Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, ‘C’ BENCH, CHENNAI
Before: HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM & HON’BLE SHRI MANU KUMAR GIRI, JM
आयकर अपीलीय अिधकरण ‘सी’ �ायपीठ चे�ई म�। IN THE INCOME TAX APPELLATE TRIBUNAL ‘C’ BENCH, CHENNAI माननीय �ी मनोज कुमार अ�वाल ,लेखा सद� एवं माननीय �ी मनु कुमार िग�र, �ाियक सद� के सम�। BEFORE HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM AND HON’BLE SHRI MANU KUMAR GIRI, JM आयकरअपील सं./ ITA No.805/Chny/2023 (िनधा�रणवष� / Assessment Year: 2014-15) Express Publications (Madurai) P. Ltd, Vs. DCIT No.29, Express Garden, Company Circle II (1) Second Main Road Industrial Estate, Now Corporate Circle 2 (1) Ambattur, Chennai 600 058. Chennai 600 034. [PAN: AAACI 0842D] (अपीलाथ�/Appellant) (��यथ�/Respondent) अपीलाथ� क� ओर से/ Appellant by : Ms. Abirami Narendranath, Advocate ��यथ� क� ओर से /Respondent by : Shri Saujanya Ranjan, IRS, JCIT. सुनवाई क� तार�ख/Date of Hearing : 22.04.2024 घोषणा क� तार�ख /Date of Pronouncement : 07.05.2024 आदेश / O R D E R MANU KUMAR GIRI (Judicial Member)
This appeal by the assessee is directed against the order of the Ld. Commissioner of Income Tax (Appeals)(NFAC) Delhi [CIT(A)] in order No. ITBA/NFAC/S/250/2023-24/1053097219(1) dated 23.05.2023. The assessment was framed by the DCIT, Corporate Circle 2 (1), Chennai for the assessment year 2014-15 passed u/s.143(3) of the Income Tax Act, 1961 (hereinafter the ‘Act’), vide order dated 31.12.2016.
2 ITA No.805 /Chny/2023
The Assessee has filed 17 grounds of appeal. Ground Nos. 1 to 5 is in relation to the disallowance u/s 14A of the Act read with Rule 8D. Ground No. 6 pertains to the Employee’s contribution to PF/ESI. Ground No. 7 is in respect to disallowance of interest on TDS u/s 40a(ii), ground Nos. 8 to 11 are in relation to disallowance on account of delayed payment of PF/ESI, ground Nos. 12 to 15 are in relation to interest paid on advance to group companies under section 36(1)(iii) and ground Nos. 16 to 17 are in relation to the depreciation claim of deferred revenue expenditure (relaunch expenses). 3. At the outset, Ld. Counsel for the Assessee filed detailed chart ground-wise and also filed Co-ordinate Bench order in assessee’s own case for Assessment years 2010-11, 2011-12 & 2012-13 in ITA Nos.730,737 754 & 1219 of 2023 dated 27.03.2024. 4. We have heard the Ld. Counsel for the Assessee and Ld. DR for the revenue and also perused the impugned order and chart submitted by the counsel for the Assessee. 5. With regard to ground Nos. 1 to 5 which are in relation to the disallowance u/s section 14A of the Act read with Rule 8D, Ld. AO Computed indirect expense disallowance under rule 8D(2)(iii) for Rs.7,645/- being 0.5% of average investment. Ld. CIT(A), considering the explanation to section 14A as introduced by Finance Act 2022, confirmed the disallowance. The said explanation provided that the disallowance would be attracted even if no income has accrued to the Assessee.
3 ITA No.805 /Chny/2023
Aggrieved, the assessee is in further appeal before us. The Ld. AR submitted that the assessee has not earned any exempt income during the year. 6. We find that this issue is covered in assessee’s favor by the decision of Hon’ble High Court of Madras in the case of CIT vs. Chettinad Logistics P. Ltd. (80 Taxmann.com 221) holding that Section 14A cannot be invoked where no exempt income was earned by assessee in relevant assessment year. Respectfully following the same, we direct Ld. AO to verify the same. If no exempt income has been earned by the assessee, the impugned disallowance shall stand deleted. The Explanation to Sec.14A, as referred to by Ld. CIT(A), in our considered opinion, is prospective in nature and the same is not applicable in this year. The corresponding grounds raised by the assessee stand allowed for statistical purposes. 7. Ground No. 6 pertains to disallowance of Rs.1,01,02,179/- as belated payments of Employees contribution to PF/ESI. It is admitted position that this issue is covered against the assessee by the Judgment of Hon’ble Supreme Court in the case of Checkmate Services P. Ltd Vs CIT [2022] 448 ITR 518 (SC). Respectfully following the same, we confirm the disallowance. The corresponding grounds stands dismissed. 8. Next ground No. 7 is in respect to disallowance of Rs.8,82,059/- being interest on TDS as per Explanation 3 to section 40(a)(ii) of the Act. This ground is not pressed by Ld. AR and hence, dismissed as not pressed. 9. The next ground Nos. 8 to 11 are with respect to disallowance of Rs.3,26,962/- (Interest on PF Rs.2,97,937/-+ Interest on ESI Rs.29,045/-) on
4 ITA No.805 /Chny/2023
account of delayed payment of PF/ESI. The Ld. AR submitted that Assessing Officer may be directed to bifurcate penalty and compensatory interest and allow the compensatory portion as held by Tribunal in assessee’s own case in ITA No.615/Chny/2018 dated 27.05.2019 for A.Y. 2009-10. The adjudication of Tribunal read as under: - ‘’10. We heard the rival submissions and perused the material on record. The issue whether the amount of Rs.7,90,225/- disallowed by the ld. Assessing Officer on the ground that it is penalty and fine under the provisions of PF and ESI Acts requires to be decided by examining the scheme of the provisions of relevant statute provided for levy. The amount which is paid towards compensatory interest should be allowed as deduction where the levy is composite. The Assessing authorities are duty bound to bifurcate the two components of the levy and allow deduction in respect of the element of levy which is compensatory in nature. This is in law laid down by Hon’ble Supreme Court in the case of Prakash Cotton Mills Ltd, 201 ITR 684 by approving the judgment of Hon’ble Andhra Pradesh in the case of Hyderabad Allwyn Metal Works Ltd (supra) and the same ratio was reiterated by the Hon’ble Supreme Court in the case of Swedeshi Cotton Mills Co. Ltd. (supra), in view of the above legal positions, we are of the considered opinion that the matter requires remission to the Assessing Officer to bifurcate the amount of Rs.7,90,225/- into Royalty or interest by examining the provision under the relevant statute under which the penalty of Rs.7,90,225/- is levied. Accordingly, the grounds of appeal No. 2 & 3 filed by the assessee are partly allowed for statistical purpose’’. Facts being identical in this year, we issue similar direction to Ld. AO. These grounds stand partly allowed for statistical purpose. 10. On the issue of interest disallowance u/s 36(1)(iii), Ld. AR submitted that this issue is covered in favour of Appellant by the order of the Co-ordinate bench decision in the appellant’s own case for Assessment year 2010-11 dated 27.03.2024 in ITA No.730/Chny/2023. The bench held as under: - ‘3.1 The Ld. AO, upon perusal of financial statements, observed that the assessee had outstanding loans of Rs.135.61 crores and incurred interest expenditure of Rs.17.85 crores. At the same time, the assessee advanced interest free loans to group concerns for Rs.732.75 Lacs as under:- i) Secured loans Rs.65,15,53,568 ii) Unsecured loans Rs.67,30,91,155 iii) Long term creditors Rs. 3,15,16,000 ` Total Rs.1,35,61,60,723
5 ITA No.805 /Chny/2023
i) M/s.Siddarth Media Holdings P. Ltd Rs.1,65,00,000 ii) M/s.Express Network Pvt.Ltd Rs.5,66,93,720 iii) M/s.Express Pub. (Chennai) Ltd. Rs. 77,760 iv) Dinamani Publications Ltd. Rs. 3,948 Total Rs.7,32,75,428 3.2 The Ld. AO was of the opinion that the loan was diverted for non-business purposes and accordingly, he proceeded to make interest disallowance u/s 36(1)(iii). The assessee submitted that advances were not out of borrowed money and there was no correlation between interest bearing borrowings and loans advanced by the assessee. However, rejecting the same, Ld. AO computed proportionate interest disallowance of Rs.96.49 Lacs and added the same to income of the assessee. 3.3 During appellate proceedings, the assessee reiterated that there was no correlation between interest bearing borrowings and amounts advanced. Further, the assessee had non-interest bearing funds to the tune of Rs.60 Crores. The assessee has both interest bearing and non-interest bearing funds and there is no reason to presume that interest bearing funds were diverted to group companies. The assessee also relied on the decision of Hon’ble Supreme Court in the case of M/s S.A. Builders Limited vs. CIT (2007) 288 ITR 1 (SC); the decision CIT (LTU) vs. Reliance Industries Ltd (2019) 410 ITR 466 (SC); & the decision of Hon’ble Madras High Court in CIT vs. Hotel Savera (1999) 239 ITR 795 (Mad). The assessee emphasize that in a case where the assessee has common funds then in such a case, in the absence of any material to indicate that the assessee has advanced monies out of funds borrowed for business purposes, the presumption would be that the moneys advanced came only out of its own funds. However, Ld. CIT(A) chose to confirm the disallowance against which the assessee is in further appeal before us. 3.4 Upon perusal of assessee’s financial statements, it could be seen that the assessee uses mixed funds for the purpose of its business. The Share capital and free reserves are Rs.217.20 Crores whereas loan funds are to the extent of Rs.135.61 Crores. It is also seen that the secured loans are for specific purposes i.e., project loans, vehicle loans etc. only and the same could not be diverted for other purposes. In such a situation, unless the nexus of borrowed funds vis-à-vis the loans advanced by the assessee is established by Ld. AO, a presumption could be drawn in assessee’s favour that the advances were funded out of own funds and not out of borrowed funds. We find that no such exercise has been carried out by Ld. AO and therefore, it was to be presumed that funds were advanced first out of interest free funds available with the assessee. This is as per the decision of Hon’ble Supreme Court in the case of CIT Vs. Reliance Industries Ltd. (supra). The decision of Hon’ble Madras High Court in CIT vs. Hotel Savera (1999) 239 ITR 795 (Mad) also supports this view. Therefore, we delete the impugned disallowance and allow corresponding grounds raised by the assessee. This issue arises in assessee’s appeal for AY 2011-12 also. Facts being pari-materia the same, the corresponding grounds raised in AY 2011-12 also stand allowed accordingly’’.
6 ITA No.805 /Chny/2023
In the assessment order, Ld. AO made impugned disallowance on the allegation that the assessee advanced interest free loan to related company i.e., M/s Express Network Pvt. Ltd. The Ld. AO made proportionate interest disallowance of Rs.75.61 Lacs. During appellate proceedings, the assessee submitted that it has non-interest bearing funds of Rs.83 Crores. However, Ld. CIT(A) confirmed the disallowance against which the assessee is in further appeal before us. Since similar facts exists in this year, by following the earlier decision of Tribunal, we delete this disallowance and allow the corresponding grounds of appeal. 12. Ground Nos. 16 & 17, as per submissions of Ld. AR has become infructuous considering the decision of Tribunal for AYs 2010-11 to 2012-13. Therefore, these grounds are dismissed as infructuous. 13. In the result, the appeal stands partly allowed. Order pronounced on 07.05.2024.
Sd/- Sd/- (मनोज कुमार अ�वाल) (मनु कुमार िग�र) (MANOJ KUMAR AGGARWAL) (MANU KUMAR GIRI) लेखा सद� / ACCOUNTANT MEMBER �ाियक सद� / JUDICIAL MEMBER चे�ई Chennai: िदनांक Dated : 07-05-2024 KV आदेश क� ��त�ल�प अ�े�षत /Copy to : 1. अपीलाथ�/Appellant 2. ��थ�/Respondent 3. आयकरआयु�/CIT 4. िवभागीय�ितिनिध/DR 5. गाड�फाईल/GF
7 ITA No.805 /Chny/2023