Yashoda Health Care Services P Ltd (formerly Datta Chandra Hospitals P. Ltd), Hyd, Hyderabad V. DCIT, Circle-3(3), Hyd, Hyderabad

ITA 1203/HYD/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 6281 (ITAT-HYDERABAD)
• Duration Of Justice: 3 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 12-09-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Revised return; Rule 8D
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH B, HYDERABAD BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NOS. 1202 & 1203/HYD/2016 ASSESSMENT YEARS: 2009-10 AND 2012-13 YASHODA HEALTH CARE SERVICES P. LTD., (FORMERLY KNOWN AS DATTA CHANDRA HOSPITALS P. LTD., ), HYDERABAD. PAN AABCD6598G VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 3(3), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI K.C. DEVDAS REVENUE BY : SHRI K.J. RAO DATE OF HEARING : 29-12-2016 DATE OF PRONOUNCEMENT : 06-01-2017 O R D E R PER S. RIFAUR RAHMAN, A.M.: BOTH THESE APPEALS FILED BY THE ASSESSEE ARE DIRE CTED AGAINST SEPARATE ORDERS OF CIT(A)- 5, HYDERABAD, BOTH, DATE D 30/06/2016 FOR AYS 2009-10 AND 2012-13 WHEREIN THE ASSESSEE HAS RA ISED THE FOLLOWING GROUNDS OF APPEAL, WHICH ARE COMMON IN BO TH THE APPEALS, EXCEPT THE QUANTUM OF DISALLOWANCE: 1. THE ORDER OF THE HON'BLE CIT(A) IS ERRONEOUS IN LAW AS WELL ON FACTS. 2. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT T HE ASSESSING OFFICER OUGHT NOT TO HAVE DISALLOWED ANY AMOUNT BY INVOKING THE PROVISIONS OF SECTION 14A OF THE IT ACT. 3. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT T HE ASSESSING OFFICER ERRED IN WORKING OUT THE AMOUNT AT RS. 4,06 ,620/- IN AY 2009-10 AND AT RS. 33,12,740/- IN AY 2012-13 BY IN VOKING RULE 8D OF THE IT RULES AND THE SAME ARE LIABLE TO BE DE LETED. 2 ITA NOS. 1202 & 1203/H/2016 YASHODA HEALTH CARE SERVICES P. LTD. 4. THE HON'BLE CIT(A) OUGHT TO HAVE OBSERVED THAT T HE PROCEDURE ADOPTED BY THE ASSESSING OFFICER IS INCONSISTENT WI TH THE PROCEDURE LAID DOWN UNDER RULE 8D OF THE IT RULES A ND HENCE THE SAME OUGHT TO HAVE BEEN DELETED. 2. THE FACTS AS TAKEN FROM AY 2009-10 ARE THAT THE ASSESSEE COMPANY IS RUNNING TWO MULTI SPECIALTY HOSPITALS. F OR THE ASST, YEAR 2009-10 THE ASSESSEE FILED RETURN OF INCOME DECLARI NG TOTAL INCOME OF RS.52,28,49,107/ -, SUBSEQUENTLY, THE ASSESSEE FILE D REVISED RETURN OF INCOME ON 01.10.2009 DECLARING TOTAL INCOME OF RS.5 2,21,31,535/-. AFTER SCRUTINY THE ASSESSING OFFICER FINALIZED THE ASSESSMENT COMPUTING THE TOTAL INCOME AT RS.52,25,38,160/-. WH ILE COMPUTING, THE ASSESSING OFFICER DISALLOWED U/S.14A AN AMOUNT OF RS 4,06,620/- AND OBSERVED THAT THE ASSESSEE RECEIVED DIVIDEND O N UNITS OF MUTUAL FUNDS OF RS. 4,14,740/- AND CLAIMED THE SAME AS EXE MPT INCOME. THE AO OBSERVED THAT NO EXPENDITURE RELATING TO THIS IN COME WAS CLAIMED OR ANY DISALLOWANCE WAS MADE BY THE ASSESSEE. THE A O FURTHER OBSERVED THAT THE EFFORTS MADE BY THE STAFF AND MAN AGEMENT AND ALSO THE BORROWINGS FOR BUSINESS, CONTRIBUTE TO THIS EXE MPT INCOME. OVERRULING THE CONTENTION OF THE ASSESSEE THAT THE INVESTMENTS WERE MADE FROM THE SURPLUS FUNDS, THE AO OBSERVED THAT D ISALLOWANCE UNDER RULE 8D WAS CALLED FOR IN RESPECT OF THE EXPE NDITURE ON EXEMPT INCOME. SUCH DISALLOWANCE U/S 14A AS PER RULE 8D(II I) I.E. 0.5% OF THE AVERAGE VALUE OF INVESTMENTS WORKED OUT TO RS. 4,06 ,620/- BY THE AO. 3. BEFORE THE CIT(A), THE ASSESSEE FILED EXPLANATIO N HIGHLIGHTING THE FACT THAT THERE WAS NO NEXUS BETWEEN INVESTMENT IN FUNDS YIELDING EXEMPTED INCOME WITH ANY EXPENDITURE. IT ALSO SUBMI TTED THAT THE RESERVES AND SURPLUSES AND REGULAR INCOME OF THE BU SINESS WERE MUCH MORE THAN THE INVESTMENTS IN SUCH FUNDS. FURTH ER IT WAS SUBMITTED THAT THE ASSESSING OFFICER, WHILE ACCEPTI NG THE EXPLANATION OF THE APPELLANT WITH REGARD TO FIRST TWO COMPONENT S OF COMPUTATION UNDER THE RULE, INVOKED RULE 8D(2)(III) AND DISALLO WED HALF PERCENTAGE OF THE AVERAGE VALUE OF INVESTMENT IN SUCH FUNDS AS APPEARING IN THE BALANCE SHEET AS PRESCRIBED. THE ASSESSEE RELIED ON VARIOUS CASE 3 ITA NOS. 1202 & 1203/H/2016 YASHODA HEALTH CARE SERVICES P. LTD. LAWS IN SUPPORT OF ITS CLAIM, WHICH WERE EXTRACTED BY THE CIT(A) IN HIS ORDER AT PAGES 4 TO 6. 4. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) EXAMINED THE ISSUE REFERRING TO THE PROVISIONS OF S ECTION 14A AND RULE 8D AS WELL AS THE DECISION IN THE CASE OF MAXO PP INVESTMENT LTD., [2011] 247 CTR 162 AND CONFIRMED THE ACTION O F THE AO IN DISALLOWANCE U/S 14A BY HOLDING THAT THE AO HAD RES TRICTED THE DISALLOWANCE ONLY 0.5% OF THE AVERAGE VALUE OF INVE STMENTS AS PER RULE 8D(III). 5. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. 6. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL FACTS ON RECORD. WE FIND THAT SIMILAR ISSUE CAME UP FOR C ONSIDERATION BEFORE THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE O F TRANSPORT CORPORATION OF INDIA LTD. IN ITA NO. 117/HYD/2016 V IDE ORDER DATED 21 ST SEPTEMBER, 2016 WHEREIN THE COORDINATE BENCH HAS H ELD AS UNDER: 11.1 WHILE CAREFULLY READING THE RULE 8D(2)(II), T HE FORMULA GIVEN ARE: A X B/C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) IN CURRED DURING THE PREVIOUS YEAR: B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOT AL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF T HE PREVIOUS YEAR; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING I N THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; IN PARTICULAR, THE NOTES FOR B CLEARLY STATES THA T THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME. IT IS CLEAR THAT WE HAVE TO INCLUDE 4 ITA NOS. 1202 & 1203/H/2016 YASHODA HEALTH CARE SERVICES P. LTD. THOSE INVESTMENTS WHICH HAS GENERATED INCOME AND EX CLUDE THOSE INVESTMENTS, WHICH HAVE NOT GENERATED INCOME. IN THE PRESENT CASE, AO HAD TAKEN THE TOTAL INVESTMENT INS TEAD OF THOSE INVESTMENTS, WHICH HAVE GENERATED INCOME. ACCORDING LY, WE DIRECT THE AO TO CALCULATE THE DISALLOWANCE OF INTE REST AS BELOW ( AS PER RULE 8D): INTEREST X INVESTMENT( WHICH GENERATED INCOME) AVERAGE TOTAL ASSETS THE MAIN REASON IS THAT AS PER SECTION 14A, NO DEDU CTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY TH E ASSESSEE IN RELATION TO INCOME, WHICH IS EXEMPT FROM TAX. THE R ELEVANCE IS THE EXPENDITURE IN RELATION TO INCOME. THE QUANTIFI CATION HAS TO BE UNDERTAKEN IN RELATION TO THE EXEMPT INCOME. THE INVESTMENT WHICH HAS NOT GENERATED EXEMPT INCOME SHOULD BE EXC LUDED FROM THE CALCULATION OF RATIO TO DETERMINE THE DISALLOWA NCE. 11.2 SIMILARLY, FOR THE ADMINISTRATIVE EXPENSES, 0. 5% OF AVERAGE INVESTMENTS FROM WHICH THE EXEMPT INCOME IS RECEIVED SHOULD BE CONSIDERED INSTEAD OF AVERAGE OF THE TOTA L INVESTMENTS. 11.3 CONSIDERING THE ABOVE DISCUSSION, WE DIRECT TH E AO TO RECALCULATE THE DISALLOWANCE AS PER RULE 8D AS PER THE ABOVE GUIDANCE. ACCORDINGLY, GROUND RAISED BY ASSESSEE IS ALLOWED. AS THE ISSUE UNDER CONSIDERATION IS MATERIALLY IDEN TICAL TO THAT OF THE SAID CASE, FOLLOWING THE CONCLUSIONS DRAWN THEREIN WE DIRECT THE AO TO RECALCULATE THE DISALLOWANCE AS PER RULE 8D AS PER THE GUIDELINES GIVEN AS ABOVE IN THE CASE OF TRANSPORT CORPORATION OF INDIA AND CALCULATE THE DISALLOWANCE OF EXPENDITURE UNDER RUL E 8D(2)(III) TAKING THE AVERAGE INVESTMENT FROM WHICH THE EXEMPT INCOME IS RECEIVED. 7. IN THE RESULT, BOTH THE APPEALS UNDER CONSIDERAT ION ARE ALLOWED. PRONOUNCED IN THE OPEN COURT ON 6 TH JANUARY, 2017. SD/- SD/- (P. MADHAVI DEVI) (S. RIFAUR RAH MAN) JUDICIAL MEMBER A CCOUNTANT MEMBER HYDERABAD, DATED: 6 TH JANUARY 2017 KV 5 ITA NOS. 1202 & 1203/H/2016 YASHODA HEALTH CARE SERVICES P. LTD. COPY TO:- 1) YASHODA HEALTH CARE SERVICES P. LTD., C/O B. NAR SING RAO & CO., CAS., PLOT NO. 554, ROAD NO. 92, JUBILEE HILLS, HYD 96. 2) DCIT, CIRCLE 3(3), HYDERABAD. 3) CIT(A) - 5, HYDERABAD 4 PR. CIT 5, HYDERABAD 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE S.NO. DESCRIPTION DATE INTLS DS1. DRAFT DICTATED ON SR.P.S./P.S 2. DRAFT PLACED BEFORE AUTHOR SR.P.S/PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5 APPROVED DRAFT COMES TO THE SR.P.S./PS SR.P.S./ P.S 6. KEPT FOR PRONOUNCEMENT ON SR. P.S./P.S. 7. FILE SENT TO THE BENCH CLERK SR.P.S./P.S 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER