DCIT, CHENNAI V. Allsec Technologies Ltd., CHENNAI

ITA 1104/CHNY/2014

• Counselvise Citation: 110421714 RSA 2014
• Duration Of Justice: 2 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 07-07-2014
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2007-2008
• Appeal Filed On: 29-04-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: GURU BHASHYAM
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Earning of tax free income
• Section: 14A; 260A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI . . . , . . !' , # '$ % [BEFORE DR. O.K. NARAYANAN, VICE-PRESIDENT AND SHRI S. S. GODARA, JUDICIAL MEMBER] ./ I.T.A.NO.1104/MDS/2014 / ASSESSMENT YEAR : 2007-08 THE DY. COMMISSIONER OF INCOME-TAX COMPANY CIRCLE I(1) CHENNAI VS. M/S ALLSEC TECHNOLOGIES LTD 7H, CENTURY PLAZA 560-562 ANNA SALAI CHENNAI 600 018 [PAN AACCA 5106 G] ( &' / APPELLANT) ( ()&' /RESPONDENT) / APPELLANT BY : SHRI GURU BHASHYAM, JCIT /RESPONDENT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE / DATE OF HEARING : 02-07-2014 / DATE OF PRONOUNCEMENT : 07-07-2014 '* / O R D E R PER S.S.GODARA, JUDICIAL MEMBER THIS REVENUES APPEAL FOR ASSESSMENT YEAR 2007- 08, IS DIRECTED AGAINST ORDER OF THE COMMISSIONER OF INC OME-TAX (APPEALS)- I, CHENNAI DATED 16.1.2014, PASSED IN APPEAL NO.256 /09-10/A-I, IN I.T.A.NO1104/14. :- 2 -: PROCEEDINGS UNDER SECTION 143(3)OF THE INCOME-TAX A CT, 1961 (IN SHORT THE ACT). 2. IN ITS GROUNDS, THE REVENUE PLEADS THREE FOLDED GRI EVANCE. ITCHALLENGES THE CIT(A)S ORDER DIRECTING THE ASSES SING OFFICER TO ALLOW SET OFF BENEFIT OF BROUGHT FORWARD LOSSES FROM TOT AL INCOME AFTER ALLOWING DEDUCTION U/S 10A, IN HOLDING THAT COMMUN ICATION EXPENDITURE DEDUCTED FROM EXPORT TURNOVER SHOULD AL SO BE DEDUCTED FROM TOTAL TURNOVER FOR COMPUTING IMPUGNED DEDUCTIO N AND IN RESTRICTING DISALLOWANCE U/S 14A READ WITH RULE 8D TO 5% OF THE EXEMPT INCOME FROM DIVIDENDS. 3. THE ASSESSEE IS A LIMITED COMPANY ENGAGED IN THE BUSINESS OF DATA AND CALL CENTER OPERATIONS. ON 31.10.2007, IT HAD FILED RETURN ADMITTING INCOME OF ` NIL AFTER CLAIMING ENTIRE RECEIPTS OF ` 24,65,53,064/- AS EXEMPT U/S 10A. THE SAME WAS SUMMARILY PROCESSED. ON 30.11.2010, THE ASSESSING OFFICER HA D COMPLETED REGULAR ASSESSMENT COMPUTING TOTAL INCOME OF AS 2,68,12,244/-. IN COURSE THEREOF, HE QUOTED SECTION 10A(2)(IV) TO OBS ERVE THAT COMMUNICATION EXPENDITURE OF ` 13,20,70,025/- INCURRED IN FOREIGN EXCHANGE AS WELL AS INDIAN RUPEES HAD TO BE EXCLUDE D IN FULL SUM IN FORMER AND 50% OF THE LATTER INSTANCE. SIMILARLY, HE ALSO MADE I.T.A.NO1104/14. :- 3 -: DISALLOWANCE OF ` 19,45,688/- U/S 14A R.W.R 8D QUA DIVIDEND INCOME OF ` 3,13,01,555/-. THE ASSESSING OFFICER HAD ALSO PRO CEEDED TO SET OFF THE ASSESSEES BROUGHT FORWARD LOSSES PRIOR TO ALLOWING DEDUCTION U/S 10A INSTEAD OF POST FACTO COMPUTATION. 4. IN ASSESSEES APPEAL, THE CIT(A) HAS DIRECTED THE ASSESSING OFFICER TO ALLOW SET OFF BENEFIT OF BROUGHT FORWARD LOSSES FROM TOTAL INCOME AFTER ALLOWING SECTION 10A DEDUCTION IN VIEW OF CASE LAW SCIENTIFIC ATLANTA INDIA TECHNOLOGY P. LTD 192 TTJ 273(SB)(CHENNAI). COMING TO EXCLUSION OF THE AFORESAID TELECOMMUNIC ATION CHARGES FROM EXPORT TURNOVER ONLY, THE CIT(A) HAS FOLLOWED SPECI AL BENCH DECISION IN CASE OF ITO VS SAKSOFT LTD, 121 TTJ (CHENNAI) 86 5 IN HOLDING THAT SAME HAVE TO BE EXCLUDED FROM EXPORT AND TOTAL T URNOVER. ON THE ISSUE OF SECTION 14A DISALLOWANCE, HE HAS RESTRIC TED IT @ 5% OF THE GROSS DIVIDENDS BY FOLLOWING REASONABLE COMPUTATI ON METHOD. THEREFORE, THE REVENUE IS IN APPEAL. 5. WE HAVE HEARD BOTH PARTIES AND GONE THROUGH THE CAS E FILE. SO FAR AS THE FIRST ARGUMENT OF THE REVENUE ON SETT ING OFF THE BROUGHT FORWARD LOSSES FROM THE TOTAL INCOME BEFORE OR AFTE R ALLOWING DEDUCTION U/S 10A IS CONCERNED, THE SPECIAL BENCH DECISION OF M/S SCIENTIFIC I.T.A.NO1104/14. :- 4 -: ATLANTA INDIA TECHNOLOGY P LTD. (SUPRA) IS IN ASSE SSEES FAVOUR. THE REVENUES PLEADING IS THAT ITS APPEAL IS PENDING BE FORE THE HON'BLE JURISDICTIONAL HIGH COURT. IN OUR VIEW, MERE PENDE NCY OF AN APPEAL U/S 260A DOES NOT FORM A VALID GROUND SO AS TO ADOPT A DIFFERENT VIEW. THEREFORE, THIS REVENUES GROUND FAILS. 6. THE REVENUES NEXT GROUND IS THAT THE CIT(A) OUGHT TO HAVE AFFIRMED THE ACTION OF THE ASSESSING OFFICER IN EXC LUDING COMMUNICATION CHARGES (SUPRA) FROM EXPORT TURNOVER AND NOT FROM TOTAL TURNOVER. ADMITTEDLY, THE 'TRIBUNAL' HAS ALREADY HELD IN THE CASE OF SAKSOFT (SUPRA) THAT SUCH AN EXCLUSION HAS TO B E FROM EXPORT AS WELL AS TOTAL TURNOVER. HEREIN AS WELL, WE ARE NOT INCLINED TO ACCEPT THE REVENUES ARGUMENT THAT SINCE ITS APPEAL U/S 2 60A IS PENDING, THE CIT(A) OUGHT TO HAVE TAKEN A DIFFERENT VIEW. SO, W E CONFIRM THE CIT(A)S FINDINGS UNDER CHALLENGE. 7. THIS LEAVES US WITH LAST GROUND RAISED BY THE REVEN UE QUA DISALLOWANCE U/S 14A OF ` 19,45,688/- MADE BY THE ASSESSING OFFICER BUT RESTRICTED TO ` 15,65,075/- @ 5% OF THE EXEMPT INCOME. WE FIND THAT QUA THIS DIVIDEND INCOME FROM MUTUAL FUNDS REA DS ` 3,13,01,555/- . IT IS AN ADMITTED FACT THAT THE ASSESSEE HAD ITSELF DISALLOWED A SUM OF ` 6,26,031/- @ 2% OF THE DIVIDEND INCOME. THE ASSES SING OFFICER I.T.A.NO1104/14. :- 5 -: HAD INVOKED RULE 8D(II) AND (III) IN DISALLOWING SU MS OF ` 1,37,954/- AND ` 18,07,734/- TOTALLING TO ` 19,45,688/-. THE SAME STANDS MODIFIED BY THE CIT(A) TO BE THAT @ 5% OF THE DIVID END RECEIVED. IT IS NOW A SETTLED ISSUE THAT RULE 8D APPLIES ONLY FROM ASSESSMENT YEAR 2008-09 AND NOT IN ASSESSMENT YEAR PRIOR TO THAT. THEREFORE, THE APPROACH OF THE ASSESSING OFFICER IN INVOKING THE S AID RULE 8D IS NOT IN ACCORDANCE WITH LAW. AT THE SAME TIME, AVERAGE OF INVESTMENTS AS ON 31.3.2006 AND 31.3.2007 TURNS OUT TO BE MORE THAN ` 36 CRORES. SO, IT CAN BE VERY WELL INFERRED THAT THE ASSESSEE MUS T HAVE INCURRED CONSIDERABLE INDIRECT MANAGERIAL EXPENSES IN SUPER VISING THE SAID INVESTMENTS. IN THESE PECULIAR CIRCUMSTANCES ONLY, WE HOLD THAT THE ACTION OF THE CIT(A) IN RESTRICTING THE IMPUGNED DI SALLOWANCE @ 5% CANNOT BE CONCURRED WITH. THUS, WE RESTORE THE IMP UGNED DISALLOWANCE MADE BY THE ASSESSING OFFICER. BEFORE PARTING, WE OBSERVE THAT ASSESSING OFFICER MAY CONSIDER THE AS SESSEES CASE U/S 10A IN PASSING HIS CONSEQUENTIAL ORDER. 8. THE REVENUES APPEAL IS PARTLY ALLOWED. I.T.A.NO1104/14. :- 6 -: ORDER PRONOUNCED ON MONDAY, THE 07 TH OF JULY, 2014, AT CHENNAI. SD/- SD/- ( . . . ) (DR. O.K. NARAYANAN) !!!!!'#$ / VICE-PRESIDENT ( . . !' ) (S. S. GODARA) % &' / JUDICIAL MEMBER (% / CHENNAI )& / DATED: 07 TH JULY, 2014 RD &*!! +,!-, / COPY TO: ! 1 . / APPELLANT 4. ! . / CIT 2. / RESPONDENT 5. ,/0! 1 / DR 3. ! .!23 / CIT(A) 6. 04!5 / GF