ACIT, CHENNAI V. EIH Associated Hotels Limited, CHENNAI

ITA 1550/CHNY/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8717 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2007-2008
• Appeal Filed On: 27-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V NANDA KUMAR
• Keywords: Earning of tax free income; Deemed to accrue or arise in india; Revised return
• Section: 14A; 115JB; 12; 10; 154; 11

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . . . , . , & BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.1550/MDS/2016 ( / ASSESSMENT YEAR: 2007-08) THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2(1), CHENNAI-34. VS M/S. EIH ASSOCIATED HOTELS LTD., 1/241, GST ROAD, MEENAMBAKKAM, CHENNAI-600 027. PAN:AAACE2125M ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. V.NANDA KUMAR, JCIT /RESPONDENT BY : NONE /DATE OF HEARING : 16 TH AUGUST,2016 /DATE OF PRONOUNCEMENT : 22 ND AUGUST, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE REVENUE AGGRIEVED BY TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- 6, CHENNAI DATED 23.03.2016 IN ITA NO.14/CIT(A)-6/2 011-12 PASSED UNDER SECTION 154 R.W.S.143(3) & 250(6) OF T HE ACT. 2. AT THE TIME OF HEARING, NONE APPEARED ON BEHALF OF THE ASSESSEE / RESPONDENT, DESPITE NOTICE SENT TO THE A SSESSEE. SINCE THE ISSUE IS ALREADY DECIDED BY THIS BENCH OF THE TRIBUNAL ON AN EARLIER OCCASION, WE HEREBY PROCEED TO 2 ITA NO.1550 /MDS/2016 DISPOSE OFF THE APPEAL ON MERITS, AFTER HEARING THE LEARNED DEPARTMENTAL REPRESENTATIVE AND PERUSING THE RECORD S. 3. THE REVENUE HAS RAISED SEVERAL GROUNDS IN ITS AP PEAL, HOWEVER, THE CRUX OF THE ISSUE IS AS FOLLOWS:- THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE ADDITION MADE TO BOOK PROFIT ON ACCOUNT OF DISALLOWANCE AMOUNTING TO ` 2,13,66,500/- BY INVOKING THE PROVISIONS OF SECTION UNDER SECTION 14A R.W. RULE 8D. 4. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A COMPANY ENGAGED IN HOTEL BUSINESS FILED ITS REVISED RETURN OF INCOME ON 25.07.2008 DECLARING NIL INCOME. THE CAS E WAS TAKEN UP FOR SCRUTINY AND THE ASSESSMENT WAS COMPLE TED UNDER SECTION 143 (3) OF THE ACT ON 29.12.2009 WHER EIN THE LEARNED ASSESSING OFFICER MADE DISALLOWANCE OF EXPE NDITURE OF ` 2,13,66,500/- IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL TAXABLE INCOME, HOWEVER, WHILE COMPUT ING BOOK THE BOOK PROFIT U/S. 115JB OF THE ACT SUCH DISALLOW ANCE WAS NOT GIVEN EFFECT. THEREFORE, THE LEARNED ASSESSING OFFICER VIDE ORDER UNDER SECTION 154 OF THE ACT DATED 17.02 .2011 ADDED SUCH DISALLOWANCE TO THE BOOK PROFIT UNDER SE CTION 3 ITA NO.1550 /MDS/2016 115JB OF THE ACT BY INVOKING THE PROVISIONS OF SECT ION 14A R.W.R 8D. 5. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) RELYING ON THE DECISIONS OF HIGHER JUDICI ARY HELD THAT SUCH ADDITION CANNOT BE MADE UNDER SECTION 154 OF T HE ACT SINCE IT IS NOT A MISTAKE APPARENT ON RECORD. ON ME RITS ALSO, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) FO LLOWING THE DECISION OF THE TRIBUNAL IN BRAKES INDIA LTD. V S. DCIT IN ITA NO.622/MDS/2014 DATED 08.01.2016 DELETED THE AD DITION MADE TO THE BOOK PROFIT U/S.115JB OF THE ACT INVOKI NG THE PROVISIONS OF SECTION14A OF THE ACT. 6. WE HAVE HEARD LEARNED DEPARTMENTAL REPRESENTATIV E AND PERUSED THE MATERIALS AVAILABLE ON RECORD. WIT H RESPECT TO THE COMPUTATION OF BOOK PROFIT UNDER SECTION 115 JB OF THE ACT, THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. BEACH MINERALS COMPANY P.LTD. VS. ACIT REPORTED IN 64 TAXMANN.COM 218 HAS ALSO CATEGORICALLY HELD THAT WH ILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF TH E ACT, DISALLOWANCE MADE BY INVOKING THE DEEMING FICTION U NDER 4 ITA NO.1550 /MDS/2016 SECTION 14A R.W.R 8D CANNOT BE MADE. THE RELEVANT P ORTION OF THE ORDER IS EXTRACTED HEREIN BELOW FOR REFERENCE. 8.1. GROUND NO.5.(A) COMPUTATION OF BOOK PROFIT U/S.115JB OF THE ACT BY GIVING EFFECT TO THE DISALLOWANCE OF EXPENDITURE MADE INVOKING THE PROVISIONS OF THE SECTION-14A OF THE ACT FOR ` 3,11,34,630/- AND ALSO THE DISALLOWANCE OF EXPENDIT URE UNDER THE NORMAL PROVISIONS OF THE ACT. 8.1.1 THE LD. ASSESSING OFFICER WHILE COMPUTING T HE TAX AS PER PROVISIONS OF SECTION 115JB OF THE ACT MADE ADDITIONS TO THE BOOK PROFIT WITH RESPECT TO THE DISALLOWANCE MADE U/S.14A OF THE ACT READ WITH RULES-8D OF THE INCOME TAX RULES. ON APPEAL, THE LD. CIT (A) CITING THE PROVI SIONS OF CLAUSE (F) OF EXPLANATION-1 TO SECTION-115JB, CONFI RMED THE ORDER OF THE LD. ASSESSING OFFICER. THE RELEVANT PO RTION OF THE ORDER OF THE LD. CIT (A) IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 10.2 I HAVE GONE THROUGH THE FACTS AND CIRCUMSTAN CES OF THE CASE. THE ASSESSING OFFICER HAS TAXED THE INCOME U/ S.115JB SINCE THE TAX ON BOOK PROFITS IS MORE THAN THE TAX UNDER NORMAL COMPUTATION. WHILE DOING SO, SHE MADE DISALLOWANCE OF THE AMOUNT RELATABLE TO EXEMPT INCOME ON THE BASIS OF T HE AMOUNT WORKED OUT U/S.14A R.W.RULE 8D UNDER NORMAL COMPUTA TION. THE PROVISIONS OF CLAUSE (F) OF EXPLANATION-1 TO S.115J B MAKES IT ABUNDANTLY CLEAR THAT THE AMOUNT OF EXPENDITURE RE LATABLE TO ANY EXEMPT INCOME, OTHER THAN S.10(38), IS LIABLE T O BE ADDED BACK TO THE AMOUNT OF NET PROFIT AS SHOWN IN THE P& L A/C. RELIANCE IS PLACED ON THE LATEST DECISION OF THE IT AT MUMBAI IN THE CASE OF DABUR INDIA LTD., 37 TAXMANN.COM 289. R ELIANCE IS ALSO PLACED ON THE LATEST DECISION OF THE ITAT MUMB AI IN THE CASE OF RBK SHARE BROKING P. LTD IN ITA NO.6678 & 7546/M UM/2011 DATED 24.7.2013 WHEREIN IT WAS HELD THAT THE AMOUNT DISALLOWABLE U/S.14A CAN BE ADDED BACK WHILE COMPUT ING BOOK PROFIT UNDER EXPLANATION-1 TO S. 115JB(PARA 6). RES PECTFULLY FOLLOWING THE ABOVE DECISIONS, I UPHOLD THE ADDITIO N MADE BY THE ASSESSING OFFICER. THIS GROUND IS DISMISSED. HOWEVER, ON PERUSING THE EXPLANATION-1(F) OF SECTIO N- 115JB(2) OF THE ACT, WE DO NOT FIND MERIT IN THE CO NTENTION OF THE LD. CIT (A). THE RELEVANT PROVISION OF THE ACT IS EXTRACTED HEREIN BELOW FOR REFERENCE:- SECTION.115JB 5 ITA NO.1550 /MDS/2016 EXPLANATION-[1] FOR THE PURPOSES OF THIS SECTION, BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARE D UNDER SUB-SECTION(2), AS INCREASED BY (A) TO (E) --------------------------------------- ------------- (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH [SECTION-10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF] OR SE CTION 11 OR SECTION 12 APPLY; (G) TO (J) --------------------------------------- -------------- FROM THE ABOVE IT IS APPARENT THAT THE AFORESAID PR OVISION OF THE ACT DOES NOT REFER TO ANY DISALLOWANCE MADE U/S.14A OF THE ACT WHILE ARRIVING AT THE BOOK PROFI T FOR THE PURPOSE OF SECTION-115JB(2) OF THE ACT. FURTHER SEC TION 14A OF THE ACT IS A PROVISION WITH FICTION DISALLOW ING THE DEEMED EXPENDITURE ATTRIBUTABLE TO EXEMPT INCOME VI Z., DIVIDEND INCOME U/S. 10 OF THE ACT AND SECTION 115J B OF THE ACT IS ALSO A PROVISION WITH FICTION FOR PAYMEN T OF TAX IN RESPECT OF DEEMED INCOME. THEREFORE WHILE COMPUTING THE PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT ANOTHER PROVISION WITH FICTION CANNOT BE SUPERIMPOSED. HENC E THE QUESTION OF INCREASING THE BOOK PROFIT DUE TO THE DISALLOWANCE U/S.14A OF THE ACT WILL NOT ARISE. HOW EVER, IN THE INSTANT CASE OF THE ASSESSEE, SINCE WE HAVE ALR EADY DELETED THE ADDITION MADE U/S.14A, INCREASING THE B OOK PROFIT WILL NOT ARISE. FURTHER THE DECISION OF HON BLE APEX COURT CITED BY THE ASSESSEE IN THE CASE M/S. APOLLO TYRES LTD. VS. CIT REPORTED IN 255 ITR 273 IS ALSO SQUARE LY APPLICABLE TO THE CASE OF THE ASSESSEE. THE GIST OF THE SAME IS REPRODUCED HEREIN BELOW FOR REFERENCE:- THE ASSESSING OFFICER, WHILE COMPUTING THE BOOK PR OFITS OF A COMPANY UNDER SECTION 115J OF THE INCOME-TAX ACT, 1 961, HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF AC COUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES AC T AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COM PANIES ACT. THE ASSESSING OFFICER, THEREAFTER, HAS THE LIM ITED POWER OF MAKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO SECTION 115J . THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFITS SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVID ED IN THE EXPLANATION. THE USE OF THE WORDS IN ACCORDANCE WI TH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO TH E COMPANIES ACT IN SECTION 115J WAS MADE FOR THE LIMITED PURPO SE OF EMPOWERING THE ASSESSING OFFICER TO RELY UPON THE A UTHENTIC 6 ITA NO.1550 /MDS/2016 STATEMENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOK ING INTO THE ACCOUNTS OF THE COMPANY, THE ASSESSING OFFICER HAS TO ACCEPT THE AUTHENTICITY OF THE ACCOUNTS WITH REFERE NCE TO THE PROVISIONS OF THE COMPANIES ACT, WHICH OBLIGATE THE COMPANY TO MAINTAIN ITS ACCOUNTS IN A MANNER PROVIDED BY TH AT ACT AND THE SAME TO BE SCRUTINIZED AND CERTIFIED BY STATUTO RY AUDITORS AND APPROVED BY THE COMPANY IN GENERAL MEETING AND THEREAFTER TO BE FILED BEFORE THE REGISTRAR OF COMP ANIES WHO HAS A STATUTORY OBLIGATION ALSO TO EXAMINE AND BE S ATISFIED THAT THE ACCOUNTS OF THE COMPANY ARE MAINTAINED IN ACCOR DANCE WITH THE REQUIREMENTS OF THE COMPANIES ACT. SUB-SECTION (1A) OF SECTION 115J DOES NOT EMPOWER THE ASSESSING OFFICER TO EMBARK UPON A FRESH ENQUIRY IN REGARD TO THE ENTRIE S MADE IN THE BOOKS OF ACCOUNT OF THE COMPANY. FROM THE ABOVE DECISION IT IS CLEAR THAT WHILE COMP UTING THE BOOK PROFIT OF THE COMPANY UNDER THE PROVISIONS O F SECTION 115JB OF THE ACT; ANY DISALLOWANCE MADE UNDER THE N ORMAL PROVISIONS OF THE ACT ALSO CANNOT BE GIVEN EFFECT T O FOR ARRIVING AT THE BOOK PROFIT FOR THE PURPOSE OF SE CTION 115JB OF THE ACT. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED IN ITS FAVOUR . 7. IN VIEW OF THE ABOVE, WE DO NOT FIND IT NECESSAR Y TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONE R OF INCOME TAX (APPEALS) SINCE HE HAS ONLY FOLLOWED THE DECISION OF THE TRIBUNAL IN DELETING THE ADDITION U NDER SECTION 14A OF THE ACT. WE ALSO AGREE WITH THE DECISION OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) WHEREI N HE HAS HELD THAT THE LEARNED ASSESSING OFFICER HAS ERR ED IN MODIFYING HIS ORDER UNDER SECTION 154 OF THE ACT B Y MAKING ADDITION INVOKING THE PROVISIONS OF SECTION 14A R.W .R 8D OF RULES WHILE COMPUTING THE BOOK PROFIT OF THE ASSESS EE UNDER 7 ITA NO.1550 /MDS/2016 SECTION 115JB OF THE ACT BECAUSE THAT DOES NOT AMOU NT TO RECTIFYING A MISTAKE APPARENT ON RECORD, IN FACT IT WOULD AMOUNT TO REVIEW OF HIS ORDER. 8. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISM ISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE 22 ND AUGUST, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 22 ND AUGUST, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /