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Income Tax Appellate Tribunal, ‘B’ BENCH: CHENNAI
Before: SHRI INTURI RAMA RAO & SHRI DUVVURU RL REDDY
आदेश / O R D E R
PER INTURI RAMA RAO, ACCOUNTANT MEMBER: These two appeals filed by the assessee against the common order of the learned Commissioner of Income Tax (Appeals)-8, Chennai (hereinafter called as ‘CIT(A)’) dated 01.02.2019 for the assessment years (AYs) 2013-14 & 2014-15.
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Since, the identical facts and issues are involved in these appeals, we proceed to dispose the same vide this common order.
For the sake of convenience and clarity the facts relevant in for assessment year 2013-14 are stated herein.
The assessee raised the following grounds of appeal in ITA No.1176/Chny/2019:
“1. The order of the Commissioner of Incometax (Appeals) is contrary to law, facts and circumstances of the case.
2. The Commissioner of Incometax (Appeals) erred in confirming the disallowance of expenditure towards inter face communications amounting to Rs.2,62,47,445/- as capital in nature and allowed depreciation ® 25%. 2.1 The Commissioner of Income tax (Appeals) ought to have appreciated that the appellant has incurred this expenditure towards production, of advertisement content and should be allowed as revenue expenditure. 2.2 The Commissioner of Income tax (Appeals) ought to have appreciated that this expenditure was incurred on behalf of the group companies and same was reimbursed by the Companies and hence expenditure is not capital in nature.
3. The Commissioner of Income tax (Appeals) erred in confirming the Disallowance U/s 14A r.w.r 8D amounting to Rs.2,65,167/-. 3.1 The Commissioner of Income tax (Appeals) ought to have appreciated that during the year the appellant has not received any dividend income hence no disallowance is called for U/s 14A by applying rule 8D. Appellant relies on the decision of Madras High Court in the case of M/s. Redington India Limited (77 taxman.com 257(MAD).
4. The Appellant craves leave to file additional grounds at the time of hearing.”
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The brief facts of the case are as under:
The appellant namely M/s. Murugappa Management Services Ltd., is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of consultancy services for its group of companies. The return of income for the AY 2013-14 was filed on 27.09.2013 disclosing total income of Rs. 1,67,39,210/-. Against the said return of income, the assessment was completed by the Asst. CIT, Corporate Circle-4(1), Chennai (hereinafter called “AO”) vide order dated 24.03.2016 passed u/s. 143(3) r/w s. 92CA(3) of the Income Tax Act, 1961 (in short ‘the Act’) at total income of Rs. 11,49,17,480/-. While doing so, the AO made the following disallowances:
Income Returned Rs. 1,67,39,210/- Add: Disallowance of consultation fee Rs. 7,77,05,822/- Disallowance of lease hire charges Rs. 5,21,697/- Disallowance of expenditure Rs.2,62,47,445/- Less: Allow depreciation (Rs. 65,61,861/-) Disallowance u/s. 14A Rs. 2,65,167/- Rs. 9,81,78,270/- -------------------------- -------------------------- Assessed income Rs. 11,49,17,480/- --------------------------
Being aggrieved, an appeal was preferred before ld. CIT(A), who vide impugned order directed the AO to delete the addition on account of disallowance of consultancy fee following the decision of this Tribunal in assessee’s own case in for AY 2012-13 for earlier years. However, the ld. CIT(A) confirmed the addition made u/s. & 1177/Chny/2019 :- 4 -:
14A of the Act and the disallowance of expenditure incurred towards of TV films holding that it to be as capital expenditure. Being aggrieved, the assessee is in appeal before us in the present appeal.
Grounds of appeal Nos. 1 & 4 are general in nature do not require any adjudication. Grounds of appeal No.2 challenged the decision of ld. CIT(A) confirming the action of AO incurring expenditure towards of production of TV films holding it to be capital expenditure. It is submitted before us that the lower authorities had not appreciated the nature of the transaction as the expenditure was incurred towards production of advertisement content in a TV film cost of which is recovered from the associated companies and offered to tax. On the other hand, the ld. Departmental Representative placed reliance on the orders of lower authorities.
8. We heard the rival submissions and perused the material available on record. The expenditure incurred in question was admittedly incurred on popularizing the “Murugappa Brand” in the form of TV film. The plea that the expenditure was incurred on behalf of its group concern, which the appellant belongs to. It was recovered from the group concern.
Therefore, the question of disallowance does not arise is not born out of the material on record. It is altogether new plea which requires & 1177/Chny/2019 :- 5 -: verification of facts and in the absence of specific grounds of appeal, in absence of an application on admission, this new ground of appeal, the Tribunal cannot entertain this plea. Therefore, this ground of appeal cannot be entertained. As regards, to the contention of appellant that the expenditure should be allowed as revenue. This ground of appeal runs counter to the submission of the assessee that the expenditure was incurred on behalf of the sister concern of the appellant. This contention also cannot be allowed for the reason that the money was not expended for the purpose of assessee’s business and therefore, we do not find any merit in the contention of the appellant. Accordingly, this ground of appeal is dismissed.
Ground of appeal No.3 challenges the decision of the lower authorities confirming the addition of Rs. 2,65,167/-. The AO made a disallowance of Rs. 2,65,167/- u/s. 14A of the Act r/w r. 8D of the Income Tax Rules. The contention of the appellant that no dividend income was earned and therefore, the provision of s. 14A of the Act cannot be invoked was not accepted by the lower authorities on the ground that the decision of Hon’ble High Court of Madras in the case of Redington India Ltd. vs. ACIT [2017] 392 ITR 633 (Mad) is being challenged before the Hon'ble Supreme Court. Now, it is well settled law that the provisions of s. 14A of the Act cannot be applied in cases where the assessee has not & 1177/Chny/2019 :- 6 -:
earned any exempt income. In the light of this settled position of law, we direct the AO to delete the addition u/s. 14A of the Act. Accordingly, this ground of appeal is partly allowed.
In the result, the appeal filed by the assessee in for assessment year 2013-14 is partly allowed.
The issue in the present appeal relates to the addition u/s. 14A of the Act. Admittedly, the assessee had not earned any exempt income during the year relevant to the previous year under consideration. Now, it is settled position of law that the Hon’ble Jurisdictional High Court in the cases of Redington (India) Ltd. vs. ACIT [2017] 392 ITR 633 (Mad) and Chettinad Logistics Pvt. Ltd. 248 Taxman 55 (Mad) had held that in the absence of exempt income, the provisions of s. 14A of the Act cannot be triggered. Keeping in view of the above legal position, we held that no provisions of s. 14A of the Act can be made.
In the result, appeal in for assessment year 2014-15 is allowed. & 1177/Chny/2019 :- 7 -:
In the result, appeal in for assessment year 2013-14 filed by the assessee is partly allowed and appeal in 2014-15 filed by the assessee is allowed.
Order pronounced on the 21st day of November, 2019 in Chennai.