ACIT CORPORATE CIRCLE 3(1), CHENNAI vs. TAMILNADU SMALL INDUSTRIES CORPORATION LTD., CHENNAI

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ITA 3047/CHNY/2017Status: DisposedITAT Chennai15 May 2018AY 2013-144 pages

In favour of the assessee: the Revenue's appeal was dismissed. From the AI summary of this appeal.

AI SummaryDismissed

What did the Tribunal hold?

The CIT(A) deleted the addition by following the Tribunal's order for earlier assessment years, which held that nomination charges paid by the assessee are allowable expenditure. The Tribunal upheld the CIT(A)'s order.

What were the facts?

The Revenue appealed against the deletion of an addition of Rs. 8,66,00,000/- made by the Assessing Officer (AO) as disallowance of nomination charges paid by the assessee to the Government of Tamilnadu. The AO considered these charges as an application of income and not a deductible expenditure.

What were the issues?

Whether nomination charges paid by a state undertaking to the state government are an allowable business expenditure or an application of income.

Which sections of the Income-tax Act were involved?

Section 37(1)

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI

Before: SHRI A.MOHAN ALANKAMONY & SHRI DUVVURU RL REDDY

Pronounced: 15.05.2018

आदेश / O R D E R

Per A. Mohan Alankamony, AM:-

1.

This appeal by the Revenue is directed against the order passed by the Learned Commissioner of Income Tax (Appeals)-11, Chennai dated 30.08.2017 in for the assessment year 2013-14 passed U/s.143(3) of the Act.

2.

The Revenue has raised the three grounds in its appeal however the crux of the issue is that the Ld.CIT(A) has erred in deleting the addition made by the Ld.AO amounting to Rs.8,66,00,000/- being

Govt. of Tamilnadu.

3.

The brief facts of the case are that the assessee is a limited company engaged in the manufacture of structural engineering goods, steel and wooden furniture, filed its return of income for the assessment year 2013-14 electronically on 30.09.2013 admitting total income of Rs.2,50,46,020/-. Subsequently the assessee filed revised return of income on 21.03.2014 admitting total income of Rs.7,47,17,920/-. Initially the return was processed U/s.143(1) of the Act and subsequently the case was selected for scrutiny under CASS and notice U/s.143(2) of the Act was issued on 10.09.2014. Finally assessment order was passed U/s.143(3) of the Act on 10.03.2016 wherein the Ld.AO made addition of Rs.8,66,00,000/- by disallowing nomination charges paid to State Government of Tamilnadu by observing as under:-

4.6 The assessee is a 100% Tamil Nadu State Undertaking and all. its functionaries are Government Officials. The charging of nomination fees by the State Government has never been challenged by the assessee. It is quite evident that the profit of the assessee is ploughed back to its promoter State Government in the name of nomination fee. This act amounts to application of its income only. Instead of paying dividend to the State Government from its profit after taxation, the business profits of the company is sought to be routed back to the State Government by way of nomination charges and thereby, evading legitimate payment of corporation tax to the coffers of the Central Government. Hence, a corporate veil has been adopted by the assessee which is required to be pierced so as to bring into tax the actual income. This is also evidenced from the fact that the GO which is passed at the fag end of the year enhancing the payment of the nomination fees retrospectively form the beginning of the Previous Year so as to reduce the profits of the assessee company.

4.7 In view of the discussion made above, I am of the opinion that the nomination charges amount to Rs.8,66,00,000 which is paid/payable by the assessee to the State Government is application of its income and cannot be allowed as deduction u.s 37(1) or under any other provisions of the Income Tax Act, 1961 while computing the total income of the assessee for the Assessment year 2013-14.”

4.

On appeal, the Ld.CIT(A) deleted the addition made by the Ld.AO by following the order of the Tribunal in the assessee’s own case in the earlier assessment years 2010-11, 2011-12 & 2012-13 in ITA Nos.

413,414 & 415/Mds/2017 vide order dated 09.06.2017, wherein it was held that nomination charges paid by the assessee is an allowable expenditure U/s.37 of the Act.

5.

Since the Ld.CIT(A) has only followed the order of the Tribunal on the identical issue in the assessee’s own case for the earlier years, we do not find any infirmity in his order. Therefore we hereby uphold the order of the Ld.CIT(A).

6.

In the result the appeal of the Revenue is dismissed.

Order pronounced on the 15th May, 2018 at Chennai.

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