ACIT CORPORATE CIRCLE 6 (1), CHENNAI V. M/S SAMALPATTI POWER COMPANY PVT LTD, CHENNAI

ITA 1592/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0150 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-06-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 11-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: N V BALAJI
• Keywords: Earning of tax free income; Deemed to accrue or arise in india; Rule 8D
• Section: 14A; 115JB; 6; 12; 10; 11

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL B BENCH, CHENNAI . , , BEFORE SHRI DUVVURU RL REDDY, JUDICIAL MEMBER & SHRI S. JAYARAMAN, ACCOUNTANT MEMBER ./ I.T.A.NOS.1592 & 1593/CHNY/2018 / ASSESSMENT YEARS :2014-15 & 2013-14 THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRLCE 6(1)(I/C), AAYAKAR BHAVAN, WANAPARTHY BLOCK, 7 TH FLOOR, 121, M. G. ROAD, CHENNAI 600 034. VS. M/S. SAMALPATTI POWER COMPANY PVT. LTD., SREYAS VIRAT, NO. 14, I FLOOR, 3 RD CROSS STREET, RAJA ANNAMALAIPURAM, CHENNAI 600 028. [PAN:AADCS1893D] ( /APPELLANT ) ( / RESPONDENT ) / APPELLANT BY : SHRI GURU BASHYAM, JCIT / RESPONDENT BY : SHRI N.V. BALAJI, ADVOCATE / DATE OF HEARING : 24.06.2019 /DATE OF PRONOUNCEMENT : 26.06.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: BOTH THE APPEALS FILED BY THE REVENUE ARE DIRECTED AGAINST THE COMMON ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 15, CHENNAI DATED 28.02.2018 RELEVANT TO THE ASSESSMENT YEARS 2013-14 & 2014-15. IN BOTH THE APPEALS, THE COMMON GROUND RAISED BY THE REVENUE IS THAT THE LD. CIT(A) HAS ERRED IN RESTRICTING THE DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 [ACT IN SHORT] R.W. RULE 8D TO THE EXTENT OF EXEMPT INCOME EARNED AND THE LD. CIT(A) HAS ERRED IN DELETING THE I.T.A. NOS.1592 & 1593/M/18 2 ADDITION MADE TO BOOK PROFITS COMPUTED UNDER SECTION 115JB OF THE ACT BEING EXPENDITURE INCURRED TO EARN EXEMPT INCOME EVEN THOUGH CLAUSE (F) EXPLANATION 1 TO SECTION 115JB OF THE ACT SPECIFICALLY PROVIDES FOR IT. 2. BRIEF FACTS RELATING TO THE FIRST COMMON GROUND RAISED BY THE REVENUE ARE THAT ON VERIFICATION OF THE FINANCIALS, THE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAS SHOWN INVESTMENTS IN SHARES OF ASSOCIATE AND OTHER COMPANIES. THE ASSESSEE HAS DISALLOWED .17,38,25,076/- FOR THE ASSESSMENT YEARS 2013-14 & 2014-15, BEING INTEREST EXPENSES PERTAINING TO THE EXEMPT INCOME. THE ASSESSEE WAS ASKED TO SHOW-CAUSE AS TO WHY EXPENDITURE IN RELATION TO EXEMPTED INCOME CANNOT BE DISALLOWED APPLYING THE PROVISIONS OF SECTION 14A R.W. RULE 8D. IT WAS THE SUBMISSIONS OF THE ASSESSEE BEFORE THE ASSESSING OFFICER THAT SINCE NO EXEMPT INCOME WAS EARNED DURING THE RELEVANT ASSESSMENT YEARS, NO DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D IS CALLED FOR. IN VIEW OF THE CBDT CIRCULAR NO. 5 OF 2014 DATED 11.02.2014, WHEREIN IT WAS CLARIFIED THAT THE RULE 8D READ WITH SECTION 14A OF THE ACT PROVIDES FOR DISALLOWANCE OF EXPENDITURE EVEN WHERE TAX PAYER IN A PARTICULAR YEAR HAS NOT EARNED ANY EXEMPT INCOME, THE ASSESSING OFFICER DETERMINED THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D AND BROUGHT TO TAX FOR BOTH THE ASSESSMENT YEARS. 3. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD. CIT(A). BY FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF I.T.A. NOS.1592 & 1593/M/18 3 REDINGTON (INDIA) LTD. V. ADDL. CIT (2017) 77 TAXMANN.COM 257 (MADRAS), THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D IN BOTH THE ASSESSMENT YEARS. 4. AGGRIEVED, THE REVENUE IS IN APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW INCLUDING PAPER BOOK FILED BY THE ASSESSEE. ADMITTEDLY, THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME IN BOTH THE ASSESSMENT YEARS. HOWEVER, THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D. IN THE CASE OF REDINGTON (INDIA) LTD. V. ADDL. CIT (SUPRA), THE HONBLE JURISDICTIONAL HIGH COURT HAS HELD THAT WHERE THERE IS NO EXEMPT INCOME IN THE RELEVANT YEAR, THERE CANNOT BE ANY DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A OF THE ACT. SINCE, THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME IN THE ASSESSMENT YEARS UNDER CONSIDERATION, WE ARE OF THE CONSIDERED OPINION THAT THE LD. CIT(A) HAS RIGHTLY FOLLOWED THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD. V. ADDL. CIT (SUPRA) AND DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. THE LD. DR COULD NOT CONTROVERT THE ABOVE JUDGEMENT. THUS, THE GROUND RAISED BY THE REVENUE STANDS DISMISSED FOR BOTH THE ASSESSMENT YEARS. I.T.A. NOS.1592 & 1593/M/18 4 6. THE NEXT COMMON GROUND RAISED BY THE REVENUE RELATES TO DISALLOWANCE UNDER SECTION 14A FOR BOOK PROFIT CALCULATION UNDER SECTION 115JB OF THE ACT. ON PERUSAL OF THE COMPUTATION OF INCOME, THE ASSESSING OFFICER ASKED THE ASSESSEE TO FILE EXPLANATION AS TO WHY DISALLOWANCE UNDER SECTION 14A OF THE ACT SHOULD NOT BE CONSIDERED FOR THE PURPOSE OF MAT CALCULATION ALSO. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, IN VIEW OF THE CLAUSE (F) TO EXPLANATION 1 TO SECTION 115JB OF THE ACT AS WELL AS FOLLOWING VARIOUS DECISIONS, THE ASSESSING OFFICER HAS INCLUDED THE DISALLOWANCE UNDER SECTION 14A OF THE ACT WHILE COMPUTING MAT UNDER SECTION 115JB OF THE ACT. 6.1 ON APPEAL, AFTER CONSIDERING VARIOUS DECISIONS OF VARIOUS BENCHES, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D WHILE COMPUTING MAT UNDER SECTION 115JB OF THE ACT. AGGRIEVED, THE REVENUE IS IN APPEAL. 6.2 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WHILE COMPUTING THE TAX AS PER PROVISIONS OF SECTION 115JB OF THE ACT, THE ASSESSING OFFICER MADE ADDITIONS TO THE BOOK PROFIT WITH RESPECT TO THE DISALLOWANCE MADE U/S.14A OF THE ACT READ WITH RULES-8D BY FOLLOWING THE DECISIONS IN THE CASE OF SHOBA DEVELOPERS [2015] 58 TAXMANN.COM 107 AND IN THE CASE OF MICRO LABS LTD. V. CIT IN 62 TAXMAN.COM 60, WHEREIN, THE ITAT CONFIRMED THE ADDITION MADE TO BOOK PROFIT WITH REFERENCE TO 14A DISALLOWANCE. SIMILAR ISSUE WAS SUBJECT I.T.A. NOS.1592 & 1593/M/18 5 MATTER IN APPEAL BEFORE THE TRIBUNAL IN THE CASE OF BEACH MINERALS COMPANY PVT. LTD. V. ACIT IN I.T.A. NO. 2110/MDS/2014 & DATED 06.08.2015 AND THE TRIBUNAL HAS ADJUDICATED THE CASE AS UNDER: 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 EXPENDITURE UNDER THE NORMAL PROVISIONS OF THE ACT. 8.1.1 THE LD. ASSESSING OFFICER WHILE COMPUTING THE 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 PROVISIONS OF CLAUSE (F) OF EXPLANATION-1 TO SECTION-115JB, CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER. THE RELEVANT PORTION OF THE ORDER OF THE LD. CIT (A) IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 10.2 I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES 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 THE AMOUNT WORKED OUT U/S.14A R.W. RULE 8D UNDER NORMAL COMPUTATION. THE PROVISIONS OF CLAUSE (F) OF EXPLANATION-1 TO S.115JB MAKES IT ABUNDANTLY CLEAR THAT THE AMOUNT OF EXPENDITURE RELATABLE TO ANY EXEMPT INCOME, OTHER THAN S.10(38), IS LIABLE TO 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 ITAT MUMBAI IN THE CASE OF DABUR INDIA LTD., 37 TAXMANN.COM 289. RELIANCE IS ALSO PLACED ON THE LATEST DECISION OF THE ITAT MUMBAI IN THE CASE OF RBK SHARE BROKING P. LTD IN ITA NO.6678 & 7546/MUM/2011 DATED 24.7.2013 WHEREIN IT WAS HELD THAT THE AMOUNT DISALLOWABLE U/S.14A CAN BE ADDED BACK WHILE COMPUTING BOOK PROFIT UNDER EXPLANATION-1 TO S. 115JB(PARA 6). RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, I UPHOLD THE ADDITION MADE BY THE ASSESSING OFFICER. THIS GROUND IS DISMISSED. HOWEVER, ON PERUSING THE EXPLANATION-1(F) OF SECTION-115JB(2) OF THE ACT, WE DO NOT FIND MERIT IN THE CONTENTION OF THE LD. CIT (A). THE RELEVANT PROVISION OF THE ACT IS EXTRACTED HEREIN BELOW FOR REFERENCE:- I.T.A. NOS.1592 & 1593/M/18 6 SECTION.115JB 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 PREPARED 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 SECTION 11 OR SECTION 12 APPLY; (G) TO (J) ----------------------------------------------------- FROM THE ABOVE IT IS APPARENT THAT THE AFORESAID PROVISION OF THE ACT DOES NOT REFER TO ANY DISALLOWANCE MADE U/S.14A OF THE ACT WHILE ARRIVING AT THE BOOK PROFIT FOR THE PURPOSE OF SECTION-115JB(2) OF THE ACT. FURTHER SECTION 14A OF THE ACT IS A PROVISION WITH FICTION DISALLOWING THE DEEMED EXPENDITURE ATTRIBUTABLE TO EXEMPT INCOME VIZ., DIVIDEND INCOME U/S. 10 OF THE ACT AND SECTION 115JB OF THE ACT IS ALSO A PROVISION WITH FICTION FOR PAYMENT 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. HENCE THE QUESTION OF INCREASING THE BOOK PROFIT DUE TO THE DISALLOWANCE U/S.14A OF THE ACT WILL NOT ARISE. HOWEVER, IN THE INSTANT CASE OF THE ASSESSEE, SINCE WE HAVE ALREADY DELETED THE ADDITION MADE U/S.14A, INCREASING THE BOOK PROFIT WILL NOT ARISE. FURTHER THE DECISION OF HONBLE APEX COURT CITED BY THE ASSESSEE IN THE CASE M/S.APOLLO TYRES LTD. VS. CIT REPORTED IN 255 ITR 273 IS ALSO SQUARELY 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 PROFITS OF A COMPANY UNDER SECTION 115J OF THE INCOME-TAX ACT, 1961, HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. THE ASSESSING OFFICER, THEREAFTER, HAS THE LIMITED 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 I.T.A. NOS.1592 & 1593/M/18 7 PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION. THE USE OF THE WORDS IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT IN SECTION 115J WAS MADE FOR THE LIMITED PURPOSE OF EMPOWERING THE ASSESSING OFFICER TO RELY UPON THE AUTHENTIC STATEMENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOKING INTO THE ACCOUNTS OF THE COMPANY, THE ASSESSING OFFICER HAS TO ACCEPT THE AUTHENTICITY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE COMPANIES ACT, WHICH OBLIGATE THE COMPANY TO MAINTAIN ITS ACCOUNTS IN A MANNER PROVIDED BY THAT ACT AND THE SAME TO BE SCRUTINISED AND CERTIFIED BY STATUTORY AUDITORS AND APPROVED BY THE COMPANY IN GENERAL MEETING AND THEREAFTER TO BE FILED BEFORE THE REGISTRAR OF COMPANIES WHO HAS A STATUTORY OBLIGATION ALSO TO EXAMINE AND BE SATISFIED THAT THE ACCOUNTS OF THE COMPANY ARE MAINTAINED IN ACCORDANCE 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 ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COMPANY. FROM THE ABOVE DECISION IT IS CLEAR THAT WHILE COMPUTING THE BOOK PROFIT OF THE COMPANY UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT; ANY DISALLOWANCE MADE UNDER THE NORMAL PROVISIONS OF THE ACT ALSO CANNOT BE GIVEN EFFECT TO FOR ARRIVING AT THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED IN ITS FAVOUR. 6.3 MOREOVER, IN THE CASE OF ACIT V. VIREET INVESTMENT (P) LTD. [2017] 82 TAXMANN.COM 415 (DELHI TRIB.)(SB), THE DELHI SPECIAL BENCH OF THE TRIBUNAL HAS GIVEN A CATEGORICAL FINDINGS THAT THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2) OF THE ACT IS TO BE MADE WITHOUT RESORTING TO COMPUTATION AS CONTEMPLATED UNDER SECTION 14A READ WITH RULE 8D. BY FOLLOWING THE ABOVE DECISIONS, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO EXCLUDE THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D WHILE COMPUTING MAT UNDER SECTION 115JB OF THE ACT. THE LD. DR COULD NOT I.T.A. NOS.1592 & 1593/M/18 8 CONTROVERT THE ABOVE DECISIONS OF THE TRIBUNAL. SINCE THE ISSUE RAISED IN THE APPEAL IS SQUARELY COVERED BY THE DECISION OF THE DELHI SPECIAL BENCH, AS REFERRED ABOVE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD. CIT(A) ON THIS ISSUE. ACCORDINGLY, THE GROUND RAISED BY THE REVENUE STANDS DISMISSED FOR BOTH THE ASSESSMENT YEARS. 7. IN THE RESULT, BOTH THE APPEALS FILED BY THE REVENUE ARE DISMISSED. ORDER PRONOUNCED ON THE 26 TH JUNE, 2019 AT CHENNAI. SD/ - SD/ - (S. JAYARAMAN) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, THE 26.06.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.