ACIT CIRCLE 1, SALEM V. M/S TAMILNADU STATE TRANSPORT CORPORATION (SLEM) LTD, SALEM

ITA 814/CHNY/2018

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 6349 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 07-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SRINIRANJANI
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI , #$ % , ( SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER ./ ITA NOS. 813 & 814/CHNY/2018 / ASSESSMENT YEARS : 2008-09 & 2012-13 THE ASSISTANT THE COMMISSIONER OF INCOME TAX, CIRCLE-1, SALEM. V. M/S.TAMIL NADU STATE TRANSPORT CORPORATION (SALEM) LTD., 12,RAMAKRISHNA ROAD, SALEM 636 007. PAN : AAACT 7678 J (-/ APPELLANT) (./-/ RESPONDENT) - 0 / APPELLANT BY: MR.SRIDHAR DORA,JCIT,D.R ./- 0 / RESPONDENT BY : MS.S.SRINIRANJANI,ADVOCATE 0 / DATE OF HEARING : 04.07.2019 0 / DATE OF PRONOUNCEMENT : 05.07.2019 / O R D E R PER VIKRAM SINGH YADAV, ACCOUNTANT MEMBER : THESE TWO APPEALS FILED BY THE REVENUE ARE AGAIN ST THE RESPECTIVE ORDERS OF CIT(A), SALEM, FOR ASSESSMENT YEARS 2008-09 & 2012-13. 2. FIRSTLY WE WILL TAKE THE REVENUES APPEAL IN ITA NO.813/CHNY/2018. 2 I.T.A. NOS.813 & 814/CHNY/2018 2.1 IN GROUNDS NO.1, 3 & 4, THE REVENUE HAS CHALLE NGED THE ACTION OF THE LD.CIT(A) IN ALLOWING THE CONTRIBUTION TO PE NSION FUND TRUST AMOUNTING TO RS.9,97,52,210/-. 2.2 IN THIS REGARD, LD.AR SUBMITTED THAT THE MATTER HAS BEEN DECIDED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESS EES OWN CASE FOR ASSESSMENT YEAR 2009-10 IN ITA NO.1464/MDS/2014 DAT ED 22.08.2014 WHEREIN THE RELEVANT FINDING IS CONTAINED AT PARAS 6 & 7 OF THE ORDER OF TRIBUNAL WHICH IS REPRODUCED AS UNDER:- 6. WE HAVE HEARD THE SUBMISSIONS MADE BY THE REPR ESENTATIVES OF BOTH THE SIDES AND HAVE PERUSED THE ORDERS OF THE A UTHORITIES BELOW. WE HAVE ALSO EXAMINED THE DECISIONS ON WHICH THE RE SPECTIVE SIDES HAVE PLACED RELIANCE AND THE DOCUMENTS PLACED ON RE CORD BY THE LD.COUNSEL FOR THE ASSESSEE IN THE FORM OF PAPER BO OK. THE FIRST ISSUE RAISED IN APPEAL IS WITH REGARD TO CONTRIBUTIONS MA DE BY THE ASSESSEE TOWARDS PENSION FUND TRUST. THE ASSESSEE HAS CONTRI BUTED A SUM OF `15.60 CRORES (APPROXIMATELY) TOWARDS TAMIL NADU ST ATE TRANSPORT 8 ITA NO. 1464/MDS/2014 CORPORATION EMPLOYEES PENSION FUND TRUST, CHENNAI. THE CIT IS OF THE OPINION THAT SINCE THE T RUST IS NOT APPROVED BY THE JURISDICTIONAL COMMISSIONER OR CHIEF COMMISS IONER, THE CONTRIBUTIONS MADE BY THE ASSESSEE ARE NOT TOWARDS APPROVED PENSION FUND. A BARE READING OF SECTION 36(1)(IV) MAKES IS AMPLY CLEAR THAT THE SUM SHOULD BE CONTRIBUTED BY THE EMPLOYER TOWARDS A RECOGNIZED PROVIDENT FUND OR APPROVED SUPERANNUATION FUNDS SUB JECT TO SUCH LIMITS AS MAY BE PRESCRIBED FOR RECOGNIZING PROVIDENT FUND OR APPROVING THE SUPERANNUATION FUND. THE SECTION DOES NOT LAY DOWN ANY SPECIFIC CONDITION THAT THE FUND SHOULD BE APPROVED BY THE J URISDICTIONAL COMMISSIONER OR CHIEF COMMISSIONER ONLY. 3 I.T.A. NOS.813 & 814/CHNY/2018 IN THE PRESENT CASE, THE ASSESSEE IS CONTRIBUTING IN THE PENSION FUND SCHEME JOINTLY FLOATED BY TWELVE STATE TRANSPORT CO RPORATIONS OPERATING IN DIFFERENT DISTRICTS OF THE STATE OF TAMIL NADU. ALL THE STATE TRANSPORT CORPORATIONS ARE SIGNATORIES TO THE TRUST DEED FOR SETTING UP OF JOINT STATE TRANSPORT EMPLOYEES PENSION FUND SCHEME. IT I S NOT IN DISPUTE THAT THE SAID FUND HAS BEEN RECOGNIZED BY THE CIT-V II, CHENNAI. ONCE THE ASSESSEE IS CONTRIBUTING TOWARDS RECOGNIZED FUN D, THE ASSESSEE IS ENTITLED TO GET THE BENEFIT FOR THE CONTRIBUTIONS M ADE TO THE SAID FUND. 7. THE CASE OF THE ASSESSEE IS SUPPORTED BY THE D ECISION OF THE CO- ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF STANM ORE (ANAMALLAY) ESTATES LTD., VS. ITO (SUPRA). IN THE SAID CASE, TH E ASSESSEE-COMPANY ALONG WITH OTHER FOUR SISTER COMPANIES CREATED A JO INT GRATUITY FUND FOR THE EXCLUSIVE BENEFIT OF ITS EMPLOYEES UNDER ON IRR EVOCABLE TRUST. THE CIT IN PROCEEDINGS U/S.263 RAISED SIMILAR OBJECTION THAT THE ASSESSEE IS NOT CONTRIBUTING TOWARDS FUND APPROVED BY THE JURIS DICTIONAL COMMISSIONER. THE CO-ORDINATE BENCH OF THE TRIBUNAL HELD THAT CONTRIBUTIONS TO APPROVED GRATUITY FUND BEING A COM MON FUND SET BY THE ASSESSEE-COMPANY ALONG WITH SISTER COMPANIES CANNOT BE DIS-ALLOWED ON THE GROUND THAT IT WAS NOT EXCLUSIVE FUND FOR TH E ASSESSEES EMPLOYEES. THE REVENUE HAS PLACED RELIANCE ON THE D ECISION RENDERED BY THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. KATTABOMMAN TRANSPORT CORPORATION LTD., (SUPRA) AND CIT VS. MIC A TRADING CORPORATION OF INDIA (SUPRA). WE FIND THAT IN BOTH THE ABOVE SAID CASES, THE FACTS ARE ENTIRELY DIFFERENT FROM THE CASE IN H AND. THEREFORE, THE RATIO LAID DOWN BY THE HON'BLE HIGH COURTS IN AFORESAID C ASES CANNOT BE APPLIED IN THE PRESENT CASE. ACCORDINGLY, THIS GROU ND OF APPEAL OF THE ASSESSEE IS ALLOWED. 3. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. RESPECTFULLY FOLLOWING THE DEC ISION OF THE CO-ORDINATE 4 I.T.A. NOS.813 & 814/CHNY/2018 BENCH OF THIS TRIBUNAL, THE ISSUE IS DECIDED IN FAV OUR OF THE ASSESSEE AND AGAINST THE REVENUE, AND THE GROUNDS SO TAKEN ARE D ISMISSED. 4. IN RESPECT OF GROUND NOS.1 & 5 OF THE REVENUES APPEAL, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN ALLOWING THE DAMAGES FOR REMITTANCE TO PENSION FUND TRUST AMOUNT ING TO RS.52,37,425/-. 4.1 AT THE OUTSET, LD.AR SUBMITTED THAT THE MATTED HAS BEEN DECIDED BY THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESS EES OWN CASE FOR ASSESSMENT YEAR 2003-04 IN ITA NO.482/MDS/2018 DATE D 27.11.2018 WHEREIN THE RELEVANT PORTIONS ARE CONTAINED AT PARA S 6 & 7 OF THE ORDER OF TRIBUNAL WHICH IS REPRODUCED AS UNDER:- 6. PER CONTRA, THE LD. AR SUBMITTED A COPY OF OR DER GIVING EFFECT TO CIT(A) ORDER PASSED BY THE ACIT, CIRCLE -1, SALEM FOR ASSESSMENT YEAR 2011-12 DATED 15.11.2017, WHEREIN, THE AO HELD AS UNDER: 3. ACCORDINGLY, THE CASE WAS POSTED FOR HEARING AN D THE ASSESSEE WAS ASKED CC FURNISH NECESSARY DOCUMENTS AND EVIDENCES IN SUPPORT OF THEIR CLAIM. IN RESPONS E, THE ASSESSEE APPEARED AND REPRESENTED THAT THE DAMAGES PAID FOR REMITTANCE TO PENSION FUND TRUST IS NOTHIN G BUT INTEREST @ 9.5% ON THE DELAYED PAY PENT MONTHLY CONTRIBUTION AND THE PAYMENTS WERE COMPENSATORY IN NATURE AND NOT A PENALTY IN SUPPORT, THE ASSESSEE COMPANY HAD FURNISHED GOVERNMENTS ORDER, DETAILS O F INTEREST PAID AND DETAILED EXPLANATION IN THIS REGA RD. CONSIDERING THE REPLY FURNISHED, THE ASSESSEES CLA IM OF DAMAGES FOR REMITTANCE IF PENSION FUND TRUST FOR RS 2,35,91,384/ IS ALLOWED. 5 I.T.A. NOS.813 & 814/CHNY/2018 FURNISHING A COPY OF INTEREST RATE DECLARED BY PENS ION FUND ACCUMULATION SINCE 1952 TO 2014, THE AR SUBMITTED T HAT SINCE THE AO HAS ALREADY DECIDED THE NATURE OF THIS PAYMENT IE., THE DAMAGES PAID BY IT IN ASSESSMENT YEAR 2011-12, IS C OMPENSATORY IN NATURE, THIS APPEAL MAY BE ALLOWED. 7. WE HEARD THE RIVAL SUBMISSIONS AND FIND MERIT IN THE SUBMISSIONS MADE BY THE LD. AR, SUPRA, AND HENCE, DO NOT FIND A NY MERIT IN THE SUBMISSION OF THE REVENUE. THE APPEAL GROUNDS OF T HE REVENUE ARE DISMISSED. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. RESPECTFULLY FOLLOWIN G THE DECISION OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL, THE ISSUE I S DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE, AND THE GR OUNDS SO TAKEN ARE DISMISSED. 6. IN RESPECT OF GROUND NO.6 OF THE REVENUES APPE AL, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN ALLOWING THE CLAIM OF ASSESSEE TOWARDS CHAIRMANS OFFICE EXPENS ES AMOUNTING TO RS.7,81,274/-. IN THIS REGARD, OUR REFERENCE WAS DRAWN TO THE FINDINGS OF THE LD.CIT(A) AT PARA-5 OF LD.CIT(A)S ORDER WHICH READ AS UNDER:- 5. DISALLOWANCE OF CHAIRMANS OFFICE EXPENSES 6 I.T.A. NOS.813 & 814/CHNY/2018 THE ASSESSING OFFICER FOUND THAT ASSESSEE COMPANY H AS BOOKED AN EXPENDITURE OF RS.7,81,274/- UNDER THE HE AD ON ACCOUNT CHAIRMANS OFFICE EXPENSES. IN RESPONSE TO SPECIFIC QUERY ON THE NATURE OF THIS EXPENDITURE AND THE COM MERCIAL EXPEDIENCY WITH REFERENCE TO THE BUSINESS OPERATION OF THE COMPANY, THE APPELLANT FAILED SUBSTANTIATE THE NECE SSITY OF THE EXPENDITURE TO QUALIFY FOR THE DEDUCTION U/S.37 OF THE I.T.ACT,1961. HENCE, THE ASSESSING OFFICER DISALLO WED THIS EXPENDITURE CLAIMED OF RS.7,81,274/- TO THE INCOME OF APPELLANT. BEFORE ME, THE APPELLANT SUBMITTED THAT THE SECRETARY TO THE TRANSPORT DEPARTMENT IS THE CHAIRM AN TO ALL THE STATE TRANSPORT CORPORATION IN TAMIL NADU AND T HE OFFICE IS FUNCTIONING AT THE SECRETARIAT, CHENNAI WITH A S EPARATE CHAIRMANS OFFICE COMPRISING OF FIVE OFFICERS ON DE PUTATION FROM VARIOUS TRANSPORT CORPORATIONS. THE FUNCTION O F THIS OFFICE IS TO CO=ORDINATE THE DETAILS REQUIRED BY THE GOVER NMENT AND OTHER GOVT. DEPARTMENTS THEN AND THERE. SINCE THIS IS AN EXCLUSIVE NODAL AND ADMINISTRATIVE OFFICE FOR ALL T HE TRANSPORT CORPORATIONS THE ADMINISTRATIVE EXPENSES ARE SHARED EQUALLY BY ALL THE STATE TRANSPORT CORPORATIONS, WHICH IS B EING ACCOUNTED IN OU BOOKS OF ACCOUNTS AS CHAIRMANS CE LL EXPENSES. IT WAS NEITHER PERSONAL EXPENSES NOR CA PITAL EXPENDITURE ENDURING BENEFIT TO THE COMPANY. THE AP PELLANT PRODUCED THE BREAK-UP OF EXPENSES INCURRED IN THE C HAIRMAN CELL, PROOF FOR THE PAYMENT AND OTHER RELEVANT PART ICULARS IN SUPPORT OF ITS CLAIM. I HAVE PERUSED THE SUBMISSIO NS OF THE APPELLANT AND SATISFIED THAT THE ABOVE EXPENSES WER E INCURRED FOR THE OFFICIAL PURPOSES AND IT IS ALLOWABLE. HENC E, I ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 6.1 IT WAS SUBMITTED BY LD. D.R THAT DURING THE COURSE OF APPELLATE PROCEEDINGS, THE ASSESSEE HAS SUBMITTED THEIR EVIDE NCES BEFORE THE 7 I.T.A. NOS.813 & 814/CHNY/2018 LD.CIT(A) AND THE LD.CIT(A) HAS DECIDED THE MATTER WITHOUT CALLING FOR THE REMAND REPORT FROM THE LD.ASSESSING OFFICER. THE LD .AR HAS NOT DENIED THE SAID FACTUAL POSITION. WE ACCORDINGLY SET ASIDE THE MATTER TO THE FILE OF LD.CIT(A) TO SEEK THE REMAND REPORT FROM THE LD.ASS ESSING OFFICER AND DECIDE THE MATTER AFRESH AS PER LAW. THIS GROUND RE LATING TO THE EXPENSES INCURRED FOR CHAIRMANS OFFICE EXPENSES IS ALLOWED FOR STATISTICAL PURPOSES. 6.2 IN THE APPEAL OF REVENUE IN ITA NO.813/CHNY/20 18 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 7. NEXT WE TAKE THE REVENUES APPEAL IN ITA NO.814/ CHNY/2018. 8. WE FIND THAT IN GROUND NOS.1 & 2, THE REVENUE H AS RAISED SIMILAR GROUNDS RELATING TO DAMAGES FOR REMITTANCE TO PENSI ON FUND TRUST AMOUNTING TO RS.1,38,37,508/-. BOTH THE PARTIES FAI RLY SUBMITTED THAT THE FACTS AND CIRCUMSTANCES OF THE CASE ARE EXACTLY IDE NTICAL AS IN ITA NO.813/CHNY/2018 FOR ASSESSMENT YEAR 2008-09. THERE FORE, OUR FINDINGS AND DIRECTIONS CONTAINED IN ITA NO.813/CHNY/2018 IN PARA NOS.4 & 5 OF THIS ORDER SHALL APPLY TO GROUND NOS.1 & 2 RAISED I N REVENUES APPEAL IN ITA NO.814/CHNY/2018 FOR ASSESSMENT YEAR 2012-13. H ENCE, THE GROUNDS SO TAKEN FOR REMITTANCE TO PENSION FUND TRU ST BY THE REVENUE ARE DISMISSED. 8 I.T.A. NOS.813 & 814/CHNY/2018 9. IN RESPECT OF GROUND NO.3 & 4 OF THE REVENUES APPEAL, THE REVENUE HAS CHALLENGED THE ACTION OF THE LD.CIT(A) IN RESTRICTING THE DISALLOWANCE U/S.14A READ WITH RULE 8D INCOME TAX R ULES,1962 TO THE EXTENT OF EXEMPT INCOME AMOUNTING TO RS.6,63,236/-. IN THIS REGARD WE REFER TO THE FINDINGS OF THE LD.CIT(A), WHO FOLLOWI NG THE DECISION OF THE HONBLE MADRAS HIGH COURT IN TCA NO.520 OF 2016 IN THE CASE OF M/S.REDINGTON (INDIA) LTD., VS.THE ADDL. C.I.T,CHEN NAI, HAS PARTLY ALLOWED, THE MATTER IS IN FAVOUR OF THE ASSESSEE AN D RELEVANT FINDINGS LD.CIT(A)S AT PARA -10 OF HIS ORDER, WHICH READS AS UNDER:- 10. IN VIEW OF THE ABOVE, RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE MADRAS HIGH COURT, CITED(SUPRA), AND THE DI SALLOWANCE U/S.14A SHOULD BE RESTRICTED TO THE AMOUNT OF EXEMP T INCOME. ON PERUSAL OF THE ASSESSMENT ORDER I FIND THAT THE APP ELLANT HAS STATED THAT SUM OF RS.6,63,236/- HAD BEEN SANCTIONED DURIN G THE YEAR AS DIVIDEND @ 2.43% OF THE ABOVE INVESTMENT. THEREFORE , THE DISALLOWANCE MAY BE RESTRICTED TO RS.6,63,236/-. HO WEVER, IF AN HIGHER AMOUNT IS CLAIMED AS EXEMPT INCOME IN THE RE TURN OF INCOME, THE AMOUNT MAY BE REVISED UPWARDS ACCORDINGLY. HENC E, THE GROUNDS OF APPEALS ARE PARTLY ALLOWED. 10. DURING THE COURSE OF HEARING, LD.AR SUBMITTED THAT THE MATTER IS SQUARELY COVERED BY THE DECISION OF HONBLE DELHI H IGH COURT IN THE CASE OF JOINT INVESTMENTS PVT LTD., VS.C.I.T IN 372 ITR 694(DELHI) WHEREIN IT WAS HELD AS UNDER:- 9. IN THE PRESENT CASE, THE AO HAS NOT FIRSTLY DIS CLOSED WHY THE APPELLANT/ASSESSEES CLAIM FOR ATTRIBUTING RS.2,97, 440/- AS A DISALLOWANCE UNDER SECTION 14A HAD TO BE REJECTED. TAIKISHA SAYS THAT 9 I.T.A. NOS.813 & 814/CHNY/2018 THE JURISDICTION TO PROCEED FURTHER AND DETERMINE A MOUNTS IS DERIVED AFTER EXAMINATION OF THE ACCOUNTS AND REJECTION IF ANY OF THE ASSESSEES CLAIM OR EXPLANATION. THE SECOND ASPECT IS THERE APPEARS TO HAVE BEEN NO SCRUTINY OF THE ACCOUNTS BY THE AO - AN ASPECT WHICH IS COMPLETELY UNNOTICED BY THE CIT (A) AND THE ITAT . THE THIRD, AND IN THE OPINION OF THIS COURT, IMPORTANT ANOMALY WHICH WE CANNOT BE UNMINDFUL IS THAT WHEREAS THE ENTIRE TAX EXEMPT INC OME IS RS.8,90,000 /- , THE DISALLOWANCE ULTIMATELY DIRECTED WORKS OUT TO NEARLY 110% OF THAT SUM, I.E., RS.52,56,197/-. BY NO STRET CH OF IMAGINATION CAN SECTION 14A OR RULE 8D BE INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME IS TO BE DISALLOWED. THE W INDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A, AND IS ON LY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE I N RELATION TO THE TAX EXEMPT INCOME. THIS PROPORTION OR PORTION OF THE T AX EXEMPT INCOME SURELY CANNOT SWALLOW THE ENTIRE AMOUNT AS HAS HAPP ENED IN THIS CASE. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE MATERIAL AVAILABLE ON RECORD. RESPECTFULLY FOLLOWING THE DEC ISION OF THE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT LTD.,(SU PRA), WE HEREBY CONFIRM THE FINDINGS OF THE LD.CIT(A) AT PARA-10 OF HIS ORDER. THE GROUND NOS. 3 & 4 SO TAKEN BY THE REVENUE ARE DISMISSED. H ENCE, THE APPEAL IN ITA NO.814/CHNY/2018 FILED BY THE REVENUE IS DISMIS SED. 10 I.T.A. NOS.813 & 814/CHNY/2018 12. IN THE RESULT, THE APPEAL IN ITA NO.813/CHNY/2 018 FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL IN ITA NO.814/CHNY/2018 FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 05/07/2019 AT CHENNAI. SD/- SD/- ( ) ( ) (GEORGE MATHAN) (VIKRAM SINGH YADAV) /JUDICIAL MEMBER / ACCOUNTANT MEMBER /CHENNAI, 6 /DATED, THE 05 TH JULY, 2019. KS SUNDARAM 0 .%# 8# /COPY TO: 1. -/ APPELLANT 2. ./- / RESPONDENT 3. 9 () /CIT(A) 4. 9 /CIT 5. # . /DR 6. /GF.