Real Talent Engineering Pvt Ltd, Chennai V. DCIT-5(1), Chennai

ITA 121/CHNY/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7435 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-07-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 09-01-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A SASI KUMAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.121/CHNY/2018 ( )( / ASSESSMENT YEAR : 2013-14 M/S REAL TALENT ENGINEERING PRIVATE LTD., NO.67, CHAMIERS ROAD, CHENNAI - 600 028. PAN : AAACR 3651 H V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 5(1), CHENNAI. (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SHRI C. NARESH, CA -.+, / 0 / RESPONDENT BY : SHRI A. SASIKUMAR, JCIT 1 / 2% / DATE OF HEARING : 03.07.2018 3') / 2% / DATE OF PRONOUNCEMENT : 12.07.2018 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) -3, CHENNA I, DATED 30.08.2017 AND PERTAINS TO ASSESSMENT YEAR 2013-14. 2 I.T.A. NO.121/CHNY/18 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS DISAL LOWANCE OF 5,37,254/- UNDER SECTION 14A OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') READ WITH RULE 8D OF THE INCOME-TAX RULE S, 1962. 3. SHRI C. NARESH, THE LD. REPRESENTATIVE FOR THE A SSESSEE, SUBMITTED THAT FOR THE PURPOSE OF DISALLOWANCE UNDE R SECTION 14A OF THE ACT READ WITH RULE 8D(2)(III), 0.5% OF THE AVER AGE INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART O F THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE AS SESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR SHA LL BE TAKEN INTO CONSIDERATION. IN THE PRESENT CASE, ACCORDING TO THE LD. REPRESENTATIVE, THE ASSESSING OFFICER HAS TAKEN ENT IRE INVESTMENT EVEN THOUGH NO INCOME WAS EARNED BY THE ASSESSEE. PLACING RELIANCE ON THE DECISION OF SPECIAL BENCH OF DELHI BENCH OF THIS TRIBUNAL IN ACIT V. VIREET INVESTMENT (P.) LTD. (20 17) 82 TAXMANN.COM 415, THE LD. REPRESENTATIVE SUBMITTED T HAT ONLY THOSE INVESTMENTS WHICH YIELD EXEMPTED INCOME ALONE NEED TO BE CONSIDERED. IF ANY SUCH INVESTMENT, WHICH DOES NOT GIVE ANY INCOME, THE SAME CANNOT BE CONSIDERED FOR DISALLOWA NCE. 4. WE HEARD SHRI A. SASIKUMAR, THE LD. DEPARTMENTAL REPRESENTATIVE, ALSO. WE HAVE GONE THROUGH THE PRO VISIONS OF RULE 3 I.T.A. NO.121/CHNY/18 8D(2)(III) OF THE INCOME-TAX RULES, 1962 AS IT EXIS TS AT THE RELEVANT POINT OF TIME WHICH READS AS FOLLOWS:- 8D(2)(III) AN AMOUNT EQUAL TO ONE-HALF PER CENT OF T HE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHI CH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME , AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. 5. IN VIEW OF THE ABOVE, IT IS OBVIOUS THAT WHILE C OMPUTING DISALLOWANCE UNDER RULE 8D(2)(III), THE ASSESSING O FFICER IS EXPECTED TO TAKE THE AMOUNT EQUAL TO 0.5% OF AVERAG E OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME AS PER THE BALANCE SHEET ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR. THEREFORE, THE ASSESSING OFFICER CANNOT TRAVEL BEYOND THE LANGUAGE OF RULE 8D(2)(II) OF THE INCOME-TAX RULES, 1962. IN OTHER WORDS, THE INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME OF THE ASSESSEE ALONE HAS TO BE CON SIDERED. THE SPECIAL BENCH OF DELHI BENCH OF THIS TRIBUNAL CONSI DERED AN IDENTICAL ISSUE AND FOUND THAT ONLY THOSE INVESTMEN TS WHICH YIELDED EXEMPTED INCOME DURING THE YEAR ALONE HAS TO BE CON SIDERED. IN FACT, THE SPECIAL BENCH HAS OBSERVED AS FOLLOWS AT PARA 11.1 OF ITS ORDER:- 4 I.T.A. NO.121/CHNY/18 11.1 IN THE PRESENT CASE, OUR DECISION IS RESTRICTE D ONLY TO THE EXTENT OF INTERPRETATION OF LANGUAGE EMPLOYED IN RULE 8(2)(III). THE SUBMISSION OF LD. COUNSEL FOR TH E ASSESSEE IS THAT THIS ISSUE IS NOW COVERED BY THE D ECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT V. HOFCIN INDIA (P.) LTD. (SUPRA), WHEREIN IT HAS BEEN HELD THAT IF NO DIVIDEND INCOME WAS EARNED, SECTION 14A COULD NOT BE INVOKED. 6. THE MADRAS HIGH COURT IN THE CASE OF REDINGTON ( INDIA) LTD. V. ADDL. CIT (2017) 77 TAXMANN.COM 257 HAS ALSO FOU ND THAT WHERE THERE IS NO EXEMPTED INCOME, THERE CANNOT BE ANY DI SALLOWANCE. ULTIMATELY, THE SPECIAL BENCH HAS CONCLUDED AT 11.1 6 AS FOLLOWS:- 11.16 THEREFORE, IN OUR CONSIDERED OPINION, NO CONT RARY VIEW CAN BE TAKEN UNDER THESE CIRCUMSTANCES. WE, ACCORDINGLY, HOLD THAT ONLY THOSE INVESTMENTS ARE T O BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMEN T WHICH YIELDED EXEMPT INCOME DURING THE YEAR. 7. IN VIEW OF THE ABOVE, THIS TRIBUNAL IS OF THE CO NSIDERED OPINION THAT ONLY THOSE INVESTMENTS WHICH YIELDED E XEMPTED INCOME ALONE HAS TO BE CONSIDERED FOR THE PURPOSE OF DISAL LOWANCE UNDER RULE 8D(2)(III). THEREFORE, WE ARE UNABLE TO UPHOL D THE ORDERS OF THE AUTHORITIES BELOW. ACCORDINGLY, THE ORDERS OF BOTH THE AUTHORITIES BELOW ARE SET ASIDE AND THE ISSUE IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE- EXAMINE THE MATTER AND RESTRICT THE DISALLOWANCE IN RESPECT OF SUCH INVESTMENTS 5 I.T.A. NO.121/CHNY/18 WHICH YIELDED THE EXEMPTED INCOME, AND WHICH DOES N OT FORM OF TOTAL INCOME ALONE HAS TO BE CONSIDERED FOR DISALLO WANCE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 12 TH JULY, 2018 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 12 TH JULY, 2018. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-3, CHENNAI-34 4. PRINCIPAL CIT-5, CHENNAI 5. 7: -2 /DR 6. ;( < /GF.