DCIT, CHENNAI V. Convansys India P. Ltd., CHENNAI

ITA 1441/CHNY/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7950 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 16-02-2016
• Assessment Year: 2005-2006
• Appeal Filed On: 15-06-2015
• Court: TRIBUNAL
• Department Lawyers: MSVM PRASADCIT
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , ! , ' #$ % , & ' BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A.NO.1441 /MDS./2015 ( / ASSESSMENT YEAR :2005-06) DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-I(2), CHENNAI 600 034. VS. M/S.COVANSYS INDIA P. LTD., 7 TH F1,BLOCK-1B,DLF IT PARK, NANDAMBAKKAM POST,RAMAPURAM, CHENNAI 600 089. PAN AACC 1351 M ( () / APPELLANT ) ( %*() / RESPONDENT ) / APPELLANT BY : MR.MSVM PRASAD,CIT, DR / RESPONDENT BY : NONE / DATE OF HEARING : 16.02.2016 ! /DATE OF PRONOUNCEMENT : 19.02.2016 + / O R D E R PER CHALLA NAGENDRA PRASAD, ACCOUNTANT MEMBER: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE O RDER OF THE LEARNED COMMISSIONER OF INCOME TAX(A)-I, CHENNAI DA TED ITA NO.1441 /MDS/2015 2 25.02.2015 PASSED UNDER SEC.143(3) OF THE ACT FOR ASSESSMENT YEAR 2005-06. 2. NONE APPEARED ON BEHALF OF THE ASSESSEE NOR ANY ADJOURNMENT WAS SOUGHT. WE HAVE NOTICED THAT ON THE EARLIER OC CASION WHEN THE MATTER WAS POSTED ON 03.12.2015, THERE WAS NO REPRE SENTATION FROM THE ASSESSEES SIDE AND THE MATTER GOT ADJOURNED TO 16.02.2016 AND THE NOTICE WAS ISSUED THROUGH RPAD. THUS, THIS AP PEAL IS DISPOSED OFF ON HEARING THE LD.D.R AS THERE IS NO REPRESENTA TION FROM THE ASSESSEES SIDE. 3. THE FIRST ISSUE RAISED BY THE REVENUE IS THAT T HE CIT(A) ERRED IN DIRECTING THE AO TO EXCLUDE FOREIGN CURRENCY EXPEND ITURE FROM THE TOTAL TURNOVER WHILE COMPUTING DEDUCTION U/S.10B OF THE ACT. LD.D.R SUBMITTED THAT AO WHILE COMPLETING THE ASSESSMENT, EXCLUDED FOREIGN CURRENCY EXPENDITURE FROM EXPORT TURNOVER AND COMPU TED THE DEDUCTION U/S.10B OF THE ACT. LD.D.R SUBMITS THAT FOREIGN CURRENCY EXPENDITURE INCURRED BY THE ASSESSEE FOR RENDERING TECHNICAL SERVICES OUTSIDE INDIA SHALL BE EXCLUDED FROM THE EXPORT TUR NOVER AND NOT FROM ITA NO.1441 /MDS/2015 3 TOTAL TURNOVER. DEPARTMENTAL REPRESENTATIVE SUBMIT S THAT THE CIT(A) FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF ITO VS. SAK SOFT LTD., REPORTED IN 313 ITR (AT) 353(CHENNAI) AND CO-ORDINATE BENCH OF THIS TRIBUNAL IN ASSESSEE S OWN CASE IN ITA NO.414/MDS./2007 DATED 18.03.2011 HELD THAT FOREIGN CURRENCY EXPENDITURE SHOULD BE EXCLUDED FROM THE EXPORT TURN OVER ON THE PRINCIPLE OF PARITY. DEPARTMENTAL REPRESENTATIVE S UPPORTS THE ORDER OF THE AO. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE ORDERS OF LOWER AUTHORITIES. THE CIT(A) THOUGH REJECTED THE C ONTENTION OF THE ASSESSEE THAT THE FOREIGN CURRENCY EXPENDITURE SHOU LD BE INCLUDED IN THE EXPORT TURNOVER, ACCEPTED THE ALTERNATIVE CLAIM THAT WHEN SUCH EXPENDITURE INCURRED IN FOREIGN CURRENCY WAS REDUCE D FROM THE EXPORT TURNOVER, IT SHOULD ALSO BE REDUCED FROM THE TOTAL TURNOVER, IN VIEW OF THE DECISION OF SPECIAL BENCH CITED SUPRA AND CO-OR DINATE BENCH OF THIS TRIBUNAL IN ASSESSEES OWN CASE CITED SUPRA. T HEREFORE, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE C IT(A) IN UPHOLDING THE PRINCIPLE OF PARITY AND HOLDING THAT FOREIGN CU RRENCY EXPENDITURE ITA NO.1441 /MDS/2015 4 SHOULD BE EXCLUDED FROM THE EXPORT TURNOVER AND ALS O FROM THE TOTAL TURNOVER FOR COMPUTING THE DEDUCTION U/S.10B OF THE ACT. THUS, WE UPHOLD THE ORDER OF THE CIT(A) ON THIS ISSUE. 5. THE NEXT ISSUE RAISED BY THE REVENUE IS THAT T HE CIT(A) ERRED IN DIRECTING THE AO TO REWORK THE DISALLOWANCE U/S. 14A AT 5% OF GROSS EXEMPT INCOME RECEIVED BY THE ASSESSEE. THE DEPARTM ENTAL REPRESENTATIVE SUBMITS THAT WHILE COMPLETING THE AS SESSMENT , THE AO DISALLOWED ` 33,35,059/- U/S.14A R.W RULE 8D OF THE INCOME TAX RULES, 1962 AS THE EXPENSES INCURRED FOR EARNING EX EMPT INCOME BY THE ASSESSEE. THE DEPARTMENTAL REPRESENTATIVE SUBM ITS THAT THE CIT(A), FOLLOWING THE DECISION OF HONBLE BOMBAY HI GH COURT IN THE CASE OF M/S.GODREJ & BOYCE MANUFACTURING CO. LTD. V S. DCIT REPORTED IN [2010] 328 ITR 81 (BOM.), HELD THAT TH E PROVISIONS OF RULE 8D OF IT RULES HAVE COME INTO EFFECT FROM 24. 03.2008 APPLICABLE FROM ASSESSMENT YEAR 2008-09. HOWEVER,C IT(A), FOLLOWING THE VERY SAME DECISION, HELD THAT REASONA BLE EXPENDITURE ON ESTIMATE SHOULD BE DISALLOWABLE AND ESTIMATED TH E EXPENDITURE AT ITA NO.1441 /MDS/2015 5 5% OF THE GROSS DIVIDEND INCOME RECEIVED BY THE ASS ESSEE TO BE AN EXPENDITURE ATTRIBUTABLE FOR SUCH DIVIDEND INCOME. 6. WE HAVE HEARD THE LD.D.R AND PERUSED THE ORDER S OF THE LOWER AUTHORITIES. THE CIT(A) WHILE HOLDING THAT PROVISI ONS OF RULE 8D ARE APPLICABLE ONLY FROM ASSESSMENT YEAR 2008-09 AND RE ASONABLE EXPENDITURE TO BE ESTIMATED AS ATTRIBUTABLE FOR EAR NING DIVIDEND INCOME FOLLOWED THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYS MFG. CO. LTD (SUPRA) AND OBSE RVED AS UNDER:- 5.2.3 AS PER THE DECISION IN THE CASE OF DAGA CAP ITAL MANAGEMENT P LTD, 117 LTD 169 (2008) THE PROVISIONS OF S.14A ARE APPLICABLE RETROSPECTIVELY SINCE THEY ARE PROCEDURAL IN NATURE . BASED ON THIS DECISION, THE BOARD HAS RELEASED A CIRCULAR NO.173 DATED 4.2.2009 HOLDING THAT THE PROVISIONS OF S.14A(2) & (3) WILL BE APPLICABLE RETROSPECTIVELY W.E.F. 1.4.1962. HOWEVER, THIS DECI SION HAS BEEN REVERSED BY GODREJ & BOYCE MFG. CO.LTD V. DCIT (328 ITR 81) (2010) (BORN.) WHICH HAS COME SUBSEQUENTLY IN 2010. EVEN T HOUGH THE PROVISIONS OF RULE 8D HAVE COME INTO EFFECT DECISIO N OF GODREJ & BOYCE WHICH STATES THAT APPLICATION OF PROVISIONS OF 14A ARE CONSTITUTIONALLY VALID AND RULE 8D IS APPLICABLE FROM AY 08-09, IT ALSO STATED THAT PROVISIONS OF S. I4A ARE STILL APPLICABLE FOR EARLI ER YEARS AND AO IS DUTY BOUND TO DETERMINE EXPENDITURE BY ADOPTING A REASON ABLE BASIS OR METHOD. NOW WITH REGARD TO QUESTION OF WHAT IS THE REASONABLENESS IN ESTIMATING THE DISALLOWANCE, THE ITAT, CHENNAI HAS FOUND 5% OF THE GROSS DIVIDEND INCOME RECEIVED AS REASONABLE IN THE CASE OF CELEBRITY FASHIONS IN ITA NO.1318 AND 1319/MDS/201 I FOR A.YS 2006-07 & 2007- 08 DATED 30.4.201 2. SINCE IT IS ASSESSMENT YEAR 20 05-06, RESPECTFULLY FOLLOWING THE ABOVE DECISION, I HEREBY DIRECT THE A G TO WORK OUT THE DISALLOWANCE @ 5% OF GROSS EXEMPT INCOME RECEIVED. THE GROUND IS PARTLY ALLOWED. ITA NO.1441 /MDS/2015 6 ON GOING THROUGH THE CIT(A)S ORDER, WE DO NOT FIND ANY INFIRMITY IN THE ORDER PASSED BY THE CIT(A) IN ESTIMATING THE EX PENDITURE ATTRIBUTABLE FOR EARNING DIVIDEND INCOME AT 5%. WE UPHOLD THE ORDER OF CIT(A) ON THIS ISSUE. 7. IN THE RESULT, THE APPEAL OF REVENUE IS DISMISS ED. ORDER PRONOUNCED ON FRIDAY, THE 19 TH OF FEBRUARY,2016 AT CHENNAI. SD/- SD/- ( . ) (A.MOHAN ALANKAMONY) ( ' #$ % ) ((CHALLA NAGENDRA PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER CHENNAI, DATED THE 19H FEBRUARY,2016 . K S SUNDARAM. '#$$ %&$'& /COPY TO: $ 1. /APPELLANT 2. /RESPONDENT 3. $ ($)* /CIT(A) 4. $ ( /CIT 5. &+,$ - /DR 6. ,.$/ /GF