ACIT Corporate Circle 3(1), CHENNAI V. TVS Electronics Limited, CHENNAI

ITA 988/CHNY/2018

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5376 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-10-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 22-03-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 260A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , , ' BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER / .I.T.A. NO. 980/CHNY/2018 /ASSESSMENT YEAR : 2013-14 TVS ELECTRONICS LIMITED, JAYALAKSHMI ESTATE 29, (OLD NO. 8), HADDOWS ROAD, CHENNAI 600 006. [PAN: AAACI 0886K] VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(1), CHENNAI 600 034. ( /APPELLANT) ( /RESPONDENT) / .I.T.A. NO. 988/CHNY/2018 /ASSESSMENT YEAR : 2013-14 THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 3(1), CHENNAI 600 034. VS. TVS ELECTRONICS LIMITED, JAYALAKSHMI ESTATE 29, (OLD NO. 8), HADDOWS ROAD, CHENNAI 600 006. [PAN: AAACI 0886K] ( /APPELLANT) ( /RESPONDENT) ASSESSEE B Y : SHRI. R. VIJAYARAGHAVAN, ADVOCATE REVENUE BY : SHRI. AR. V. SREENIVASAN, JCIT $ /DATE OF HEARING : 23.08.2018 $ /DATE OF PRONOUNCEMENT : 26.10.2018 :- 2 -: ITA NOS.980 & 988/CHNY/2018 / O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER: THESE ARE THE APPEAL AND THE CROSS APPEAL FILED BY THE ASSESSEE AND THE REVENUE AGAINST THE ORDER OF THE COMMISSIONER O F INCOME TAX (APPEALS) 11, CHENNAI IN ITA NO. 10/CIT(A)-11/16- 17 DATED 06.12.2017 FOR ASSESSMENT YEAR 2013-14. 2. M/S. TVS ELECTRONICS LIMITED, THE ASSESSEE, IS ENGAGED IN THE MANUFACTURING AND TRADING IN COMPUTER PERIPHERALS, ELECTRONIC EQUIPMENTS AND SERVICES IN RELATION TO COMPUTER HARDWARE AND S OFTWARE. WHILE MAKING THE ASSESSMENT FOR ASSESSMENT YEAR 2013-14, THE ASS ESSING OFFICER FOUND, INTER ALIA, THAT THE ASSESSEE HAS SHOWN RS. 23,76,0 00/- AS THE CURRENT LIABILITY IN THE BALANCE SHEET UNDER THE HEAD UNE XPIRED SERVICE CONTRACTS. THE AO OBSERVED THAT THE ASSESSEE HAS BEEN OFFERING THE INCOME FROM THE ANNUAL MAINTENANCE CHARGES (AMC) ONLY TO THE EXTENT OF COMPLETED MONTHS OF THE CONTRACT DURING THE YEAR, AND POSTPON ING THE BALANCE ANNUAL MAINTENANCE CHARGES (AMC) PERTAINING TO THE UNEXPIRED PERIOD. THEREFORE, HE BROUGHT THE UNEXPIRED AMC AMOUNT OF R S. 23,76,000/- TO TAX AS THE AMOUNT HAS ALREADY BEEN RECEIVED BY THE ASSESSEE. FURTHER, THE AO FOUND THAT ITS INVESTMENT PORTFOLIO AS ON 31 .03.2013 WAS AT RS. 2,14,39,000/-. INVOKING THE PROVISIONS OF SECTION 14A R.W.R. 8D2(III), THE ASSESSING OFFICER DISALLOWED RS. 36,32,697/- AND AF TER DEDUCTING THE AMOUNT QUANTIFIED BY ASSESSEE TOWARDS THE EXPENDITU RE RELATABLE TO SUCH :- 3 -: ITA NOS.980 & 988/CHNY/2018 EXEMPT INCOME AT RS. 50,363/-, HE ADDED THE BALANCE SUM AT RS. 35,82,334/- TO THE RETURNED INCOME. 3. AGGRIEVED, THE ASSESSEE FILED AN APPEAL BEFORE T HE LD. CIT(A). ON THE ADDITION MADE TOWARDS UNEXPIRED SERVICE CHARGES , THE ASSESSEE RELIED ON THE HONBLE ITAT DECISION MADE IN ITS CASE IN AS SESSMENT YEAR 2005-06 IN ITA NO. 811/MDS/2010 DATED 25.05.2012 AND ITA NO . 1364/MDS/2015 FOR ASSESSMENT YEAR 2010-11, WHEREIN BASED ON THE E ARLIER DECISION, THIS TRIBUNAL ALLOWED THE ASSESSEES APPEAL. HOWEVER, T HE LD. CIT(A) DISTINGUISHED THIS CASE ON THE BASIS OF THE JURIS DICTIONAL HIGH COURT DECISION IN THE CASE OF CIT VS MANGALTIRTH ESTATES LTD (303 ITR 366) (MAD) AND DISMISSED THE APPEAL. WITH REGARD TO THE DISAL LOWANCE MADE U/S. 14A R.W.R 8D, THE LD. CIT(A) RELYING ON THE ITAT DECISI ON IN ITA NO. 1506/MDS/2012 DATED 17.07.2013 AND JURISDICTIONAL HIGH COURT DECISION IN THE CASES OF REDINGTON (INDIA) LTD VS ACIT (392 ITR 633) (MAD) AND CIT VS CHETTINAD LOGISTICS PVT. LTD., (248 TAXMAN 5 5) (MAD), DIRECTED THE AO TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF RS . 3,66,091/- WHICH IS TO THE EXTENT OF THE ASSESSEES DIVIDEND INCOME OF RS. 3,66,091/- (INCLUDING RS. 50,363/- ALREADY DISALLOWED BY THE ASSESSEE) AN D DELETED THE BALANCE. AGGRIEVED AGAINST THE ORDER OF THE LD. CIT(A) ON TH E FORMER ISSUE, THE ASSESSEE FILED THE APPEAL IN ITA NO. 980/CHNY/2018. AGGRIEVED AGAINST THE LATTER ISSUE, THE REVENUE FILED APPEAL IN ITA NO. 988/CHNY/2018. :- 4 -: ITA NOS.980 & 988/CHNY/2018 4. FIRST, LET US FIRST TAKE THE ASSESSEES APPEAL. THE LD. AR INVITED OUR ATTENTION TO PARA 26 OF THE JURISDICTIONAL HIGH COU RT DECISION IN THE CASE OF CIT VS MANGALTIRTH ESTATES LTD., DATED 29.11.2007 R EPORTED IN 214 CTR 0253. THE RELEVANT PORTION OF THE ORDER IS EXTRACT ED AS UNDER: 26. AS ALREADY SEEN, THE ASSESSEE IS IN THE BUSINE SS OF CONSTRUCTION AND SALE OF BUILT- UP AREAS. READ IN THE CONTEXT OF THE SALE AGREEMENT AND THE ONE WITH THE DEVELOPER, THE EXECUTION OF A SEPARATE AGREEMENT ON AIR CONDITIONING FACILITY APPEARS TO BE NOTHING BUT A D EVICE TO SUIT THE CONVENIENCE OF THE ASSESSEE. ADMITTEDLY, THE ENTIRE OFFICE-CUM-SHOPPING COMPLEX IS A CENTRALLY AIR CONDITIONED ONE. THE PUR CHASERS, WITHOUT ANY EXCEPTION, TAKE THIS FACILITY AND THERE IS NO OPTIO N TO STAY OUT OF THIS COMMON FACILITY. ALTHOUGH THE CONSTRUCTION MIGHT HA VE BEEN SPLIT INTO MORE THAN ONE CONTRACT, AS MAY BE SEEN FROM THE MOD EL AGREEMENT, WHAT HAS BEEN SPOKEN TO UNDER THE AGREEMENT IS A PART OF THE ENTIRE TRANSACTION OF SALE. READ IN THE BACKGROUND OF CL. 8 OF THE AIR CONDITIONING AGREEMENT THAT THE TRANSFER WOULD BE W ITHOUT ANY CONSIDERATION AND THE TERMS OF THE SALE AGREEMENT O N THE RIGHTS OF THE PURCHASER TO COMMON FACILITIES, IT STANDS TO REASON THAT WHAT HAS BEEN COLLECTED IN THE NAME OF CHARGES FOR THE FACILITY E XTENDED IS, IN REALITY, RECOUPING OF THE CHARGES FOR THE INSTALLATION OF TH E PLANT. AS RIGHTLY POINTED OUT BY THE AD AND CONFIRMED BY THE CIT(A) I N THE CASE OF SALE OF THE OFFICE SPACE, THE SALE CONSIDERATION RECEIVED I S INCLUSIVE OF THE PROVISION FOR AMENITIES AND ARE TREATED AS PART AND PARCEL OF THE PROPERTY DEVELOPMENT. AS SUCH, GOING BY THE CHARACTER OF THE RECEIPT AND HAVING REGARD TO THE COMPLETED CONTRACT METHOD TO ARRIVE A T THE P&L A/C, THE QUESTION OF SPREADING OVER TO FIVE YEARS IN TERMS O F THE AGREEMENT PROVIDING AIR CONDITIONING FACILITY FOR FIVE YEARS DOES NOT MERIT ANY FAVOURABLE CONSIDERATION FROM ANY ANGLE. WE DO NOT AGREE WITH THE REASONING OF THE TRIBUNAL AND THE SUBMISSION BY THE ASSESSEE. WE APPROVE THE VIEW OF THE ITO TO HOLD THAT THE SUM RE CEIVED IS A REVENUE RECEIPT AND IS RELATABLE TO THE PHASE OF THE COMPLE TED CONTRACT DURING THE PERIOD RELEVANT TO THE ASSESSMENT YEAR AND HENCE NO T ENTITLED TO THE SPREAD OVER OF THIS RECEIPT. THE RECEIPT IS PART OF THE SALE CONSIDERATION. :- 5 -: ITA NOS.980 & 988/CHNY/2018 HENCE, GOING BY THE VARIOUS TERMS OF THE AGREEMENT, WE HAVE NO HESITATION IN ACCEPTING THE SUBMISSION OF THE LEARN ED COUNSEL FOR THE REVENUE TO ASSESS THE TRADING RECEIPT IN THE YEAR O F RECEIPT. AND SUBMITTED THAT THE FACTS AND CIRCUMSTANCES OF T HE ABOVE CASE ARE TOTALLY DIFFERENT FROM ITS CASE. IN THIS CASE, THE ASSESSEE SOLD DOT MATRIX PRINTER AND ACCOUNTED THE ENTIRE INCOME FROM SALES. HOWEVER, SOME OF THE PARTIES WHO HAVE PURCHASED THEM HAVE ALSO UNDERTAK EN AMC WITH THE COMPANY. OUT OF THE AMC RECEIPTS, PROPORTIONATE AMC WHICH FELL WITHIN THE RELEVANT PREVIOUS YEAR IS ACCOUNTED AS INCOME AND T HE BALANCE WAS SHOWN IN BALANCE SHEET UNDER THE HEAD UNEXPIRED SERVICE CONTRACT. HENCE, THE FACTS OF THIS CASE CLEARLY DISTINGUISHABLE WITH TH E ABOVE CASE AND THE FACTS OF THE ASSESSEES CASE FALLS WITHIN THE RATIO OF T HE HONBLE ITAT DECISIONS, SUPRA, MADE IN THE ASSESSEES CASE IN THE EARLIER YEARS. PER CONTRA, THE LD. DR SUBMITTED THAT THE FACTS ARE NOT EXAMINED PR OPERLY AND HENCE SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES. WHE N THE BENCH ENQUIRED ABOUT THE NATURE OF CONTRACT ENTERED INTO, THE ASSE SSEE FILED A COPY OF AN ORDER ISSUED BY KOLKATA PORT TRUST, HALDIA DOCK COM PLEX DATED 18.09.2012 IN SUPPORT OF ITS PLEA. 5. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIALS. THE FACTS AND CIRCUMSTANCES OF THIS CASE ARE CLEARLY DISTINGUISHABLE FROM THE FACTS AND CIRCUMSTANCES OF THE CASE OF CIT VS MANGALTIRTH ESTATES LIMITED, SUPRA, AND HENCE IT I S NOT APPLICABLE TO THE :- 6 -: ITA NOS.980 & 988/CHNY/2018 FACTS OF THIS CASE. THE ITAT HAS GONE THROUGH THE R ELEVANT DOCUMENTSANDPASSED THE ORDERS , SUPRA, IN FAVOUR OF THE ASSESSEE IN EARLIER YEARS. HOWEVER, THE ASSESSEE IS NOT ABLE T O PLACE RELEVANT MATERIAL BEFORE US SO AS TO FIND WHETHER THE FACTS AND CIRCU MSTANCES OF THE CASE ARE IN ACCORDANCE WITH THE RATIO LAID BY THE ITAT I N ITS CASE IN EARLIER YEARS. THE SINGLE PAGE ORDER COPY PLACED BEFORE US DID NOT INDICATE ANYTHING TOWARDS REFUND OF THE AMC. IN VIEW OF THE ABOVE FA CTS AND CIRCUMSTANCES, WE DEEM IT FIT TO REMIT THIS ISSUE BACK TO THE AO F OR A FRESH EXAMINATION. THE ASSESSEE SHALL PLACE ALL THE MATERIALS IN ITS S UPPORT BEFORE THE AO AND COMPLY TO THE AOS REQUIREMENTS AS PER LAW. THE A O IS FREE TO CONDUCT APPROPRIATE ENQUIRY AS DEEMED FIT. IF THE FACTS AND CIRCUMSTANCES OF THE CLAIM ARE IN ACCORDANCE WITH THE RATIO OF THE ITAT DECISIONS IN THE ASSESSEES CASE, SUPRA, HE SHALL ALLOW THE ASSESSEE S APPEAL. TO THIS EXTENT, THE APPEAL IS TREATED AS ALLOWED IN ASSESSE ES FAVOUR. 6. NOW, LET US TAKE THE REVENUES APPEAL. THE REVE NUE RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO LAW AND FACTS AND CIRCUMSTANCES OF THE CASE. 2.1 THE LEARNED CIT(A) ERRED IN RESTRICTING THE DIS ALLOWANCE U/S 14A TO RS. 3,66,091/- AS AGAINST THE ACTUAL DISALLO WANCE U/S 14A OF RS.35,82,334/- HOLDING THAT THE DISALLOWANCE CAN NOT EXCEED THE DIVIDEND INCOME EARNED DURING THE PREVIOUS YEAR WHE REAS THE SAME IS NOT PROVIDED IN SECTION 14A OF THE INCOME T AX, 1961. 2.2 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E ASSESSEE IS MAINTAINING MIXED BAG FUNDS WHICH INCLUDES OWN FUND S AND :- 7 -: ITA NOS.980 & 988/CHNY/2018 BORROWED FUNDS AND ASSESSEE IS BOUND TO PROVE THAT THE INVESTMENT IS MADE OUT OF ITS OWN FUND AS HELD BY T HE HONBLEHIGH COURT CALCUTTA IN THE CASE OF MIS. DHANUKA&SONS VS. CIT (CENTRAL) REPORT IN 339 ITR 319. ASSESSEE FAILED TO PROVE THE SAME DURING THE COURSE OF ASSESSMENT PROCEEDINGS AND HENCE THE ASSESSING OFFICER IS BOUND TO APPLY RULE 8D ON ENTIRE INVESTM ENT FOR CALCULATION OF DISALLOWANCE U/S 14A. 2.3 THE ID.CIT(A) OUGHT TO HAVE FOLLOWED THE DECISI ON OF HONBLE KARNATAKA HIGH COURT IN UNITED BREWERIES LIMITED VS . ACEF (KAR) 229 TAXMAN 113 AND HONBLE BOMBAY HIGH COURT IN THE CASE GODREJ & BOYCE MANUFACTURING CO. LTD (SCM.) 328 FIR 81 WHEREIN IT WAS RULED THAT THE ASSESSING OFFICER IS DUTY BOU ND TO CALCULATE THE DISALLOWANCE U/S 14A APPLYING RULE 8D LITHE ASS ESSING OFFICER IS NOT SATISFIED WITH THE ASSESSEES CALCULATION OF DISALLOWANCE. 2.5 THE LEARNED CFF(A) OUGHT TO HAVE SEEN THAT THE RELIED ON DECISION OF THE HONBLE TRIBUNAL IN THE ASSESSEES OWN CASE FOR AY 2012-13 HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND APPEAL FILED U/S 260A IS PENDING BEFORE THE HONBLE MADRAS HIGH COURT. 2.6 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E ASSESSING OFFICER HAS TO APPLY RULE 8D FOR CALCULATION OF DIS ALLOWANCE U/S 14A AND RULE 8D(2) WHICH DOES NOT DIFFERENTIATE BET WEEN STRATEGIC INVESTMENTS AND NON-STRATEGIC INVESTMENTS FOR PURPO SE OF CALCULATION OF THE DISALLOWANCE. THIS STAND WAS FOR TIFIED BY THE HONBLE APEX COURT IN THE RECENT DECISION IN THE CA SE OF M/S. MAXOPP INVESTMENTS LIMITED IN CIVIL APPEAL NO.104 T O 109 OF 2015 DATED 12.2.2018. 3. FOR THESE AND OTHER GROUNDS THAT MAY BE ADDUCED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE LEAR NED CIT (A) MAY BE SET ASIDE AND THAT OF THE ASSESSING OFFICER REST ORED. THE LD. DR CANVASSED THE CASE ON THE LINES OF GROUN DS OF APPEAL, SUPRA. PER CONTRA, THE LD. AR RELIED ON THE ORDER OF THE L D CIT(A). :- 8 -: ITA NOS.980 & 988/CHNY/2018 7. WE HEARD THE RIVAL SUBMISSIONS AND GONE THROUGH THE RELEVANT MATERIAL. APART FROM THE DECISIONS RELIED ON BY TH E LD. CIT(A), THE RATIO OF THE DELHI HIGH COURT DECISION IN THE CASE OF JOINT INVESTMENT PVT. LTD., VS CIT REPORTED IN 372 ITR 694, DELHI, IS ALSO IN FAV OUR OF THE ASSESSEE. HENCE, THE ORDER OF THE LD. CIT(A) DOES NOT REQUIRE ANY INTERFERENCE AND HENCE, THE REVENUES APPEAL IS DISMISSED. 8. IN THE RESULT, THE ASSESSEES APPEAL IN ITA NO. 980/CHNY/2018 IS TREATED AS ALLOWED THE REVENUES APPEAL IN ITA NO. 988/CHNY/2018 IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 26 TH DAY OF OCTOBER, 2018 AT CHENNAI. SD/- ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER SD/- ( ) (S. JAYARAMAN) /ACCOUNTANT MEMBER /CHENNAI, ) /DATED: 26 TH OCTOBER , 2018 JPV $*+,-, /COPY TO: 1. / /APPELLANT 2. *0/ /RESPONDENT 3. 1 ) (/CIT(A) 4. 1 /CIT 5. ,* /DR 6. 4 /GF