Columbia Asia Hospitals Private Limited, Bangalore V. DCIT, Bangalore

ITA 1202/BANG/2011

• Counselvise Citation: 120221114 RSA 2011
• Duration Of Justice: 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 02-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARHAT HUSSAIN QURESHI
• Assessee Lawyers: S ANANTHA
• Keywords: Earning of tax free income; Question of law
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI N.BARATHVAJA SANKAR, VICE PRESIDENT AND SHRI N.V.VASUDEVAN, JUDICIAL MEMBER ITA NO.1202(B)/2011 (ASSESSMENT YEAR : 2008-09) M/S COLUMBIA ASIA HOSPITALS PVT.LTD., THE DEPUTY. CIT, THE ICON, 2 ND FLOOR, CIRCL E-1(1), 4 TH FLOOR,NO.8, 80 FT. ROAD, BANGALORE HAL 3 RD STAGE, INDRANAGAR, BANGALORE PAN NO.AACCC2943F VS APPELLANT RESPONDENT ASSESSEEE BY : SHRI S. ANANTHA, CA REVENUE BY : SHRI FARHAT HUSSAIN QURESHI, CIT DATE OF HEARING : 23-07-2012 DATE OF PRONOUNCEMENT : 31-07-2012 O R D E R PER SHRI N.V.VASUDEVAN, JM: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDE R DATED 05-09-2011 OF CIT(A)-II, BANGALORE, RELATING TO AY: 2008-09. 2. THE ASSESSEE IS A COMPANY AND IT CARRIES ON THE BUSINESS OF RUNNING A HOSPITAL UNDER THE NAME M/S COLUMBIA A SIA HOSPITAL PVT.LTD., THE ASSESSMENT YEAR 2008-09 IS T HE SECOND ITA NO.1202(B)/2011 2 YEAR OF OPERATION OF THE HOSPITAL. THE MAIN SOURCE OF INCOME OF THE HOSPITAL IS CONSULTATION FEES RECEIVED FOR CONS ULTATION PROVIDED TO PATIENTS BY DOCTORS RETAINED BY THE HOSPITAL AS RETAINERS. THE ASSESSEE HAD INVESTED A SUM OF RS.35,90,74,351/- IN MUTUAL FUNDS. THE ASSESSEE HAD INVESTED IN SCHEMES OF 10 DIFFERENT FUNDS. THE BREAK UP OF WHICH IS GIVEN IN PAGE-3 OF THE ASSESSEES PAPER BOOK. THE INVESTMENT YIELDED TAX FREE INCOME OF RS.4,61,59,614/-. 3. THE QUESTION BEFORE THE AO WAS THE DISALLOWANCE OF EXPENSES (INDIRECT EXPENSES, ADMITTED THERE WAS NO DIRECT EXPENSES LIKE INTEREST ETC., AS THE INVESTMENT WERE MADE OUT OF ASSESSEES OWN FUNDS) INCURRED FOR THE PURPOSE OF E ARNING THE TAX FROM INCOME U/S 14A OF THE IT ACT, 1961 AND THE DIS ALLOWANCE TO BE MADE U/S 14A OF THE IT ACT. THE ASSESSEE SUBMIT TED THAT THE INDIRECT EXPENSES THAT CAN BE ATTRIBUTED EARNING OF TAX FREE INCOME WILL BE TIME SPENT BY TWO OFFICERS NAMELY MR . JAGANNATH, CFO AND MR. VASANTH, MANAGER FINANCE. THE ASSESSEE QUANTIFIED A SUM OF RS.1.36,000/-AS EXPENSES ATTRIBUTABLE TO E ARNING OF TAX FREE INCOME WHICH WOULD BE DISALLOWED U/S 14A OF TH E IT ACT. THE AO HOWEVER, INVOKING PROVISIONS OF RULE 8D OF THE I T RULES, 1962 READ WITH SEC.14A(2) OF THE IT ACT, HAD MADE A DISA LLOWANCE OF RS.17,95,371/-. ACCORDING TO THE AO THE AFORESAID PROVISIONS WERE MANDATORY AND HAD AUTOMATIC APPLICATION THE MO MENT THERE WAS TAX FREE INCOME. IN ADDITION TO THE ABOVE, THE AO ALSO DISALLOWED A SUM OF RS.1,36,000/- WHICH WAS QUANTIF IED BY THE ASSSSEE, AS EXPENSES DISALLOWABLE U/S 14A OF THE AC T. ITA NO.1202(B)/2011 3 4. ON APPEAL BY THE ASSESSEE, THE CIT(A) WAS ALSO OF THE VIEW THAT RULE 8D, WAS MANDATORY. THE CIT(A) ALSO HELD THAT THE ASSESSEEE HAS NOT TAKEN INTO CONSIDERATION ADMINIST RATIVE EXPENSES LIKE RENT, POWER, TELEPHONE, INTERNET, COM PUTER INFRASTRUCTURE MAINTENANCE, AUDIT FEES ETC., WHILE WORKING OUT THE QUANTUM OF DISALLOWANCE OF RS.1,36,000/-. IN THIS REGARD, THE AO ALSO NOTICED THAT IN THE PROFIT & LOSS ACCOU NT, EXPENDITURE TO THE EXTENT OF RS.2,71,39,502/- HAD BEEN CLAIMED. IN THE CIRCUMSTANCES, THE CIT(A) WAS OF THE VIEW THAT THE DISALLOWANCE OF RS.17,95,371/- MADE BY THE AO INVOKING THE PROVISIO NS SPECIFIED IN RULE 8D OF IT RULES 1962 WAS JUSTIFIED. THE CIT( A) HOWEVER, DELETED THE FURTHER ADDITION OF RS.1,36,000/- MADE BY THE AO HOLDING THAT THE SAME WOULD AMOUNT TO MAKING DISALL OWANCE TWICE. 5. AGGRIEVED BY THE ORDER OF THE CIT(A) SUSTAINING ADDITION OF RS.17,95,371/- AND MADE U/S 14A OF THE ACT, THE ASSESSEE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LEARNE D COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSE E MADE INVESTMENT IN 10 SCHEMES OF VARIOUS MUTUAL FUNDS BE SIDES INVESTMENT IN ONE SUBSIDIARY COMPANY. HIS SUBMISSIO N WAS THAT THERE ARE NO OTHER INDIRECT EXPENSES LIKE ADMINISTR ATIVE EXPENSES. ACCORDING TO HIM THE ASSESSEES ESTIMATION OF EXPEN DITURE OF RS.1,36,000/- IN EARNING EXEMPT INCOME IS VERY REAS ONABLE AND ITA NO.1202(B)/2011 4 THE SAME OUGHT TO HAVE BEEN ACCEPTED. HE RELIED O N THE FOLLOWING DECISIONS; A) CIT VS RELIANCE INDUSTRIES 339 ITR 632(BOM.). THIS DECISION IS OF NO RELEVANCE TO THE PRESENT CASE BEC AUSE THE HONBLE HIGH COURT MERELY HELD THAT THE ORDER O F TRIBUNAL THAT THE ASSESSEE DID NOT INCUR IN EARNING EXEMPT INCOME IS PURELY A FINDING OF THE FACT AND THEREFORE, NO QUESTION OF LAW WOULD ARISE FOR CONSIDERATION. B) CIT VS M/S METALMAN AUTO PVT.LTD., 336 ITR 434(P&H) FOR THE PROPOSITION THAT DISALLOWANCE U/S 14A OF TH E ACT CANNOT BE MADE ON PRESUMPTIONS. IN THE ABSENCE OF EVIDENCE THAT EXPENDITURE WAS INCURRED IN EARNING T AX FREE INCOME. C) DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS MACHINO PLASTIC LTD., IN ITA NO.92/2011 DATED 28 -02- 2012 FOR THE PROPOSITION THAT THE AO CAN MAKE DISALLOWANCE U/S 14A OF THE ACT ONLY AFTER REJECTIN G (AFTER ASSIGNING GOOD REASONS) THE CLAIM OF THE ASSESSEE E ITHER THAT HE HAD INCURRED NO EXPENDITURE TO EARN EXEMPT INCOME OR THAT THE QUANTUM OF EXPENDITURE OF EXPENDITURE SO INCURRED BY THE ASSESSEE WAS NOT COR RECT. 7. THE LEARNED DR RELIED ON THE ORDER OF THE CIT(A ) WHEREBY THE CIT(A) HELD THAT APART FROM SALARY OF CFO AND F INANCE MANAGER,, THE ASSESSEE HAS NOT APPORTIONED OTHER CO MMON INDIRECT EXPENSES LIKE RENT, POWER, INFRASTRUCTURE, AUDIT FEES ETC. ITA NO.1202(B)/2011 5 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A RE ADING OF PROVISION OF SEC.14A(2) OF THE ACT SHOWS THAT IF TH E ASSESSEE CLAIMS BEFORE THE AO THAT WHERE AN ASSESSEE CLAIMS THAT ONLY CERTAIN EXPENSES WERE INCURRED IN EARNING EXEMPT IN COME THAN HE HAS TO GIVE A FINDING THAT THE CLAIM OF THE ASSESSE EE IS NOT CORRECT. IT IS ONLY THEREAFTER THAT THE AO CAN INVOKE RULE 8 D OF THE IT RULES. THIS HAS BEEN MADE VERY CLEAR BY THE HONBL ;E BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG.CO., 3 28 ITR 81(BOM.). THE DECISIONS RENDERED PRIOR TO ASSESSME NT YEAR 2008- 09 WOULD NOT BE RELEVANT TO THE PRESENT APPEAL BECA USE RULE 8D APPLIES ONLY FROM 2008-09 AS HELD BY THE HONBLE BO MBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG.CO.,(SUPRA) . THE PRESENT CASE OF THE ASSESSEE RELATES TO AY 08-09. IN THE PR ESENT CASE, THE ASSESSEE MADE A CLAIM THAT EXPENSES INCURRED BY IT TO EARN EXEMPT INCOME WAS ONLY RS.1,36,000/-. THE AO DID NOT EXAMINE THIS CLAIM OF THE ASSESSEE BUT PROCEEDED TO APPLY R ULE 8D OF THE IT RULES, 1962, AS IF THE SAME APPLIES THE MOMENT T HERE IS EXEMPT INCOME. THIS APPROACH WAS ERRONEOUS. THE CIT(A) HAS ALSO PROCEEDED ON THE SAME BASIS. IT IS ALSO A FACT TH AT WHILE THE ASSESSEE QUANTIFIED THE QUANTUM OF DISALLOWANCE U/S 14A OF THE ACT AT RS.1,36,000/-, IT HAS NOT GIVEN THE BASIS ON WHICH THE SAME WAS ARRIVED AT. IN THE CIRCUMSTANCES, WE ARE OF THE VIEW THAT IN THE INTEREST OF JUSTICE, THE ORDER OF CIT( A) SHOULD BE SET ASIDE AND THE ISSUE REMANDED TO THE AO FOR FRESH CO NSIDERATION. THE ASSESSEEE WILL FURNISH THE BASIS ON WHICH IT QU ANTIFIED THE SUM OF RS.1,36,000/- WAS EXPENDITURE INCURRED FOR E ARNING ITA NO.1202(B)/2011 6 EXEMPT INCOME. THE AO WILL EXAMINE THE SAME AND I F HE DOES NOT AGREE WITH THE CLAIM OF THE ASSESEEE, HE SHALL ASSI GN REASONS FOR NOT SO AGREEING. THEREAFTER, IF NECESSARY, THE AO CAN PROCEED TO DECIDE THE QUANTUM OF DISALLOWANCE IN ACCORDANCE WI TH THE PROVISIONS OF SEC.14A OF THE ACT. 9. FOR STATISTICAL PURPOSES THE APPEAL OF THE ASSE SSEE IS TREATED AS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 31 ST JULY, 2012. SD/- SD/- (N.BARATHVAJA SANKAR) (N.V.VASUDEVAN) VICE PRESIDENT JUDI CIAL MEMBER BANGALORE: D A T E D : 31-07-2012 AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-IV, BANGALORE. 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE (1+1) BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BANGALORE