Deputy Commissioner of Income Tax Circle-7(1)(2), Bangalore V. M/s Vidya Investments and Trading Company Pvt Ltd , Bangalore

ITA 1564/BANG/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 4166 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 6 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Assessment Year: 2012-2013
• Appeal Filed On: 17-07-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: B K MANJUNATH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER A ND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER ITA NO. 1564/BANG/2017 ASSESSMENT YEAR : 20 12 - 13 THE DEPUTY COMMISSIONER OF INCOME-TAX, CIRCLE 7 (1) (2), BANGALORE. VS. M/S. VIDYA INVESTMENT AND TRADING COMPANY PVT. LTD., NEXT TO WIPRO CAMPUS, SARJAPUR ROAD, DODDAKANNELLI, BANGALORE 35. PAN: AAACV2878G APPELLANT RESPONDENT APPELLANT BY : SHRI PRADEEP KUMAR, CIT (DR) RESPONDENT BY : SHRI B.K. MANJUNATH, CA DATE OF HEARING : 12 .0 2 .2019 DATE OF PRONOUNCEMENT : 15. 0 2 .2019 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE REVENUE AND THE SAME IS DIRECTED AGAINST THE ORDER OF LD. CIT(A)-7, BANGALORE DATED 24.03.2017 FOR ASSESS MENT YEAR 2012-13. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS UNDER. 1. THE ORDER OF THE LEARNED CIT (A) IS OPPOSED TO L AW AND FACTS OF THE CASE. 2. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT(A) WAS JUSTIFIED IN LAW IN ALLOWING THE EXEMPTI ON CLAIMED U/S 10(2A) FOLLOWING THE JUDGEMENT IN ASSESSEE'S OWN CA SE, WITHOUT APPRECIATING THE FACT THAT THE DEPARTMENT HAS FILED FURTHER APPEAL IN THE CASE AND SLP IS PENDING BEFORE THE HONBLE APEX COURT'? 3. 'WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT(A) WAS JUSTIFIED IN LAW IN HOLDING THAT THE DIS ALLOWANCE AS PER RULE 8D CANNOT EXCEED THE ACTUAL EXPENDITURE DEBITE D IN PROFIT & LOSS ACCOUNT, WHICH IS IN CONTRAVENTION OF THE COMP UTATION OF THE EXPENDITURE INCURRED ON EARNING THE EXEMPT INCOME U NDER RULE ITA NO. 1564/BANG/2017 PAGE 2 OF 5 8D(2)(III) OF I. T RULES READ WITH SECTION 14A OF T HE ACT, BEING 0.5% OF THE AVERAGE INVESTMENT'? 4. FOR THIS AND OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE ORDER OF THE CIT(A) IN SO FAR AS IT RELATES TO THE ABOVE GROUNDS MAY BE REVERSED AND THATOF THE ASSESSING OFFICER MAY BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND AND/OR DELETE ANY OF THE GROUNDS MENTIONED ABOVE. 3. THE LD. DR OF REVENUE SUPPORTED THE ASSESSMENT O RDER. HE ALSO SUBMITTED WRITTEN SUBMISSIONS AND IN COURSE OF HEARING, HE SU BMITTED THAT THE APPEAL OF THE REVENUE MAY BE DECIDED ON THE BASIS OF THE W RITTEN SUBMISSIONS FILED BY HIM. THE SAME IS REPRODUCED HEREINBELOW FOR READ Y REFERENCE. MAY IT PLEASE YOUR HONOURS IN THE PRESENT CASE FILED BY THE DEPARTMENT, THE GR OUNDS OF APPEAL AS RAISED BY THE REVENUE HAS BEEN BROADLY CATEGORIS ED INTO THE FOLLOWING HEADINGS: (1) THE LD.CIT(A) HAS ERRED BOTH IN LAW AND ON FACT S AND CIRCUMSTANCES OF THE CASE IN HOLDING THAT THE DISAL LOWANCE AS PER RULE 8D CANNOT EXCEED THE ACTUAL EXPENDITURE DEBITED IN PROFIT AND LOSS ACCOUNT, WHICH IS IN CONTRAVENTION OF THE COMPUTATI ON OF THE EXPENDITURE INCURRED ON EARNING THE EXEMPT INCOME U NDER RULE 8D(2)(III) OF I.T.RULES READ WITH SECTION 14A OF TH E ACT, BEING 0.5% OF THE AVERAGE INVESTMENT. THE LD.CIT(A)'S RELIEF ON DISALLOWANCE U/S 14A R.W. R.8D. RELIANCE IS PLACED ON PARA 8 OF THE A.O.'S ORDER, W HEREBY THE A.O.EXPLAINED THE CIRCUMSTANCES BASED ON WHICH THE CALCULATED THE INCOME THAT CANNOT BE ALLOWED AS AN EXPENDITURE IN COMPUTING THE TAXABLE INCOME. 1.1 AS PER THE PROVISIONS OF SECTION 14A OF THE ACT , ANY SUM INCURRED FOR EARNING AN INCOME EXEMPT FROM TAX CANNOT BE ALL OWED AS AN EXPENDITURE IN COMPUTING THE TAXABLE INCOME. IT ESS ENTIALLY MEANS THAT THE EXPENSES DEBITED TO THE PROFIT & LOSS ACCOUNT O F THE ASSESSEE COMPANY ARE TO BE DIVIDED INTO 2 CATEGORIES VIZ.,ON E RELATING TO THE EXEMPT STREAM OF INCOME AND THE OTHER RELATING TO T HE TAXABLE STREAM OF INCOME. THE EXPENSES RELATING TO THE EXEMPT STRE AM OF INCOME CANNOT BE CLAIMED AGAINST THE TAXABLE STREAM OF INC OME. IT IS NOT NECESSARY THAT THERE SHOULD BE INCOME EARNED DURING THE YEAR. THE EXPENDITURE INCURRED FOR EARNING AN INCOME CAN BE L ESSER THAN THE INCOME ITSELF. ON SOME OCCASIONS, THERE COULD NOT E VEN BE ANY INCOME THOUGH EXPENSES ARE INCURRED TOWARDS EARNING THE SA ME. ALSO FUNDS OF ITA NO. 1564/BANG/2017 PAGE 3 OF 5 A COMPANY COME IN A COMMON KITTY. IN SOME CASES, WH EN THERE IS NO DIRECT NEXUS BETWEEN THE FUNDS AND THE INVESTMENTS CANNOT BE PROVED, THE RULE 8D PROVIDES FOR THE APPORTIONMENT OF INTER EST EXPENDITURE IN THE RATIO OF TOTAL FUNDS EMPLOYED AND THE AMOUNT OF INVESTMENT MADE. THE METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDABLE IN TOTAL INCOME IS CALCULATED USING A FORMULA BASED ON WHICH THE ABOVE INADMISSIBLE EXPENDITURE C AN BE CALCULATED. IN VIEW OF THE ABOVE THE A,O.CORRECTLY CALCULATED T HE INADMISSIBLE INCOME OF THE ASSESSEE/APPELLANT FOR THE RELEVANT A SSESSMENT YEAR. HOWEVER, THE LD.CIT(A) RELYING ON THE ORDER OF HON' BLE ITAT, CHENNAI BENCH 'D' AND M.N.DASTUR&CO.,LTD., VS DCIT OF HON'BLE ITAT, BANGALORE BENCH, RESTRICTED THE DISALLOWANCE MADE EQUAL TO THE ACTUAL AMOUNT OF EXPENDITURE DEBITED BY THE ASSESSE E IN THE PROFIT AND LOSS ACCOUNT FOR EARNING EXEMPT INCOME. THIS ACTION OF THE LD.CIT(A) IS NOT ACCEPTABLE AND THE ORDER OF THE LD.CIT(A) MA Y BE DISMISSED AND THE A.O.'S ORDER BE RESTORED. CONCLUSION IN VIEW OF THE SUBMISSIONS MADE ABOVE, EXAMINATION OF SUBMISSIONS MADE BY THE ASSESSEE AND DEPARTMENT, THE ORDER OF T HE LD.CIT(A), BANGALORE IS ERRONEOUS AND BAD IN LAW. THE LD.CIT(A ) ORDER MAY BE DISMISSED. PRAYER IN THE WAKE OF THE ABOVE SUBMISSIONS, IT IS HUMBLY PRAYED TO DISMISS THE ORDER OF THE LD.CIT(A) AND ANY OTHER ORDER AS M AY PLEASE YOUR HONOURS. RESPECTFULLY SUBMITTED. 4. THE LD. AR OF ASSESSEE SUPPORTED THE ORDER OF CI T(A). HE ALSO SUBMITTED THAT LD. CIT(A) HAS DECIDED THE ISSUE BY FOLLOWING THE TRIBUNAL ORDER RENDERED IN THE CASE OF M/S. MNDASTUR & CO. PVT. LT D. VS. DCIT IN ITA NO. 410/BANG/2014 DATED 07.10.2015. HE SUBMITTED A COP Y OF THIS TRIBUNAL ORDER. 5. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL, WE NOTE DOWN THE FACTS OF THE PRESENT CASE. WE FIND THAT AS PER P&L ACCOUNT OF THE ASSESSEE COMPANY FOR THE PRESENT YEAR AS AVAILABLE ON PAGE N O. 6 OF THE PAPER BOOK, THE AMOUNT DEBITED TO P&L ACCOUNT IS RS. 1,49,29,08 6/-. THE DETAILS OF THESE EXPENSES DEBITED BY ASSESSEE IN THE P&L ACCOU NT ARE AVAILABLE IN SCHEDULE 15 ON PAGE NO. 7 OF THE PAPER BOOK. COMPU TATION OF INCOME FILED BY THE ASSESSEE ALONG WITH THE RETURN OF INCOME IS AVAILABLE ON PAGES 3 TO 4 ITA NO. 1564/BANG/2017 PAGE 4 OF 5 OF PAPER BOOK AND AS PER THE SAME, THE ASSESSEE HAS MADE SUO MOTO DISALLOWANCE OF RS. 1,47,00,218/- OUT OF THE AMOUNT OF EXPENDITURE DEBITED BY THE ASSESSEE IN THE P&L ACCOUNT OF RS. 1,49,29,0 86/- AND HENCE, ONLY AN AMOUNT OF RS. 2,28,868/- STANDS DEBITED IN THE P&L ACCOUNT. NOW THE QUESTION IS WHETHER DISALLOWANCE U/S. 14A IS TO BE RESTRICTED TO THE AMOUNT OF EXPENSES FOR WHICH DEDUCTION IS CLAIMED BY ASSES SEE BY WAY OF DEBIT TO P&L ACCOUNT OR WHETHER THE DISALLOWANCE CAN BE OF A N AMOUNT MORE THAN SUCH AMOUNT OF EXPENSES CLAIMED BY THE ASSESSEE. A S PER THE IMPUGNED ORDER, LD. CIT(A), HE HAS HELD THAT THE DISALLOWANC E U/S. 14A OF IT ACT R.W.R 8D OF IT RULES IS RESTRICTED TO RS. 3,93,335/- BEIN G THE EXCESS OF TOTAL EXPENSES DEBITED TO P&L ACCOUNT OF RS. 1,49,29,086/ - OVER THE AMOUNT OF DISALLOWANCE SUOMOTO MADE BY THE ASSESSEE OF RS. 14 5,35,751/-. THERE SEEMS TO BE SOME DIFFERENCE IN THIS AMOUNT OF RS. 1 45,35,751/- NOTED BY CIT (A) BUT WE DO NOT ENTER INTO THIS ASPECT AS NO OBJECTION WAS RAISED BY THE LEARNED AR OF THE ASSESSEE IN THIS REGARD. IT M AY BE THAT THIS AMOUNT IS CORRECT AND THE AMOUNT NOTED BY US AT RS. 1,47,00,2 18/- IS INCORRECT. IN OUR CONSIDERED OPINION, THE DISALLOWANCE U/S. 14A CANNO T BE OF AN AMOUNT MORE THAN THE AMOUNT FOR WHICH THE DEDUCTION IS CLAIMED BY THE ASSESSEE IN THE COMPUTATION OF INCOME BECAUSE SECTION 14A IS A SECT ION FOR DISALLOWANCE AND NOT A SECTION FOR ANY ADDITION. FOR THIS PURPO SE, WE REPRODUCE THE PROVISIONS OF SUB-SECTION (1) OF SECTION 14A WHICH ARE AS UNDER. 14A. [1] FOR THE PURPOSES OF COMPUTING THE TOTAL IN COME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT O F EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. 6. FROM THE PROVISIONS OF SUB-SECTION (1) OF SECTIO N 14A AS REPRODUCED ABOVE, IT IS CLEAR THAT AS PER THIS SUB-SECTION (1) OF SEC TION 14A, NO DEDUCTION IS TO BE ALLOWED FOR COMPUTING THE TOTAL INCOME IN RESPEC T OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH HAS NOT FORMED PART OF THE TOTAL INCOME. HENCE EVEN IF IT IS FELT THAT ENTIRE EXPEN SES CLAIMED BY THE ASSESSEE IN THE P&L ACCOUNT IS IN RESPECT OF EARNIN G OF EXEMPT INCOME THEN ALSO, WHOLE OF SUCH AMOUNT CAN BE DISALLOWED BUT NO THING MORE THAN THAT CAN BE DISALLOWED. AS PER THE IMPUGNED ORDER OF CI T(A), HE HAS ALREADY CONFIRMED THE DISALLOWANCE OF RS. 3,93,335/- U/S. 1 4A R.W.R. 8D AND ITA NO. 1564/BANG/2017 PAGE 5 OF 5 ASSESSEE HAS ALREADY MADE SUOMOTO DISALLOWANCE OF R S. 1,47,00,218/- AS PER THE COMPUTATION OF INCOME AVAILABLE ON PAGE NO. 3 OF THE PAPER BOOK OR RS. 145,35,751/- AS NOTED BY CIT (A) AND IN THIS MA NNER, THE ENTIRE AMOUNT DEBITED TO P&L ACCOUNT STANDS DISALLOWED AND THEREF ORE, NO FURTHER DISALLOWANCE U/S. 14A R.W.R 8D IS CALLED FOR. AS P ER THE TRIBUNAL ORDER CITED BY THE LEARNED AR OF THE ASSESSEE ALSO, THIS WAS HE LD THAT DISALLOWANCE WORKED OUT AS PER RULE 8D CANNOT EXCEED THE ACTUAL EXPENDITURE DEBITED BY THE ASSESSEE IN P & L ACCOUNT. IN THIS VIEW OF THE MATTER AND BY RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE HOLD THAT THAT TH ERE IS NO MERIT IN THE WRITTEN SUBMISSIONS FILED BY THE LD. DR OF REVENUE AS REPRO DUCED ABOVE. HENCE WE DECLINE TO INTERFERE IN THE ORDER OF CIT(A). 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE I S DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE ME NTIONED ON THE CAPTION PAGE. SD/- SD/- (PAVAN KUMAR GADALE) (ARUN KUMAR GARODI A) JUDICIAL MEMBER ACCOUNTANT MEMBE R BANGALORE, DATED, THE 15 TH FEBRUARY, 2019. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, BANGAL ORE.