ACIT, Coimbatore V. The Peria Karamalai Tea and Produce Co. Ltd., Coimbatore

ITA 888/CHNY/2013

• Counselvise Citation: 88821714 RSA 2013
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-10-2013
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 07-10-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 06-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: T N BETGIRI JT
• Assessee Lawyers: K RAGHU
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI S. S. GODARA, JUDICIAL MEMBER] I.T.A.NO.888/MDS/2013 ASSESSMENT YEAR : 2006-07 THE ASSTT. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE I(1) COIMBATORE VS M/S THE PERIA KARAMALAI TEA AND PRODUCE CO. LTD PANCHRATN 286, RACE COURSE ROAD COIMBATORE - 18 [PAN AAACT 7928 H] (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T.N.BETGIRI, JT.CIT RESPONDENT BY : SHRI K. RAGHU, CA DATE OF HEARING : 07-10-2013 DATE OF PRONOUNCEMENT : 07-10-2013 O R D E R PER S.S.GODARA, JUDICIAL MEMBER THIS APPEAL FILED BY THE REVENUE FOR ASSESSMENT Y EAR 2006- 07 IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONE R OF INCOME TAX (APPEALS)-I COIMBATORE DATED 4.2.2013, PASSED IN A PPEAL NO.355/11- 12, IN PROCEEDINGS UNDER SECTION 143(3) OF THE ACT (IN SHORT THE ACT). 2. IN THE COURSE OF HEARING, THE REVENUE REITERATE THE PLEADINGS AND STRONGLY ARGUES THAT THE CIT(A) HAS WRONGLY DEL ETED THE I.T.A.NO.888/13 :- 2 -: DISALLOWANCE/ADDITION U/S 14A OF THE ACT AMOUNTING TO ` 78,251/-. IT IS THE CASE OF THE REVENUE THAT SINCE THE ASSESSEE HAD DISCLOSED A DIVIDEND INCOME OF ` 15,65,025/-, THE ASSESSING OFFICER WAS JUSTIFIED I N MAKING ESTIMATED DISALLOWANCE @ 5%. ACCORDINGLY, I T PRAYS FOR ACCEPTANCE OF THE APPEAL. 3. IN REPLY, THE ASSESSEE SUPPORTS THE CIT(A)S ORDE R UNDER CHALLENGE AND SUBMITS AND SINCE THE ASSESSING OFFIC ER HAD HIMSELF HELD THAT NO DIRECT EXPENDITURE HAD BEEN INCURRED IN EAR NING THE EXEMPT INCOME, THE DISALLOWANCE/ADDITION IN QUESTION HAS B EEN RIGHTLY DELETED IN LOWER APPELLATE PROCEEDINGS. 4. THE ASSESSEE IS A COMPANY. IT IS A MANUFACTURER O F TEA, GROWS CARDAMOM AND PEPPER. THE ASSESSING OFFICER H AD FINALIZED REGULAR ASSESSMENT IN ASSESSEES CASE ON 17.12.2 008 COMPUTING TOTAL INCOME AS ` 81,20,073/-. THE COMMISSIONER OF INCOME-TAX (HERE AFTER CIT), COIMBATORE, EXERCISING JURISDICTION U/S 263 SET ASIDE THE ASSESSMENT VIDE ORDER DATED 25.3.2011 FOR THE REASO N THAT THOUGH THE ASSESSEE HAD EARNED EXEMPT INCOME OF ` 15,65,025/- U/S 10(34) OF THE ACT IN THE SHAPE OF DIVIDENDS, THE ASSESSING OF FICER DID NOT MAKE ANY DISALLOWANCE U/S 14A OF THE ACT. IN VIEW THER EOF, HE DIRECTED THE I.T.A.NO.888/13 :- 3 -: ASSESSING OFFICER TO PASS A FRESH ORDER IN VIEW OF SECTION 14A OF THE ACT. 5. IN CONSEQUENTIAL PROCEEDINGS BEFORE THE ASSESSING O FFICER, THE ASSESSEE CLAIMED NOT TO HAVE INCURRED ANY DIRE CT EXPENDITURE AS PER ITS BOOKS OF ACCOUNT IN EARNING THE DIVIDEND IN COME. THE ASSESSING OFFICER PASSED CONSEQUENTIAL ASSESSMENT O RDER DATED 30.12.2011 HOLDING THAT THOUGH NO SPECIFIC EXPENSE S WERE BOOKED IN ASSESSEES PROFIT & LOSS ACCOUNT FOR EARNING EXEMPT INCOME, THERE WOULD BE ALWAYS INVISIBLE AND INDIRECT EXPENSES WHI CH MIGHT NOT BE ATTRIBUTABLE IN EARNING THE SAID INCOME. THEREAFTE R, HE MADE ESTIMATED DISALLOWANCE @ 5% OF THE DIVIDEND INCOME COMING TO ` 78,251/-. 6. IN ASSESSEES APPEAL, THE CIT(A) HAS HELD THAT ON CE THE ASSESSING OFFICER HIMSELF HAD CAME TO CONCLUSION T HAT NO SPECIFIC EXPENSES HAD BEEN BOOKED IN THE PROFIT & LOSS ACCOU NT, THE DISALLOWANCE IN QUESTION @ 5% COULD NOT HAVE BEEN M ADE. IN THIS MANNER, THE ASSESSEES CONTENTION STANDS ACCEPTED. THEREFORE, THE REVENUE IS IN APPEAL. I.T.A.NO.888/13 :- 4 -: 7. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CAS E FILE. THE QUESTION SOUGHT TO BE RAISED BY THE PARTIES AS TO WHETHER OR NOT IN CASE WHEN THERE ARE NO EXPENSES FORTHCOMING FROM THE ASSESSEES BOOKS OF ACCOUNT IN EARNING AN EXEMPT INCOME, SE CTION 14A WOULD APPLY OR NOT. PROCEEDING ON THIS ISSUE, WE FIND THA T THE ASSESSEES DIVIDEND INCOME IN QUESTION COMES TO ` 15,65,025/-. UNDISPUTEDLY, SUCH AN EXTENT OF EXEMPT INCOME IS ALWAYS A RESUL T OF PROPER PLANNING WHICH CONSISTS OF DIRECT EXPENSES IN THE NATURE OF INVESTMENTS IN SHARES AS WELL AS INDIRECT EXPENSES INVOLVING PRECI OUS MANAGEMENT EXPENSES INCURRED IN BOARDS MEETINGS ETC. IN THESE CIRCUMSTANCES, WE ARE UNABLE TO ACCEPT THE ASSESSEES CONTENTION THA T JUST BECAUSE THERE ARE NO DIRECT EXPENSES ATTRIBUTED IN EARNING OF EX EMPT INCOME, NO DISALLOWANCE AT ALL COULD BE MADE. PROCEEDING ON T HIS ANALOGY, IN PRINCIPLE, WE OBSERVE THAT ONCE THE ASSESSEE EARNS CONSIDERABLE AMOUNT OF DIVIDEND BY MAKING HUGE INVESTMENTS, THE SAME MAY OR MAY NOT PROVE INCURRING OF DIRECT EXPENSES, BUT THE SAME CANNOT BE SAID ABOUT INDIRECT EXPENSES WHICH ARE ALWAYS INCUR RED AS AND WHEN SOME CORPORATE DECISION IS TAKEN TO INVEST AND MANA GE THE INVESTMENTS FOR THE PURPOSE OF EARNING OF EXEMPT INCOME. IN THESE CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE ASSESSIN G OFFICER WAS RIGHT IN DISALLOWING/ADDING THE AMOUNT IN QUESTION OF ` 78,251/- @ 5% OF I.T.A.NO.888/13 :- 5 -: THE DIVIDENDS RECEIVED BY THE ASSESSEE. SO, THE F INDINGS OF THE CIT(A) UNDER CHALLENGE ARE NOT SUSTAINABLE IN THE EYES OF LAW. ACCORDINGLY, THE DISALLOWANCE IN QUESTION MADE BY T HE ASSESSING OFFICER IS RESTORED. 8. IN THE RESULT, THE REVENUES APPEAL IS ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT AT THE TIME OF H EARING ON MONDAY, THE 07 TH OF OCTOBER, 2013, AT CHENNAI SD/- SD/- DR. O.K. NARAYANAN VICE-PRESIDENT (S. S. GODARA) JUDICIAL MEMBER DATED: 07 TH OCTOBER, 2013 RD COPY TO: APPELLANT/RESPONDENT/CIT(A)/CIT/DR