ACIT, CHENNAI V. Texcel Engineers Pvt. Ltd., CHENNAI

ITA 793/CHNY/2014

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 6307 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 02-04-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ANIL NAIR
• Keywords: Earning of tax free income; Tax effect
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . , . . , ! ' [BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMB ER AND SHRI S. S. GODARA, JUDICIAL MEMBER] ./ I.T.A.NOS.791, 792 & 793/MDS/2014 / ASSESSMENT YEARS : 2007-08, 2009-10 & 2010-11 THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE III(2) CHENNAI VS. M/S TEXCEL ENGINEERS PVT. LTD NO.1, GANAPATHY COLONY, O BLOCK G-59, 12 TH STREET ANNA NAGAR EAST CHENNAI 600 102 [PAN AAACT 1271 D] ( #$ / APPELLANT) ( %&#$ /RESPONDENT) ./ I.T.A.NO.916/MDS/2014 / ASSESSMENT YEAR : 2010-11 M/S TEXCEL ENGINEERS PVT. LTD NO.1, GANAPATHY COLONY, O BLOCK, G-59, 12 TH STREET ANNA NAGAR EAST CHENNAI 600 102 VS. THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE III(2) CHENNAI ( #$ / APPELLANT) ( %&#$ /RESPONDENT) DEPARTMENT BY : SHRI SHAJI P. JACOB, ADDL. CIT ASSESSEE BY : SHRI ANIL NAIR, CA / DATE OF HEARING : 16-06-2014 / DATE OF PRONOUNCEMENT : 20-06-2014 I.T.A.NOS.791, 792, 793 & 916/14 :- 2 -: ' / O R D E R PER S.S.GODARA, JUDICIAL MEMBER THESE REVENUES APPEALS FOR ASSESSMENT YEARS 2007 -08, 2009-10 AND CROSS APPEALS FOR ASSESSMENT YEAR 2010- 11, ARE DIRECTED AGAINST A COMMON ORDER OF THE CIT(A)-III CHENNAI, DATED 24.12.2013, PASSED IN I.T.A.NOS.961,1202 & 1869/2013-14; RESPEC TIVELY IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME-TA X ACT, 1961 (IN SHORT THE ACT). 2. IT IS TO BE SEEN THAT IN ALL ITS THREE APPEALS, THE REVENUES IDENTICAL GRIEVANCE CHALLENGES THE CIT(A)S ORDER DELETING ADDITION ON ACCOUNT OF SECURITY DEPOSIT RETENTION MONEY OF `28,93,101/-, ` 7,41,947/- AND ` 1,66,78,100/- RESPECTIVELY. SIMILARLY, THE ASSESSEES SOLE GROUND IN ITS APPEAL CHALLENGES DISALLOWANCE U/S 14A OF ` 1,27,833/- MADE BY THE LOWER AUTHORITIES. 3. FIRST WE COME TO THE REVENUES APPEAL I.T.A.NO. 961/MDS/2014 AND TREAT IT AS THE LEAD CASE. 4. THE ASSESSEE, A COMPANY, IS ENGAGED IN THE BUSINES S OF ERECTION AND COMMISSIONING OF BOILERS FOR POWER PRO JECTS. IT FOLLOWS MERCANTILE SYSTEM OF ACCOUNTING. ON 23.10.2007, T HE ASSESSEE HAD FILED ITS RETURN DISCLOSING INCOME OF ` 29,01,412/-. IN THE COURSE OF I.T.A.NOS.791, 792, 793 & 916/14 :- 3 -: SCRUTINY, THE ASSESSING OFFICER FOUND THE ASSESS EE TO HAVE ADDED IN ITS COMPUTATION OF INCOME SECURITY DEPOSIT RETENTI ON MONEY OF ` 89,63,266/- WHICH HAD BEEN EXCLUDED IN THE PRECEDIN G ASSESSMENT YEARS. THE ASSESSEE HAD ALSO DEDUCTED A SUM OF ` 28,93,101/- AS RETENTION MONEY RECEIVABLE. THE ASSESSING OFFICER ADDED THIS AMOUNT OF ` 28,93,101/- IN HIS ORDER DATED 25.11.2009, INTER A LIA, BY OBSERVING THAT THE EXPENDITURE RELATING TO SECURITY DEPOSIT R ETENTION MONEY STOOD ALREADY CLAIMED BY DEBITING IT IN PROFIT & LOSS ACC OUNT AND NON- ACCOUNTING OF CORRESPONDING RECEIVABLE AMOUNT WOULD NOT DEMONSTRATE THE TRUE/CORRECT PROFITS, THE ASSESSEES WORK IN Q UESTION PERTAINING TO THIS RECEIPT HAD ALREADY BEEN COMPLETED AND ALSO TH AT THOUGH THE ASSESSEE HAD PLACED RELIANCE ON THE 'TRIBUNAL'S ORD ER FOR ASSESSMENT YEAR 2003-04, THE DEPARTMENT DID NOT PREFER ANY APP EAL BECAUSE OF THE LOW TAX EFFECT INVOLVED. 5. IN LOWER APPELLATE ORDER, THE CIT(A) HAS FOLLOWED O RDER OF THE 'TRIBUNAL' FOR ASSESSMENT YEARS 2003-04 AND 20 05-06 DELETING AN IDENTICAL ADDITION BY FOLLOWING DECISION OF HON'BLE JURISDICTIONAL HIGH COURT REPORTED AS 283 ITR 497 CIT VS M/S EAST COAST CONSTRUCTIONS AND INDIA LTD. THEREFORE, THE REVENUE IS IN APPEAL. I.T.A.NOS.791, 792, 793 & 916/14 :- 4 -: 6. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CAS E FILE. UNDISPUTED FACTUAL POSITION IS THAT AN IDENTICAL AD DITION OF SECURITY DEPOSIT RETENTION MONEY PAYABLE MADE BY THE ASSESSI NG OFFICER IN ASSESSMENT YEARS 2003-04 AND 2005-06 STANDS DELETED UPTO THE 'TRIBUNAL'. THE REVENUE IS FAIR ENOUGH NOT TO DRAW ANY DISTINCTION ON FACTS. IN ITS GROUND OF APPEAL, IT ARGUES THAT ITS SLP NO.9463 OF 2006 IN HON'BLE SUPREME COURT IN CASE OF EAST COAST CONS TRUCTIONS AND INDIA LTD. IS PENDING AS ADMITTED. IN OUR CONSIDERED OPIN ION, THAT ITSELF DOES NOT FORM A VALID GROUND SO AS NOT TO FOLLOW THE DEC ISION OF HON'BLE JURISDICTIONAL HIGH COURT AS WELL AS INTRA-PARTY OR DER OF THE 'TRIBUNAL' ON THE VERY ISSUE. THEREFORE, WE UPHOLD THE CIT(A)S ORDER AND DISMISS THE REVENUES GROUNDS. I.T.A.NO. 791/MDS/2014 IS DISMISSED. 7. SAME ORDER TO FOLLOW IN I.T.A.NOS.792 AND 793/MDS/2 014. 8. NOW, WE COME TO THE ASSESSEES APPEAL I.T.A.NO. 916/MDS/2014 FOR ASSESSMENT YEAR 2010-11. 9. IN THE COURSE OF SCRUTINY, THE ASSESSING OFFICER TOOK NOTICE OF ASSESSEES INVESTMENT PORTFOLIO AS ON 31.3.2000 AT AN AGGREGATE VALUE OF ` 9,62,023/-. HE WAS OF THE VIEW THAT THE ASSESSEE WOULD HAVE NECESSARILY INCURRED SOME ADMINISTRATIVE/MANAG ERIAL EXPENDITURE I.T.A.NOS.791, 792, 793 & 916/14 :- 5 -: TO MONITOR THE AFORESAID INVESTMENTS. SO, THE ASSE SSING OFFICER INVOKED SECTION 14A READ WITH RULE 8D AND COMPUTED DISALLOWANCE OF ` 1,22,135/- U/S RULE 8D(2)(II) AND ` 5,698/- UNDER RULE 8D(2)(III) TOTALLING TO ` 1,27,833/-. 10. IN ASSESSEES APPEAL, THE CIT(A) HAS UPHELD THE IM PUGNED DISALLOWANCE. THEREFORE, THE ASSESSEE HAS FILED THE PRESENT APP EAL. 11. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CAT ENA OF JUDICIAL DECISIONS QUOTED BY THE ASSESSEE AS WELL AS REVENUE. PER ASSESSEE, SINCE THERE IS NO EXEMPT INCOME IN THE RELEVANT PREVIOUS YEAR, THE AUTHORITIES BELOW COULD NOT HAVE MADE DIS ALLOWANCE U/S 14A R.W.R 8D IN VIEW OF CASE LAW CIT VS DELITE ENTERPR ISES BOMBAY HIGH COURT NO.110/2009 DATED 26.2.2009, CORRTECH ENERGY PVT. LTD NO.239 OF 2014 GUJARAT HIGH COURT, DATED 24.3.2013 AND C IT VS SHIVAM MOTORS (P) LTD. I.T.A.NO. 88 OF 2014 - ALLAHABAD HI GH COURT DATED 5.5.2014. ON THE OTHER HAND, THE REVENUE STRONGLY ARGUES THAT THE ISSUE OF WHETHER OR NOT A DISALLOWANCE U/S 14A CAN BE INVOKED IN THE ABSENCE OF ANY EXEMPT INCOME HAS TO BE DECIDED IN ITS FAVOUR ON THE BASIS OF ITAT SPECIAL BENCH DECISION IN CASE OF C HEMINVEST LTD. VS ITO, 121 ITD 318(DELHI). PROCEEDING ON THIS ISSUE, WE FIND THAT VARIOUS HON'BLE HIGH COURTS AFORESAID IN VERY CLEA R TERMS HAVE HELD I.T.A.NOS.791, 792, 793 & 916/14 :- 6 -: THAT THIS DISALLOWANCE U/S 14A COMES INTO PLAY ONL Y WHEN THERE IS EXEMPT INCOME IN THE RELEVANT PREVIOUS YEAR. THA T BEING THE CASE, THE SPECIAL BENCHS DECISION QUOTED BY THE REVENUE (SUPRA) IS DEEMED TO HAVE BEEN OVERRULED. THEREFORE, WE AGREE WITH T HE ARGUMENTS OF THE ASSESSEE AND DELETE THE IMPUGNED DISALLOWANCE BY OBSERVING THAT AS THERE IS NO EXEMPT INCOME IN PREVIOUS YEAR REL EVANT TO THE IMPUGNED ASSESSMENT YEAR, DISALLOWANCE U/S SECTION 14A COULD NOT HAVE BEEN MADE BY THE LOWER AUTHORITIES. ASSESSEES APPEAL I.T.A.NO. 916/MDS/2014 IS ALLOW ED. 12. TO SUM UP, REVENUES APPEALS I.T.A.NOS.791 TO 793/ MDS/2014 ARE DISMISSED WHEREAS ASSESSEES APPEAL I .T.A.NO. 916/MDS/2014 IS ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 20 TH OF JUNE, 2014, AT CHENNAI. SD/- SD/- ( . ) (A. MOHAN ALANKAMONY) / ACCOUNTANT MEMBER ( . . ) (S. S. GODARA) ! / JUDICIAL MEMBER / CHENNAI / DATED: 20 TH JUNE, 2014 RD ! ' #$ %$ / COPY TO: 1 . &' / APPELLANT 4. ( / CIT 2. ')&' / RESPONDENT 5. $*+ ' , / DR 3. ( () / CIT(A) 6. +/ 0 / GF