EIH Associated Hotels Limited, CHENNAI v. JCIT, CHENNAI

ITA 622/CHNY/2016 | 2011-2012
Pronouncement Date: 28-10-2016 | Result: Dismissed

Appeal Details

RSA Number 62221714 RSA 2016
Assessee PAN AAACE2125M
Bench Chennai
Appeal Number ITA 622/CHNY/2016
Duration Of Justice 7 month(s) 12 day(s)
Appellant EIH Associated Hotels Limited, CHENNAI
Respondent JCIT, CHENNAI
Appeal Type Income Tax Appeal
Pronouncement Date 28-10-2016
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted B
Tribunal Order Date 28-10-2016
Date Of Final Hearing 05-10-2016
Next Hearing Date 05-10-2016
Assessment Year 2011-2012
Appeal Filed On 16-03-2016
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . . . !' . #$#% & '' ( [BEFORE SHRI N.R.S. GANESAN JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE ACCOUNTANT MEMBER ] ./I.T.A. NO. 622/MDS/2016 / ASSESSMENT YEAR : 2011-2012 M/S. EIH ASSOCIATED HOTELS LIMITED NO.1/24 G.S.T. ROAD MEENAMBAKKAM CHENNAI 600 027. VS. THE JOINT COMMISSIONER OF INCOME TAX CORPORATE CIRCLE 2(1) CHENNAI. ./I.T.A. NO. 662/MDS/2016 / ASSESSMENT YEAR : 2011-12 THE ASSISTANT COMMISSIONER OF INCOME TAX CORPORATE CIRCLE 2(1) CHENNAI VS. M/S. EIH ASSOCIATED HOTELS LIMITED NO.1/24 G.S.T. ROAD MEENAMBAKKAM CHENNAI 600 027. [PAN AAACE 2125M] ( )* / APPELLANT) ( + )* /RESPONDENT) ASSESSEE BY : SHRI. N.V. BALAJI ADVOCATE DEPARTMENT BY : SHRI. SUPRIYO PAL IRS JCIT. /DATE OF HEARING : 13-10-2016 /DATE OF PRONOUNCEMENT : 28-10-2016 ITA NOS.622 & 662/2016. :- 2 -: / O R D E R PER ABRAHAM P. GEORGE ACCOUNTANT MEMBER THESE ARE CROSS APPEALS FILED BY THE REVENUE AND ASSESSEE DIRECTED AGAINST AN ORDER DATED 13.01.2016 OF COMMI SSIONER OF INCOME TAX (APPEALS)-6 CHENNAI. 2. FACTS APROPOS ARE THAT ASSESSEE COMPANY ENGAGED IN THE BUSINESS OF HOTELIERING AND HOSPITALITY HAD FILED RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YEAR DISCLOSING INCOME OF @ 70 39 620/-. DURING THE COURSE OF ASSESSMENT IT WAS NOTED BY TH E ASSESSING OFFICER THAT ASSESSEE HAD DISCLOSED DIVIDEND INCOME OF @72 403/- FROM INVESTMENT IN MUTUAL FUNDS AND HAD CLAIMED IT EXEMP T U/S.10(35) OF THE ACT. UPON ABOVE INCOME ASSESSEE HAD CALCULATE D A SUM OF @10 101/- AS EXPENDITURE INCURRED AND MADE A SUO-MO TU DISALLOWANCE. 3. LD. ASSESSING OFFICER WAS OF THE OPINION THAT ASSE SSEE HAD NOT WORKED OUT DISALLOWANCE IN ACCORDANCE WITH RULE 8D OF THE INCOME TAX RULES. EXPLANATION OF THE ASSESSEE WAS THAT S UBSTANTIAL PART OF INVESTMENTS WERE IN SUBSIDIARIES WHICH DID NOT YIE LD ANY DIVIDEND. HOWEVER AS PER ASSESSING OFFICER CBDTS CIRCULAR NO.5/2004 DATED 11.02.2014 DID NOT MAKE ANY DIFFERENTIATION BETWEEN INVESTMENTS YIELDING DIVIDEND INCOME AND INVESTMENTS NOT YIELDI NG DIVIDEND ITA NOS.622 & 662/2016. :- 3 -: INCOME. ACCORDING TO HIM ALL INVESTMENTS OF THE ASS ESSEE HAD TO BE CONSIDERED FOR WORKING OUT THE EXPENDITURE INCURRED FOR EARNING EXEMPT INCOME AS PRESCRIBED UNDER RULE 8D. DISALLO WANCE WAS WORKED OUT BY THE ASSESSING OFFICER BY APPLYING RUL E 8D(2)(II) FOR INTEREST AND RULE 8D(2) (III) FOR INDIRECT EXPENDIT URE. WHILE APPLYING THESE RULES HE WORKED OUT THE AVERAGE INVESTMENTS INCLUDING INVESTMENTS MADE IN THE SUBSIDIARIES. DISALLOWANCE UNDER RULE 8D(2)(II) CAME TO @5 40 30 988/- AND THAT RULE 8D(2 )(III) CAME TO @42 80 300/- AVERAGE INVESTMENTS CONSIDERED WHILE CALCULATING THESE DISALLOWANCE CAME TO @85 60 60 000/-. 4. AGGRIEVED THE ASSESSEE MOVED IN APPEAL BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS). CONTENTION OF THE ASSESSEE BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS) AS UNDER:- DURING THE CONCERNED ASSESSMENT YEAR THE APPELLAN T INVESTED RS.8 39 90 OOO/- IN LASS MAKING 100% SUBSIDIARY COM PANY NAMELY ISLAND HOTEL MAHARAJ LTD. (IHML) THE INVESTMENTS MADE BY THE ASSESSEE IN. THE 100% SUBSIDIARY COMPANY WERE NOT ON ACCOUNT OF INVESTMENT FOR EARNING CAPITAL GAINS/DIVIDEND INCOME. SUCH INVESTMENTS WERE MADE B Y THE ASSESSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOTEL INDUSTRY AND WERE ON ACCOUNT OF BUSINESS EXPEDIENCY AND THE DIVIDEND THEREFORM IS PURELY INCIDENTAL. IHML IS A . LOSS MAKING COMPANY AND THERE CAN BE NO DIVIDEN D FROM INVESTMENTS. THE FINANCIAL RESULTS OF IHML SHOW THAT THE COMPANY HAS BEEN MAKING HUGE LOSSES IN. PAS: AT: WELL AS SUBSEQUENT YEARS. DETAILS OF LOSSES (PROFIT BEFORE TAX) INCURRED BY THE COMPANY ARE AS UNDER: (PAGE NO. 194-203 OF PAPER BOOK). ITA NOS.622 & 662/2016. :- 4 -: ASSESSMENT YEAR PROFIT/(LOSS) BEFORE TAX (RS.) 2006-07 (RS.4 02 86 623) 2007'08 (RS.3 84 70 069) 2008-09 (RS.2 32 55 177) 2009-10 (RS.2 94 S9 949 ) 2010-11 (RS.32 645 134) 2011 - 12 (RS.29 728 690) I FROM THE PERUSAL OF THE ABOVE TABLE INDICATING THE FINANCIAL RESULTS IHML IT IS CLEAR THAT THE COMPANY WOULD NOT BE DELIVERING PROFITS IN THE NEAR FUTURE. FURTHER THE COMPANIES ACT 2013 CLEARLY STATES THAT A COMPANY CANNOT DEC LARE DIVIDEND IF IT HAS CARRIED FORWARD LOSSES DURING THE RELEVANT ASSESSMENT YEARS FOR WHICH IT WISHES TO DECLARE ANY DIVIDEND. HENCE THE INVESTMENT WAS NOT MADE FOR EA RNING ANY EXEMPT DIVIDEND INCOME. IN SUBSEQUENT YEAR I.E: A. Y.2012-13 THE SAID LOSS MAKING SUBSIDIARY WAS MERGE D WITH THE APPELLANT COMPANY. THIS INDICATES THAT THE INVESTMENT MADE IN THE ABOVE MENTIONED COMPANY WAS 110T FOR T-HE PURPOSE OF EARNING DIVIDEND. 5. LD. COMMISSIONER OF INCOME TAX (APPEALS) AFTER CONS IDERING THE ABOVE CONTENTION NOTED THAT THIS TRIBUNAL IN AS SESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09 IN ITA NOS.1503 AND 162 4/MDS/2012 DATED 17.07.2013 HAD DIRECTED EXCLUSION OF INVESTME NTS IN SUBSIDIARIES WHILE WORKING OUT DISALLOWANCE U/S.14A R.W.R. 8D. A S PER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) FOR IMPUGNED ASSESSMENT YEAR ALSO INVESTMENTS IN SUBSIDIARIES HAD TO BE EXCLUDED FROM VALUE OF INVESTMENTS WHILE APPLYING RULE 8D OF THE ACT. LD. COMMISSIONER OF INCOME TAX (APPEALS) ALSO DIRECTED THE ASSESSING OF FICER TO CONSIDER ITA NOS.622 & 662/2016. :- 5 -: THE REWORKED DISALLOWANCE ALONE WHILE ARRIVING AT THE MINIMUM ALTERNATIVE TAX U/S.115JB OF THE ACT. 6. NOW BEFORE US REVENUE IS IN APPEAL AGAINST THE DIR ECTION OF LD. COMMISSIONER OF INCOME TAX (APPEALS) TO EXCLUDE INVESTMENTS IN SUBSIDIARIES WHILE COMPUTING DISALLOWANCE UNDER RUL E 8D. AS AGAINST THIS ASSESSEE IN ITS APPEAL IS AGGRIEVED ON PART S USTENANCE OF DISALLOWANCE UNDER RULE 8D. ASSESSEE HAS ALSO RAISE D A GRIEVANCE THAT INVESTMENT IN ONE PARTICULAR COMPANY CALLED M/S. ME RCURY TRAVELS LIMITED WAS NOT DIRECTED TO BE EXCLUDED. ONE OTHER GROUND ALSO APPEARS IN ASSESSEES APPEAL WHICH ASSAILS INVOCATI ON OF RULE 8D WITHOUT EXPRESSING DISSATISFACTION OVER THE SUO-MOT U DISALLOWANCE OF @10 101/- MADE BY THE ASSESSEE. 7. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT LA W DID NOT ALLOW EXCLUSION OF INVESTMENTS IN SUBSIDIARY COMPAN IES WHILE APPLYING RULE 8D. RELIANCE WAS PLACED ONCE AGAIN ON THE CBDT CIRCULAR NO.5/2004 (SUPRA). FURTHER AS PER LD. AUTHORISED R EPRESENTATIVE LD.CIT(A) ERRED IN DIRECTING SUCH EXCLUSION EVEN WH ILE WORKING OUT PROFITS FOR LEVYING MAT U/S.115JB OF THE ACT. HOWE VER AS PER LD. DEPARTMENTAL REPRESENTATIVE LD. COMMISSIONER OF IN COME TAX (APPEALS) WAS JUSTIFIED IN HOLDING THAT DISALLOWANC E WAS REQUIRED BOTH UNDER RULE 8D(2)(II) AND RULE 8D(2)(III). ITA NOS.622 & 662/2016. :- 6 -: 8. PER CONTRA AND IN SUPPORT OF ITS OWN APPEAL LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT ISSUE WHETHER INVEST MENTS IN SUBSIDIARY COMPANIES WERE TO BE EXCLUDED OR NOT HAD COME UP B EFORE THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-09. AS PER LD. AUTHORISED REPRESENTATIVE THE TRIBUNAL HAD CON FIRMED THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) HOLDIN G THAT INVESTMENTS IN SUBSIDIARY COMPANIES WERE TO BE EXCL UDED WHILE WORKING OUT THE DISALLOWANCE UNDER RULE 8D. AS PER LD. AUTHORISED REPRESENTATIVE DIVIDEND EARNED FROM INVESTMENTS IN SUBSIDIARIES WAS PURELY INCIDENTAL TO SUCH INVESTMENTS. HOWEVER AS PER LD. AUTHORISED REPRESENTATIVE LD. COMMISSIONER OF INCOME TAX (APP EALS) ERRED IN NOT DIRECTING EXCLUSION OF INVESTMENTS IN ONE PARTICULA R SUBSIDIARY CALLED M/S. MERCURY TRAVELS LIMITED. IN ANY CASE AS PER T HE LD. AUTHORISED REPRESENTATIVE WITHOUT EXPRESSING DISSATISFACTIO N OVER THE SUO MOTU DISALLOWANCE MADE BY THE ASSESSEE LD. ASSESSING OF FICER COULD NOT HAD INVOKED SECTION 14A. RELIANCE WAS PLACED ON THE JUD GMENT OF HONBLE DELHI HIGH COURT IN THE CASE OF M/S.JOINT INVESTMENTS PVT. LTD VS. CIT 372 ITR 694 . FURTHER AS PER LD. AUTHORISED REPRESENTATIVE DISA LLOWANCE OF ANY THING MORE THAN THE EXEMPT INCOME WAS AGAINS T LAW. 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. QUESTION WHETHER INVESTMENTS IN SUBSIDIARY COMPANY WAS TO BE EXCLUDED OR NOT FOR TH E PURPOSE OF ITA NOS.622 & 662/2016. :- 7 -: WORKING OUT DISALLOWANCE UNDER RULE 8D HAD COME UP BEFORE THIS TRIBUNAL IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2008-2009 WHEREIN THE TRIBUNAL HELD HAS UNDER:- WE ARE OF THE CONSIDERED OPINION THAT THE INVESTM ENTS MADE BY THE ASSESSEE IN THE SUBSIDIARY COMPANY ARE NOT ON ACCOUNT OF INVESTMENTS FOR ' EARNING CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOTEL INDUSTRY. A PERUSAL OF T HE ORDER OF THE CIT(APPEALS) SHOWS THAT OUT OF TOTAL INVESTMENT OF RS.64 18 19 7751- RS.63 31 25 715/- IS INVESTED IN WHOLLY OWNED SUBSIDIARY. THE FACT SUPPORTS THE CASE OF THE ASSESSEE THAT THE ASSESSEE IT; NOT INTO THE BUSINESS OF INVESTMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACCOUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNED BY THE ASSESSEE FROM INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INC IDENTAL. THEREFORE THE INVESTMENT MADE BY THE ASSESSEE IN ITS SUBSIDIARY AN: 1'01' TO BE RECKONED FOR DIS-ALLOWANCE ULS. 14. R.W.R 8D. THE ASSESSING OFFICER IS DIRECTED TO RE-COMPUTE THE AVERAGE VALUE OF INVESTMENT- UNDER THE PROVISION OF RULE BD AFTER DELETING INVESTMENTS MADE BY THE ASSESSEE IN SUBSIDIARY COMPANY. ACCORDINGLY THIS GROUND OF APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AND THAT OF THE REVENUE IS DISMISSED. THE FINDINGS OF THE CIT(APPEALS) ON THE ISSUE ARE ACCORDINGLY MODIFIED NOW THE QUESTION THAT REMAINS IS WHETHER A DISALLO WANCE UNDER RULE 8D(2)(II) COULD HAVE BEEN MADE. RULE 8D(2)(II) IS REPRODUCED HEREUNDER:- (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DO ES NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE OF FOLLOWING AMOUNTS NAMELY :- (I) ; (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPE NDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR IS NOT DIR ECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOMEOR RECEIPT AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA NAMELY :- B ITA NOS.622 & 662/2016. :- 8 -: A X--- C WHERE A =AMOUNT OF EXPENDITURE BY WAY OF INTEREST O THER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCUR RED DURING THE PREVIOUS YEAR ; B =THE AVERAGE OF VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE-SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR ; C =THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE- SHEET OF THE ASSESSEE ON THE FIRST DAY AND THE LAS T DAY OF THE PREVIOUS YEAR ; (III) FOR APPLYING RULE 8D(2)(II) IT IS NECESSARY THAT A SSESSEE SHOULD HAVE INCURRED EXPENDITURE BY WAY OF INTEREST WHICH IS NO T DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPTS. LD. ASSESSING OFFICER HAD APPLIED THIS RULE MECHANICALLY WITHOUT VERIFYIN G WHETHER ANY PART OF THE TOTAL INTEREST EXPENDITURE INCURRED BY THE ASSESSEE WAS DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR RECEIPTS OR INCOME. ONLY THAT EXPENDITURE WHICH WAS NOT SO ATTRIBUTABLE COULD BE SUBJECT TO DISALLOWANCE UNDER RULE 8D(2)(II). NO DOUBT LD. AUTHORISED REPRESENT ATIVE HAS MADE A SUBMISSION THAT LD. ASSESSING OFFICER HAD NOT EXPRE SSED HIS DISSATISFACTION ON THE CLAIM THAT EXPENDITURE EARNE D FOR CLAIMING EXEMPT DIVIDEND OF @72 403/- WAS @10 101/- ONLY. HO WEVER THIS CLAIM HAS TO BE CONSIDERED AFTER WORKING OUT THE ACTUAL I NVESTMENTS MADE ITA NOS.622 & 662/2016. :- 9 -: BY THE ASSESSEE DURING THE RELEVANT ASSESSMENT PREV IOUS YEAR AFTER EXCLUDING THE INVESTMENTS MADE BY IT IN ITS SUBSIDI ARIES. THIS ASPECT WAS ALSO NOT VERIFIED BY THE LOWER AUTHORITIES. 10. COMING TO THE APPLICATION OF SEC. 8D(2)(III) OF THE ACT THERE IS NO DISPUTE ABOUT SOME INDIRECT EXPENDITURE WOULD HAVE BEEN INCURRED BY THE ASSESSEE FOR DECIDING ON THE INVE STMENT MADE IN MUTUAL FUNDS. HENCE APPLICATION OF RULE 8D(2)(III) BY THE LOWER AUTHORITIES CANNOT BE FAULTED. HOWEVER WHILE APPL YING THIS RULE ALSO INVESTMENTS IN SUBSIDIARIES HAVE TO BE EXCLUDED. 11. COMING TO THE CLAIM OF THE ASSESSEE THAT WHILE EX CLUDING THE INVESTMENTS IN SUBSIDIARIES LD. COMMISSIONER OF INCOME TAX (APPEALS) HAD NOT GIVEN ANY SPECIFIC DIRECTION FOR EXCLUDING INVESTMENT IN ONE M/S. MERCURY TRAVELS LIMITED WE FIND THAT L D. COMMISSIONER OF INCOME TAX (APPEALS) HAD GIVEN CLEAR DIRECTION TO E XCLUDE INVESTMENTS IN ALL SUBSIDIARIES. HENCE THIS GROUND OF THE ASS ESSEE DOES NOT HOLD WATER. NEVERTHELESS IT HAS TO BE MENTIONED THAT T OTAL DISALLOWANCE U/S.14A OF THE ACT CANNOT EXCEED THE EXEMPT INCOME AS HELD BY HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD (SUPRA). THERE ARE A HOST OF DECISIONS BY VARIOUS HIGH COUR T WHERE IT HAS BEEN HELD THAT DISALLOWANCE U/S.14A OF THE ACT CANNOT FULLY EAT OFF THE EXEMPT INCOME. CONSIDERING ALL THESE ASPEC TS WE ARE OF THE ITA NOS.622 & 662/2016. :- 10 -: OPINION THAT THE QUANTUM OF DISALLOWANCE U/S.14A HA S TO BE RE-WORKED BY THE LD. ASSESSING OFFICER. NEEDLESS TO SAY WHA T CAN BE CONSIDERED FOR WORKING OUT THE PROFIT ON WHICH SEC. 115JB OF T HE ACT IS ONLY THE ACTUAL DISALLOWANCE MADE UNDER RULE 8D AND NOTHING MORE. WE THEREFORE REMIT THE MATTER BACK TO THE FILE OF THE LD. ASSESSING OFFICER FOR CORRECT QUANTIFICATION OF THE DISALLOWANCE UNDE R RULE 8D. 12. IN THE RESULT APPEAL OF THE REVENUE IS DISMISSED WHEREAS THAT OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PUR POSE. ORDER PRONOUNCED ON FRIDAY THE 28 TH DAY OF OCTOBER 2016 AT CHENNAI. SD/- SD/- ( . . . ) ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( !' . #$#% ) (ABRAHAM P. GEORGE) & / ACCOUNTANT MEMBER / CHENNAI ! / DATED: 28 TH OCTOBER 2016 KV !' # $% &% / COPY TO: 1 . '( / APPELLANT 3. ) () / CIT(A) 5. %+ # - / DR 2. #.'( / RESPONDENT 4. ) / CIT 6. / 0 / GF