Shriram Retail Holdings Pvt Ltd., CHENNAI V. Addl CIT, CHENNAI

ITA 981/CHNY/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77215 (ITAT-CHENNAI)
• Duration Of Justice: 10 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-04-2014
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 11-03-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 14-05-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: R SIVARAMAN
• Keywords: Commercial expediency; Revised return; Revenue expenditure
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , ! ' , # $ BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ITA NO. ASSESS- MENT YEAR / APPELLANT / RESPONDENT 981/MDS/2013 2009-10 M/S.SHRIRAM RETAIL HOLDINGS PVT.LTD. 4, LADY DESIKA ROAD, MYLAPORE, CHENNAI-600 004. PAN: AAJCS7325N ADDITIONAL COMMISSIONER OF INCOME TAX, COMPANY RANGE-VI, 121, M.G.ROAD, CHENNAI-600034 1477/MDS/2013 2009-10 DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-VI(2), NEW BLOCK,7 TH FLOOR AAYAKAR BHAVAN, CHENNAI-600034 M/S.SHRIRAM RETAIL HOLDINGS PVT.LTD. 4, LADY DESIKA ROAD, MYLAPORE, CHENNAI-600 004. PAN: AAJCS7325N ASSESSEE BY : MR. R.SIVARAMAN, ADVOCATE REVENUE BY : MR. SHAJI P.JACOB, ADDL. CIT / DATE OF HEARING : 11 TH MARCH, 2014 /DATE OF PRONOUNCEMENT : 10 TH APRIL, 2014 % / O R D E R PER CHALLA NAGENDRA PRASAD, JM: BOTH THESE APPEALS ARE FILED BY THE ASSESSEE AND REVENUE AGAINST THE ORDER PASSED BY THE COMMISSIONE R OF INCOME TAX (APPEALS)-V, CHENNAI DATED 28.03.2013 FO R THE ASSESSMENT YEAR 2009-10. THE ASSESSEE FILED APPEAL CHALLENGING THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN CONFIRMING THE DISALLOWANCE UNDER SECT ION 14A ITA NO.981 & 1477/MDS/2013 2 READ WITH RULE 8D(III) OF THE ACT AND THE REVENUE FILED APPEAL AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) IN DELETING DISALLOWANCE MADE UNDER SECT ION 14A READ WITH RULE 8D(I) OF THE ACT. 2. THE ASSESSING OFFICER WHILE COMPLETING THE ASSES SMENT DISALLOWED ` 5,48,31,629 AND ` 53,35,450/- UNDER CLAUSE 8D(I) AS DIRECT EXPENDITURE AND ` 1,12,26,067/- UNDER CLAUSE 8D(III) BEING 0.5% OF AVERAGE INVESTMENTS AS THE EXPENDITURE INCURRED FOR EARNING DIVIDEND INCOME W HICH IS EXEMPT FROM TAX APPLYING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE ACT. ON APPEAL, COMMISSIONER O F INCOME TAX (APPEALS) DELETED THE DISALLOWANCE INSOFAR AS D IRECT EXPENDITURE THAT WAS DISALLOWED UNDER RULE 8D(I) BU T SUSTAINED THE DISALLOWANCE IN RESPECT OF DISALLOWAN CE OF 0.5% OF AVERAGE INVESTMENTS UNDER CLAUSE 8D(III), AGAIN ST WHICH BOTH ASSESSEE AND REVENUE ARE IN APPEAL BEFORE US. 3. AT THE TIME OF HEARING, COUNSEL FOR THE ASSESSEE SUBMITS THAT COMMISSIONER OF INCOME TAX (APPEALS) HAS ELABO RATELY ITA NO.981 & 1477/MDS/2013 3 CONSIDERED THE ISSUE IN APPEAL AND BY FOLLOWING THE DECISION OF THE TRIBUNAL IN ASSESSEES GROUP CASES DELETED T HE DISALLOWANCE MADE INSOFAR AS UNDER RULE 8D(I) IS CO NCERNED. WITH RESPECT TO CLAUSE 8D(III), HE PLACES RELIANCE ON THE DECISION OF THE TRIBUNAL IN THE CASE OF M/S.SRIRAM CAPITAL PVT.LTD., IN ITA NO.638 & 639/MDS/2012 DATED 4.2.20 13. 4. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDER O F THE ASSESSING OFFICER IN MAKING DISALLOWANCE. 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND DECISION OF THIS TRIBUNAL RELIED ON. THE COMMIS SIONER OF INCOME TAX (APPEALS) CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND DECISION OF THIS TRIBUNAL IN THE CASE OF M/S. SRIRAM CAPITAL LTD. (SUPRA) DELETED THE DISALLOWA NCE IN RESPECT OF DIRECT EXPENDITURE WHICH WAS DISALLOWED UNDER CLAUSE 8D(I) OBSERVING AS UNDER:- 5 . 2 I HAVE CAREFULLY CONSIDERED THE APPELLANT ' S SUBMISSIONS AND I HAVE PERUSED THE DECISION OF THE INCOME TAX APPELLATE TRIBUNAL, CHENNAI IN THE CASE OF SHR I RAM CAPITAL LIMITED IN I . T.A NOS. 638, ITA NO.981 & 1477/MDS/2013 4 639 & 640/ MDS / 2012 DATED 04.02.2013 FOR ASSESSMENT YEARS 2005-06,2007-08 & 2008 - 09. THE ASSESSING OFFICER HAS DISALLOWED RS.6,03 , 70 , 041/- (RS.6,03,75,041/- RS . 5,000) U/S 14A READ WITH RULE 8D. AKIN TO THE CLAIM OF ITS SISTER CONCERN IN I . T.A NO.638/MDS/2012 (SUPRA), THE PRESENT APPELLANT ALSO CLAIMS TO BE IN BUSINESS OF INVESTMENT PROMOTION AND THAT IN THE COURSE OF CARRYING ON SAID BUSINESS, THE APPELLANT HAS INVESTED IN SHARES OF SHRIRAM TRANSPORT FINANCE COMPANY LIMITED AND SHR I RAM OVERSEAS FINANCE LIMITED. S I MILAR TO THE CLAIM IN I . T.A NO . 638/MDS/2012, IT HAS BEEN CLAIMED THAT THE I NTENTION OF INVESTMENT IN SHARES IS NOT TO EARN DIVIDEND BUT IT IS AS AN ENTREPRENEUR FOR OBTAINING CONTROLLING INTEREST. THE ' APPELLANT'S CLAIM IS THAT IT IS NOT A PASSIVE INVESTOR AND HAS NOT DEPLOYED ITS FUNDS MERELY TO INVEST AND EARN DIVIDEND INCOME. IT IS CLAIMED THAT BY INVESTING IN SHRIRAM TRANSPORT FINANCE COMPANY LIMITED AND SHRIRAM OVERSEAS FINANCE LIMITED, THE APPELLANT HAS STRENGTHENED THE C AP I TAL AND LIQUIDITY BASE OF THESE COMPANIES . THE STRENGTHENING OF CAPITAL BASE AND LIQUIDITY OF ASSOCIATE CONCERNS, IT IS CLAIMED, WILL DEFINITELY ENHANCE THE TURNOVER AND THE PROFIT OF GROUP CONCERNS . THE APPELLANT HAS CLAIMED TO BE ACT I NG AS CATALYST TO BOOST THE PERFORMANCE OF OPERATING COMPANIES NAMELY SHR I RAM TRANSPORT FINANCE COMPANY LIMITED AND SHRIRAM OVERSEAS FINANCE LIM I TED . T HE APPELLANT SUBMITTED THAT THE MOBILIZING OF INVESTMENTS FROM FOREIGN FUNDS AND INVESTING THE SAME IN SHRIRAM TRANSPORT FINANCE COMPANY L I M I TED AND SHRIRAM OVERSEAS FINANCE LIMITED, GROUP CONCERNS SHOULD BE CONSIDERED AS AN ADVENTURE IN THE NATURE OF TRADE AND THE INVESTMENT WERE MADE FOR COMMERCIAL EXPEDIENCY. NONE OF THESE CLAIMS ARE DISPUTED BY THE AO IN THE ASSESSMENT. ITA NO.981 & 1477/MDS/2013 5 SINCE THE FACTS OF THE APPELLANT'S CASE ARE SIMILAR TO THE FACTS OF THE CASE OF IT S GROUP CONCERN SHRIRAM CAPITAL LIMITED IN I . T.A NO.638/MDS/2012 (SUPRA) , IN THE LIGHT OF THE HON'BLE CHENNAI ITAT'S DECISION, AS DISCUSSED ABO V E, I HOLD THAT OUT OF THE TOTAL DISALLOWANCE, D I SALLOWANCE OF RS. 5 , 48,31 , 629/ - THAT PERTAINS TO THE BANK GUARANTEE COMMISSION IS ALLOWABLE REVENUE EXPENDITURE AND ACCORDINGLY DELETE THE DISALLOWANCE OF RS. 5,48,31,629/- . SIMILARLY DISALLOWANCE ON ACCOUNT OF FILING FEES OF RS . 53 , 35 , 450/- IS ALSO DELETED FOLLOWING THE DECISION OF THE JURISDICTIONAL ITAT IN I TA NO . 638/MDS/2012 (SUPRA) AS THE SAID EXPENDITURE IS INCIDENTAL TO THE BUSINESS OF INVESTMENT PROMOTION . 6. ON A READING OF THE IMPUGNED ORDER AND THE OBSERVATIONS THEREON, WE FIND THAT COMMISSIONER O F INCOME TAX (APPEALS) APPLYING THE DECISION OF THE CO-ORDIN ATE BENCH OF THIS TRIBUNAL IN THE CASE OF SRIRAM CAPITAL LTD. (SUPRA), BEING A COMPANY OF THE ASSESSEES GROUP AND SINCE THE FACTS ARE IDENTICAL DELETED THE DISALLOWANCE MADE UNDER C LAUSE 8D(I) OF THE ACT AND THEREFORE WE DO NOT FIND ANY I NFIRMITY IN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S). 7. INSOFAR AS DISALLOWANCE SUSTAINED BY THE COMMISS IONER OF INCOME TAX (APPEALS) UNDER CLAUSE 8D(III) IS CON CERNED, HE OBSERVED AS UNDER:- ITA NO.981 & 1477/MDS/2013 6 A PLAIN READING OF SECTION 14A READ WITH RULE 8D CLARIFIES THE LEGISLATIVE INTENT THAT EXPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. NO EXPENDITURE , WHETHER DIRECT OR INDIRECT, WHICH IS NOT ATTRIBUTABLE OR RELATABLE TO EARNING OF TAXABLE INCOME CAN BE ALLOWED. IN A PARTICULAR Y EAR THERE MAY NOT BE AN INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME BUT STILL DISALLOWANCE UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D AS THE SOURCE FOR GENERATING INCOME IS ALREADY CREATED WHICH REQUIRES TO BE DEVELOPED AND NURTURED. THEREFORE THOUGH SAID SOURCE MAY NOT YIELD INCOME IN A PARTICULAR YEAR BUT THE SOURCE REMAINS , MAINTAINED AND NURTURED. FURTHER , THE JURISDICTIONAL BENCH OF THE ITAT , CHENNAI IN THE CASE OF SOUTHERN PETRO CHEMICAL INDUSTRIES VS. DCIT (93 TTJ 161) HAS ALSO APPROVED DISALLOWANCE OF PROPORTIONATE MANAGEMENT EXPENSES WHILE COMPUTING THE DIVIDEND INCOME BY OBSERVING , WHETHER TO INVEST OR NOT TO INVEST AND WHETHER TO RETAIN THE INVESTMENTS TO LIQUIDATE THE SAME ARE VERY STRATEGIC DECISIONS WHICH THE MANAGEMENT IS CALLED UPON TO TAKE . THESE ARE MIND-BOGGLING DECISIONS AND TOP MANAGEMENT IS INVOLVED IN TAKING THESE DECISIONS. THIS DECISION- MAKING PROCESS IS VERY COMPLICATED AND REQUIRES VERY CAREFUL ANALYSIS . MOREOVER, THE ASSESSEE HAD TO KEEP TRACK OF VARIOUS DIVIDEND INCOMES DECLARED BY THE INVESTEE COMPANIES AND ALSO TO KEEP TRACK OF THE DIVIDEND INCOME HAVING BEEN REGULARLY RECEIVED BY THE ASSESSEE. THAT ACTIVITY ITSELF CALLED FOR CONSIDERABLE MANAGEMENT ATTENTION AND COULD NOT BE LEFT TO A JUNIOR CLERK. ' IN VIEW OF THE FACTS OF THE CASE THAT THERE ARE CONSIDERABLE INVESTMENTS OF RS.449,04,26,654/- MADE DURING THE YEAR AND THE DIVIDEND EARNED OF RS . 2 , 17,66 , 800/- , I AM OF THE CONSIDERED VIEW THAT ITA NO.981 & 1477/MDS/2013 7 THE AO HAS CORRECTLY APPLIED THE P R OVISIONS OF RULE 8D(III) AND DISALLOWED RS . 1,12,26,067/-, WHICH THE APPELLANT ITSELF HAD DISALLOWED IN THE ORIGINAL RET URN OF INCOME, AS MANDATED B Y THE ACT AS AGAINST A MEAGER ESTIMATED DISALLOWANCE OF RS . 5,000/ - MADE BY THE APPELLANT IN THE REVISED RETURN AND THA T HAS NO BASIS . THESE GROUNDS OF APPEAL , THEREFORE, ARE PARTLY ALLOWED. 8. WE FIND THAT WHILE CONSIDERING THIS ISSUE, THE C O- ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF SRIR AM CAPITAL LTD. (SUPRA) HELD AS UNDER:- 6. NEXT, WE WILL CONSIDER APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMENT YEAR 2008-09 IN ITA NO.640/MDS/2012. 6.1 THE FIRST ISSUE IS REGARDING THE DISALLOWANCE OF ` 19,66,375/- BEING INTEREST PAYMENT ON LOANS UTILIZED FOR ACQUIRING SHARES OF THE ASSESSEES SUBSIDIARY, SHRIRAM INDUSTRIAL HOLDINGS LTD. THIS ISSUE STANDS CONSIDERED BY US FOR EARLIER ASSESSMENT YEARS AND IN THE LIGHT OF THOSE DECISIONS, WE FIND THAT THE DISALLOWANCE OF THE ABOVE AMOUNT IS NOT JUSTIFIED. IT IS ACCORDINGY DELETED. 6.2 THE NEXT ISSUE RAISED BY THE ASSESSEE IS REGARDING THE DISALLOWANCE OF ` 50,000/- WHICH RELATES TO GENERAL AND ADMINISTRATIVE EXPENSES PERTAINING TO DIVIDEND INCOME AND INVESTMENTS IN THE PAST YEAR. FOR THE REASON STATED IN OUR ORDER FOR THE ASSESSMENT YEAR 2005-06 IN ITA NO.638/MDS/2012, WE UPHOLD THE ABOVE DISALLOWANCE AND IT IS CONFIRMED. ITA NO.981 & 1477/MDS/2013 8 9. RESPECTFULLY FOLLOWING THE ABOVE ORDER OF THE CO - ORDINATE BENCH OF THIS TRIBUNAL, WE UPHOLD THE DI SALLOWANCE MADE UNDER CLAUSE 8D(III) OF THE ACT BY SUSTAININ G THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS). 10. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AND THAT OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THURSDAY, T HE 10 TH DAY OF APRIL, 2014 AT CHENNAI. SD/- SD/- ( A.MOHAN ALANKAMONY ) ( CHALLA NAGEN DRA PRASAD ) . ( !'#$ % ) ACCOUNTANT MEMBER / ' %& JUDICIAL MEMBER/ # ' %& '# /CHENNAI, (% /DATED, 10 TH APRIL, 2014 SOMU )%'* '+, -', /COPY TO: 1 ASSESSEE 2. ASSESSING OFFICE R 3. ) ) . () /CIT(A) 4. ) ) . /CIT 5. ,1! ''23 /DR 6. !45 6 /GF.