T.T.Krishnamachari & Co., CHENNAI V. ACIT, CHENNAI

ITA 719/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9275 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-05-2016
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 18-04-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 07-04-2015
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA IRS
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , . , BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBE R AND SHRI. G. PAVAN KUMAR, JUDICIAL MEMBER ./I.T.A. NO.719/MDS/2015 / ASSESSMENT YEAR : 2010-2011. M/S. T.T. KRISHNAMACHARI & CO, NO.6, CATHEDRAL ROAD, GOPALAPURAM, CHENNAI 600 086. VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, NON CORPORATE CIRCLE 3, CHENNAI. [PAN AAAFT 0395D] ( / APPELLANT) ( /RESPONDENT) ! ' # / APPELLANT BY : SHRI. R. VIJAYARAGHAVAN, ADVOCATE $% ! ' # /RESPONDENT BY : SHRI. PATHLAVATH PEERYA,IRS, CIT. & ' ' ( /DATE OF HEARING : 19-04-2016 ) ' ' ( /DATE OF PRONOUNCEMENT : 25-05-2016 / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST ORDER OF THE COMMISSIONER OF INCOME-TAX-5, CHENNAI IN C.NO.2 (6)/NCR - 16/263/CIT-5/2014-2015, DATED 18.02.2015 FOR THE AS SESSMENT YEAR ITA NO.719/MDS/2015. :- 2 -: 2010-2011 PASSED U/S.263 AND 250 OF THE INCOME TA X ACT, 1961 (HEREIN AFTER REFERRED TO AS THE ACT). 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS:- 2. THE COMMISSIONER OF INCOME TAX ERRED IN ASSUMIN G JURISDICTION U/S.263 AND HOLDING THAT THE ASSESSMENT ORDER IS ER RONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE MERELY BECAU SE THE DECISION OF THE ASSESSING OFFICER IS NOT INCONSONANCE WITH THE VIEW OF THE CIT. 2.1 THE COMMISSIONER OF INCOME TAX FAILED TO APPREC IATE THAT THE SCRUTINY ASSESSMENT WAS COMPLETED U/S.143 (3) AFTER EXAMINING THE BOOKS OF ACCOUNT AND CONSIDERING THE VARIOUS DE TAILS INCLUDING DISALLOWANCE U/S 14A FILED BEFORE THE ASSESSING OFF ICER. 2.2 THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE AP PRECIATED THAT IF THE ASSESSING OFFICER HAS TAKEN ONE OF THE TWO POSSIBLE VIEWS IT CANNOT BE TERMED AS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE. [MALABAR INDUSTRIAL CO. (VS) CIT 243 ITR 8 3 (SC)] 3. THE COMMISSIONER OF INCOME TAX ERRED IN DIRECTI NG THE ASSESSING OFFICER TO DISALLOW THE EXPENDITURE U/S 1 4 A BY APPLYING RULE 8D(2)(I)/ (II)/ (III). 3.1 THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE AP PRECIATED THAT THE EXPRESSION 'EXPENDITURE INCURRED' IN SEC 1 4A REFERS TO ACTUAL EXPENDITURE AND NOT TO SOME IMAGINED EXPENDI TURE, IN RELATION TO OR IN CONNECTION WITH OR PERTAINING TO EXEMPT INCOME FOR ATTRACTING SECTION 14A, THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE, WHICH IS ITS RELATIONSHIP WITH THE TA X EXEMPT INCOME. ITA NO.719/MDS/2015. :- 3 -: 3.2 THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE AP PRECIATED THAT THE APPELLANT HIMSELF IN ITS STATEMENT OF INCO ME HAS DISALLOWED RS.82,793/- U/S 14A WHICH THE AO HAS ACCEPTED WHILE COMPLETING THE ASSESSMENT U/S 143(3). 3.3 APPELLANT SUBMITS THAT SEC 14A CAN BE INVOKED O NLY IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECT NESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF THE EXPENDITURE IN RELA TION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME . THE APPELLANT RELIES ON DC/T VS. JINDAL PHOTO LTD. (ITA NO,4539/D EL /2010 DATED 22 ND DEC. 2010, ITAT DELHI), WHERE THE DELHI TRIBUNAL H ELD THAT FOR S.14A DISALLOWANCE, EVEN UNDER RULE 8D, THE ONUS IS ON THE AO TO SHOW NEXUS BETWEEN EXPENDITURE AND TAX-FREE INCOME. 3.4 THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE AP PRECIATED THAT A SUM OF RS.1 ,00,00,000/- WAS TRANSFERRED FROM THE CAPITAL ACCOUNT OF THE ERSTWHILE PARTNERS, T.T.NARASIMHAN W AS SHOWN AS PAYABLE TO HIS MEMBERS OF THE FAMILY VIZ., DAUGHTER IN LAW SMT SHANTHI RANGANATHAN. BECAUSE, SMT SHANTHI RANGANATH AN HAD LEFT THE AMOUNT TO BE RETAINED WITH THE FIRM INTERE ST AT 10% (RS.10,00,000/-) WAS PAID EVERY YEAR. THEREFORE THIS INTEREST IS NOT PAYABLE TO ANY AMOUNT BORROWED BY THE COMPANY FOR I TS BUSINESS PURPOSES. 3.5 THE APPELLANT COMPANY HAS NO BORROWING WHICH HA S BEEN UTILIZED IN ALL ITS BUSINESS ACTIVITY, IT HAS PAID INTEREST OF RS.15,86,439 FOR THE YEAR ENDED 31.03.2007 AND RS.15,36,689/ - FOR THE YEAR ENDED 31.03.2008. AS EXPLAINED IN THE LETTER OF THE FIRM DATED 11.08.2010, THE ENTIRE AMOUNT OF INTERES T WAS PAID ON AMOUNT OUTSTANDING TO THE RELATIVE OF THE PARTNE RS AND THE INTEREST PAID ON RENT DEPOSITS. ITA NO.719/MDS/2015. :- 4 -: 3.6 THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE AP PRECIATED THAT THE FIRM RECEIVED THE TOTAL DIVIDEND OF RS.23,78,36,714/- FOR THE YEAR ENDED 31.03.2007 AND 3,20, 14,629/-- FOR THE YEAR ENDED 31.03.2008. OUT OF THIS AMOUNT THE AMOUNT OF DIVIDE ND RECEIVED FROM ASSOCIATE / PROMOTED CONCERN AMOUNTING TO R S.23,78,36,314/- AS ON 31.03.2007 AND 3,10,01,552/-- AS ON 31.03.2008. 3.7 THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE AP PRECIATED THAT ALL INVESTMENTS ARE NOT BECOME THE SUBJECT MAT TER OF CONSIDERATION WHEN COMPUTING DISALLOWANCE U/S 14A R.W.R 8D(2)(III). THE DISALLOWANCE U/S 14A R.W.R 8D IS TO BE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKING INTO CON SIDERATION THE INVESTMENT WHICH HAS GIVEN RISE TO THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. REI AGRO LTD V. OCIT - 144 ITO 141 (KOL). 3.8 THE COMMISSIONER OF INCOME TAX OUGHT TO HAVE AP PRECIATED THAT THE APPELLANT HAS MADE MOST OF THE INVESTMENTS IN ITS GROUP COMPANIES. THE CHENNAI TRIBUNAL IN THE CASE OF EIH ASSOCIATED HOTELS LTD VS. CIT REPORTED IN 2013-TIOL-796-ITAT-M AD, AY- 2008-09, BY ORDER DATED 17.07.2013 HAS HELD THE INV ESTMENT MADE BY THE ASSESSEE IN ITS SUBSIDIARY ARE NOT TO B E REKONED FOR DISALLOWANCE U/S 14A R.W.R. 8D. AND ALSO DEALT ON THE ISSUE OF ORDER PASSED U/S.26 3 AS ERRONEOUS AND PROVISIONS OF DISALLOWANCE OF EXPENDITURE U/S.14A R .W.R 8D(2) AND THREE LIMBS WITH JUDICIAL DECISIONS. ITA NO.719/MDS/2015. :- 5 -: 3. THE BRIEF FACTS OF THE CASE THE ASSESSEE IS A PA RTNERSHIP FIRM, THE MAIN ACTIVITY BEING MANUFACTURING REPRESENTATIVE, DEALER, IMPORTER, EXPORTER, WAREHOUSE OPERATOR, CLEARING AND FORWARDI NG AND ALSO PROMOTERS OF TTK GROUP COMPANIES AND FILED RETURN OF INCOME O N 08.09.2010 DECLARING TOTAL INCOME OF <17,51,86,710/- AND THE CASE WAS SELECTED FOR SCRUTINY UNDER CASS AND NOTICES U/S.143(2) AND 142 (1) OF THE ACT WAS ISSUED. IN COMPLIANCE TO NOTICE, THE LD. AUTHORISE D REPRESENTATIVE OF ASSESSEE APPEARED FROM TIME TO TIME AND SUBMITTED D ETAILS. THE LD. ASSESSING OFFICER COMPLETED ASSESSMENT BASED ON THE DETAILS AND RECORDS SUBMITTED BY THE ASSESSEE VIDE ORDER U/S.143(3) OF THE ACT DT 21.02.2013. THE LD. COMMISSIONER OF INCOME TAX UNDER PROVISIONS OF SEC. 263 OF THE ACT ISSUED SHOW CAUSE NOTICE DT 9.12.2014 EXPLAININ G THE REASONS WERE THE ASSESSING OFFICER HAS ACCEPTED RETURNED INCOME IRRESPECTIVE OF FACT THAT ASSESSEE COMPANY SUO-MOTU DISALLOWED U/SECTION 14A <82,793/- AND IN THE FINANCIAL YEAR 2009-2010, THE ASSESSEE COMPA NY RECEIVED DIVIDEND INCOME FROM THE GROUP COMPANIES <19,81,81,295/- AND INCOME FROM PORTFOLIO INVESTMENT <11,47,819/- AND SAME WAS CLAI MED AS EXEMPT FROM TAX. IN COMPLIANCE TO THE SHOW CAUSE NOTICE, THE A SSESSEE FILED DETAILED EXPLANATION DATED 19.12.2014. IN THE REVISIONARY P ROCEEDINGS, THE ASSESSEE ALSO FILED WRITTEN SUBMISSIONS ON EACH POI NT OF DISPUTE ALONGWITH AUDITED PROFIT AND LOSS ACCOUNT AND BALANCE SHEET F OR THE YEAR ENDING 31 ST ITA NO.719/MDS/2015. :- 6 -: MARCH, 2010 AND JUDICIAL DECISIONS. THE COMMISSIO NER OF INCOME TAX ON EXAMINATION OF FINANCIAL STATEMENTS, EXPLANATIONS O N EXPENDITURE AND INVESTMENTS OBSERVED AT PARA NOS. 7 TO 10 OF THE O RDER AND DIRECTED THE ASSESSING OFFICER TO WORK OUT DISALLOWANCE BY APPLI CATION OF PROVISIONS UNDER RULE 8D(2)(II) VIDE REVISION ORDER DATED 18.0 2.2015. AGGRIEVED BY THE ORDER, THE ASSESSEE ASSAILED AN APPEAL BEFORE T RIBUNAL. 4. BEFORE US, THE LD. AUTHORISED REPRESENTATIVE OF ASSESSEE REITERATED THE SUBMISSIONS MADE IN ASSESSMENT PROCEEDINGS AN D BEFORE COMMISSIONER OF INCOME TAX IN REVISIONARY PROCEEDIN GS SUPPORTED WITH FINANCIAL STATEMENTS. THE LD. AUTHORISED REPRESENT ATIVE ARGUED ON THE POWERS AND SATISFACTION NOTE OF THE ASSESSING OF FICER BUT THE ASSESSING OFFICER EXAMINED BOOKS OF ACCOUNTS AND VARIOUS DETA ILS INCLUDING DISALLOWANCE U/S.14A OF THE ACT. BASED ON THE FACT S AND FINANCIAL STATEMENTS, THE ASSESSEE FIRM IS HEADED AS GROUP F IRM WHICH DERIVES INCOME FROM VARIOUS SOURCES AND CLAIMS EXPENDITURE IN RELATION TO EARNING INCOME. THE LD. COMMISISONER OF INCOME TAX HAS ERR ED IN PASSING THE REVISION ORDER AND TREATING THE ASSESSMENT AS ERRO NEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE AND DIRECTED THE ASS ESSING OFFICER TO MAKE DISALLOWANCE UNDER PROVISIONS OF RULE 8D WHICH IS AGAINST THE LAW AS THE ASSESSEE FIRM HAS NOT INCURRED ANY EXPENDITURE AND DISALLOWED <.82,793/- ITA NO.719/MDS/2015. :- 7 -: BEING 10% OF SALARY OF TWO PERSONS OF THE OFFICE ESTABLISHMENT AND THE LD. ASSESSING OFFICER CONSIDERED IN THE ASSESSMENT PROCEEIDNGS. THE ASSESSEE FIRM HAS INVESED MOSTLY IN GROUP COMPANIE S ON COMMERICAL EXPENDIENCY AND PRAYED FOR ALLOWING THE APPEAL. 5. CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE RELI ED ON THE ORDER OFTHE COMMISSIONER OF INCOME TAX PASSED IN REVISION PROCEEDINGS. 6. WE HEARD RIVAL SUBMISIONS, PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS. THE LD. AUTHORISED REPRESENTA TIVE ARGUMENTS HAS TWO FACETS ONE CHALLENGING JURISDICTION U/S.263 OF THE ACT WERE THE LD. COMMISSIONER OF INCOME TAX CONSIDERED THE ORDER PA SSED U/S.143(3) OF THE ACT BY THE ASSESSING OFFICER IS ERRENOUS AND P REJUDICAL TO THE INTEREST OF REVENUE IRRESPECTIVE OF ASSESSING OFFICER VERF YING THE BOOKS OF ACCOUNTS AND CONSIDERED THE DETAILS OF DISALLOWANCE S AND OTHER ISSUES AND APPLICABILITY OF PROVISIONS OF SEC. 14A R.W.RULE 8 D. ON THE FIRST ISSUE, WE ON PERSUAL OF ASSESSMENT ORDER FOUND THAT ASSESSING OFFICER HAS NOT MENTIONED ANY SPECIFIC FINIDNGS ON DISALLOWANCE U/ S.14A OF THE ACT. THE ASSESSING OFFICER HAS ACCEPTED THE RETURNED INCOME AND THERE ARE NO FINDINGS RECORDED, ON MERIT DISPUTED ISSSE OF APPLI CABILITY OF PROVISONS OF SEC. 14A OF THE ACT. THE PROVISIONS OF SEC. 14A R.W .RULE 8D HAVE BEEN ITA NO.719/MDS/2015. :- 8 -: AMENDED AND RULE 8D PROVISIONS ARE IMPLEMENTED FRO M 24.03.2008 WHICH IS APPLICABLE FROM ASSESSMENT YEAR 2008-09 ONWARDS AND MANADORTILY CONSIDERED FOR DISALLOWANCE U/S.14A R.W.R 8D AS DEE MING PROVISONS AND SUPPORTED BY THE DECISION OF GODREJ & BOYCE MFG. CO. LTD VS. DCIT 194 TAXMANN 203. THE DISPUTED ASSESSMENT YEAR BEING 2010-2011, PRI ME FACIE THE ASSESSEE HAD MADE ADHOC DISALLOWNCE BASED ON SALARY OF TWO EMPLOYEES AND NOT AS PER THE AMENDED PROVISIONS. TH E DISALLOWANCE U/S.14A ARE CALCULATED AS PER RULE 8D(I)(II)(III) OF THE ACT AS THEY ARE APPLICABLE TO THE CURRENT ASSESSMENT YEAR. THE ASSE SSEE HAS RAISED GROUNDS WITH REASONS FOR NOT INCLUDING THE INVEST MENTS OF GROUP COMPANIES AND DIVIDEND INCOME IN COMPUTATION OF DIS ALLOWANCE UNDER RULE 8D. THE ASSESSING OFFICER HAS NOT CALCULATED D ISALLOWANCE UNDER RULE 8D APPLICABLE FOR THE ASSESMENT YEAR 2010-2011. CON SIDERING THE APPARENT FACTS AND THE OBSERVATIONS OF COMMISSIONER OF INCOME TAX AND THE PROVISIONS OF LAW AND APPLICABILITY OF RULE 8D, THE LD. COMMISSIONER OF INCOME TAX HAS EXAMINED THE FACTUAL ASPECTS AND PRI ME FACIE EVIDENCE AVAILABLE ON RECORD VIZ-A-VIZ EXPLANATION MADE BY T HE ASSESSEE AND SET ASIDE THE ORDER OF ASSESSING OFFICER U/SEC. 143(3) DATED 21.02.2013 WITH DIRECTIONS TO WORKOUT DISALLOWANCE U/SEC. 14A R.W.R .8D. WE DO NOT SEE ITA NO.719/MDS/2015. :- 9 -: ANY REASON TO INTERFERE WITH ORDEEF OF CIT AND WE UPHOLD THE SAME AND DIMISS THE GROUNDS OF THE ASSESSEE. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DIS MISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 25 TH DAY OF MAY, 2016 AT CHENNAI. SD/- SD/- ( . ! ' ) (A. MOHAN ALANKAMONY) $ % / ACCOUNTANT MEMBER ( & . ' ( ) (G. PAVAN KUMAR) ) % / JUDICIAL MEMBER *& / CHENNAI + / DATED:25TH MAY, 2016. KV , ' $'./ 0/' / COPY TO: 1 . ! / APPELLANT 2. $% ! / RESPONDENT 3. 1' () / CIT(A) 4. 1' / CIT 5. /4 5 $'6 / DR 6. 5 7 8 & / GF