K.VINOTH KANNAN DCIT Corporate Circle 2(1), CHENNAI V. Express News Papers Pvt. Ltd., CHENNAI

ITA 1483/CHNY/2019

• Counselvise Citation: [2019] 111 COUNSELVISE.COM (IT) 9421 (ITAT-CHENNAI)
• Duration Of Justice: 6 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-11-2019
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 10-05-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: G BASKAR
• Keywords: Rule 8D; Set aside
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !, # !$ BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ ITA NO.1483/CHNY/2019 & '& / ASSESSMENT YEAR : 2014-15 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2(1), CHENNAI - 600 034. V. M/S EXPRESS NEWSPAPERS PVT. LTD., EXPRESS ESTATES, MOUNT ROAD, CHENNAI - 600 002. PAN : AAACE 1702 G ()*/ APPELLANT) (+,)*/ RESPONDENT) )* - . / APPELLANT BY : SHRI AR.V. SREENIVASAN, JCIT +,)* - . / RESPONDENT BY : SHRI G. BASKAR, ADVOCATE / - 0# / DATE OF HEARING : 15.10.2019 12' - 0# / DATE OF PRONOUNCEMENT : 29.11.2019 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER : THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) -6, CHENNA I, DATED 20.02.2019 AND PERTAINS TO ASSESSMENT YEAR 2014-15. 2. SHRI AR.V. SREENIVASAN, THE LD. DEPARTMENTAL REPRESENTATIVE, SUBMITTED THAT THE CIT(APPEALS) DIR ECTED THE 2 I.T.A. NO.1483/CHNY/19 ASSESSING OFFICER TO EXCLUDE THE INVESTMENTS MADE I N THE SUBSIDIARY COMPANIES FROM THE SCOPE OF DISALLOWANCE UNDER SECT ION 14A OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') BY FOLLOW ING HIS PREDECESSORS ORDER IN THE ASSESSEE'S OWN CASE FOR THE ASSESSMENT YEAR 2013-14. REFERRING TO THE JUDGMENT OF APEX CO URT IN MAXOPP INVESTMENT LTD. V. CIT (2018) 402 ITR 640, THE LD. D.R. SUBMITTED THAT EVEN TO THE INVESTMENTS IN SUBSIDIARY COMPANIE S, THE PROVISIONS OF SECTION 14A WOULD BE APPLICABLE. REFERRING TO R ULE 8D(2)(III) OF INCOME-TAX RULES, 1962 AS IT STOOD AT THE RELEVANT POINT OF TIME, THE LD. D.R. SUBMITTED THAT THE EXPENDITURE INCURRED BY THE ASSESSEE IN EARNING EXEMPTED INCOME IRRESPECTIVE OF THE FACT WH ETHER THE INVESTMENT RESULTED IN INCOME OR NOT, HAS TO BE DIS ALLOWED IN VIEW OF THE LANGUAGE EMPLOYED IN RULE 8D(2)(III). ACCORDIN G TO THE LD. D.R., INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME INDICATES THAT NOT ONLY THE INCOME EARNED B Y THE ASSESSEE DURING THE CURRENT YEAR BUT, THE INVESTMENT HAS POT ENTIAL TO EARN MONEY IN FUTURE HAS ALSO TO BE CONSIDERED FOR DISAL LOWANCE. THE LD. D.R. PLACED HIS RELIANCE ON THE DECISION OF HYD REBAD BENCH OF THIS TRIBUNAL IN BELLWETHER MICROFINANCE FUND PVT. LTD. V. ITO IN I.T.A. NO.1743/HYD/2013 DATED 27.06.2014. THE LD. D.R. FURTHER 3 I.T.A. NO.1483/CHNY/19 SUBMITTED THAT THE MADRAS HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD. V. ADDL. CIT (2017) 392 ITR 633 HAD NO OCCASION TO CONSIDER THE LANGUAGE OF RULE 8D(2)(III) OF THE INC OME-TAX RULES, 1962. 3. ON THE CONTRARY, SHRI G. BASKAR, THE LD.COUNSEL FOR THE ASSESSEE, VERY FAIRLY SUBMITTED THAT IN VIEW OF THE JUDGMENT OF APEX COURT IN MAXOPP INVESTMENT LTD. (SUPRA), THE INVEST MENTS MADE IN SUBSIDIARY COMPANY FOR STRATEGIC INVESTMENTS ARE SU BJECT MATTER OF DISALLOWANCE UNDER SECTION 14A OF THE ACT. HOWEVER , IN THIS CASE, RULE 8D(2)(III) WOULD BE APPLICABLE. REFERRING TO PROVISIONS OF RULE 8D(2)(III), THE LD.COUNSEL SUBMITTED THAT ONLY THOS E INVESTMENTS, INCOME FROM WHICH DOES NOT FORM PART OF TOTAL INCOM E OF THE ASSESSEE, HAS TO BE CONSIDERED FOR DISALLOWANCE. A SIMILAR VIEW WAS TAKEN BY THIS TRIBUNAL IN REAL TALENT ENGINEERI NG PVT. LTD. V. DCIT IN I.T.A. NO.121/CHNY/2018. REFERRING TO THE ARGUMENT OF THE LD. D.R. THAT THE WORD DOES NOT OR SHALL NOT IN RULE 8D(2)(III) INDICATES THAT THE PROVISIONS OF SECTION 14A IS APP LICABLE EVEN THOUGH THERE WAS NO INCOME DURING THE CURRENT YEAR BUT IT HAS POTENTIAL TO EARN INCOME IN THE SUBSEQUENT YEAR HAS TO BE CONSIDERED FOR DISALLOWANCE, THE LD.COUNSEL SUBMITT ED THAT A 4 I.T.A. NO.1483/CHNY/19 SPECIAL BENCH OF DELHI BENCH OF THIS TRIBUNAL IN AC IT V. VIREET INVESTMENT (P.) LTD. (2017) 165 ITD 27 HAD AN OCCAS ION TO CONSIDER THIS ISSUE AND FOUND THAT UNLESS THERE IS AN EXEMPT ED INCOME EARNED BY THE ASSESSEE, THERE CANNOT BE ANY DISALLO WANCE. ACCORDING TO THE LD. COUNSEL, THE SPECIAL BENCH HAS SPECIFICALLY CONSIDERED THE WORD DOES NOT AND SHALL NOT WHIC H OCCUR IN PROVISIONS OF RULE 8D(2)(III). THEREFORE, ACCORDIN G TO THE LD. COUNSEL, IT MAY NOT BE CORRECT TO SAY THAT ALL THE INVESTMENTS HAVE TO BE SUBJECT MATTER OF DISALLOWANCE UNDER SECTION 14A OF THE ACT. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. FROM THE ORDER OF ASSESSMENT, IT APPEARS THAT THE ASSESSEE HAS EAR NED 3,08,46,380/- AS DIVIDEND INCOME AND CLAIMED THE SA ME AS EXEMPTED INCOME UNDER SECTION 10(35) OF THE ACT. T HE ASSESSING OFFICER COMPUTED THE DISALLOWANCE UNDER RULE 8D(2)( III) AND DISALLOWED 2,21,21,765/-. NO DISALLOWANCE WAS MADE UNDER LIMB (I) AND (II) OF RULE 8D(2). THE CIT(APPEALS) ALLOW ED THE CLAIM OF THE ASSESSEE ON THE GROUND THAT IT WAS INVESTED IN THE SUBSIDIARY COMPANIES FOR STRATEGIC INVESTMENTS. AS RIGHTLY SU BMITTED BY THE LD. D.R. AND THE LD.COUNSEL FOR THE ASSESSEE, EVEN IF T HE INVESTMENT 5 I.T.A. NO.1483/CHNY/19 WAS MADE IN SUBSIDIARY COMPANY AND FOR STRATEGIC IN VESTMENT, THE PROVISIONS OF SECTION 14A OF THE ACT WOULD BE APPLI CABLE. THEREFORE, THE CIT(APPEALS) IS NOT CORRECT IN SAYIN G THAT THE STRATEGIC INVESTMENT MADE IN THE SUBSIDIARY COMPANI ES IS TO BE EXCLUDED. 5. NOW COMING TO THE CONTENTION OF THE LD. D.R. THA T IN VIEW OF THE LANGUAGE EMPLOYED IN RULE 8D(2)(III) OF INCOME- TAX RULES, 1962 DOES NOT AND SHALL NOT, EVEN THE INVESTMENT WHI CH HAS POTENTIAL TO EARN PROFIT IN THE SUBSEQUENT YEAR ALSO HAS TO B E CONSIDERED FOR DISALLOWANCE. THIS TRIBUNAL IS OF THE CONSIDERED O PINION THAT IN VIEW OF THE DECISION OF SPECIAL BENCH OF DELHI BENCH IN THE CASE OF VIREET INVESTMENT (P.) LTD. (SUPRA), WHAT IS TO BE CONSIDE RED IS ONLY THE INVESTMENTS WHICH RESULT IN EXEMPTED INCOME DURING THE YEAR UNDER CONSIDERATION. THE MADRAS HIGH COURT IN REDINGTON (INDIA) LTD. (SUPRA), AFTER CONSIDERING PROVISIONS OF SECTION 14 A OF THE ACT, FOUND THAT ONLY THOSE INVESTMENTS ARE TO BE CONSIDE RED FOR COMPUTING AVERAGE VALUE OF INVESTMENTS WHICH YIELDE D EXEMPTED INCOME. THE JUDGMENT OF MADRAS HIGH COURT WAS FOLL OWED BY THIS TRIBUNAL IN M/S REAL TALENT ENGINEERING PVT. LTD. ( SUPRA). IN VIEW 6 I.T.A. NO.1483/CHNY/19 OF THE ABOVE, THIS TRIBUNAL FINDS NO MERIT IN THE C ONTENTION OF THE LD. D.R. 6. IN VIEW OF THE DECISION OF SPECIAL BENCH IN VIRE ET INVESTMENT (P.) LTD. (SUPRA), THE DECISION OF HYDERABAD BENCH IN BELLWETHER MICROFINANCE FUND PVT. LTD. (SUPRA) MAY NOT BE APPL ICABLE TO THE FACTS OF THE CASE. THEREFORE, THE ASSESSING OFFICE R HAS TO FIND OUT THE INVESTMENT WHICH YIELDED EXEMPTED INCOME DURING THE YEAR UNDER CONSIDERATION. ACCORDINGLY, THE ORDERS OF BO TH THE AUTHORITIES BELOW ARE SET ASIDE AND THE ENTIRE ISSUE OF DISALLO WANCE MADE UNDER SECTION 14A OF THE ACT IS REMITTED BACK TO TH E FILE OF THE ASSESSING OFFICER. THE ASSESSING OFFICER SHALL RE- EXAMINE THE MATTER AND FIND OUT ON THE BASIS OF MATERIAL FILED BY THE ASSESSEE, THE INVESTMENTS WHICH YIELDED EXEMPTED INCOME DURIN G THE YEAR UNDER CONSIDERATION AND THEREAFTER DECIDE THE ISSUE AFRESH IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE OPPO RTUNITY TO THE ASSESSEE. 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S ALLOWED FOR STATISTICAL PURPOSES. 7 I.T.A. NO.1483/CHNY/19 ORDER PRONOUNCED IN THE COURT ON 29 TH NOVEMBER, 2019 AT CHENNAI. SD/- SD/- (. !) ( . . . ) (S. JAYARAMAN) (N.R.S. GANESAN) # / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 4 /DATED, THE 29 TH NOVEMBER, 2019. KRI. - +056 76'0 /COPY TO: 1. )*/ APPELLANT 2. +,)*/ RESPONDENT 3. / 80 () /CIT(A)-6, CHENNAI 4. PRINCIPAL CIT-2, CHENNAI 5. 69 +0 /DR 6. :& ; /GF.