DCIT, CHENNAI V. Photon Infotech Private Limited, CHENNAI

ITA 137/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9758 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-04-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 10-02-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 19-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: J PARTHASARATHY; J NARASIMHAN
• Keywords: Tax effect
• Section: 14A; 10B; 10

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 NOS.137 & 138/MDS/2015 ( )( / ASSESSMENT YEARS : 2009-10 & 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE V(2), CHENNAI - 600 034. V. M/S PHOTON INFOTECH PVT. LTD., 1/24, DLF IT PARK, BLOCK 6, LEVEL 7 MOUNT PONAMALEE ROAD, MANAPAKKAM, CHENNAI - 600 089. PAN : AABCP 9405 E (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : SH. A.B. KOLI, JCIT -.+, / 0 / RESPONDENT BY : SH. J. PARTHASARATHY, CA & SH. J. NARASIMHAN, CA 1 / 2% / DATE OF HEARING : 10.02.2016 3') / 2% / DATE OF PRONOUNCEMENT : 01.04.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE REVENUE ARE DIRECTED AGA INST THE COMMON ORDER PASSED BY THE COMMISSIONER OF INCOME T AX (APPEALS)-V, CHENNAI, DATED 29.09.2014 AND PERTAINS TO ASSESSMENT YEAR 2009-10 AND 2010-11. SINCE COMMON ISSUES 2 I.T.A. NOS.137 & 138/MDS/15 ARISE FOR CONSIDERATION, WE HEARD BOTH THE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. SH. A.B. KOLI, THE LD. DEPARTMENTAL REPRESENTATI VE, SUBMITTED THAT IN BOTH THE APPEALS, THE FIRST ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE MADE B Y THE ASSESSING OFFICER UNDER SECTION 14A OF THE INCOME-TAX ACT, 19 61 (IN SHORT 'THE ACT'). THE ASSESSING OFFICER FOUND THAT THE ASSESS EE HAS DECLARED A SUM OF ` 1,63,93,520/- AS DIVIDEND INCOME FOR THE ASSESSMENT YEAR 2009-10 AND CLAIMED EXEMPTION UNDER SECTION 10 (35) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). SIMILAR LY, FOR THE ASSESSMENT YEAR 2010-11, THE ASSESSEE DECLARED A SU M OF ` 1,22,01,254/- AS DIVIDEND INCOME AND CLAIMED EXEMPT ION UNDER SECTION 10(35) / 10(34) OF THE ACT. THE ASSESSING OFFICER FURTHER FOUND THAT FOR THE ASSESSMENT YEAR 2009-10, THE ASS ESSEE ITSELF CLAIMED AN EXPENDITURE OF ` 3,99,684/- AND FOR THE ASSESSMENT YEAR 2010-11, THE EXPENDITURE CLAIMED WAS ` 6,39,196/-. ACCORDING TO THE LD. D.R., THE ASSESSING OFFICER FOUND THAT THE EXPENDITURE WAS NOT COMPUTED UNDER RULE 8D OF THE INCOME-TAX RULES, 1962. REFERRING TO THE PROVISIONS OF RULE 8D, THE LD. D.R . SUBMITTED THAT AFTER INTRODUCTION OF RULE 8D WHICH PROVIDES FOR CO MPUTATION OF 3 I.T.A. NOS.137 & 138/MDS/15 EXPENDITURE FOR EARNING THE EXEMPTED INCOME, THE EX PENDITURE HAS TO BE CALCULATED AS PER THE PROCEDURE PROVIDED THER EIN. IN THIS CASE, ACCORDING TO THE LD. D.R., FOR THE BOTH THE ASSESSM ENT YEARS, AN AD HOC EXPENDITURE WAS DISALLOWED BY THE ASSESSEE ITSELF. THEREFORE, THE ASSESSING OFFICER WAS NOT SATISFIED ABOUT THE M ANNER IN WHICH THE EXPENDITURE WAS COMPUTED. ACCORDINGLY, THE ASS ESSING OFFICER RECOMPUTED THE EXPENDITURE BY APPLYING THE THIRD LI MB OF RULE 8D COMPUTED THE DISALLOWANCE. HOWEVER, THE CIT(APPEAL S) ALLOWED THE APPEAL OF THE ASSESSEE ON THE GROUND THAT THE A SSESSING OFFICER HAS NOT RECORDED HIS SATISFACTION. REFERRING TO TH E ORDER OF THE ASSESSING OFFICER, THE LD. D.R. SUBMITTED THAT AFTE R REFERRING TO STATEMENT OF INCOME, THE ASSESSING OFFICER FOUND TH AT THE EXPENDITURE WAS NOT COMPUTED AS PER THE PROVISIONS OF RULE 8D. THEREFORE, HE COMPUTED THE DISALLOWANCE / EXPENDITU RE BY APPLYING THIRD LIMB OF RULE 8D. HENCE, THE CIT(APPEALS) IS NOT CORRECT IN SAYING THAT THE ASSESSING OFFICER HAS NOT RECORDED HIS SATISFACTION. 3. ON THE CONTRARY, SHRI J. PARTHASARATHY, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT IN THE APPEAL OF T HE REVENUE FOR THE ASSESSMENT YEAR 2010-11, THE TAX EFFECT IS LESS THAN ` 10,00,000/-, THEREFORE, IN VIEW OF THE CIRCULAR ISS UED BY CBDT IN 4 I.T.A. NOS.137 & 138/MDS/15 CIRCULAR NO. 21/2015 DATED 10.12.2015, THE APPEAL F ILED BY THE REVENUE IS NOT MAINTAINABLE. 4. NOW COMING TO ASSESSMENT YEAR 2009-10, THE LD. REPRESENTATIVE FOR THE ASSESSEE SUBMITTED THAT THE ASSESSING OFFICER HAS NOT RECORDED ANY SATISFACTION WITH REGA RD TO CLAIM MADE BY THE ASSESSEE FOR EARNING THE EXEMPTED INCOME. P LACING RELIANCE ON THE DECISION OF THIS BENCH OF THIS TRIBUNAL IN S HRIRAM PROPERTIES (P.) LTD. V. ACIT (2013) 36 TAXMANN.COM 398, THE LD . REPRESENTATIVE SUBMITTED THAT IF THE ASSESSING OFFICER HAS NOT REC ORDED ANY SATISFACTION, NO DISALLOWANCE COULD BE MADE UNDER R ULE 8D FOR EARNING THE EXEMPTED INCOME. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY SUBMITTED BY THE LD. REPRESENTATIVE FOR THE ASSESSE E, THE TAX EFFECT IN THE APPEAL OF THE REVENUE FOR THE ASSESSMENT YEA R 2010-11 IS LESS THAN ` 10,00,000/-. HOWEVER, IN THIS CASE, THE CIT(APPEAL S) HAS PASSED A COMMON ORDER FOR BOTH THE ASSESSMENT YEARS . THEREFORE, THE CIRCULAR OF THE CBDT CANNOT BE APPLIED FOR ONE ASSESSMENT YEAR ALONE. IN OTHER WORDS, THE FINDING OF THE CIT(APPE ALS) CANNOT BE 5 I.T.A. NOS.137 & 138/MDS/15 CONFIRMED FOR ONE ASSESSMENT YEAR, WHEN THE CIT(APP EALS) PASSED COMMON ORDER FOR TWO ASSESSMENT YEARS. THEREFORE, WE FIND NO FORCE IN THE CONTENTION OF THE LD. REPRESENTATIVE F OR THE ASSESSEE. 6. COMING TO THE MERITS OF THE APPEALS, WE HAVE CAR EFULLY GONE THROUGH THE PROVISIONS OF RULE 8D OF THE INCOME-TAX RULES, 1962. RULE 8D PROVIDES FOR METHOD OF COMPUTATION OF EXPEN DITURE FOR EARNING THE EXEMPTED INCOME IN CASE THE ASSESSING O FFICER WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF EXPE NDITURE MADE BY THE ASSESSEE. WE HAVE ALSO CAREFULLY GONE THROUGH THE ORDER OF THE ASSESSING OFFICER FOR BOTH THE ASSESSMENT YEARS. T HE ASSESSING OFFICER, AFTER GOING THROUGH THE STATEMENT OF INCOM E, FOUND THAT THE ASSESSEE DECLARED INCOME FROM DIVIDEND AND CLAIMED THE SAME AS EXEMPTION UNDER SECTION 10(35) / 10(34) OF THE ACT. THE ASSESSING OFFICER, AFTER REFERRING TO THE PROVISIONS OF RULE 8D, FOUND THAT THE DISALLOWANCE MADE BY THE ASSESSEE ON AD HOC BASIS IS NOT IN TUNE WITH THE METHOD PRESCRIBED UNDER RULE 8D. THIS IS APPARENT FROM THE ORDERS OF THE ASSESSING OFFICER. THEREFORE, IT IS OBVIOUS THAT THE ASSESSING OFFICER IS NOT SATISFIED WITH THE EXPENDI TURE CLAIMED BY THE ASSESSEE FOR EARNING THE EXPENDITURE INCOME. I NCOME-TAX ACT DOES NOT PROVIDE ANY PRESCRIBED METHOD FOR RECORDIN G SATISFACTION OF 6 I.T.A. NOS.137 & 138/MDS/15 THE ASSESSING OFFICER. SATISFACTION HAS TO BE GATH ERED FROM THE OBSERVATION MADE BY THE ASSESSING OFFICER IN THE AS SESSMENT ORDER. THE ASSESSING OFFICER BY APPLYING HIS MIND TO THE MATERIAL AVAILABLE ON RECORD, INCLUDING THE STATEMENT OF INC OME AND EXPENDITURE CLAIMED, FOUND THAT THE EXPENDITURE CLA IMED IN THE STATEMENT OF COMPUTATION OF INCOME TO THE EXTENT IN DICATED THEREIN IS FAR LESS THAN THE EXPENDITURE WHICH IS OTHERWISE TO BE ALLOWED UNDER RULE 8D. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS CLEARLY INDICATED HI S MIND IN THE ASSESSMENT ORDERS THAT HE IS NOT SATISFIED ABOUT TH E EXPENDITURE CLAIMED BY THE ASSESSEE ON AD HOC BASIS. THEREFORE, THE ASSESSING OFFICER BY APPLYING THE THIRD LIMB OF RULE 8D(2) OF INCOME-TAX RULES, 1962 COMPUTED THE EXPENDITURE EQUAL TO 0.5% OF THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT OR SH ALL NOT FORM PART OF TOTAL INCOME AS APPEARING IN THE BALANCE SHEET O F THE ASSESSEE ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS Y EAR. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THE CIT(APPEALS) IS NOT CORRECT IN SAYING THAT THE ASSESSING OFFICER HA S NOT RECORDED ANY SATISFACTION. AS OBSERVED EARLIER, THE SATISFA CTION OF THE ASSESSING OFFICER HAS TO BE GATHERED FROM THE ORDER OF THE ASSESSMENT. THEREFORE, WE ARE UNABLE TO UPHOLD THE ORDER OF THE 7 I.T.A. NOS.137 & 138/MDS/15 LOWER AUTHORITY. ACCORDINGLY, THE ORDER OF THE CIT (APPEALS) IS SET ASIDE AND THOSE OF THE ASSESSING OFFICER ARE RESTOR ED. 6. THE NEXT GROUND OF APPEAL IS WITH REGARD TO EXCL USION OF COMMUNICATION EXPENSES FROM TOTAL TURNOVER. 7. SH. A.B. KOLI, THE LD. DEPARTMENTAL REPRESENTATI VE, SUBMITTED THAT THE ASSESSEE INCURRED AN EXPENDITURE OF ` 18,14,537/- TOWARDS COMMUNICATION AND INTERNET CHARGES FOR ASSE SSMENT YEAR 2010-11. SIMILARLY, THE ASSESSEE CLAIMED ` 32,60,000/- FOR THE ASSESSMENT YEAR 2009-10. THE ASSESSING OFFICER RED UCED THE COMMUNICATION EXPENSES FROM THE EXPORT TURNOVER, HO WEVER, THE SAME WAS NOT REDUCED FROM THE TOTAL TURNOVER. ACCO RDING TO THE LD. D.R., COMMUNICATION CHARGES FORM PART OF TOTAL TURN OVER, THEREFORE, THE CIT(APPEALS) IS NOT JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO REDUCE THE SAME FROM THE TOTAL TURNOVER. 8. ON THE CONTRARY, SHRI J. PARTHASARATHY, THE LD. REPRESENTATIVE FOR THE ASSESSEE, SUBMITTED THAT BOTH DENOMINATOR A ND NUMERATOR SHALL BE OF SAME FIGURE FOR DEDUCTION UNDER SECTION 10A AND 10B OF THE ACT. IF THE COMMUNICATION CHARGES ARE REDUCED FROM THE EXPORT TURNOVER, THE SAME SHALL ALSO NEED TO BE REDUCED FR OM THE TOTAL 8 I.T.A. NOS.137 & 138/MDS/15 TURNOVER. AN ITEM OF EXPENDITURE WHICH DOES NOT FO RM PART OF EXPORT TURNOVER CANNOT ALSO EQUALLY FORM PART OF TOTAL TUR NOVER, OTHERWISE THE RESULTANT PROFIT SHALL BE DISASTROUS FIGURE. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. AS RIGHTLY SUBMITTED BY THE LD. REPRESENTATIVE FOR THE ASSESSE E, AN ITEM OF EXPENDITURE, WHICH DOES NOT FORM PART OF EXPORT TUR NOVER, CANNOT EQUALLY FORM PART OF TOTAL TURNOVER AS WELL. THE T OTAL TURNOVER IS NOTHING BUT A PART OF EXPORT TURNOVER. WHEN AN ITEM OF EXPENDITURE, WHICH DOES NOT FORM PART OF EXPORT TURNOVER, THIS T RIBUNAL IS OF THE CONSIDERED OPINION THAT THE SAME CANNOT BE EQUALLY INCLUDED IN THE TOTAL TURNOVER. THEREFORE, THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT THAT THE CIT(APPEALS) HAS RIGHTLY DIRECTED THE ASSESSING OFFICER TO REDUCE THE COMMUNICATION CHARGES FROM TOTAL TURN OVER ALSO. THEREFORE, THIS TRIBUNAL FIND ANY REASON TO INTERFE RE WITH THE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY, THE SAME IS CO NFIRMED. 10. IN THE RESULT, THE APPEAL OF THE REVENUE FOR AS SESSMENT YEAR 2010-11 IN I.T.A. NO.138/MDS/2015 IS ALLOWED, WHERE AS, THE APPEAL FOR THE ASSESSMENT YEAR 2009-10 IN I.T.A. NO.137/MD S/2015 IS PARTLY ALLOWED. 9 I.T.A. NOS.137 & 138/MDS/15 ORDER PRONOUNCED ON 1 ST APRIL, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 1 ST APRIL, 2016. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-V, CHENNAI 4. 1 92 /CIT, V, CHENNAI-34 5. 7: -2 /DR 6. ;( < /GF.