TVS Logistics Services Limited, Madurai V. DCIT Corporate Circle 2, Madurai

ITA 840/CHNY/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 9210 (ITAT-CHENNAI)
• Duration Of Justice: 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-01-2020
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 28-03-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: A SUNDARARAJAN
• Keywords: Depreciation; Transfer pricing; Earning of tax free income; Revenue expenditure; Rule 8D
• Section: 143(3); 14A; 37(1); 37

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI , , BEFORE SHRI GEORGE MATHAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ./I.T.A. NO.840/CHNY/2019 ! ' / ASSESSMENT YEAR : 2012-2013. M/S. TVS LOGISTICS SERVICES LIMITED, 7B, WEST VELI STREET, TVS BUILDING, MADURAI 625 001. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2, MADURAI 625 002. [PAN AACCT 1412E] ( / APPELLANT) ( /RESPONDENT) # $ % / APPELLANT BY : SHRI. M. VISWANATHAN, C.A. &' # $ % /RESPONDENT BY : SHRI. A. SUNDARARAJAN, ADDL CIT. ( ) $ * /DATE OF HEARING : 01-01-2020 +,'! $ * /DATE OF PRONOUNCEMENT : 03-01-2020 / O R D E R PER INTURI RAMA RAO , ACCOUNTANT MEMBER: THIS IS AN APPEAL FILED BY THE ASSESSEE DIRECTED AG AINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S)-1, MADURAI ITA NO.840/CHNY/2019 :- 2 -: (CIT(A) FOR SHORT) DATED 22.02.2019 FOR THE ASSE SSMENT YEAR (AY) 2012-2013. 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL : THE ORDER OF THE HONBLE COMMISSIONER OF INCOME T AX (APPEAL ) IS AGAINST FACTS AND CIRCUMSTANCES OF THE CASE. BOTH T HE CIT (A) AND THE ASSESSING OFFICER HAS FAILED IN APPRECIATE THE VARIOUS SUBMISSIONS MADE IN THE CURRENT PERSPECTIVE. 1. DISALLOWANCE UNDER SECTION 14A R.W.RULE 8D- RS.1 ,31,78,623/-: THE CIT, APPEALS IS NOT JUSTIFIED IN HOLDING A SUM OF 1,31,78,623/- UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 AS INTEREST EXPENSE INCU RRED TO EARN THE EXEMPT DIVIDEND INCOME OF RS.35,99,996/- WITHOU T GIVING ANY FINDING ABOUT THE NON CORRECTNESS OF THE ACCOUNTS O F THE ASSESSEE WHICH IS A SINE QUANON FOR INVOKING NA RULE 8D. VAR IOUS COURTS HAVE HELD THAT SUCH ADHOC DISALLOWANCE SHOULD NOT B E RESORTED TO. THE CIT. APPEALS SHOULD HAVE APPRECIATED THAT A SUM OF 1,31,78,623/- BEING INTEREST EXPENSE IS WHOLLY AND EXCLUSIVELY INCURRED FOR BUSINESS PURPOSES. THIS CAN BE EVIDENC ED FROM INCREASE IN THE WORKING CAPITAL LOAN TO THE TUNE OF RS.44, 03, 06,775/- DURING THE YEAR. THEREFORE NO PORTION OF T HE INTEREST COULD BE DISALLOWED U/S.14A OF THE ACT. FURTHER THE APPELLANT SUBMITS THAT THE DISALLOWANCE CANNOT EXCEED THE EXEMPT INCOME EARNED WHICH AMOUNTS TO RS.35,99, 996/-. EVEN ASSUMING HUT NOT ADMITTING, THE FOLLOWING POIN TS ARE PLACED FOR CONSIDERATION. A) YOUR APPELLANT HAD INCURRED RS.14,91,95,031/ AS INTEREST EXPENDITURE AND BANK CHARGES. THE ASSESSING OFFICER HAS CONSIDERED THE ENTIRE AMOUNT FOR THE PURPOSE OF RUL E 8D CALCULATION, WITHOUT CONSIDERING TWO AMOUNTS OF RS. 1,29,25,405/- & RS.27,686/- ALREADY DISALLOWED BY YOUR APPELLANT WH ILE COMPUTING THE INCOME. B) AN AMOUNT OF RS.7,98,27,124/- HAS BEEN INCURRED TOWARDS INTEREST ON LONG TERM LOANS. A SUM OF RS.1,35,60,02 4/- & RS.3,03,722/- HAS BEEN INCURRED TOWARDS BANK CHARG ES & INTEREST ON DELAYED PAYMENT OF SERVICE TAX, RESPECTIVELY. TH E ABOVE EXPENDITURE WHICH IS NOT RELEVANT FOR MAKING THE IN VESTMENTS ITA NO.840/CHNY/2019 :- 3 -: SHOULD NOT HAVE BEEN TAKEN INTO CONSIDERATION FOR D ISALLOWANCE UNDER THIS SECTION . C) YOUR APPELLANT FURTHER SUBMITS THAT THOSE INVEST MENT WHICH HERE NOT RESULTED IN YIELDING EXEMPT DIVIDEND INCOME SHO ULD NOT HAVE BEEN TAKEN INTO CONSIDERATION FOR THE PURPOSE OF AR RIVING AT THE AVERAGE VALUE OF THE INVESTMENTS. RELIANCE IS PLACE D ON THE DECISION OF ITAT MUMBAI IN THE CASE OF ACIT VS AF-T AAB INVESTMENT COMPANY LIMITED. D) INTEREST ON AMOUNT BORROWED FOR ACQUIRING VEHICL ES HAS BEEN ADDED WHILE COMPUTING THE INCOME, AS THE EMI WHICH IS ELIGIBLE FOR DEDUCTION HAS BEEN CLAIMED AS DEDUCTION. THIS SHOUL D NOT HAVE BEEN CONSIDERED. E) INTEREST ON LONG TERM LOAN WHICH CANNOT BE USED AND HAS NOT BEEN USED FOR INVESTMENTS SHOULD NOT HAVE BEEN CONS IDERED. F) SECTION 1.4A OF THE INCOME TAX ACT SPECIFIES NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY TH E ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THE SPIRIT OF THE SECTION IS VERY C LEAR THAT ONLY THOSE INVESTMENT WHICH YIELD DIVIDEND INCOME SHOULD BE CONSIDERED FOR THE PURPOSE OF RULE 8D. THE SAID FACTS ARE ALREADY BEEN PRODUCED BEFORE CIT . HOWEVER THE SAME HAS BEEN IGNORED WHILE PASSING THE ORDER. IN T HESE CIRCUMSTANCES, INTEREST FOR THE PURPOSE OF RULE 8D IS RS.4,25,51,069/- ONLY AS AGAINST RS.16,10,37,637/- CONSIDERED BY THE ASSESSING OFFICER. 2. DISALLOWANCE OF INTANGIBLE ASSETS GOODWILL CLA IMED AS REVENUE EXPENDITURE U/S. 37(1) RS.4,75,00,000/- TREATED AS CAPITAL AND DEPRECIATION GRANTED @ 25% AMOUNTING TO RS.1,18,75,000/- AND NET AMOUNT DISALLOWED RS.3,56, 25,000/- THE CIT APPEAL IS ROT JUSTIFIED IN LIGHTLY BRUSHING ASIDE THE CLAIM OF THE APPELLANT A SUM OF RS.4, 75,00,000 BEING GOODWI LL AS REVENUE FOR THE FOLLOWING REASONS: A) THE EXPENDITURE INCURRED DOES NOT HAVE ENDURING VALUE, B) THE PAYMENT IS PURELY TO PROCURE CUSTOMER CONTRA CTS ITA NO.840/CHNY/2019 :- 4 -: C) THE EXPENDITURE HAS BEEN LAID OUT WHOLLY AND EX CLUSIVELY FOR BUSINESS PURPOSES AND HENCE FALLS UNDER THE PURVIEW OF SECTION 37 OF THE INCOME TAX ACT, 1961 D) THE OBJECTIVE IS TO GENERATE ADDITIONAL REVENUE AND INCREASE THE CAPACITY UTILIZATION AND HENCE THE PAYMENT IS REVEN UE IN NATURE. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE APPELLANT NAMELY M/S. TVS LOGISTICS SERVICES L IMITED, IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE CO MPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF PROVIDING LOGISTICS SERVICES. THE RETURN OF INCOME FOR THE AY 2012-13 WAS FILED O N 29.09.2012 DISCLOSING NIL INCOME. AGAINST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE DY. CIT, CORPORATE CIRCLE-2, MADURAI (HEREINAFTER CALLED AO) VIDE ORDER DATED 24.03.20 16 PASSED U/S. 143(3) R/W S. 92CA OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AT TOTAL INCOME OF E4,89,71,673/- AFTER MAKING ADDITIO N OF E6,22,024/- ON ACCOUNT OF ARMS LENGTH PRICE ADJUSTMENT, E1,31,7 8,623/- U/S.14A OF THE ACT AND EXPENDITURE INCURRED ON INTANGIBLE A SSETS WHICH HAD BEEN CLAIMED AS REVENUE EXPENDITURE OF E4,75,00,0 00/-. 4. BEING AGGRIEVED BY THE ABOVE ADDITIONS, AN APPEAL W AS PREFERRED BEFORE LD. CIT(A), WHO VIDE IMPUGNED ORDE R CONFIRMED THE ADDITION MADE U/S.14A OF THE ACT AND DISALLOWED THE CLAIM OF ITA NO.840/CHNY/2019 :- 5 -: ALLOWANCE OF EXPENDITURE INCURRED ON INTANGIBLE ASS ETS AS REVENUE EXPENDITURE. 5. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), TH E APPELLANT IS IN APPEAL BEFORE US IN THE PRESENT APPEAL. IT I S CONTENDED BEFORE US THAT PROVISIONS OF SECTION 14A OF THE ACT CANNOT BE INVOKED HAVING REGARD TO THE FACT THAT NO SPECIFIC EXPENDITURE WA S INCURRED TO EARN INTEREST INCOME. HE FURTHER, SUBMITTED THAT THE AM OUNT OF DISALLOWANCE CANNOT EXCEED THE EXEMPT INCOME AND W ITHOUT PREJUDICE TO THE ABOVE, IT IS ARGUED THAT FOR THE PURPOSE OF COMPUTING AVERAGE VALUE OF INVESTMENTS UNDER RULE 8D ONLY INVESTMENTS WHICH YIELDED EXEMPT INCOME ALONE AS TO BE CONSIDERED. AS REGARD S TO THE DISALLOWANCE OF CLAIM FOR COST OF INTANGIBLE ASSET S, IT IS SUBMITTED THAT THOUGH IN THE BOOKS OF ACCOUNTS EXPENDITURE IS CAPI TALIZED, THE SAME IS REVENUE IN NATURE AS IT DOES NOT CREATE ASSET OF ENDURING NATURE. 6. ON THE OTHER HAND, THE LD. SR. DEPARTMENTAL REPRESE NTATIVE PLACED RELIANCE ON THE ORDERS OF LOWER AUTHORITIES. 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. GROUND NO.1 CHALLENGES THE DECISION OF LD. CIT(A) CONFIRMING THE ADDITION MADE U/S.14A OF THE ACT. THE ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE IS THAT THE AMOUNT OF DISA LLOWANCE SHOULD BE ITA NO.840/CHNY/2019 :- 6 -: RESTRICTED TO EXEMPT INCOME AND ONLY INVESTMENTS W HICH YIELDED EXEMPT INCOME ALONE HAD TO BE CONSIDERED FOR THE PU RPOSE OF CALCULATING AVERAGE VALUE OF INVESTMENTS WERE NOT ADVANCED BEFORE LOWER AUTHORITIES. THERE IS NO MATERIAL ON RECORD INDICATING THE AMOUNT OF EXEMPT INCOME AND ALSO VALUE OF INVESTM ENTS WHICH YIELDED TAXABLE INCOME. IN THE LIGHT OF THESE FACT S, WE DO NOT FIND ANY REASONS TO ENTERTAIN THESE NEW PLEAS AND TO INTER FERE WITH THE ORDER OF THE LD.CIT(A). ACCORDINGLY, WE DISMISS GROUND O F APPEAL NO.1 RAISED BY THE ASSESSEE. 8. GROUND NO.2 RELATES TO DISALLOWANCE OF COST OF INTA NGIBLE ASSETS. THE ASSESSING OFFICER TREATED THIS COST OF INTANGIBLE ASSETS AS CAPITAL BY HOLDING THAT ON ACCOUNT OF ACQUISITION OF COMMERCIAL RIGHTS, RESULTING IN ACQUISITION IN TANGIBLE ASSETS DEFINE D UNDER SECTION 32(1) (II), AS PER THE DEFINITION IN SECTION 32(1) (II) KNOW-HOW, PATENTS, COPYRIGHTS, TRADEMARKS, LICENCES, FRANCHISES OR ANY OTHER BUSINESS OR COMMERCIAL RIGHTS OF SIMILAR NATURE, BEING INTANGIB LE ASSETS ACQUIRED ON OR AFTER THE 1 ST DAY OF APRIL, 1998. ACCORDINGLY, TREATED AS INTANG IBLE ASSETS AND ALLOWED DEPRECIATION @25% APPLICABLE TO INTANGIBLE RATES. NO MATERIAL IS PLACED BEFORE US CONTROVERTING THE F INDINGS OF THE LD. CIT(A). IN THE CIRCUMSTANCES, WE DISMISS THE GROUN D OF APPEAL NO.2 RAISED BY THE ASSESSEE. ITA NO.840/CHNY/2019 :- 7 -: 9. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STA NDS DISMISSED. ORDER PRONOUNCED ON 3RD DAY OF JANUARY, 2020, A T CHENNAI. SD/- SD/- ( ) (GEORGE MATHAN) /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER -) / CHENNAI . / DATED:3RD JANUARY, 2020. KV /0 $0& *12032'* / COPY TO: 0 1 . # / APPELLANT 3. 0 ( 4*056 / CIT(A) 5. 278 0& * 9 / DR 2. &' # / RESPONDENT 4. 0 ( 4* / CIT 6. 8:0;) / GF