Chettinad Software Services P Ltd., CHENNAI V. ACIT, CHENNAI

MA 297/CHNY/2017

• Counselvise Citation: [2018] 124 COUNSELVISE.COM (IT) 6690 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 29 day(s)
• Appeal Type: Miscellaneous Application
• Pronouncement Date: 07-06-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 09-10-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: S SRIDHAR
• Keywords: Transfer pricing
• Section: 14A

Judgement Text

, , IN THE INCOME - TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , . , BEFORE SHRI ABRAHAM P. GEORGE , ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY , JUDICIAL MEMBER M .P. NO . 297 / CHNY /2017 [IN I.T.A. NO. 579 / CHNY /20 1 7 ] ASSESSMENT YEAR: 201 2 - 1 3 M/S. CHETTINAD SOFTWARE SERVICES P. LTD., 6 TH FLOOR, NO.603, RANI SEETHAI HALL, ANNA SALAI, CHENNAI - 600 006. [PAN: A AHFB 70 67M ] VS. THE ASS ISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRLCE - 1(2 ) , CHENNAI . ( / APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI S.SRIDHAR , ADVOCATE / RESPONDENT BY : SHRI AR.V.SREENIVASAN , J CIT / DATE OF HEARING : 09.03.2018 / DATE OF P RONOUNCEMENT : 07. 06 .201 8 / O R D E R PER DUVVURU RL REDDY , JUDICIAL MEMBER : IN THIS MISCELLANEOUS PETITION FILED BY THE ASSESSEE AGAINST THE ORDER OF THE TRIBUNAL IN I.T.A. NO. 579/CHNY/2017 DATED 23.08.2017, ITS GRIEVANCE IS THAT TH ERE ARE CONFLICTING FINDINGS RECORDED IN PARA 5 OF THE ORDER. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE TRIBUNAL IN THE ORDER DIRECTED THE ASSESSING OFFICER TO ASCERTAIN THE CLAIM OF INVESTMENTS MADE BY THE ASSESSEE IN M/S. CHETTINAD CEMENT CORPO RATION LTD. AS PER THE LD. AR, THE M .P. NO . 297/ CHNY/2017 2 DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF M.A. ALAGAPPAN V. ACIT 165 ITD 401 HAD NO APPLICATION TO THE FACTS OF THE CASE. HOWEVER, AS PER THE LD. AR, THIS TRIBUNAL HAD, BY MISTAKE RELIED ON THE SAID ORDER OF THE TRIBUNAL. 2. PER CONTRA, THE LD. DR SUBMITTED THAT THERE WAS NO MISTAKE IN THE ORDER OF THE TRIBUNAL WARRANTING INTERFERENCE UNDER SECTION 254(2) OF THE ACT. 3. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE ORDER OF THE TRIBUNAL. WHAT WAS HELD BY THE TRIBUNAL AT PARA 5 OF THE ORDER IS REPRODUCED HEREIN BELOW: 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE MAIN CONTENTION OF THE LD.A.R BEFORE US IS THAT THE INVESTMENT WAS MADE IN ASSOCIATED CONCERN BY NAME M/ S.CHETTINAD CEMENT CORPORATION PVT. LTD., AND IT WAS A STRATEGIC INVESTMENT. AS SUCH, THERE CANNOT BE APPLICABILITY OF PROVISIONS OF THE SECTION 14A R.W. RULE 8D OF RULES. ON THE OTHER HAND, LD.D.R SUBMITTED THAT THE ASSESSEE INVESTED THE BORROWED FUNDS, WHICH CARRIES INTEREST AND IN SUCH CIRCUMSTANCES, THE JUDGEMENT OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. CHETTINAD LOGISTICS PVT. LTD. IN (2017) 98 CCH 0151 AND M/S.REDINGTON (INDIA) LTD., VS. ACIT IN TCA NO.520 OF 2016(MAD.) CANNOT BE APPLIED. IN OUR OPINION, WHETHER M/S.CHETTINAD CEMENT CORPORATION PVT. LTD., IS AN ASSOCIATED ENTERPRISE OF ASSESSEE OR NOT, WAS TO BE SEEN BY THE AUTHORITIES BELOW. HOWEVER, THE LOWER AUTHORITIES HAVE NOT GONE INTO THE ABOVE FACT OF THE ASSOCIATED ENTERPRISE SHAR EHOLDINGS PATTERN. FURTHER, WE ALSO MAKE IT CLEAR THAT THE AO SHOULD CONSIDER THE ORDER OF TRIBUNAL IN THE CASE OF MR. M.A. ALAGAPPAN VS. ACIT VIDE ORDER DATED 03.04.2017 REPORTED IN 165 ITD 401 (CHENNAI TRIBUNAL) WHEREIN HELD THAT: - M .P. NO . 297/ CHNY/2017 3 6. WE CONSIDERED T HE ARGUMENTS OF BOTH THE SIDES IN DETAIL. SEC.14A(1) DECLARES THE LAW THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT SHALL NOT BE ALLOWED AS A DEDUCTION IN COMPUTING THE T AXABLE INCOME OF THE ASSESSEE. SEC.14A(2) PROVIDES FOR DETERMINING THE QUANTUM OF SUCH EXPENDITURE WHICH SHALL NOT BE ALLOWED AS A DEDUCTION. THAT IS THE MACHINERY PROVISION AS FAR AS SEC.14A IS CONCERNED. IN THAT PROVISION, IT HAS BEEN PROVIDED THAT IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECTNESS OF THE COMPUTATIONS MADE BY AN ASSESSEE, HE SHALL COMPUTE THE QUANTUM IN ACCORDANCE WITH THE METHOD THAT MAY BE PRESCRIBED. FOR THIS MATTER, RULE 8D HAS ALREADY BEEN PRESCRIBED. SUB - SEC.(3) FUR THER PROVIDES THAT EVEN IN A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED, THE ASSESSING AUTHORITY HAS TO PRESUME THE INCURRING OF SUCH EXPENDITURE AS PROVIDED UNDER SUB - SEC.(2) READ WITH RULE PRESCRIBED. THEREFORE, IT BECOMES CLEAR THAT EVEN IN A CASE WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS SO INCURRED, THE STATUTE HAS PROVIDED FOR A PRESUMPTIVE EXPENDITURE WHICH HAS TO BE DISALLOWED BY FORCE OF THE STATUTE. IN A DISTANT MANNER, LITERALLY SPEAKING, IT MAY EVEN BE CONSIDERED FO R THE PURPOSE OF CONVENIENCE AS A DEEMING PROVISION. WHEN SUCH DEEMING PROVISION IS MADE ON THE BASIS OF STATUTORY PRESUMPTION, THE REQUIREMENT OF FACTUAL EVIDENCE IS REPLACED BY STATUTORY PRESUMPTION AND THE ASSESSING OFFICER HAS TO FOLLOW THE CONSEQUENCE S STATED IN THE STATUTE. IT MEANS THAT EVEN IN A CASE WHERE NO EXPENDITURE IS STATED TO HAVE BEEN INCURRED, THE ASSESSING AUTHORITY HAS TO APPLY RULE 8D. AS THE STATUTORY PRESUMPTION SUBSTITUTES THE REQUIREMENT OF FACTUAL EVIDENCE, THE QUESTION OF ENQUIRY DOES NOT ARISE. THEREFORE, WE ARE UNABLE TO AGREE WITH THE ARGUMENT OF THE LEARNED A.R. HENCE, IN THE INTEREST OF JUSTICE, WE REMIT THE ISSUE IN DISPUTE TO THE FILE OF AO TO EXAMINE THE ISSUE AFRESH IN THE LIGHT OF JUDGEMENT OF ABOVE DECISION. 4. TH E TRIBUNAL HAD ONLY REMITTED THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO CONSIDER THE ORDER OF THE TRIBUNAL IN THE CASE OF M.A. ALAGAPPAN V. ACIT (SUPRA) WHILE DECIDING THE ISSUE AFRESH. THE QUESTION BEFORE THE TRIBUNAL WAS WHETHER SECTION 14A C OULD BE APPLIED WHEN THE M .P. NO . 297/ CHNY/2017 4 CONTENTION HAS BEEN RAISED BY THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED TO EARN TAX FREE INCOME. THE TRIBUNAL HAD DIRECTED THE ASSESSING OFFICER TO VERIFY WHETHER M/S. CHETTINAD CEMENT CORPORATION LTD. , WHERE THE ASSESSEE HAD MADE THE INVESTMENT WAS AN ASSOCIATED ENTERPRISE OF THE ASSESSEE OR NOT. REFERENCE MADE TO THE DECISION OF THE TRIBUNAL IN THE CASE OF M.A. ALAGAPPAN V. ACIT (SUPRA) WAS ONLY FOR GIVING CLARITY AS TO HOW RULE 8D AND SECTION 14A OF THE ACT ARE TO BE APPLIED. WE DO NOT FIND ANY MISTAKE IN THE ORDER OF THE TRIBUNAL OF THE NATURE MENTIONED BY THE ASSESSEE MUCH LESS ANY MISTAKE WHICH IS APPARENT ON THE RECORD. 5 . IN THE RESULT, THE MP FILED BY THE ASSESSEE IS DISMISSED . ORDER PRONOUNCE D ON THE 07 TH JUNE , 201 8 AT CHENNAI. SD/ - SD/ - ( ABRAHAM P. GEORGE ) ACCOUNTANT MEMBER ( DUVVURU RL REDDY ) JUDICIAL MEMBER CHENNAI, DATED, THE 07 .06 . 201 8 VM/ - / COPY TO: 1. / APPELLANT , 2. / RESPONDENT , 3. ( ) / CIT(A) , 4. / CIT , 5. / DR & 6. / GF.