Income Tax Appellate Tribunal - Chennai
V.Ramakrishna Sons Pvt Ltd., Chennai vs Assessee on 5 July, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL
"C" BENCH CHENNAI
Before Shri N.S. SAINI, ACCOUNTANT MEMBER AND
SHRI S.S. GODARA, JUDICIAL MEMBER
I.T.A. No. 1838 & 1839/Mds/2010
Asst. Year : 2005-06 & 2006-07
M/s. V.RAMAKRISHNA SONS PVT. The DEPUTY COMMISSIONER OF
LTD., Old No,5, New No.9, First v. INCOME TAX,
Crescent Park Road, Gandhi Nagar, Company Circle - III
Adyar, CHENNAI - 600 020. CHENNAI - 600 034.
Pan : AAACV2307A
(Appellant) (Respondent)
Appellant by : Shri Saroj Kumar Parida, Advocate
Respondent by : Shri Yogesh Kameth, JCIT, Sr.AR
Date of hearing : 05 July 2012
Date of Pronouncement : 13th July 2012
O R D E R
PER S.S. GODARA, JUDICIAL MEMBER :
These appeals by the Assessee are directed against the order of the CIT(Appeals) -III, Chennai dated 17.9.2010 pertaining to the Assessment Years 2005-06 and 2006-07 respectively in proceedings under sec.143(3) of the Income Tax Act, in short, "the Act". Since the grounds raised in both the appeals are the same ie., disallowance under sec.14A of the I.T. Act has been impugned by the Assessee, hence, for the sake of convenience and brevity both cases are decided together.
2. We take the facts from ITA No.1838/Mds/2010 as under :- 2 I.T.A. No. 1838 & 1839/Mds/2010
3. The Assessee company is in the business of Managing Agents who filed its 'return' declaring an income of `3,35,818/-. The Assessing Officer processed the same under sec.143(1) of the Act determining a refund of `3,21,513/-. Thereafter, a notice under sec.148 of the Act was issued. The Assessee had claimed exemption under sec.10(34) of the Act to the tune of `38,71,661/-. In its profit and loss account, it had claimed expenses in the form of interest of `15,98,837/- and other administrative expenses. The Assessing Officer issued notice of disallowance..
4. In response to the notice, the Assessee claimed that the amount had been deposited long back and dividend income, in question, was in lump sum relating to years back regarding which no expenditure had been incurred.
5. In the assessment order, the Assessing Officer negated the Assessee's plea that no expenditure was involved in earning dividend income by relying on the judgment of the Hon'ble Supreme Court in the case of CIT v. United General Trust (200 ITR 448(S.C) and determined the quantum of expenditure on pro-rata basis and against the gross receipts of `.60,22,585/- during the year under consideration and interest of `.15,98,837/-, and worked out the disallowance at `1,38,750/- under sec.14A of the I.T. Act..
6. The Assessee preferred appeal before the CIT(Appeals) wherein the disallowance under sec.14A of the Act stands confirmed as under :-
"I have considered the facts of the case, the reasons given by the A.O. and the submissions of ld. AR. I find that the contention of the appellant that there is no expenses involved in 3 I.T.A. No. 1838 & 1839/Mds/2010 earning dividend income is not correct as the appellant company has gross receipts of `60,22,585/- during the year under consideration and the interest paid is `15,98,837/-. The appellant has received dividend income of `38,71,661/-. As per the Apex Court decision in the case of CIT v. United General Trust, reported in 200 ITR 488 (S.C), a reasonable amount of disallowance is required to be made before allowing the exemption. Keeping in mine the above facts and the precedent, the disallowance made by the A.O. is found to be reasonable. I find no reason to deviate from the findings given by the A.O. Hence, this ground of appeal is dismissed.
Hence the Assessee is aggrieved.
7. Reiterating the stand taken before the lower authorities as well as the pleas taken in the grounds of appeal, the A.R. has submitted that in the absence of any direct relation between the income as well as the expenditure in question, no disallowance can be made under sec.14A of the Act. In this regard he has also cited the case law of Hon'ble Punjab & Haryana High Court in the case of CIT v. Hero Cycles Ltd. (323 ITR 518).
8. The D.R., on the other hand, relied on the findings of CIT(Appeals) and prayed for rejection of appeal.
9. We have considered the rival submissions of the parties at length and also perused the findings relevant to the case as well as case law cited. It emerges that before the Assessing Officer as well as CIT(Appeals) the Assessee's version is that for earning dividend income, no expenditure had been incurred, 4 I.T.A. No. 1838 & 1839/Mds/2010 since the same dates back to past years. We observe from the orders that the Assessing Officer as well as the CIT(Appeals) have not arrived at the disallowance on the basis of any material on record so as to prove direct co- relation between the income and expenditure. By drawing support from the judgment of Hon'ble Punjab & Haryana High Court in the case of CIT v. Hero Cycles Ltd. (supra) in which it has been held as under :-
"In view of finding reproduced above, it is clear that the expenditure on interest was set off against the income from interest and the I investments in the share and funds were out of the dividend proceeds. In view of this finding of fact, disallowance under s. 14A was not sustainable. Whether, in a given situation, any expenditure was incurred which was to be disallowed, is a question of fact. The contention of the Revenue that directly or indirectly some expenditure is always incurred which must be disallowed under s. 14A and the impact of expenditure so incurred cannot be allowed to be set off against the business income which may nullify the mandate of s. 14A, cannot be accepted. Disallowance under s. 14A requires finding of incurring of expenditure; where it is found that for earning exempted income no expenditure has been incurred, disallowance under s. 14A cannot stand. In the present case finding on this aspect, against the Revenue, is not shown to be perverse. Consequently, disallowance is not permissible. We have taken this view earlier also in IT Appeal No. 504 of 2008, CIT vs. Winsome Textile Industries Ltd., decided on 25th Aug., 2009, wherein it was observed as under :
Contention raised on behalf of the Revenue is that even if the assessee had made investment in shares out of its own funds, the assessee had taken loans on which interest was paid and all the money available with the assessee was in common kitty, as held by this Court in CIT vs. Abhishek Industries Ltd. (2006) 205 CTR (P&H) 304 : (2006) 286 ITR 1 (P&H) and therefore, disallowance under s. 14A was justified.
We do not find any merit in this submission. Judgment of this Court in Abhishek Industries (supra) was on the issue of allowability of interest paid on loans given to sister concerns, 5 I.T.A. No. 1838 & 1839/Mds/2010 without interest. It was held that deduction for interest was permissible when loan was taken for business purpose and not for diverting the same to sister concern without having nexus with the business. Observations made therein have to be read in that context. In the present case, admittedly, the assessee did not make any claim for exemption. In such a situation, s. 14A could have no application."
In view of the above, we are of the opinion that no substantial question of law arises. The appeal is dismissed."
We also subscribe to the same opinion. Therefore, in our view, before any disallowance is made under the provisions of sec.14A of the Act, the direct relation between income and expenditure has to be proved, which should be based on some material available on record.
10. As far as the case law relied upon by the Revenue is concerned ie., CIT v. United General Trust (supra), we find the same to be distinguishable on facts of the instant case In that case, the Hon'ble Apex Court did not decide the issue of co-relation of expenditure, but had dealt with the submission of reasonableness of disallowance. Therefore, the same is not applicable to the facts of the instant case. Consequently, we find no reason to agree with the disallowance made by the Assessing Officer and confirmed by the CIT(Appeals) under sec.14A of the Act. Hence, the Assessee's appeal stands allowed. 6 I.T.A. No. 1838 & 1839/Mds/2010
11. Similarly, in view of our findings herein above, ITA No.1809/Mds/2010 also stands accepted.
12. Order pronounced on Friday, the 13th of July 2012 at Chennai.
Sd/- Sd/-
( N.S. SAINI) ( S.S. GODARA )
ACCOUNTAT MEMBER JUDICIAL MEMBER
Chennai,
Dated : 13th July 2012
Jls.
Copy to: (1) Appellant
(2) Respondent
(3) CIT(A)-II, Coimbatore
(4) CIT-III, Coimbatore
(5) D.R.
(6) Guard file