Income Tax Appellate Tribunal - Chennai
Sical Infra Assets Limited, Chennai vs Assessee
IN THE INCOME TAX APPELLATE TRIBUNAL
"B" BENCH, CHENNAI
BEFORE Dr. O.K. NARAYANAN, VICE PRESIDENT AND
SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER
ITA No. 2088/MDS/2011
Asst. Year : 2008-09
M/s. SICAL INFRA ASSETS LTD, The Asst. Commissioner of
South India House, Income Tax, Company
73, Armenian Street, v. Circle-VI(3), CHENNAI.
CHENNAI - 600 001.
PAN : AAKCS8356A.
(Appellant) (Respondent)
Appellant by : Shri S.Satyanarayanan, Advocate
Respondent by : Dr. S. Moharana, CIT(DR)
Date of hearing : 16 Oct 2012
Date of Pronouncement : 22 Nov 2012
O R D E R
PER CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER :
This appeal by the assessee is directed against the order of the Commissioner of Income Tax-V, Chennai dated 30.9.2011 under sec.143(3) of the I.T. Act in Appeal No.CIT(A)-V/IT 2 ITA 2088Mds/11 No.335/2010-11. The issues for consideration before us in this appeal are :-
i) Whether the Commissioner of Income Tax (Appeals) is justified in upholding the view of the Assessing Officer that the assessee has not carried out any business activity during the previous year relevant to the Asst. Year 2008-09.
ii) Whether the Commissioner of Income Tax (Appeals) is justified in confirming the disallowance of .62,50,330/- under sec.14A of the I.T. Act.
2. The facts of the case are that the assessee is a registered company engaged in the business of Developing, Implementing and Operating infrastructure projects. The assessee filed its return of income on 30.9.2008 admitting total income of .1,86,158/-, after claiming an expenditure of .1,47,25,550/- from out of .2,33,68,550/- offered as income from other sources. The case was selected for scrutiny and the Assessing Officer determined the total income of the assessee at . 2,28,73,781/-. The Assessing Officer, 3 ITA 2088Mds/11 while completing the assessee, denied the set off of business loss claimed by the assessee following the judgment of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & Fertilizers Ltd v. CIT 227 ITR 172) holding that the assessee did not carry out any business activity during the year under consideration and that the interest income is taxable. Aggrieved, the assessee went in appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) after hearing the A.R. of the assesse, confirmed the order of the Assessing Officer since according to the Commissioner of Income Tax (Appeals), the assessee except reiterating the submissions made before Assessing Officer, it could not adduce any tangible evidence or details to support that it had commenced its business activities during the previous year relevant to the Asst. Year under consideration. Further aggrieved, the assessee is in appeal before us.
3. The Counsel for the Assessee submits that the assessee was incorporated on 09.5.2007 with the object of bidding and developing infrastructure projects as evident from objects clause of Memorandum of Association. The assessee obtained its certificate of 4 ITA 2088Mds/11 commencement of business from the Ministry of Corporate Affairs on 14.5.2007. The Counsel for the Assessee referring to page 29 of the Paper Book filed submits that the assessee is a holding-cum- operating company as approved by Foreign Investment Promotion Board (FIPB) unit of Govt. of India, Ministry of Finance (Department of Economic Affairs). The Counsel for the Assessee referring to the application made to FIPB at Page 60 of the Paper Book submits that the assessee company being a holding company had made investments in projects/companies at Sical Distriparks Ltd., Sical Multimodal and Rail Transport Co. Ltd., Sical Iron Ore Terminals Ltd., etc. The Counsel for the Assessee referring to page 51 of Paper Book which is investment schedule in the balance sheet as on 31.3.2008 of the assessee company, submits that the assessee company has, in fact, given effect to the objects of being the holding company by acquiring shares of Sical Distriparks Ltd., during the relevant previous year 2007-08 relevant to the Asst. Year 2008-09. Referring to Page 68 of the Paper Book to the approval letter issued by the Ministry of Railways , the Counsel for the Assessee submits that license to operate container trains have been transferred from 5 ITA 2088Mds/11 Sical Logistics to Sical Multimodal and Rail Transport Co. Ltd. Thus, the Counsel for the Assessee submits that the assessee company has carried out its activities during the relevant previous year 2007- 08 and has set up its business by virtue of investing in infrastructure assets and that it has become the holding company as envisaged in its object clause of Memorandum of Association.
4. The Counsel for the Assessee further submits that the objects of the assessee company in addition to being a holding company has also to bid and involve itself in the development and operation of infrastructure projects. Infrastructure Projects can be owned and operated by Special Purpose Vehicles as these projects are bid on a revenue sharing basis with the Government. The Counsel for the Assessee submits that the assessee company had made an application (bid) along with McQuarie for setting up of container terminal by the Port of Ennore during the relevant previous year and this is evident from the letter issued by the Ennore Port Ltd, which is placed at Page 73 of the Paper Book. The Counsel for the Assessee submits that this fact was also brought to the notice of the Assessing Officer during assessment proceedings vide para 5 of letter 6 ITA 2088Mds/11 dated 15.11.2010, which is placed at page 26 of the Paper Book. The Counsel for the Assessee submits that by bidding to an infrastructure port project by making necessary application money and bid bond clearly shows that the assessee company had set up its business of being an operating company. The Counsel for the Assessee placed reliance on the decision of Hon'ble Delhi High Court in the case of CIT v. Hughes Escorts Communications Ltd. (311 ITR
253). The Counsel for the Assessee submits that the Delhi High Court held that the expenses incurred in the previous year prior to commencement of business, but after setting up of its business which two dates need not be the same, would be deductible as revenue expenditure. The Counsel for the Assessee submits that in view of the above facts and legal proposition the assessee company has set up its business and hence eligible to claim the expenses as revenue expenditure in computing the business income under sec.28 of the I.T. Act.
5. The Counsel for the Assessee further submits that the authorities below have misplaced their reliance on the judgment of Hon'ble Supreme Court in the case of Tuticorin Alkali Chemicals & 7 ITA 2088Mds/11 Fertilizers Ltd v. CIT (supra) while rejecting the claim of the assessee. The Counsel for the Assessee further submits that the assessee had furnished the details of having bid/submission of tender before lower authorities and, therefore, not justified in observing that no evidence was filed in support of the assessee's contention. The Counsel for the Assessee pleaded that the order of the Commissioner of Income Tax (Appeals) may be reversed.
6. The Departmental Representative, on the other hand, strongly supports the orders of the authorities below and submits that since the Departmental Authorities have decided the case of the assessee following the judgment of the Hon'ble Supreme Court, which is directly on the issue agitated by the assessee, no interference in the order of the Commissioner of Income Tax (Appeals) is called for.
7. We have heard both sides, perused the material placed before us and also the case law relied on by the parties. At the outset, we observe that the assessee has filed a Paper Book containing 103 pages in support of its contentions. But none of these documents appears to have been examined by the Assessing Officer 8 ITA 2088Mds/11 as the Assessing Officer seems to have decided the matter and assessed the income of the assessee relying on the decision of the Hon'ble Supreme Court . Even the Commissioner of Income Tax (Appeals) has not commented anything on any material furnished by the assessee in the Paper Book though the assessee's counsel submits that details of having bid/submission of tender have been furnished. In fact, the Commissioner of Income Tax (Appeals) in para 6.1.1 of his order observed that no evidence was produced either before A.O. or before him in support of the contention of the assessee that it had set up and commenced the business. He also observed that no details of evidence of having bid for any tender for any work has been furnished by the assessee. We have also gone through the Assessment Order and find that none of these documents were either referred or examined by the Assessing Officer in holding that the assessee has not commenced business during the Asst. Year under consideration. In the circumstances, we feel that the matter should go back to the Assessing Officer for fresh investigation and redoing the assessment afresh in accordance with law after examining the material available in the Paper Book. The 9 ITA 2088Mds/11 assessee is directed to produce all the necessary documents before the Assessing Officer.
8. The facts leading to disallowance made under sec.14A read with Rule 8D of I.T. Rules are that the assessee claimed .69.31 lakhs as dividend income exempt under sec.10 of the I.T. Act and no expenses were attributed for earning this dividend income. The Assessing Officer, while completing the assessment, disallowed an amount of .62,50,330/- as expenditure attributable to earning this dividend income for the reason that the major activity of the assessee company constitutes investment and hence substantial management and administrative cost requires to be apportioned towards that activity. Aggrieved, the assessee went in appeal before the Commissioner of Income Tax (Appeals), who confirmed the order of the Assessing Officer on this issue mainly placing reliance on the Special Bench decision of the ITAT Delhi Bench in the case of Cheminvest Ltd. v. ITO (124 TTJ 577) (Del)(SB). The assessee is agitated and is in appeal before us.
10 ITA 2088Mds/11
9. The Counsel for the Assessee contends that it had not incurred any expenditure and, therefore, there is no justification for making any disallowance and the case law relied on by the Commissioner of Income Tax (Appeals) in confirming the action of the Assessing Officer has no relevance to the facts of this case as in this case, the assessee has not incurred any expenditure in earning the dividend income.
10. The Departmental Representative supported the orders of the lower authorities. He submits that the case law relied on by the Commissioner of Income Tax (Appeals) supports the action of the Commissioner of Income Tax (Appeals) in sustaining the disallowance.
11. We have heard both sides, perused the material on record and the case law relied upon. Recently, the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. v. CIT (347 ITR
272) held as under:-
"Sub-section (2) of section 14A of the Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation ~o income which does not form part of the total income. The requirement of the Assessing Officer embarking upon a determination of the amount of expenditure 11 ITA 2088Mds/11 incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assessing OffiCef'7'lUstrecord that he is not 5atisfied with the correctness of the claim of the assessee in respect of such expenditure.
Sub-section (3) is nothing but an offshoot of sub-section (2) of section 14A. Sub-section (3) applies to cases where the. assessee claims that no expenditure has been incurred in relation to income which does not form part of the total income under the Act. In other words sub-section (2) deals with cases where the assessee specifies a positive amount of expenditure in relation to income which does not form part of the total income under the Act and sub-section (3) applies to cases where the assessee asserts that no expenditure had been incurred in relation to exempt income:
In both cases, the Assessing Officer, if satisfied with the correctness of the claim of the assessee in respect of such expenditure or no expenditure, as the case may be, cannot embark upon a determination of the amount of expenditure in accordance with any prescribed method, as mentioned in sub- section (2) of section 14A of the Act. It is only if the Assessing Officer is not satisfied with the correctness of the claim of the assessee, in both cases, that the Assessing Officer gets jurisdiction to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the Act in accordance with the prescribed method. The prescribed method is the method stipulated in rule 8D of the Rules. While rejecting the claim of the assessee with regard to the
12 ITA 2088Mds/11 expenditure or no expenditure, as the case may be, in relation to exempt income, the Assessing Officer would have to indicate cogent reasons for the same. It is, therefore, clear that determination of the amount of expenditure in relation to exempt income under rule 8D would only come into play when the Assessing Officer rejects the claim of the assessee in this regard." On a reading of the above decision it is clear that for invoking the provisions of sec.14A(ii) & (iii), the Assessing Officer has to give a finding that he is not satisfied with the correctness of the claim of the assessee that no expenditure was incurred in the business. In the absence of any such findings and cogent reasons for not agreeing with the contention of the assessee that 'no expenditure was incurred for earning the income', the Assessing Officer cannot invoke the provisions of sec.14A read with Rule 8D of IT Rules. In this case, the Assessing Officer has not recorded any finding as to the correctness of the claim. Therefore, we remit the issue back to the file of the Assessing Officer to decide the issue in the light of the decision of the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd. v. CIT (supra), after providing the assessee opportunity of hearing in the matter.
13 ITA 2088Mds/11
12. In the result, the appeal is allowed for statistical purpose.
13. Order pronounced on Thursday, the 22nd day of November 2012 at Chennai.
Sd/- sd/-
( Dr. O.K. NARAYANAN) (CHALLA NAGENDRA PRASAD)
VICE PRESIDENT JUDICIAL MEMBER
Chennai,
Dated : 22 November 2012.
Jls.
Copy to:-
(1) Appellant
(2) Respondent
(3) CIT-V, Chennai
(4) C.I.T., Chennai
(5) D.R. (6) Guard file.