The Commissioner Of Income Tax, Corporate Circle-3, Chennai v. M/S.thiru Arooran Sugar Ltd.,Chennai-34

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 04.8.2020CORAMTHE HONOURABLE MR. JUSTICE T.S.SIVAGNANAMAND THE HONOURABLE MRS. JUSTICE V.BHAVANI SUBBAROYANTAX CASE APPEAL NO.289 OF 2018(heard through video conferencing) The Commissioner of Income Tax, Corporate Circle-3, Chennai ...Appellant /Appellant Vs M/s.Thiru Arooran Sugar Ltd.,Chennai-34. ...Respondent/Respondent APPEAL under Section 260A of the Income Tax Act, 1961against the order dated 27.9.2017 made in ITA.No.673/Mds/2017 onthe file of the Income Tax Appellate Tribunal, Chennai ‘C’ Benchfor the assessment year 2012-13, against the order of thecommissioner of Income Tax Appeal-13 Chennai-34, made in ITANo.103/CIT/(A)/ -13/2012-13 dated 19.12.2016 against the orderof the Assistant Commissioner of Income Tax, Corporate circle-3(1), Chennai-34 made in GIR/PAN.No.AAACT238213 dated 31.03.2015for the Assessment Year 2012-13. For Appellant : Mrs.V.Pushpa, SC For Respondent : Mr.Vijayaraghavan for This appeal by the Revenue under Section 260A of the Income TaxAct, 1961 (for short, the Act) is directed against the orderdated 27.9.2017 made in ITA.No.673/Mds/2017 on the file of theIncome Tax Appellate Tribunal, Chennai ‘C’ Bench (for brevity,the Tribunal) for the assessment year 2012-13. https://hcservices.ecourts.gov.in/hcservices/ 2. The appeal has been admitted on 10.6.2019 on thefollowing substantial questions of law : “(i) Whether the Tribunal was right inholding that the investment made in sisterconcerns by the assessee are not liable fordisallowance under Section 14A read withRule 8D when the provisions of the saidsection does not provide for any suchexception? and (ii) Whether the Tribunal was right andjustified in remitting back the issue ofdisallowance under Section 14A to AssessingOfficer by directing him to exclude ownfunds in the form of reserve and surpluswhen the assessee was maintaining mixed bagof funds and failed to substance that suchinvestment in assets yielding exempt incomeare out of interest free fund?” 3. When the matter was listed before us earlier, it was pointedout that the respondent – assessee is under liquidation and anInsolvency Resolution Professional (IRP) has been appointed bythe concerned National Company Law Tribunal. We were alsoinformed that one Mr.R.Raghavendar, IRP is representing therespondent company. Therefore, we directed the learned StandingCounsel appearing for the Revenue to take private notice by e-mail to the said Mr.R.Raghavendar, IRP about the pendency ofthis appeal. After notice was served on the said InsolvencyResolution Professional, he had given instructions toMr.R.Vijayaraghavan, learned counsel to appear for therespondent – assessee. 4. We have heard Mrs.V.Pushpa, learned Standing Counselappearing for the Revenue and Mr.R.Vijayaraghavan, learnedcounsel appearing on behalf of M/s.Subbaraya Aiyer Padmanabhan,learned counsel on record for the respondent – assessee. 5. Though the Revenue has raised several contentions, thesubstantial portion of the contentions both advanced before usas well as raised in the memorandum of grounds of appeal is withregard to the order of remand passed by the Tribunal, which is aconditional remand and not an open remand. The Revenue is notvery averse to the order of remand, but is concerned about theobservations made by the Tribunal restricting the power of theAssessing Officer as to what has to be done during de novoconsideration. 6. The relevant portion of the impugned order of theTribunal namely paragraph 11 reads as follows : “In view of the above judgments, theAssessing Officer has to consider theassessee’s own fund i.e capital and reserves https://hcservices.ecourts.gov.in/hcservices/ 5. Though the Revenue has raised several contentions, thesubstantial portion of the contentions both advanced before usas well as raised in the memorandum of grounds of appeal is withregard to the order of remand passed by the Tribunal, which is aconditional remand and not an open remand. The Revenue is notvery averse to the order of remand, but is concerned about theobservations made by the Tribunal restricting the power of theAssessing Officer as to what has to be done during de novoconsideration. 6. The relevant portion of the impugned order of theTribunal namely paragraph 11 reads as follows : “In view of the above judgments, theAssessing Officer has to consider theassessee’s own fund i.e capital and reserves https://hcservices.ecourts.gov.in/hcservices/ as available for investment, which yieldsexempted income and thereafter he shallapply the formula in Rule 8D and alsoexclude investments in subsidiaries as heldby the above order of Coordinate Bench. Withthis observation, we remit the issue to thefile of the Assessing Officer for freshconsideration. Hence, this ground is allowedfor statistical purposes.” 7. The learned Standing Counsel appearing for the Revenue wouldrely upon the decision of the Hon’ble Supreme Court in the caseof Maxopp Investment Ltd. Vs. CIT, New Delhi [reported in (2018)91 Taxmann.com 154] wherein the Court held that only expensesproportionate to earning exempt income could be disallowed underSection 14A of the Act and that Rule 8D of the Income Tax Rules,1962 is prospective in nature and could not have been madeapplicable in respect of assessment years prior to 2007 whenthis Rule was inserted. 8. Reliance is also placed on the decision rendered by us inthe case of CIT Vs. M/s.Tamil Nadu Industrial DevelopmentCorporation Ltd. [TCA.Nos.509 and 510 of 2018 dated 07.7.2020]and the decision of the Division Bench of this Court, to which,one of us (TSSJ) was a party, in the case of Roca BathroomProducts Private Ltd. Vs. PCIT [reported in (2019) 101Taxmann.com 395] wherein it has been held that where theAssessing Officer made observations under Section 14A of the Actin respect of a dividend income earned by assessee from mutualfund investments, in view of plea raised by assessee that it hadutilised only non-interest bearing funds in making investment inmutual funds and interest incurred by assessee was specificallytowards acquisition of shares in 'G' Ltd. which companysubsequently stood amalgamated with assessee, the impugneddisallowance was to be deleted and the matter was to be remandedback to Assessing Officer for disposal afresh. 9. The above decisions were pressed into service by the learnedStanding Counsel for the assessee to state that if the Tribunalhad chosen to remand the matter, it should have made an openremand and should not have qualified the remand, which, in fact,was the decision taken in the case of Beach Miners Co. Pvt. Ltd.Vs. ACIT [ITA.No.2110/Mds/2014 dated 06.8.2015]. 10. Per contra, Mr.R.Vijayaraghavan, learned counsel appearingfor the respondent – assessee has relied upon “(i) the decision of the Delhi HighCourt in the case of Joint Investments Ltd.Vs. CIT [reported in (2015) 372 ITR 0694]; (ii) another decision of the DelhiHigh Court in the case of PCIT Vs. ModerateLeasing and Capital Services Pvt. Ltd. https://hcservices.ecourts.gov.in/hcservices/ [reported in 2018-TIOL-2459-HC-Del-IT]; and (iii) the order of the Hon’bleSupreme Court in the case of PCIT-6 Vs.Moderate Leasing and Capital Services Pvt.Ltd. [reported in 2018-TIOL-431-SC-IT]wherein the appeal filed by the Revenueagainst M/s.Moderate Leasing and CapitalServices Private Limited was dismissed.” 11. The learned counsel appearing for the respondent –assessee has also placed reliance on (i) the decision of the Delhi HighCourt in the case of M/s.ACB India LimitedVs. ACIT [reported in (2015) 374 ITR 108]; (ii) another decision of the DelhiHigh Court in the case of PCIT Vs. ModerateLeasing and Capital Services Pvt. Ltd. https://hcservices.ecourts.gov.in/hcservices/ [reported in 2018-TIOL-2459-HC-Del-IT]; and (iii) the order of the Hon’bleSupreme Court in the case of PCIT-6 Vs.Moderate Leasing and Capital Services Pvt.Ltd. [reported in 2018-TIOL-431-SC-IT]wherein the appeal filed by the Revenueagainst M/s.Moderate Leasing and CapitalServices Private Limited was dismissed.” 11. The learned counsel appearing for the respondent –assessee has also placed reliance on (i) the decision of the Delhi HighCourt in the case of M/s.ACB India LimitedVs. ACIT [reported in (2015) 374 ITR 108]; (ii) the decision of the BombayHigh Court in the case of CIT Vs. RelianceUtilities & Power Ltd. [reported in (2009)313 ITR 340]; and (iii) the judgment of this Court,to which, one of us (TSSJ) was a party, inthe case of CIT Vs. Tidel Park Ltd.[TCA.Nos.732 and 733 of 2018 dated07.7.2020]. 12. We have perused the impugned order passed by theTribunal and more particularly paragraph 11, which we haveextracted above. The Tribunal, having chosen to remand thematter to the Assessing Officer for a fresh consideration, couldhave avoided qualifying the remand especially when the questionsof law are being raised by both the Revenue as well as theassessee. Therefore, we are inclined to interfere with thatportion of the order passed by the Tribunal and remand thematter for a fresh consideration to the Assessing Officer toenable him/her to consider the entire matter afresh without, inany manner, curtailing exercise of his/her power as an AssessingOfficer. Further, we find that the Tribunal did not giveindependent reasons as to why, in its opinion, the directionissued in the case of Beach Miners Co. Pvt. Ltd., should alsoapply to the case of the assessee. 13. In the light of the above discussions, the tax caseappeal is allowed, the findings/observations made by theTribunal in paragraph 11 of the impugned order are set aside andthe order of remand is confirmed. We make it clear that theremand is an open remand and a direction is issued to theAssessing Officer to consider all issues that may be raisedbefore him both by the Revenue as well as the assessee eitherfactual or legal or both and take an informed decision in thematter after affording an opportunity of hearing to the IRPrepresenting the assessee. We request the said Mr.R.Raghavendar, IRP to appear before the Assessing Officer and put forth all hissubmissions bearing in mind the interest of the shareholders.The substantial questions of law framed are left open. No costs. Sd/- Assistant Registrar(CS I) //True Copy// Sub Assistant RegistrarRSTo 1.The Income Tax Appellate Tribunal, Chennai ‘C’ Bench. 2.The Commissioner of Income Tax, Appeal -13,Chennai-34.3.The Assistant Commissioner of Income Tax, Corporate Circle-3 (1), Chennai-34.+1 cc to Mr.Subbaraya Aiyar, Sr.No. 26181TCA.No.289 of 2018NMI(CO)RMP(01/09/2020)