Tractors and Farm Equipments Ltd., CHENNAI v. ACIT, CHENNAI

ITA 1505/CHNY/2016 | 2011-2012
Pronouncement Date: 30-09-2016 | Result: Dismissed

Appeal Details

RSA Number 150521714 RSA 2016
Assessee PAN AAACT2761Q
Bench Chennai
Appeal Number ITA 1505/CHNY/2016
Duration Of Justice 4 month(s) 4 day(s)
Appellant Tractors and Farm Equipments Ltd., CHENNAI
Respondent ACIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 30-09-2016
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 30-09-2016
Assessment Year 2011-2012
Appeal Filed On 26-05-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CHENNAI . . . ! .#$#% ' !( BEFORE SHRI N.R.S. GANESAN JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER ./ ITA NO.1505/MDS/2016 % *% / ASSESSMENT YEAR : 2011-12 M/S TRACTORS AND FARM EQUIPMENT LTD. NO.35 NUNGAMBAKKAM HIGH ROAD NUNGAMBAKKAM CHENNAI - 600 034 PAN : AAACT 2761 Q V. THE ASSISTANT COMMISSIONER OF INCOME TAX CORPORATE CIRCLE 3(1) CHENNAI - 600 034. ( -/ APPELLANT) (./ -/ RESPONDENT) - 0 1 / APPELLANT BY : SH. R. VIJAYARAGHAVAN ADVOCATE ./ - 0 1 / RESPONDENT BY : SHRI SHIVA SRINIVAS JCIT 2 0 3' / DATE OF HEARING : 04.08.2016 45* 0 3' / DATE OF PRONOUNCEMENT : 30.09.2016 / O R D E R PER N.R.S. GANESAN JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 11 CHEN NAI DATED 30.03.2016 AND PERTAINS TO ASSESSMENT YEAR 2011-12. 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE MADE BY THE ASSESSING OFFICER TO THE E XTENT OF 2 I.T.A. NO.1505/MDS/16 ` 4 87 77 924/- UNDER SECTION 14A OF THE INCOME-TAX A CT 1961 (IN SHORT 'THE ACT'). 3. SHRI R. VIJAYARAGHAVAN THE LD.COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE ASSESSEE EARNED DIVIDEND INCOME OF ` 27 02 66 864/- AND CLAIMED THE SAME AS EXEMPT UNDER SECTION 10(34) OF THE ACT. THE ASSESSING OFFICER FOUND TH AT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE FOR EARNING THE EX EMPT INCOME. ACCORDING TO THE LD. COUNSEL THE INVESTMENTS WERE MADE OUT OF THE ASSESSEES OWN FUNDS. THE ASSESSEE HAD ITS OWN FUN DS AS ON 31.03.2010 AT ` 130 342.43 LAKHS AND AS ON 31.03.2011 THE AVAILABLE FUNDS WITH THE ASSESSEE WAS ` 170 654.87 LAKHS. THE ASSESSEE HAS ALSO GENERATED CASH SURPLUS TO THE EXT ENT OF ` 39 633.28 LAKHS AND A PORTION OF THIS AMOUNT WAS IN VESTED IN THE MUTUAL FUNDS. ACCORDING TO THE LD. COUNSEL NO BOR ROWED FUNDS WERE USED FOR INVESTMENT FOR EARNING THE EXEMPT INC OME. 4. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITT ED THAT THE INVESTMENTS IN THE SUBSIDIARY COMPANY WERE MADE LON G BACK. THE DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MA DE ONLY IF THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CORRECT NESS OF THE CLAIM MADE BY THE ASSESSEE. IN THIS CASE ACCORDING TO T HE LD. COUNSEL 3 I.T.A. NO.1505/MDS/16 THE ASSESSEE HAS NOT MADE ANY CLAIM AT ALL THERE I S NO QUESTION OF ANY NON-SATISFACTION BY THE ASSESSING OFFICER. THE ASSESSEE ITSELF FOUND THAT A SUM OF ` 29 LAKHS CAN BE DISALLOWED AS EXPENDITURE FOR EARNING THE EXEMPT INCOME. THE ASSESSING OFFICER P ROCEEDED TO DISALLOW A SUM OF ` 8 66 34 772/- BY APPLYING RULE 8D OF INCOME-TAX RULES 1962. PLACING RELIANCE ON THE ORDER OF THIS TRIBUNAL IN TAMILNADU POWER FINANCE & INFRASTRUCTURE DEVELOPMEN T CORPORATION LTD. V. ACIT IN I.T.A. NO.1813/MDS/2014 DATED 19.02.2016 THE LD. COUNSEL SUBMITTED THAT ONLY 0.5 % OF THE AVERAGE VALUE OF THE INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY O F THE PREVIOUS YEAR HAS TO BE TAKEN INTO CONSIDERATION. 5. ON THE CONTRARY SHRI SHIVA SRINIVAS THE LD. DE PARTMENTAL REPRESENTATIVE SUBMITTED THAT ADMITTEDLY THE ASSE SSEE INVESTED FUNDS IN MUTUAL FUNDS AND SHARES AND EARNED EXEMPT INCOME TO THE EXTENT OF ` 27 02 66 864/-. ACCORDING TO THE LD. D.R. THE ASS ESSING OFFICER FOUND THAT THE ASSESSEE HAS NOT CLAIMED ANY EXPENDITURE FOR EARNING OF EXEMPT INCOME. BY CONSIDERING THE VOLUM E OF PORTFOLIO OF INVESTMENT THE ASSESSING OFFICER FOUND THAT THE AS SESSEE SHOULD 4 I.T.A. NO.1505/MDS/16 HAVE INCURRED EXPENDITURE IN THE FORM OF MANAGERIAL ADMINISTRATIVE AND MONITORING PURPOSE. ACCORDING TO THE LD. D.R. THE ASSESSING OFFICER CATEGORICALLY RECORDED A FINDING THAT HE IS NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED. ACCORDINGLY HE COMPUTED THE DISALLOWANCE UNDER SEC TION 14A OF THE ACT READ WITH RULE 8D OF INCOME-TAX RULES 1962 . ACCORDING TO THE LD. D.R. THE ASSESSING OFFICER FOUND THAT THER E WAS NO DIRECT EXPENDITURE INCURRED BY THE ASSESSEE FOR MAKING THE INVESTMENTS. HOWEVER THE ASSESSING OFFICER FOUND THAT THERE WAS INDIRECT EXPENDITURE. IN OTHER WORDS THE INTEREST PAID BY THE ASSESSEE IS NOT RELATABLE TO ANY PARTICULAR INCOME EARNED BY TH E ASSESSEE. THEREFORE ACCORDING TO THE LD. D.R. THE SECOND LI MB OF RULE 8D(2) IS SQUARELY APPLICABLE. MOREOVER THE ASSESSING OF FICER HAS ALSO TAKEN THE AVERAGE VALUE OF INVESTMENT ON THE FIRST DAY AND LAST DAY OF PREVIOUS YEAR AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE AND INCOME FROM WHICH DOES NOT FORM PART OF TOTAL I NCOME. THE ASSESSING OFFICER HAS TAKEN 0.5%. ULTIMATELY THE ASSESSING OFFICER HAS TAKEN THE AGGREGATE OF SECOND AND THIRD LIMB OF RULE 8D(2) AND COMPUTED THE DISALLOWANCE OF ` 8 95 34 771/-. AFTER DEDUCTING THE EXPENDITURE CLAIMED BY THE ASSESSEE TO THE EXTENT O F ` 29 LAKHS ACCORDING TO THE LD. D.R. THE ASSESSING OFFICER DE TERMINED THE 5 I.T.A. NO.1505/MDS/16 DISALLOWANCE AT ` 8 66 34 771/-. THIS DISALLOWANCE WAS RIGHTLY CONFIRMED BY THE CIT(APPEALS). 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. THE FIRST SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE IS T HAT WHEN THE ASSESSEE INVESTED ITS OWN FUNDS RULE 8D2(II) OF TH E INCOME-TAX RULES 1962 IS NOT APPLICABLE AT ALL. IN THE CASE BEFORE US ADMITTEDLY THE ASSESSEE BORROWED LOAN FOR THE PURP OSE OF BUSINESS. THE ASSESSEE ALSO PAID INTEREST ON THE B ORROWED LOAN. THE INTEREST EXPENDITURE INCURRED BY THE ASSESSEE D OES NOT RELATE TO ANY PARTICULAR INCOME. IN OTHER WORDS WHEN THE BO RROWED FUNDS MIXED WITH THE ASSESSEES OWN FUNDS IT CANNOT BE I DENTIFIED FROM WHICH PART OF FUNDS THE INVESTMENT WAS MADE. IN OT HER WORDS WHEN THE INTEREST PAID BY THE ASSESSEE ON THE FUNDS BORR OWED FOR BUSINESS IS NOT RELATABLE TO ANY PARTICULAR ITEM OF INCOME THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE SECO ND LIMB OF RULE 8D(2) WOULD COME INTO OPERATION. IN OTHER WORDS T HE DISALLOWANCE HAS TO BE COMPUTED UNDER RULE 8D(2)(II) OF INCOME-T AX RULES 1962. 7. WE HAVE CAREFULLY GONE THROUGH THE DECISION OF T HIS TRIBUNAL IN TAMILNADU POWER FINANCE & INFRASTRUCTURE DEVELOP MENT 6 I.T.A. NO.1505/MDS/16 CORPORATION LTD. (SUPRA). IN THE CASE BEFORE THIS TRIBUNAL IN TAMILNADU POWER FINANCE & INFRASTRUCTURE DEVELOPMEN T CORPORATION LTD. (SUPRA) THERE WAS A SPECIFIC FIND ING BY THIS TRIBUNAL THAT THE ASSESSEE HAS NOT INCURRED ANY EXP ENDITURE FOR MAKING INVESTMENT. THEREFORE THIS TRIBUNAL FOUND THAT THE DISALLOWANCE HAS TO BE COMPUTED ONLY UNDER THIRD LI MB OF RULE 8D(2). ACCORDINGLY THIS TRIBUNAL FOUND THAT THE C OMPUTATION HAS TO BE MADE WITH REGARD TO AVERAGE VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT FORM PART OF TOTAL INCOME OF THE ASS ESSEE. IN THE CASE BEFORE US THE FACTS ARE ENTIRELY DIFFERENT. THE ASSESSEE ADMITTEDLY BORROWED FUNDS FOR THE PURPOSE OF BUSINE SS AND PAID INTEREST. THE INTEREST PAID BY THE ASSESSEE IS NOT RELATABLE TO ANY PARTICULAR INCOME. THEREFORE THE SECOND LIMB OF R ULE 8D(2) IS SQUARELY APPLICABLE. 8. WE HAVE CAREFULLY GONE THROUGH THE ORDER OF THE ASSESSING OFFICER. THE ASSESSING OFFICER HAS FOUND THAT THER E WAS NO DIRECT EXPENDITURE RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. THEREFORE HE COMPUTED THE DISALLOWANCE UN DER THE SECOND LIMB OF RULE 8D(2) AND ALSO COMPUTED THE AVE RAGE AMOUNT / EXPENDITURE TO THE EXTENT OF ` 8 66 34 771/-. THEREFORE THIS TRIBUNAL 7 I.T.A. NO.1505/MDS/16 IS OF THE CONSIDERED OPINION THAT THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 9. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 30 TH SEPTEMBER 2016 AT CHENNAI. SD/- SD/- ( ! .#$#% ) ( . . . ) (ABRAHAM P. GEORGE) (N.R.S. GANESAN) ' / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI 7 /DATED THE 30 TH SEPTEMBER 2016. KRI. 0 .389 :9*3 /COPY TO: 1. - /APPELLANT 2. ./ - /RESPONDENT 3. 2 ;3 () /CIT(A) 11 CHENNAI-34 4. PRINCIPAL CIT-3 CHENNAI 5. 9< .3 /DR 6. =% > /GF.