C.Subba Reddy (HUF), CHENNAI v. JCIT, CHENNAI

ITA 1835/CHNY/2016 | 2012-2013
Pronouncement Date: 06-10-2016 | Result: Allowed

Appeal Details

RSA Number 183521714 RSA 2016
Assessee PAN AACHC2523G
Bench Chennai
Appeal Number ITA 1835/CHNY/2016
Duration Of Justice 3 month(s) 19 day(s)
Appellant C.Subba Reddy (HUF), CHENNAI
Respondent JCIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 06-10-2016
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted B
Assessment Year 2012-2013
Appeal Filed On 17-06-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B B ENCH CHENNAI . ' # . $ & ' BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY JUDICI AL MEMBER ./ I.T.A.NOS.1834 & 1835/MDS/2016 ( / ASSESSMENT YEARS: 2011-12 & 2012-13) M/S. C.SUBBA REDDY HUF SUKRIT 19/1 THIRD CROSS STREET R.A.PURAM CHENNAI-600 028. VS THE JOINT COMMISSIONER OF INCOME TAX NON-CORPORATE RANGE-1 CHENNAI. PAN: AACHC2523G ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.SRIDHAR ADVOCATE /RESPONDENT BY : MR. SUPRIYO PAL JCIT /DATE OF HEARING : 8 TH SEPTEMBER 2016 /DATE OF PRONOUNCEMENT : 6 TH OCTOBER 2016 / O R D E R PER A. MOHAN ALANKAMONY AM:- THESE TWO APPEALS ARE FILED BY THE ASSESSEE AGGRIEV ED BY THE SEPARATE ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-2 CHENNAI BOTH DATED 30.03.20 16 IN ITA NO.187 & 215/CIT(A)-2/2013-14 & 2014-15 PASSED UNDER SECTION 143(3) R.W.S. 250(6) OF THE ACT. 2. THE ASSESSEE HAS RAISED SEVERAL GROUNDS IN ITS APPEALS HOWEVER THE CRUX OF THE COMMON ISSUES AR E AS FOLLOWS:- 2 ITA NO.1834 & 1835/MDS/2016 (I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF ` 2 09 61 760/- & ` 2 51 54 112/- FOR THE ASSESSMENT YEARS 2011-12 & 2012-13 RESPECTIVELY MADE BY THE LEARNED ASSESSING OFFICER IN REGARD TO DEPRECIATION ON WINDMILL. (II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING THE DISALLOWANCE OF ` 28 90 163/- & ` 35 01 361/- FOR THE ASSESSMENT YEARS 2011-12 & 2012-13 RESPECTIVELY MADE BY THE LEARNED ASSESSING OFFICER TOWARDS EXPENSES INCURRED FOR EARNING TAX FREE INCOME BY INVOKING THE PROVISIONS OF SECTION 14A R.W.R 8D. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A HUF FILED ITS RETURN OF INCOME FOR THE RELEVANT ASSESSM ENT YEARS AND THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE W AS SERVED ON THE ASSESSEE UNDER SECTION 143(2) FOR BOT H THE ASSESSMENT YEARS. SUBSEQUENTLY THE ASSESSMENTS WER E COMPLETED BY THE LEARNED ASSESSING OFFICER UNDER SE CTION 143(3) OF THE ACT ON 29.03.2014 & 31.12.2014 FOR TH E ASSESSMENT YEARS 2011-12 & 2012-13 RESPECTIVELY W HEREIN AMONGST CERTAIN ADDITIONS/DISALLOWANCES HE DISALLO WED DEPRECIATION ON WIND MILL AND BY INVOKING THE PROV ISIONS OF 3 ITA NO.1834 & 1835/MDS/2016 SECTION 14A R.W.R 8D DISALLOWED EXPENSES INCURRED F OR EARNING TAX FREE INCOME. GROUND NO.1: DEPRECIATION ON WINDMILL:- 4. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEED INGS FOR THE ASSESSMENT YEAR 2011-12 IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE HAD PUR CHASED SECOND HAND WINDMILL ON 31.03.2011 FOR RS.5.24 CROR ES FROM M/S.ST.JOHNS FREIGHT SYSTEMS TUTICORIN AND HAD CLA IMED DEPRECIATION @ 40% ON THE ENTIRE PURCHASE COST OF R S.5.24 CRORES. AFTER CALLING FOR INFORMATION UNDER SECTIO N 133(6) OF THE ACT AND FURTHER EXAMINING THE ISSUE THE LEARNE D ASSESSING OFFICER ARRIVED AT A CONCLUSION THAT THE DEPRECIATION CLAIMED BY THE ASSESSEE IS EXCESSIVE A ND EXPLANATION 3 TO SECTION 43(1) OF THE ACT WOULD BE APPLICABLE IN THE CASE OF THE ASSESSEE AND ACCORDINGLY THE ASS ESSEE WOULD BE ENTITLED TO CLAIM DEPRECIATION AT THE MOST ON THE WRITTEN DOWN VALUE OF THE WINDMILL SHOWN IN THE VEN DORS BOOK. BUT SINCE THE ASSESSEE HAD PURCHASED THE WIND MILL IN THE LAST DAY OF THE FINANCIAL YEAR 2010-11 AND DID NOT DERIVE 4 ITA NO.1834 & 1835/MDS/2016 ANY REVENUE DURING THE RELEVANT ASSESSMENT YEAR TH E LEARNED ASSESSING OFFICER DISALLOWED THE ENTIRE DEP RECIATION OF RS.2 09 61 763/-. WHILE ARRIVING AT THE ABOVE CO NCLUSION THE LEARNED ASSESSING OFFICER OBSERVED AS UNDER:- I) THE ORIGINAL COST OF THE ASSET TO THE VENDOR WA S 6.3 CRORES ON WHICH THE VENDOR HAS CLAIMED DEPRECIATION FOR TH E PAST FOUR YEARS AND THE WDV AS ON THE DATE OF SALE WAS O NLY 26.26 LAKHS. II) THE WINDMILL GENERATOR CONSISTING OF HUGE BLADE S WIND TURBINES CENSORS AND OTHER SOPHISTICATED MACHINERY WHICH INVOLVES HIGH TECHNOLOGY AND THAT WOULD REQUIRE HIG H MAINTENANCE COST AFTER THE LAPSE OF FOUR TO SIX YEA RS. HENCE THE SALE CONSIDERATION PAID BY THE ASSESSEE IS EXOR BITANT AND UNREALISTIC. III) EVEN IF A MODEST DEPRECIATION OF 25% IS APPLI ED THE COST OF THE WINDMILL PURCHASED BY THE ASSESSEE WOULD NOT EXCEED MORE THAN 1.5 CRORES. IV) THE ASSESSEE HAS PURCHASED THE WINDMILL AT THE FAG- END OF THE FIFTH YEAR IE. FROM THE YEAR THE WINDMILL W AS INITIALLY INSTALLED WHICH SHOWS THAT THE INTENTION OF THE ASS ESSEE WAS 5 ITA NO.1834 & 1835/MDS/2016 NOT TO PROTECT ITS INVESTMENT BUT TO REDUCE ITS INC IDENCE OF TAX BURDEN AS THE ASSESSEE WAS EARNING HEALTHY PROFITS FROM ITS REAL ESTATE BUSINESS. V) THE ASSESSEE HAS BEEN AVAILING THE BENEFIT OF S ECTION 80IB OF THE ACT TILL THE PRECEDING ASSESSMENT YEAR 2010-11 AND SINCE DURING THE RELEVANT ASSESSMENT YEARS SUCH BENEFITS WERE NOT AVAILABLE THE ASSESSEE HAD SOUGHT TO REDUCE ITS PROFIT BY WAY OF CLAIMING HIGH DEPRECIAT ION. VI) THE ENTIRE OBJECT OF THE ASSESSEE WAS TO MAKE A N ATTEMPT FOR TAX PLANNING AND AVOID PAYING TAX. VII) THE BENEFIT OF HIGHER DEPRECIATION IN THE CASE OF WINDMILLS WAS BROUGHT IN THE ACT DUE TO THE POLICY OF THE GOVT. OF INDIA FOR GENERATING NON-CONVENTIONAL ENER GY THROUGH WIND POWER. HOWEVER IN THE INSTANT CASE S UCH RATIONALE WAS MISSING DEFEATING THE VERY PURPOSE OF TAX INCENTIVE. VIII) THE ASSESSEE HAS NOT PRUDENTLY VALUED THE WIN DMILL COMPARING ITS PARAMETERS AND OTHER SPECIFICATIONS. XI) THE ASSESSEE HAS PURCHASED THE WINDMILL ON THE LAST DATE OF THE FINANCIAL YEAR 2010-11 AND FURTHER THE VENDOR OF 6 ITA NO.1834 & 1835/MDS/2016 THE WINDMILL WAS IN RECEIPT OF THE REVENUE GENERATE D BY THE WINDMILL UNTIL 31/03/2010 WHICH SHOWS THAT DURING T HE RELEVANT ASSESSMENT YEAR THE ASSESSEE HAS NOT EARNE D ANY REVENUE FROM THE ASSET PURCHASED. THEREFORE IT IS O BVIOUS THAT THE ASSESSEE HAS NOT PUT THE ASSET TO USE DURI NG THE RELEVANT ASSESSMENT YEAR AND HENCE NOT ENTITLED TO THE BENEFIT OF THE ENTIRE DEPRECIATION CLAIMED OF RS.2 09 61760/-. XII) FOR THE ASSESSMENT YEAR 2012-13 IT WAS HELD T HAT IN THE ABSENCE OF DETERMINATION OF CLOSING WDV AS ON 31-03 -2011 NO DEPRECIATION IS ALLOWABLE. 5. ON APPEAL THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) ENDORSED THE VIEW OF THE LEARNED ASSESSI NG OFFICER AND JUSTIFIED THE APPLICABILITY OF EXPLANAT ION 3 TO SECTION 43(1) OF THE ACT. 6. BEFORE US THE LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THE PAPER BOOK OF 1 TO 75 PAGES CONTAINI NG INVOICES ISSUED BY ST.JOHNS FREIGHT SYSTEMS LTD. F OR SALE OF WINDMILL TO THE ASSESSEE FOR RS.5 20 00 000/- (PAGE NO.24) 7 ITA NO.1834 & 1835/MDS/2016 SALE DEED FOR PURCHASE OF LAND ON WHICH THE WINDMIL L IS ERECTED FOR RS.8.00 LACKS AND THE RELATED INVOICE F OR THE SAME AMOUNT (PAGE NO.12 TO 23 AND 25) STATEMENT SH OWING ENERGY GENERATION THROUGH WINDMILL ISSUED BY THE TI RUNELVELI ELECTRICITY DISTRIBUTION CIRCLE OF TANGEDCO LTD. F OR THE PERIOD 31.03.2011 TO 20.04.2011 AND VARIOUS OTHER DOCUMENTS TO ESTABLISH THAT THE ASSESSEE HAS PURCHA SED THE WINDMILL INCURRING COST OF RS.5.24 CRORES AND THE ASSESSEE HAS PUT THE WINDMILL TO USE FROM 31.03.2011 IE. DU RING THE RELEVANT TO THE ASSESSMENT YEAR 2011-12 ONWARDS. TH E LEARNED AUTHORIZED REPRESENTATIVE FURTHER SUBMITTED THAT THE WINDMILL WAS PURCHASED ONLY AFTER ASSESSING THE VAL UE OF THE ASSET. HENCE IT WAS SUBMITTED THAT THE ASSESSEE HAS NOT RESORTED TO ANY DEVICE FOR AVOIDING TAX. HE FURTHE R ARGUED STATING THAT THE APPROACH OF THE LEARNED ASSESSING OFFICER IS HIGHLY ARBITRARY AND UNREASONABLE AND INVOKING EXPL ANATION 3 TO SECTION 43(1) OF THE ACT IS DEVOID OF MERIT. H E THEREFORE PLEADED THAT THE ASSESSEE MAY BE ALLOWED THE BENEFI T OF DEPRECIATION AS CLAIMED. 8 ITA NO.1834 & 1835/MDS/2016 7. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE O THER HAND ARGUED IN SUPPORT OF THE ORDERS OF THE REVENU E REITERATING THE STAND TAKEN BY THEM. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD. FROM THE FACTS OF THE CASE WE DO NOT FIND ANY MERIT IN THE ORDERS OF THE REVENUE BECAUSE OF THE FOLLOWING REASONS:- I) THE REVENUE HAS NOT BROUGHT OUT ANY COGENT MATER IALS TO SHOW THAT THE VALUE OF THE WINDMILL IS LESS THAN WH AT WAS PAID BY THE ASSESSEE OTHER THAN CITING THE REASONS THAT THE WINDMILL IS SEVERAL YEARS OLD THE VENDOR OF THE WI NDMILL HAD CLAIMED DEPRECIATION AND IN HIS BOOKS OF ACCOUNT TH E WDV IS ONLY RS.26.26 LAKHS. II) THE LEARNED ASSESSING OFFICER HEAVILY RELIED ON THE HYPOTHESIS THAT THE TRANSACTION WOULD BRING PREJUDI CE TO THE REVENUE BECAUSE THE ASSESSEE WOULD BE CLAIMING THE BENEFIT OF DEPRECIATION ONCE AGAIN WHEN THE SAME WA S EXHAUSTED BY THE VENDOR OF THE WINDMILL. BUT THE FA CT REMAINS THAT THE REVENUE WILL NOT BE LOSING TAX BE CAUSE AS 9 ITA NO.1834 & 1835/MDS/2016 PER SECTION 50 OF THE ACT THE SALE PROCEEDS OF THE WINDMILL HAS TO BE REDUCED FROM THE BLOCK VALUE OF THE ASSET S OF THE VENDOR. THUS THOUGH THE ASSESSEE WILL BE ENJOYING T HE BENEFIT OF DEPRECIATION TO THAT EXTENT THE VENDOR W ILL HAVE TO FOREGO THE BENEFIT OF DEPRECIATION AND ALSO LIABLE TO SHORT TERM CAPITAL GAIN TAX. III) THE LEARNED ASSESSING OFFICER HAS ALSO NOT MAD E AN INDEPENDENT ASSESSMENT ON THE VALUE OF THE WINDMILL OR OBTAINED A VALUATION REPORT TO ARRIVE AT HIS CONCLU SION. IV) FROM THE DOCUMENTS PRODUCED BY THE ASSESSEE IT IS EVIDENT THAT THE WINDMILL WAS PURCHASED ON 31.03.20 11. V) FURTHER FROM THE DOCUMENTS PRODUCED BY THE ASSES SEE IT IS EVIDENT THAT WIND MILL WAS PUT TO USE FROM 31.03 .2011 BECAUSE THE ELECTRICITY DISTRIBUTION CIRCLE OF TANG EDCO LTD. HAS CERTIFIED VIDE ITS LETTER NO. SE/TANGEDCO/TIN/ AD/REV/A/3D/677 DATED 30.04.2011 (PAGE 40 OF THE PA PER BOOK) 9. FROM THE ABOVE IT IS EVIDENT THAT THE TRANSACTI ON OF THE PURCHASE OF WIND MILL IS GENUINE AND THE APPREHENSI ON OF THE LEARNED ASSESSING OFFICER THAT ALLOWING THE CLAIM O F 10 ITA NO.1834 & 1835/MDS/2016 DEPRICIATION WOULD BE PREJUDICE TO THE INTERESTS OF THE REVENUE IS INCORRECT. FROM THE ENTIRE FACTS OF THE CASE IT IS FURTHER CLEAR THAT THE REVENUE HAS ARRIVED AT ITS D ECISION BASED ONLY ON THE PRESUMPTION AND BELIEF THAT IT IS A COLOURABLE DEVICE ADOPTED BY THE ASSESSEE FOR AVOID ING TAX WHICH IS ALSO INCORRECT. IT IS PERTINENT TO MENTION HERE THAT THERE IS NO BAR ON THE ASSESSEE TO LEGITIMATELY ARR ANGE ITSELF IN SUCH A MANNER SO AS TO REDUCE ITS TAX LIABILITY. FROM THE FACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE IS ENTITLED FOR T HE BENEFIT OF DEPRECIATION ON THE COST OF THE ASSET OF RS.5.24 CR ORES TOWARDS ITS PURCHASE OF WINDMILL FROM THE ASSESSMEN T YEAR IN WHICH THE WIND MILL WAS PURCHASED VIZ. ASSESSMENT YEAR 2011-12 ONWARDS. THEREFORE WE HEREBY DIRECT THE LE ARNED ASSESSING OFFICER TO GRANT THE BENEFIT OF DEPRECIAT ION TO THE ASSESSEE AS CLAIMED BY HIM IN BOTH THE ASSESSMENT Y EARS WHICH IS IN ACCORDANCE WITH LAW. THUS THIS ISSUE I S DECIDED IN FAVOUR OF THE ASSESSEE. 11 ITA NO.1834 & 1835/MDS/2016 GROUND NO.2: DISALLOWANCE U/S.14A R.W.R 8D: 10. DURING THE COURSE OF SCRUTINY ASSESSMENT PROCEE DINGS IT WAS NOTICED BY THE LEARNED ASSESSING OFFICER THA T THE ASSESSEE HAD MADE INVESTMENTS IN SHARES/MUTUAL FUND S ETC. AMOUNTING TO RS.51 03 73 845/- AS ON 31.03.2011 AN D THE ASSESSEE HAD NOT MADE ANY DISALLOWANCE UNDER SECTIO N 14A R.W.R 8D OF THE ACT. THE LEARNED ASSESSING OFFICER OPINED THAT THE ASSESSEE WOULD HAVE CERTAINLY INCURRED EXP ENDITURE FOR EARNING EXEMPT INCOME WHICH IS REQUIRED TO BE D ISALLOWED AS PER THE PROVISIONS OF SECTION 14A R.W.R 8D OF TH E ACT. THEREFORE INVOKING THE PROVISIONS OF SECTION 14A C OMPUTED THE EXPENDITURE THAT IS TO BE DISALLOWED APPLYING 8 D OF THE RULES AND ACCORDINGLY DISALLOWED RS.28 90 163/- AND RS.35 01 361/-. 11. ON APPEAL THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) RELYING ON THE DECISION OF THE SPECIAL BE NCH OF THE TRIBUNAL IN THE CASE OF ITO. MUMBAI VS. DAGA CAPIT AL MANAGEMENT P.LTD. REPORTED IN 117 ITD 169 M/S. GO RDREJ & BOYCE MANUFACTURING LTD. AND THE DECISION OF THE C HENNAI 12 ITA NO.1834 & 1835/MDS/2016 BENCH OF THE TRIBUNAL IN THE CASE OF SUPER AUTO FOR GE LTD. VS. CIT REPORTED IN 66 TAXMAN.COM 110 CONCURRED WITH T HE VIEW OF THE LEARNED ASSESSING OFFICER BY UPHOLDING HIS D ECISION. 12. BEFORE US THE LEARNED AUTHORIZED REPRESENTATIV E SUBMITTED THAT THE ASSESSEE IS A HUF AND HAS NOT IN CURRED ANY EXPENDITURE FOR EARNING EXEMPT INCOME. HE FURTH ER SUBMITTED THAT THE ENTIRE ACTIVITIES REGARDING THE INVESTMENT WERE MADE BY THE KARTA AND THE COPARCENERS OF THE H UF AND THEREFORE THERE WAS NO COST INCURRED FOR MANAGING T HE PORTFOLIO. 13. THE LEARNED DEPARTMENTAL REPRESENTATIVE ON THE OTHER HAND RELIED IN THE ORDERS OF THE REVENUE AUTHORITIE S AND ARGUED IN SUPPORT OF THE SAME. 14. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFUL LY PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS AP PARENT FROM THE FACTS OF THE CASE THAT THE ASSESSEE IS A HUF WH EREIN THE KARTA AND COPARCENERS OF THE HUF MANAGES THE ASSETS 13 ITA NO.1834 & 1835/MDS/2016 DIRECTLY. THESE INDIVIDUALS MANAGE THE PORTFOLIO IN THEIR PERSONAL CAPACITY AND THEREFORE NO EXPENSE CAN BE PRESUMED TO BE INCURRED FOR MANAGING THE PORTFOLIO OF INVESTMENTS. FOR INVOKING PROVISIONS OF SECTION14 O F THE ACT THERE SHOULD BE A PRIMA FACIE FINDING BY THE REVENU E THAT THE ASSESSEE WOULD HAVE INCURRED CERTAIN EXPENDITURE WH ICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. IN THE PRESENT CASE BEFORE US THERE IS NO SUCH FINDING BY THE REVENUE. IN THIS SITUATION WE ARE OF THE CONSIDERE D VIEW THAT THE PROVISIONS OF SECTION 14A OF THE ACT CANNOT BE INVOKED AND ACCORDINGLY DISALLOWANCE CANNOT BE MADE BY APPL YING 8D OF THE RULES. THE DECISIONS RELIED ON BY THE REV ENUE IS NOT APPLICABLE TO THE CASE OF THE ASSESSEE WHICH IS A HUF BEING MANAGED DIRECTLY BY THE KARTHA AND COPARCENER S AND THERE IS NO FINDING THAT THE ASSESSEE HAS INCURRED ANY EXPENDITURE FOR EARNING EXEMPT INCOME. THEREFORE W E HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO DELE TE THE ADDITION MADE BY INVOKING PROVISIONS OF SECTION 14A R.W.R 8D FOR BOTH THE ASSESSMENT YEARS. 14 ITA NO.1834 & 1835/MDS/2016 15. IN THE RESULT BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 6 TH OCTOBER 2016 SD/- SD/- ( ' # . $ ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI ( /DATED 6 TH OCTOBER 2016 SOMU *+ + /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF