DCIT, CHENNAI v. Redington (India) Ltd., CHENNAI

ITA 1145/CHNY/2016 | 2011-2012
Pronouncement Date: 18-10-2016 | Result: Dismissed

Appeal Details

RSA Number 114521714 RSA 2016
Assessee PAN AABCR0347P
Bench Chennai
Appeal Number ITA 1145/CHNY/2016
Duration Of Justice 5 month(s) 21 day(s)
Appellant DCIT, CHENNAI
Respondent Redington (India) Ltd., CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 18-10-2016
Appeal Filed By Department
Order Result Dismissed
Bench Allotted D
Tribunal Order Date 18-10-2016
Date Of Final Hearing 22-09-2016
Next Hearing Date 22-09-2016
Assessment Year 2011-2012
Appeal Filed On 27-04-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH CHENNAI ! . ! # $ % $& BEFORE SHRI CHANDRA POOJARI ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR JUDICIAL MEMBER ./ ITA NO.1155/MDS/2016 % ( !)( / ASSESSMENT YEAR : 2011-12 M/S REDINGTON (INDIA) LTD. NO.95 MOUNT ROAD SPL GUINDY HOUSE GUINDY CHENNAI - 600 032. PAN : AABCR 0347 P V. THE DEPUTY COMMISSIONER OF INCOME TAX CORPORATE CIRCLE 5(1) CHENNAI - 600 034. (+ / APPELLANT) (-.+ / RESPONDENT) ./ ITA NO.1145/MDS/2016 % ( !)( / ASSESSMENT YEAR : 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX CORPORATE CIRCLE 5(1) CHENNAI - 600 034. V. M/S REDINGTON (INDIA) LTD. NO.95 MOUNT ROAD SPL GUINDY HOUSE GUINDY CHENNAI - 600 032. (+ / APPELLANT) (-.+ / RESPONDENT) % (/0 1 2 /ASSESSEE BY : SH. R. VIJAYARAGHAVAN ADVOCATE ! 1 2 /REVENUE BY : SH. JAYARAM RAIPURA CIT # ! 1 0 / DATE OF HEARING : 22.09.2016 34) 1 0 / DATE OF PRONOUNCEMENT : 18.10.2016 2 I.T.A. NO.1155/MDS/16 I.T.A. NO.1145/MDS/16 / O R D E R PER G. PAVAN KUMAR JUDICIAL MEMBER: THE ASSESSEE HAS FILED THE APPEAL AGAINST THE ORD ER OF THE ASSESSING OFFICER PASSED UNDER SECTION 143(3) OF TH E INCOME-TAX ACT 1961 (IN SHORT 'THE ACT') R.W.S. 92CA R.W.S. 1 44C(1) OF THE ACT IN PURSUANCE OF DIRECTIONS OF DISPUTE RESOLUTION PANEL DATED 22.12.2015. THE REVENUE HAS ALSO FILED AN APPEAL A GAINST THE VERY SAME ORDER OF DISPUTE RESOLUTION PANEL. LETS FIRST TAKE THE ASSESSEES APPEAL IN I.T.A. NO .1155/MDS/2016. 2. THE ASSESSEE HAS RAISED THREE MAJOR GROUNDS. T HE FIRST GROUND IS WITH REGARD TO GUARANTEE COMMISSION. AT THE TIME OF HEARING THE LD. AR OF THE ASSESSEE HAS NOT PRESSED GROUND NOS. 2.1 TO 2.1.6 AS THE SAME WAS ALLOWED BY THE DRP IN FAVOUR OF THE ASSESSEE. THE SECOND GROUND BEING TRADEMARK LICENC E FEE PAYMENTS AND THE LAST GROUND IS WITH REGARD TO DISA LLOWANCE UNDER SECTION 14A OF THE ACT. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E-COMPANY IS DISTRIBUTOR OF INFORMATION TECHNOLOGY PRODUCTS TEL ECOM PRODUCTS CONSUMER DURABLES AND ALSO AFTER SALES SERVICE. TH E ASSESSEE- 3 I.T.A. NO.1155/MDS/16 I.T.A. NO.1145/MDS/16 COMPANY FILED ITS RETURN OF INCOME ON 29.11.2011 WI TH A TOTAL INCOME OF ` 1 98 82 01 376/-. SUBSEQUENTLY A REVISED RETURN WA S FILED ON 30.03.2013 WITH TAXABLE INCOME OF ` 1 98 32 01 376/-. AS THE CASE WAS SELECTED FOR SCRUTINY NOTICE UNDER SECTION 143 (2) OF THE ACT WAS ISSUED. IN COMPLIANCE TO THE NOTICE THE LD. A R OF THE ASSESSEE APPEARED AND FILED THE DETAILS. THE ASSES SING OFFICER FOUND THAT THE ASSESSEE-COMPANY IS HAVING INTERNATI ONAL TRANSACTIONS AND FOR DETERMINING THE ARM'S LENGTH P RICE THE MATTER WAS REFERRED TO THE TRANSFER PRICING OFFICER. THE LD. TPO VIDE ORDER DATED 28.01.2015 BASED ON THE INFORMATION SUBMITTE D AND THE INTERNATIONAL TRANSACTIONS WITH ASSOCIATE ENTERPRIS ES MADE UPWARD ADJUSTMENT OF ` 9 62 22 632/- AND ALSO DOWNWARD ADJUSTMENT OF ` 1 81 51 501/- ON TRADEMARK FEES TOTAL AGGREGATING TO ` 11 43 74 133/-. THE ASSESSING OFFICER CONSIDERED T HIS INFORMATION IN THE ASSESSMENT ORDER AND THE ASSESSEE WAS PROVID ED AN OPPORTUNITY TO FILE OBJECTIONS BEFORE THE DISPUTE R ESOLUTION PANEL. THE DRAFT ASSESSMENT ORDER WAS PASSED UNDER SECTION 143(3) R.W.S. 92CA AND 144C(1) OF THE ACT ON 23.03.2015 ALONG WIT H DISALLOWANCE UNDER SECTION 14A OF THE ACT OF ` 5 95 44 737/-. AGAINST THE DRAFT ASSESSMENT ORDER THE ASSESSEE FI LED OBJECTIONS BEFORE THE DISPUTE RESOLUTION PANEL. THE LD. DRP CONSIDERED THE 4 I.T.A. NO.1155/MDS/16 I.T.A. NO.1145/MDS/16 SUBMISSIONS AND PASSED AN ORDER ON 22.12.2015. THE DRP ALLOWED THE OBJECTIONS IN RESPECT OF GUARANTEE COMM ISSION BOTH FOR CORPORATE AND BANK IN FAVOUR OF THE ASSESSEE. HOWE VER THE DRP UPHELD THE DISALLOWANCE UNDER SECTION 14A OF THE AC T AND ALSO THE DIRECTIONS OF TRANSFER PRICING OFFICER ON TRADEMARK FEES. THE ASSESSMENT WAS COMPLETED BY ORDER UNDER SECTION 143 (3) R.W.S. 92CA R.W.S. 144C(1) OF THE ACT DATED 05.02.2016. A GGRIEVED THE ASSESSEE HAS FILED APPEAL BEFORE THIS TRIBUNAL. 4. ON THE ISSUE OF TRADEMARK LICENCE FEE THE LD. A R OF THE ASSESSEE ARGUED THAT THE ASSESSEE HAS PAID AN AMOUN T OF ` 1 81 51 501/- AS TRADEMARK FEES TO M/S REDINGTON DI STRIBUTION PTE LTD. THE FACTS ARE THAT THE LD. TRANSFER PRICING O FFICER WAS NOT SATISFIED WITH THE SUBMISSIONS SINCE NO DOCUMENTARY EVIDENCE WAS PRODUCED IN RESPECT OF LEGAL OWNER OF TRADEMARK. W HEREAS THE ASSESSEE-COMPANY HAS ENTERED INTO AN AGREEMENT WITH ITS WHOLLY OWNED SUBSIDIARY COMPANY FOR PAYMENT OF TRADEMARK L ICENCE FEES OF USD 4 00 000 PER ANNUM FOR A PERIOD OF TEN YEARS WI TH EFFECT FROM 1 ST APRIL 2006 AND WHEREAS THE AMOUNT OF ` 1.81 CRORES WAS PAID DURING THE FINANCIAL YEAR 2010-11. IT WAS EXPLAINE D THAT THE ASSESSEE-COMPANY IS USING THE LOGO REDINGTON FROM THE DATE OF 5 I.T.A. NO.1155/MDS/16 I.T.A. NO.1145/MDS/16 COMMENCEMENT OF ITS OPERATIONS. THIS TRADEMARK WAS HELD BY REDINGTON PTE LTD. SINGAPORE. AS PER THE AGREEMEN T THESE TRADEMARKS WERE TRANSFERRED FROM REDINGTON PTE. LTD . SINGAPORE TO REDINGTON DISTRIBUTION PTE LTD. AS THE CLAIM OF IT S PARENT COMPANY FOR USE OF SUCH TRADEMARK AND LOGO THE ASSESSEE-CO MPANY HAS PAID TRADEMARK FEES IN ORDER TO FULFILLMENT OF ITS OBJECTIVES. THE LD. TPO CONSIDERED THE SUBMISSIONS AND IS OF THE VIEW T HAT THE TRADEMARK IS NOT REGISTERED IN SINGAPORE AND THERE IS NO CLARITY AND THERE IS NO AUTHENTIC EVIDENCE THAT REDINGTON PTE L IMITED SINGAPORE IS THE ACTUAL LEGAL OWNER OF TRADEMARK. FURTHER THERE IS NO DOCUMENTARY EVIDENCE IN RESPECT OF SUCH TRANSACT IONS. THIS TRADEMARK WAS PROMOTED BY THE INDIAN COMPANY IN THE YEAR 1993 AND SHALL BE ATTRIBUTABLE TO INDIAN COMPANYS GROWT H. THEREFORE THE LD. TPO FOUND THAT THERE IS NO RATIONALITY BEHIND T HE PAYMENT OF TRADEMARK LICENCE FEE. THE ASSESSEE-COMPANY HAD AP PLIED TRANSACTION NET MARGIN METHOD (TNMM) AS MOST APPROP RIATE METHOD WHICH THE TPO HAS NOT ACCEPTED. THE ASSESSE E RELIED ON THE JUDICIAL DECISIONS AND ALSO MADE A FINDING THAT THE HON'BLE TRIBUNAL IN THE ASSESSEE'S OWN CASE HAS ALLOWED THI S ISSUE IN FAVOUR OF THE ASSESSEE BUT THE REVENUE BEING NOT SATISFIE D WITH THE DECISION HAS FILED APPEAL BEFORE THE JURISDICTIONA L HIGH COURT AND 6 I.T.A. NO.1155/MDS/16 I.T.A. NO.1145/MDS/16 THE MATTER IS PENDING AND THE TPO MADE DOWNWARD ADJ USTMENT OF ` 1 81 51 501/-. THE LD. DRP HAS CONFIRMED THE ACTIO N OF THE TPO. THE LD. AR IN SUPPORT OF HIS ARGUMENTS RELIED ON T HE ORDERS OF THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE ASSESSEE' S OWN CASE IN I.T.A. NO.1743/MDS/2011 DATED 26.06.2015 FOR ASSESS MENT YEAR 2007-08 AND I.T.A. NO.221/MDS/2013 DATED 07.08.2015 FOR ASSESSMENT YEAR 2008-09 AND I.T.A. NOS.513/MDS/2014 & 619/MDS/2014 DATED 07.07.2014 FOR ASSESSMENT YEAR 2 009-10 AND PRAYED FOR ALLOWING THE GROUNDS. 5. CONTRA THE LD. DEPARTMENTAL REPRESENTATIVE OPPO SED TO THE GROUNDS RAISED BY THE ASSESSEE AND ARGUED VEHEMENTL Y THAT THE REVENUE HAS FILED AN APPEAL AGAINST THE EARLIER ORD ER OF THE TRIBUNAL BEFORE THE HIGH COURT AND THE SAME IS PENDING. HE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 6. WE HEARD THE RIVAL SUBMISSIONS PERUSED THE MATE RIAL AVAILABLE ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. AR HAS CONTENDED THAT A SIMILAR ISSUE IN THE CASE OF THE A SSESSEE FOR ASSESSMENT YEAR 2009-10 WAS DECIDED IN THE ASSESSEE S FAVOUR. WE FIND THAT IN THE ASSESSEE'S OWN CASE IN I.T.A. N O.513/MDS/2014 7 I.T.A. NO.1155/MDS/16 I.T.A. NO.1145/MDS/16 & 619/MDS/2014 DATED 7 TH JULY 2014 FOR THE ASSESSMENT YEAR 2009- 10 IT WAS HELD BY THIS BENCH OF THE TRIBUNAL AS UN DER:- 97. WE THINK THAT THIS ADJUSTMENT MADE BY THE TPO IS NOT PROPER. THE ASSESSEE IS EXPLOITING THE TRADEMAR K REDINGTON FOR THE PURPOSE OF CARRYING ON ITS BUSINESS. THEREFORE THERE IS NOTHING UNCOMMON IN ASSESSEES MAKING PAYMENT TO THE USE OF THE TRADE-M ARK TO M/S REDINGTON DISTRIBUTION PTE. LTD. SINGAPORE. IT IS NOT NECESSARY FOR THE TPO TO GO BEYOND THIS PLAUSIB LE EXPLANATION SINCE IT IS A WIDELY ACCEPTED BUSINESS PRACTICE AROUND THE WORLD. THIS IS NOT AN UNIQUE C ASE FOR THE ASSESSEE COMPANY ALONE. FURTHER IT IS FOR THE ASSESSEE TO DECIDE THE DYNAMICS OF ITS BUSINESS. T HE ASSESSEE IS THE BEST JUDGE TO DECIDE ON SUCH ISSUES . THE HON'BLE SUPREME COURT IN THE CASE OF S.A. BUILDERS V S. CIT (288 ITR 01) HAS HELD THAT ANY EXPENDITURE INCURRED BY THE ASSESSEE IF JUSTIFIED BY COMMERCIAL EXPEDIEN CY IS AN EXPENDITURE ALLOWABLE FOR THE PURPOSE OF TAXATION AND WHAT IS COMMERCIAL EXPEDIENCY IS A MATTER TO BE DECI DED BY THE ASSESSEE. IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE SAID ADDITION IS DELETED. FOLLOWING THE EARLIER DECISION OF THE TRIBUNAL IN T HE ASSESSEE'S OWN CASE WE DIRECT THE ASSESSING OFFICER TO ALLOW THE EXPENDITURE OF TRADEMARK LICENCE FEES. 7. COMING TO THE LAST GROUND THE ASSESSING OFFICER MADE DISALLOWANCE OF ` 5 95 44 737/- UNDER SECTION 14A OF THE ACT IN THE ASSESSMENT PROCEEDING. THE ASSESSING OFFICER FOUND FROM THE BALANCE SHEET THAT THE ASSESSEE HAS MADE INVESTMENT OF ` 231.03 CRORES AS ON 31 ST MARCH 2011 AND ` 227.07 CRORES AS ON 8 I.T.A. NO.1155/MDS/16 I.T.A. NO.1145/MDS/16 01.04.2010. THE LD. AO CONSIDERED THAT THE ASSESSE E-COMPANY MUST HAVE INCURRED CERTAIN EXPENDITURE IN RESPECT O F INVESTMENTS THEREFORE SUCH EXPENDITURE HAS TO BE DISALLOWED UN DER THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES 1962. THE LD. AR EXPLAINED BEFOR E THE ASSESSING OFFICER THAT THE INCOME FROM THESE INVEST MENTS SHALL NOT BE PART OF TOTAL INCOME AND NO EXPENDITURE WAS INCU RRED FOR EARNING SUCH EXEMPT INCOME. THE LD. AO WAS OF THE VIEW THA T NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE. DURING THE FINANCIAL YEAR 2010-11 THE SUBSIDIARY C OMPANY M/S EASYACCESS FINANCIAL SERVICES LIMITED WHICH IS OWN ED 100% BY THE ASSESSEE-COMPANY HAS PAID DIVIDEND OF ` 3 02 06 000/- WHICH IS TAX FREE. DURING THE FINANCIAL YEAR 2010-11 TH E ASSESSEE- COMPANY HAS MADE INVESTMENT OF ` 395 LAKHS AS AN ADDITIONAL INVESTMENT ALONG WITH OTHER SISTER CONCERN. THE CO NTENTION OF THE LD. AR THAT THESE INVESTMENTS WERE MADE OUT OF ACCR UALS AND INCOME EARNED AND NOT OUT OF ANY BORROWED CAPITAL THEREFORE DISALLOWANCE UNDER SECTION 14A OF THE ACT DOES NOT APPLY. FURTHER THE ASSESSEE HAS INCURRED INTEREST EXPENSES OF ` 43 05 28 000/- AND ALSO ADMINISTRATIVE AND OTHER EXPENSES WERE CLAIMED IN THE PROFIT & LOSS ACCOUNT. BUT THE ASSESSING OFFICER WAS OF T HE STRONG VIEW 9 I.T.A. NO.1155/MDS/16 I.T.A. NO.1145/MDS/16 THAT THE PROVISIONS OF SECTION 14A READ WITH RULE 8 D(2) ARE MANDATORY FROM THE ASSESSMENT YEAR 2008-09 THEREFO RE THE ASSESSEE-COMPANY SHALL NECESSARILY DISALLOW THE EXP ENDITURE IN RESPECT OF SUCH INVESTMENTS. THE LD. AO CALCULATED THE DISALLOWANCE UNDER RULE 8D(2)(II) AND (III) CONSIDE RING THE INVESTMENTS MADE IN THE SUBSIDIARY COMPANIES AND IN TEREST EXPENDITURE AND WORKED OUT THE TOTAL DISALLOWANCE TO ` 5 95 44 737/-. THE LD. TPO AND THE DRP HAVE CONFIR MED THE DISALLOWANCE. AGGRIEVED BY THE DISALLOWANCE THE ASSESSEE HAS FILED APPEAL BEFORE THE TRIBUNAL. 8. THE LD. AR OF THE ASSESSEE SUBMITTED THAT THESE INVESTMENTS ARE MADE IN SUBSIDIARY COMPANIES AND SU CH INVESTMENTS ARE MADE FOR BUSINESS EXPEDIENCY AND EX IGENCIES AND ALSO TO PROMOTE BUSINESS ON PROFIT MOTIVE. WHEREAS THE DIVIDEND INCOME IS ONLY INCIDENTAL AND WHICH IS CLAIMED AS E XEMPT. FURTHER THE ASSESSEE-COMPANY HAS NOT USED THE BORROWED FUND S FOR MAKING INVESTMENT IN THE SUBSIDIARY COMPANIES. THE LD. AR RELIED ON THE DECISIONS OF DELHI BENCH OF THIS TRIBUNAL IN ACIT V . SUN INVESTMENT PVT. LTD. [8 ITR (TRIB.) 33] AND PUNJAB & HARYANA H IGH COURT IN CIT V. HERO CYCLES LTD. (323 ITR 518) WHERE IT WAS HELD THAT THE 10 I.T.A. NO.1155/MDS/16 I.T.A. NO.1145/MDS/16 ASSESSING OFFICER HAS TO ESTABLISH THAT SPECIFIC EX PENDITURE WAS INCURRED FOR EARNING THE EXEMPT INCOME THEN ONLY D ISALLOWANCE CAN BE MADE. SIMILARLY TO SUBSTANTIATE NET WORTH THE ASSESSEE- COMPANY HAS RESERVES AND SURPLUS IN THEIR BALANCE S HEET AND THESE INVESTMENTS ARE MADE OUT OF SUCH ACCUMULATED PROFIT S AND ALSO SUBMITTED THAT INTEREST-FREE FUNDS WERE AVAILABLE A ND RELIED ON THE JUDGMENTS OF BOMBAY HIGH COURT IN CIT V. HDFC BANK LTD. (366 ITR 505) AND CIT V. RELIANCE UTILITIES & POWER (313 ITR 340). WITH THESE SUBMISSIONS THE LD. AR PRAYED THAT THE DISAL LOWANCE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF T HE INCOME-TAX RULES 1962 BE DELETED. 9. CONTRA THE LD. DEPARTMENTAL REPRESENTATIVE RELI ED ON THE ORDERS OF THE LOWER AUTHORITIES. 10. WE HEARD THE RIVAL SUBMISSIONS PERUSED THE MAT ERIAL AVAILABLE ON RECORD AND JUDICIAL DECISIONS CITED. THE LD. AR SUBMITTED THAT THE ASSESSEE-COMPANY WAS HAVING ADEQ UATE LIQUID FUNDS AND THE INVESTMENTS WERE MADE OUT OF OWN ACCR UALS AND NO PART OF BORROWINGS WERE UTILISED FOR INVESTMENT IN TAX-FREE SECURITIES. FURTHER THE INVESTMENTS IN SUBSIDIARY COMPANIES AR E FOR BUSINESS PROSPECTIVE AND FOR EARNING THE PROFITS AND THE DIV IDEND INCOME IS 11 I.T.A. NO.1155/MDS/16 I.T.A. NO.1145/MDS/16 ONLY INCIDENTAL ON INVESTMENTS. WE FIND THAT NEITH ER THE ASSESSING OFFICER NOR THE ASSESSEE-COMPANY COULD ESTABLISH WH ETHER THE CASH FLOW STATEMENT OR RECEIPTS AND PAYMENTS REGARDING T HE INVESTMENT MADE OUT OF OWN FUNDS. FURTHER ON SIMILAR ISSUE CO-ORDINATE BENCH OF THIS TRIBUNAL IN REGEN POWERTECH (P) LTD. IN I.T.A. NO.766/MDS/2016 AND 786/MDS/2016 DATED 17.08.2016 A T PARA 9.4 ON PAGE 24 HELD AS FOLLOWS:- 9.4 WE HEARD THE RIVAL SUBMISSIONS PERUSED THE MA TERIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE CRUX OF T HE ISSUE BEING THE ASSESSEE HAS MADE INVESTMENTS IN SUBSIDIARY/SISTER COMPANIES AND THE CONTENTION THAT OWN FUNDS ARE GENERATED OUT OF BUSINESS AND NO BORROWED FUNDS WERE UTILIZED FOR THE PURPOSE OF INV ESTMENTS. FURTHER INVESTMENTS IN SUBSIDIARY/SISTER COMPANY S HALL NOT BE CONSIDERED FOR THE PURPOSE OF CALCULATION OF DISALL OWANCE UNDER RULE 8D(2). THE LD. AUTHORISED REPRESENTATIVE DREW OUR ATTENTION TO THE STATEMENT OF DETAILS OF SUBSIDIARY GROUP COMPANIES AND THE INVESTMENTS REFLECTED IN FINANCIAL STATEMENTS AND R ELIED ON JUDICIAL DECISIONS. THE ASSESSEE COMPANY MADE INVESTMENTS I N THESE COMPANIES ON BUSINESS EXPEDIENCY AND NO INCOME HAS BEEN GENERATED BY SISTER/GROUP COMPANIES AND ALSO SHAREH OLDING PATTERN VARIED FROM COMPANY TO COMPANY. THE PROVISIONS OF S EC. 14A R.W.R. 8D ARE MANDATORILY APPLICABLE FROM ASSESSMENT YEAR 2008-09 BUT WHILE CALCULATING THE DISALLOWANCE U/SEC. RULE 8D(2 ) THE LD. ASSESSING OFFICER SHALL CONSIDER THAT THE INVESTME NTS IN SUBSIDIARIES ARE MADE IN ORDINARY COURSE OF BUSINESS. WE FOUND THAT THERE ARE NO FINDINGS IN THE ASSESSMENT ORDER ON THIS SUBSIDI ARY/GROUP COMPANIES WHICH ARE CONSIDERED AS INVESTMENTS FOR CALCULATING DISALLOWANCE U/SEC. 14A R.WR.8D(2) AND RELY ON THE CO-ORDINATE BENCH DECISION OF M/S. RANE HOLDINGS VS. ACIT CHENNAI IN ITA NO.115/MDS/2015 DATED 06.01.2016 WERE IT WAS HELD AS UNDER:- TAKING NOTE OF THE ABOVE DECISIONS AND THE DECISI ON OF THE CHENNAI BENCH OF THE TRIBUNAL IN ITA NO.156/MDS/13 CITED SU PRA WE HEREBY REMIT THE MATTER BACK TO THE FILE OF LD. ASSESSING OFFICER TO EXAMINE THE ISSUE INVOLVED IN THIS CASE AFRESH AND PASS APPROPR IATE ORDER AS PER LAW 12 I.T.A. NO.1155/MDS/16 I.T.A. NO.1145/MDS/16 AND MERITS AND IN THE LIGHT OF THE DECISIONS CITED HEREIN ABOVE. WHILE DOING SO WE ALSO DIRECT THE LD. ASSESSING OFFICER TO CONSIDER THE DECISION OF THE TRIBUNAL IN THE CASE M/S AGILE ELEC TRIC SUB ASSEMBLY PVT. LTD. CITED SUPRA WHEREIN IT WAS HELD AS FOLLOWS:- 7.2 IN REGARD TO APPLICABILITY OF SECTION 14A OF TH E ACT READ WITH RULE 8D ALSO; THE ABOVE VIEW WILL BE APPLICABLE. MOREOVE R IN THE CASE EIH ASSOCIATED HOTELS LTD V. DCIT REPORTED IN 2013 (9) TMI 604 IN ITA NO.1503 1624/MDS/2012 DATED 17TH JULY 2013 IT HAS BEEN HELD BY THE CHENNAI BENCH OF THE TRIBUNAL AS FOLLOWS :- DISALLOWANCE U/S. 14A RW RULE 8D CIT UPHELD DISA LLOWANCE HELD THAT INVESTMENTS MADE BY THE ASSESSEE IN THE SUBSIDIARY COMPANY ARE NOT ON ACCOUNT OF INVESTMENT FOR EARNIN G CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOT EL INDUSTRY. A PERUSAL OF THE ORDER OF THE CIT(APPEALS) SHOWS THAT OUT OF TOTAL INVESTMENT OF RS.64 18 19 775/- RS.63 31 25 715/- IS INVESTED IN WHOLLY OWNED SUBSIDIARY. THIS FACT SUPPORTS THE CAS E OF THE ASSESSEE THAT THE ASSESSEE IS NOT INTO THE BUSINESS OF INVES TMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACCOUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNED BY THE ASSESSEE FRO M INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INCIDENTAL. THEREFORE THE INVESTMENTS MADE BY THE ASSESSEE IN ITS SUBSIDIARY ARE NOT TO B E RECKONED FOR DISALLOWANCE U/S. 14A R.W.R. 8D. THE ASSESSING OFFI CER IS DIRECTED TO RE-COMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER TH E PROVISIONS OF RULE 8D AFTER DELETING INVESTMENTS MADE BY THE ASSE SSEE IN SUBSIDIARY COMPANY DECIDED IN FAVOUR OF ASSESSEE. FOR THE ABOVE SAID REASONS WE HEREBY HOLD THAT IN THE CASE OF THE ASSESSEE THE PROVISIONS OF SECTION 14A READ WITH RU LE 8D WILL NOT BE APPLICABLE IN REGARD TO INVESTMENTS MADE FOR ACQUIR ING THE SHARES OF THE ASSESSEES SISTER CONCERNS. ACCORDINGLY WE REST RAIN OURSELVES FROM INTERFERING WITH THE ORDER OF THE LD.CIT(A) ON THIS REGARD. IT IS ORDERED ACCORDINGLY. WE REMIT THE DISPUTED ISSUE TO THE FILE OF THE LD. ASSESSING OFFICER TO VERIFY AND EXCLUDE THE INVESTMENTS IN SUBSIDIARY CO MPANIES FOR THE PURPOSES OF CALCULATION OF DISALLOWANCE UNDER RULE 8D(2) AND THE ASSESSEE SHOULD BE PROVIDED ADEQUATE OPPORTUNITY OF BEING HEARD BEFORE PASSING THE ORDER ON MERITS. THE GROUND OF T HE DEPARTMENT IS ALLOWED FOR STATISTICAL PURPOSE. 13 I.T.A. NO.1155/MDS/16 I.T.A. NO.1145/MDS/16 BASED ON THE ABOVE DECISION OF THIS TRIBUNAL WE RE MIT THE ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER TO VERIFY AND EXCLUDE THE INVESTMENTS MADE IN SUBSIDIARY COMPANIES FOR THE PU RPOSE OF CALCULATION OF DISALLOWANCE UNDER RULE 8D(2) OF THE INCOME-TAX RULES 1962 AND ALSO VERIFY INTEREST EXPENDITURE WH ETHER DIRECTLY ATTRIBUTABLE TO THE EXEMPT INCOME. 11. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PA RTLY ALLOWED FOR STATISTICAL PURPOSES. 12. NOW LETS TAKE REVENUES APPEAL IN I.T.A. NO.1145/MDS/2016. 13. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS:- (1) THE DRP HAS ERRED IN LAW AND IN FACTS IN NOT CONSID ERING THE DECISION OF THE HON'BLE ITAT K BENCH MUMBAI IN T HE CASE OF EVEREST KANTO CYLINDERS LTD. WHICH IS SQUARELY APPLICABLE TO THE FACTS OF THE INSTANT CASE WHEREIN IT HAS CL EARLY BEEN MENTIONED THAT THE GUARANTEE COMMISSION FALLS U NDER THE PURVIEW OF INTERNATIONAL TRANSACTION. (2) THE DRP HAS ERRED ON FACTS AND IN LAW IN RESTRICTIN G THE TP ADJUSTMENT TO THE EXTENT OF FRESH GUARANTEE COMMISS ION GIVING DURING THE YEAR. 14. THE LD. AR EXPLAINED THE FACTS AND SUBMITTED TH AT THIS ISSUE WAS ALREADY COVERED IN FAVOUR OF THE ASSESSEE IN TH E ASSESSEE'S OWN CASE IN I.T.A. NO.1743/MDS/2011 DATED 26.06.201 5 FOR THE 14 I.T.A. NO.1155/MDS/16 I.T.A. NO.1145/MDS/16 ASSESSMENT YEAR 2007-08 AND IN I.T.A. NO.221/MDS/2 013 DATED 07.08.2015 FOR ASSESSMENT YEAR 2008-09. ALSO WE F IND THAT IN I.T.A. NO.513/MDS/2014 AND 619/MDS/2014 DATED 07.07 .2014 IN THE ASSESSEE'S OWN CASE THIS TRIBUNAL AT PARA 95 ON PA GE 67 HELD AS FOLLOWS:- 95. IN VIEW OF THE NATURE OF CORPORATE AND BANK GUARANTEES GIVEN BY THE ASSESSEE COMPANY AND IN THE LIGHT OF THE ABOVE ORDER OF THE ITAT DELHI BENCH WE HOLD THAT THE TP ADDITION MADE AGAINST CORPORATE AND BAN K GUARANTEES IS NOT SUSTAINABLE IN LAW. THE ADDITION IS THEREFORE DELETED. 15. RESPECTFULLY FOLLOWING THE ORDERS OF THIS TRIBU NAL WE DISMISS THE GROUNDS TAKEN BY THE REVENUE. 16. IN THE RESULT THE APPEAL OF THE REVENUE IS DIS MISSED. 17. TO SUM UP THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES AND THE APPEAL FILED BY TH E REVENUE IS DISMISSED. ORDER PRONOUNCED ON 18 TH OCTOBER 2015 AT CHENNAI. SD/- SD/- ( ) ( . ! # $) (CHANDRA POOJARI) (G. PAVAN KUMAR) / ACCOUNTANT MEMBER % /JUDICIAL MEMBER /CHENNAI 6 /DATED THE 18 TH OCTOBER 2015. 15 I.T.A. NO.1155/MDS/16 I.T.A. NO.1145/MDS/16 KRI. 7 1 -%089 :9)0 /COPY TO: 1. % (/0 /ASSESSEE 2. ASSESSING OFFICER 3. PRINCIPAL CIT-5 CHENNAI 4. # ;0 /CIT(TP) CHENNAI 5. 9!<= -%0% /DR 6. =( > /GF.