Chettinad Holdings Pvt Ltd., CHENNAI V. DCIT Central Circle 3(2), CHENNAI

ITA 884/CHNY/2019

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 2168 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-06-2019
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2015-2016
• Appeal Filed On: 01-04-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: LALMALSAWMA PACHUAU
• Keywords: Depreciation; Opportunity of being heard; Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , , [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ] ./I.T.A. NO.884/CHNY/2019 ! / ASSESSMENT YEAR : 2015-2016. M/S. CHETTINAD HOLDINGS PVT. LTD, NO.603, 5 TH FLOOR, RANI SEETHAI HALL, ANNA SALAI, CHENNAI 600 006. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE 3(2) CHENNAI. [PAN AAECC 6624R] ( / APPELLANT) ( /RESPONDENT) '# $ % / APPELLANT BY : SHRI. R. VIJAYARAGHAVAN, ADV &' '# $ % /RESPONDENT BY : SHRI. LALMALSAWMA PACHUAU, IRS, JCIT. ( ) $ * /DATE OF HEARING : 17-06-2019 +,! $ * /DATE OF PRONOUNCEMENT : 25-06-2019 / 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 (APPEALS)-1 9, CHENNAI (CIT(A) FOR SHORT) DATED 19.02.2019 FOR THE ASSES SMENT YEAR (AY) 2015-16. ITA NO. 884/CHNY/2019. :- 2 -: 2. THE ASSESSEE RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX (A PPEALS) IS CONTRARY TO LAW, FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 2. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N CONFIRMING THE DISALLOWANCE U/S.14A OF RS.1,24,89,204/-. 3. THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED I N ENHANCING THE DISALLOWANCE FROM RS.82,83,790/- MADE BY THE AS SESSING OFFICER WITHOUT GIVING PROPER NOTICE TO THE APPELLA NT FOR ENHANCING THE DISALLOWANCES. 4. THE COMMISSIONER OF INCOME TAX (APPEALS) OUGHT T O HAVE APPRECIATED THAT THE ASSESSING OFFICER HAS NOT RECO RDED HIS SATISFACTION WITH COGENT REASONS FOR REJECTING THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED FOR THE P URPOSE OF EARNING EXEMPT INCOME. 5 THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DISALLOWING A SUM OF RS.1,24,89,204/- OUT OF THE ADMINISTRATIVE EXPENDITURE UNDER RULE BD(2)(III), WHEN THE ASSESSEE HAD NOT IN CURRED ANY EXPENDITURE FOR EARNING THE DIVIDEND INCOME. 6 THE COMMISSIONER OF INCOME TAX (APPEAL) OUGHT TO HAVE APPRECIATED THAT ALL THE EXPENSES INCURRED BY THE A SSESSEE HAS NO RELATION TO THE EARNING OF THE DIVIDEND AND HENC E NO PART OF THE EXPENDITURE CAN BE DISALLOWED UNDER RULE 8D. 7 THE COMMISSIONER OF INCOME TAX (APPEAL) OUGHT TO HAVE APPRECIATED THAT THE APPELLANT HAD RECEIVED DIVIDEN D ONLY FROM ONE COMPANY WHICH WAS AUTOMATICALLY CREDITED TO THE ACCOUNT OF THE ASSESSEE AND HENCE NO EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR EARNING INCOME AND HENCE NO DISALLOWAN CE U/S.14A IS CALLED FOR. 8 THE APPELLANT CRAVES LEAVE TO FILE ADDITIONAL GRO UNDS AT THE TIME OF HEARING. 3. THE BRIEF FACTS OF THE CASE ARE AS UNDER: THE APPELLANT NAMELY M/S. CHETTINAD HOLDINGS PVT. L TD IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE CO MPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF INVESTMENT S. THE RETURN OF ITA NO. 884/CHNY/2019. :- 3 -: INCOME FOR THE ASSESSMENT YEAR 2015-16 WAS FILED O N 31.10.2015 DISCLOSING TOTAL INCOME OF RS. 6,52,51,170/-. AGAIN ST THE SAID RETURN OF INCOME, THE ASSESSMENT WAS COMPLETED BY THE ASSISTA NT COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE- 3(2), CHENNAI (HERE INAFTER CALLED AO) VIDE ORDER DATED 12.12.2017 PASSED U/S. 143(3) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AT TOTAL INCOME OF R S. 7,35,34,960/-. WHILE DOING SO, THE AO MADE DISALLOWANCE OF F82,83 ,790/- INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. DURING T HE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE APPELLANT COMPANY RECEIVED DIVIDEND INCOME OF F1,28 ,02,925/- DURING THE PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR UNDER CONSIDERATION. ASSESSEE MADE A FRESH INVESTMENTS OF F53,31,91,068 /- AND THE TOTAL INVESTMENTS AS ON 31.3.2015 IS F276,44,36,260/- AS AGAINST INVESTMENTS MADE OF F223,12,45,192/- AS ON 31.03.20 14. THEREFORE THE ASSESSING OFFICER HAD INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT REJECTING THE CONTENTION OF THE ASSESSEE THAT INVESTMENTS WERE MADE ONLY IN SUBSIDIARY COMPANIES AND THE SAME WERE STRATEGIC INVESTMENTS AND THE PROVISIONS OF SECTION 14A OF TH E ACT ARE NOT APPLICABLE. ACCORDINGLY, THE ASSESSING OFFICER CO MPUTED THE DISALLOWANCE UNDER SUB RULE (2) OF RULE 8D OF F2, 31,20,089/-, HOWEVER RESTRICTED THE DISALLOWANCE TO THE EXTENT O F ACTUAL EXPENDITURE BEFORE DEPRECIATION OF F82,83,790/-. ITA NO. 884/CHNY/2019. :- 4 -: 4. BEING AGGRIEVED, AN APPEAL WAS PREFERRED BY THE ASS ESSEE- COMPANY BEFORE THE LD.CIT(A) WHO VIDE IMPUGNED ORDE R REJECTED THE CONTENTION THAT PROVISIONS OF SECTION 14A OF THE AC T HAVE NO APPLICATION IN CASE OF STRATEGIC INVESTMENTS, PLACING RELIANCE ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD VS. CIT (2018) 91 TAXMANN.COM 154 . THUS UPHELD THE APPLICABILITY OF PROVISIONS OF SECTION 14A OF THE ACT AND WORKED OUT THE DISALLOWANCE AS PER RULE 8D OF 1,24,89,204/-. THE LD. CIT(A) ALSO CONSIDERED THE FACT THAT AMENDMENT TO PROVISIONS OF RULE 8D OF THE RULES ARE APPLICABLE ONLY FROM THE ASSESSMENT YEAR 2016-2017 AND NOT FOR THE ASSESSMENT YEAR 2015-2016. 5. BEING AGGRIEVED BY THE ABOVE DECISION OF THE CIT( A), THE APPELLANT IS IN APPEAL BEFORE US CHALLENGING THE CORRECTNESS OF THE ORDER OF THE CIT(A). IT IS SUBMITTED BY THE LD. COU NSEL SHRI. R. VIJAYARAGHAVAN THAT WHEN NO EXPENDITURE WAS INCURR ED FOR EARNING DIVIDEND INCOME, THE PROVISIONS OF SECTION 14A OF THE ACT CANNOT BE INVOKED. HE FURTHER SUBMITTED THAT THE LD. CIT(A) OUGHT NOT TO HAVE ENHANCED THE DISALLOWANCE U/S.14A OF THE ACT FROM F 82,83,790/- TO F1,24,89,204/- WITHOUT GIVING AN OPPORTUNITY OF BEI NG HEARD AND THE ASSESSING OFFICER OUGHT NOT TO HAVE MADE RESORT TO PROVISIONS OF SECTION 14A OF THE ACT WITHOUT RECORDING THE SATISFACTION WITH COGENT ITA NO. 884/CHNY/2019. :- 5 -: REASONS AS TO WHY THE CLAIM OF THE ASSESSEE COMPANY THAT NO EXPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME IS INCORRECT. 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. THE ONLY ISSUE INVOLVED IN THE PRESENT APP EAL IS WITH REGARD TO THE COMPUTATION OF AMOUNT OF DISALLOWANCE U/S.14 A OF THE ACT. THE REASONING OF THE LD. CIT(A) IS THAT THE PROVISIONS OF SECTION 14A OF THE ACT ARE APPLICABLE EVEN IN THE CASE OF STRATEGIC IN VESTMENTS IS SUPPORTED BY THE VIEW EXPRESSED BY THE HON'BLE SUPR EME COURT IN THE CASE OF MAXOPP INVESTMENT LTD (SUPRA) AND THEREFORE WE UPHOLD THE APPLICABILITY OF THE PROVISIONS OF SECTION 14A OF T HE ACT EVEN IN THE CASE OF STRATEGIC INVESTMENTS. AS REGARD TO THE CO NTENTION OF THE ASSESSEE THAT THE ASSESSING OFFICER HAD NOT RECORDE D SATISFACTION WITH REGARD TO CORRECTNESS OF THE CLAIM OF THE ASSESSEE COMPANY THAT NO EXPENDITURE WAS INCURRED TO EARN EXEMPT INCOME CANN OT BE ACCEPTED. THE ASSESSING OFFICER VIDE PARA 5 OF THE ASSESSMENT ORDER MADE A CATEGORICAL FINDING THAT CLAIM OF THE ASSESSEE CAN NOT BE ACCEPTED IN VIEW OF THE FACT THAT MANAGERIAL/CLERICAL EXPENSES AND OFFICE EXPENDITURE ARE INCURRED IN EARNING EXEMPT INCOME. FURTHER, IT IS A MATTER OF RECORD THAT ASSESSEES MAIN BUSINESS IS ONLY INVESTMENTS WHICH MEANS ALL THE EXPENDITURE ARE INCURRED IN CON NECTION WITH ITA NO. 884/CHNY/2019. :- 6 -: EARNING OF EXEMPT INCOME. THEREFORE THE GROUNDS OF APPEAL CHALLENGING THAT THERE IS NO FINDINGS OF THE ASSESS ING OFFICER ON THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT NO E XPENDITURE WAS INCURRED FOR EARNING EXEMPT INCOME STANDS DISMISSED . AS REGARDS TO THE GROUND THAT THE LD. CIT(A) HAS ENHANCED THE AM OUNT OF DISALLOWANCE FROM 82,83,790/- TO F1,24,89,204/- WIT HOUT GIVING AN OPPORTUNITY OF BEING HEARD IS ALSO NOT TENABLE FOR A REASON THAT THE LD. CIT(A) HAD COMPUTED THE AMOUNT OF DISALLOWANCE APPL YING CLAUSE (III) OF RULE 8D(2) AS IT STOOD PRIOR TO ITS AMENDMENT W .E.F. 02.06.2016. MOREOVER THE LD. CIT(A) HAD COMPUTED THE DISALLOWAN CE APPLYING UNAMENDED PROVISIONS OF RULE 8D, WHEREAS THE ASSESS ING OFFICER COMPUTED THE DISALLOWANCE U/S.14A OF THE ACT UNDER AMENDED PROVISION OF RULE WHICH IS APPLICABLE FROM ASSESSM ENT YEAR 2016-2017. THUS, THE AMOUNT OF DISALLOWANCE WAS ENHANCED ONL Y ON ACCOUNT OF APPLICATION OF CORRECT PROVISIONS OF RULES WHICH C ANNOT BE SAID TO BE NEW ITEM OF ADDITION. THUS THE ISSUE HAD UNDERGONE THE PROCESS OF ASSESSMENT BY THE ASSESSING OFFICER. FURTHERMORE, THE LD. CIT(A) HAD AGREED IN PRINCIPLE THAT THE AMOUNT OF DISALLOWANCE CANNOT EXCEED EXEMPT INCOME AND ACTUAL EXPENDITURE. IT IS NEEDLE SS TO MENTION THAT THE TERM EXPENDITURE, INCLUDES DEPRECIATION ALSO , IN AS MUCH AS, THE DEPRECIATION IS ALSO AN ITEM OF EXPENDITURE MORE PARTICULAR WHEN THE SOLE BUSINESS OF THE ASSESSEE IS ONLY INVESTMENT. THE ENTIRE ITA NO. 884/CHNY/2019. :- 7 -: EXPENDITURE INCURRED IS SAID TO HAVE INCURRED ONLY FOR THE PURPOSE OF EARNING EXEMPT INCOME AND THEREFORE THE ORDER OF TH E LD. CIT(A) IS BASED ON THE SOUND PRINCIPLES OF LAW AND PLAIN PROV ISIONS OF RULE 8D AND THEREFORE WE DO NOT SEE ANY REASON TO INTERFERE WITH THE ORDERS OF THE LOWER AUTHORITIES. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS D ISMISSED. ORDER PRONOUNCED ON 25TH DAY OF JUNE, 2019, A T CHENNAI. SD/- SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ) (INTURI RAMA RAO) /ACCOUNTANT MEMBER / ) / CHENNAI 0 / DATED:25TH JUNE, 2019 K V $ &*12 32!* / COPY TO: 1 . '# / APPELLANT 3. ( 4* () / CIT(A) 5. 27 &*8 / DR 2. &' '# / RESPONDENT 4. ( 4* / CIT 6. 9 :) / GF