Appeal Details
Counselvise Citation
[2019] 118 COUNSELVISE.COM (IT) 3038 (ITAT-HYDERABAD)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 3 month(s) 10 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
27-02-2019
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
DB-B
Next Hearing Date
24-01-2019
Assessment Year
2012-2013
Appeal Filed On
17-11-2016
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 NO. 15 49 / HYD/201 6 ASSESSMENT YEAR: 20 1 2 - 1 3 E CENTRIC SOLUTIONS PVT. LTD. , HYDERABAD. PAN A ABC G8600Q VS. ASST . COMMISSIONER OF INCOME - TAX, CIRCLE 1 7 ( 1 ), HYDERABAD. APPELLANT RESPONDENT ASSESSEE BY: S HRI V. RAGHAVENDRA RAO REVENUE BY: SHRI R. MOHAN KUMAR DATE OF HEARING: 24 / 0 1 / 201 9 DATE OF PRONOUNCEMENT: 27 / 0 2 /201 9 O R D E R PER S. RIFAUR RAHMAN , AM: T H IS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) 5 , HYDERABAD, DATED, 31 /0 8 /201 6 FOR AY 20 1 2 - 1 3. 2. BRIEF FACTS OF THE CASE ARE THAT THE A SSESSEE COMPANY , ENGAGED IN THE BUSINESS OF SOFTWARE DEVELOPMENT AND EXPORT, FILED ITS RETURN OF INCOME FOR THE AY 201 2 - 1 3 ON 2 8 / 09 /201 2 , DECLARING TOTAL INCOME OF RS. 4,87,92,820/ - , WHICH INCLUDES INCOME FROM BUSINESS AND CAPITAL GAINS. 2.1 THE ASSESSEE COMPANY MADE THE INVESTMENTS OF RS. 5,77,11,440/ - IN EQUITY SHARES OF MANASA HOTELS PVT. LTD. AND OF RS. 9 LAKHS IN E - GRAM IT SERVICES. THE AO HELD THAT SINCE THE INCO ME FROM THESE INVESTMENTS WAS EXEMPT FROM TAX, THE ASSESSEE COMPANY IS LIABLE TO DISALLOWANCE U/S 14A READ WITH I.T.A. NO. 1549 /HYD/1 6 E CENTRIC SOLUTIONS PVT. LTD., HYD. 2 RULE 8D. ACCORDINGLY, HE COMPUTED THE DISALLOWANCE AT RS. 55,83,972/ - U/S 14A RWR 8D(III) OF THE ACT. 3. WHEN, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE CIT(A), THE CIT(A) CONFIRMED THE ADDITION MADE BY THE AO BY DISCUSSING THE ISSUE AT LENGTH WITH VARIOUS CASE LAWS AND THE PROVISIONS OF SECTION 14A OF THE ACT. 4. AGGRIEVED BY THE ORDER OF CIT(A), THE ASS ESSEE IS IN APPEAL BEFORE US RAISING GROUNDS THAT THE ACTION OF THE CIT(A) IN CONFIRMING THE ADDITION OF RS. 55,83,972/ - U/S 14A IS NOT PROPER. 4.1 THE ASSESSEE HAS ALSO RAISED THE FOLLOWING ADDITIONAL GROUNDS, RELYING ON THE JUDGMENT OF THE HONBLE SUPR EME COURT IN THE CASE OF NATIONAL THERMAL POWER CO., 229 ITR 323 (SC): 1. A.O HAS ERRED IN COMPUTING THE AMOUNT DISALLOWABLE UNDER RULE 8D(2)(III) OF I .T RULES. FOR COMPUTING THE AVERAGE UNDER THE RULE, HE TOOK THE ENTIRE INVESTMENTS INSTEAD OF ONLY THOS E INVESTMENTS WHICH YIELDED THE EXEMPT INCOME OF RS. 4,18,842/ - . 2. A.O HAS ALSO ERRED IN COMPUTING AMOUNT DISALLOWABLE UNDER RULE 8D(2)(II) OF LT. RULES. FOR COMPUTING THE PROPORTION UNDER THE RULE HE TOOK THE AVERAGE OF ENTIRE INVESTMENTS( FOR THE NUME RATOR) INSTEAD OF ONLY THE AVERAGE OF THE INVESTMENTS WHICH YIELDED THE EXEMPT INCOME OF RS .4, 18,842/ - . 5. THE GRIEVANCE OF THE ASSESSEE IN THE SAID ADDITIONAL GROUNDS IS THAT THE AO TOOK THE AVERAGE OF ENTIRE INVESTMENTS INSTEAD OF ONLY TAKING THE AVER AGE OF THE INVESTMENTS WHICH YIELDED THE EXEMPT INCOME OF RS. 4,18,842/ - . SINCE, THE ISSUE INVOLVED IS LEGAL AND COMING OUT OF SAME FACTS, WE ACCEPT THE ADDITIONAL GROUND RAISED BY THE ASSESSEE. I.T.A. NO. 1549 /HYD/1 6 E CENTRIC SOLUTIONS PVT. LTD., HYD. 3 6. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. ASSESSEE HAS FILED ADDITIONAL GROUNDS AND IT OBJECTS TO THE ACTION OF AO AS BELOW: I) AO CANNOT DISALLOW MORE THAN EXEMPT INCOME. II) AO INTENDS TO DISALLOW UNDER RULE 8D(2)(III) AND I NVOKES RULE 8D(2)(II) ALSO III) AO CANNOT INCLUDE INVESTMENTS WHICH HAVE NOT YIELDED INCOME TO CALCULATE AVERAGE INVESTMENTS. WE FIND THAT SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THE COORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF TRANSPORT CORPORATION OF INDIA LTD. IN ITA NO. 117/HYD/2016 VIDE ORDER DATED 21 ST SEPTEMBER, 2016 WITH REGARD TO CALCULATION OF AVERAGE INVESTM ENTS, WHEREIN THE COORDINATE BENCH HAS HELD AS UNDER: 11.1 WHILE CAREFULLY READING THE RULE 8D(2)(II), THE 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) INCURRED DURING THE PREVIOUS YEAR: B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH 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; C = THE AVERAGE OF TOTAL ASSETS AS APPEARING IN 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 THAT 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 THOSE INVESTMENTS WHICH HAS GENERATED INCOME AND EXCLUDE THOSE INVESTMENTS, WHICH HAVE NOT GENERATED INCOME. IN THE PRESENT CASE, AO HAD TAKEN THE TOTAL INVESTMENT INSTEAD OF T HOSE INVESTMENTS, WHICH HAVE GENERATED INCOME. ACCORDINGLY, WE DIRECT THE AO TO CALCULATE THE DISALLOWANCE OF INTEREST AS BELOW ( AS PER RULE 8D): INTEREST X INVESTMENT( WHICH GENERATED INCOME) AVERAGE TOTAL ASSETS I.T.A. NO. 1549 /HYD/1 6 E CENTRIC SOLUTIONS PVT. LTD., HYD. 4 THE MAIN REASON IS THAT AS PER SECTION 14A, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH IS EXEMPT FROM TAX. THE RELEVANCE IS THE EXPENDITURE IN RELATION TO INCOME. THE QUANTIFICATION HAS TO BE UNDERTAKEN IN RELATION TO THE EXEMPT INCOME. THE INVESTMENT WHICH HAS NOT GENERATED EXEMPT INCOME SHOULD BE EXCLUDED FROM THE CALCULATION OF RATIO TO DETERMINE THE DISALLOWANCE. 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 TOTAL INVESTMENTS. 11.3 CONSIDERING THE ABOVE DISCUSSION, WE DIRECT THE 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 IDENTICAL TO THAT OF THE SAID CASE, FOLLOWING THE CONCLUSIONS DRAWN THEREIN WE DIRECT THE AO TO REC ALCULATE 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 RULE 8D(2) (II) & (III) TAKING THE AVERAGE INVESTMENT FROM WHICH THE EXEMPT INCOM E IS RECEIVED. 7. WITH REGARD TO DISALLOWANCE UNDER RULE 8D(2)(II), AO HAS NOT M ENTIONED ANYTHING IN THE ASSESSMENT ORDER THAT HE WILL DISALLOW ONLY THE ADMINISTRATION COST UNDER RULE 8D(2)(III). HE WAS INTENDING TO DISALLOW UNDER RULE 8D(2). THEREFORE, WE DO NOT AGREE WITH THE SUBMISSIONS OF LD. AR. 8. AFTER CALCULATING THE DISALLOWANCE U/S 14A AS PER ABOVE DIRECTIONS AND SINCE THE DISALLOWANCE CANNOT EXCEED THE EXEMPT INCOME AS HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS (P.) LTD. ALL ITAT (5433) ITAT MUMBAI (1687) , THE AO IS DIRECTED TO DISALLOW TO THE EXTENT OF EXEMPT INCOME. I.T.A. NO. 1549 /HYD/1 6 E CENTRIC SOLUTIONS PVT. LTD., HYD. 5 9 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 27 TH FEBRUA RY, 201 9. SD/ - ( P. MADHAVI DEVI ) JUDICIAL MEMBER SD/ - ( S. RIFAUR RAHMAN ) ACCOUNTANT MEMBER HYDERABAD, DATED 27 TH FEBRUARY , 201 9. KV COPY FORWARDED TO: 1. E CENTRIC SOLUTIONS PVT. LTD., C/O P.R. DATLA & CO., CAS., 6 - 3 - 788/A/9, FIRST FLOOR, DURGA NAGAR, AMEERPET, HYDERABAD 16 2 . A C IT, CIRCLE 1 7 ( 1 ), HYDERABAD . 3 . CIT (A) - 5 , HYDERABAD 4. PR. CIT 5 , HYDERABAD 5. THE DR, ITAT, HYDERABAD 6. GUARD FILE
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