBT REPRESENTS NEITHER INCOME OR AN EXPENDITURE. THIS BEING THE CASE, IT I S NOT OPEN FOR THE APPELLANT TO RAISE THE ISSUE AT THE AP PELLATE STAGE WHICH OCCURS LONG AFTER FINALIZATION OF ACCOU NTS. 14. ON GOING THROUGH THE ABOVE ORDER, WE DO NOT FI ND ANY INFIRMITY IN SUSTAINING THE ORDER OF THE COMMISSION ER OF INCOME TAX (APPEALS) ON THIS ISSUE. 15. IN THE RESULT, APPEALS OF THE ASSESSEE FOR BOTH THE ASSESSMENT YEARS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THAT OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 25 TH DAY OF FEBRUARY, 2015 AT CHENNAI. SD/- SD/- ( . ) ( 0 34 5 ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) 7 / ACCOUNTANT MEMBER 39 7 / JUDICIAL MEMBER 3 /CHENNAI, ; /DATED 25 TH FEBRUARY, 2015 SOMU 59>? A? / COPY TO: 1. ASSESSEE 2. ASSESSING OFFICER 3. B () /CIT(A) 4. B /CIT 5. ? 599E /DR 6. H /GF .