Prajna Technologies & Services Private Limited, Hyderabad V. Dy.Commissioner of Income Tax, Circle-16(1), Hyderabad

ITA 1612/Hyd/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 2429 (ITAT-HYDERABAD)
• Duration Of Justice: 6 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 15-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: M V ANIL KUMAR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A, HYDERABAD BEFORE SHRI D. MANMOHAN, VICE PRESIDENT AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER ITA NO. 1612/HYD/2017 ASSESSMENT YEAR: 2012-13 PRAJNA TECHNOLOGIES AND SERVICES PVT. LTD., HYDERABAD. PAN AABCP 9162A VS. DY. COMMISSIONER OF INCOME- TAX, CIRCLE 16(1), HYDERABAD. (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI M.V. ANIL KUMAR REVENUE BY : SHRI R. MOHAN REDDY DATE OF HEARING 27/02/2018 DATE OF PRONOUNCEMENT 21/03/2018 O R D E R PER S. RIFAUR RAHMAN, A.M.: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST TH E ORDER DATED 28/06/2017 OF LD. CIT(A) 4, HYDERABAD RELATING TO AY 2012-13. 2. BRIEFLY THE FACTS OF THE CASE ARE, ASSESSEE A CO MPANY, ENGAGED IN THE BUSINESS OF MARKETING, MANAGEMENT AND PROJEC T IMPLEMENTATION, FILED ITS RETURN OF INCOME FOR THE AY 2012-13 ADMITTING AN INCOME OF RS. NIL. THE CASE WAS SELECT ED FOR SCRUTINY AND AO ACCORDINGLY ISSUED NOTICES AND IN RESPONSE T O WHICH, THE ASSESSEE FILED THE INFORMATION AS CALLED FOR. AFTER GOING THROUGH THE INFORMATION, THE AO COMPLETED THE ASSESSMENT BY DIS ALLOWING THE EXPENDITURE U/S 14A OF RS. 11,16,805/- AND ASSESSED THE TOTAL LOSS AT RS. 27,01,063/-. 2 ITA NO. 1612 /HYD/2017 PRAJNA TECHNOLOGIES AND SERVICES PVT. LTD. 2.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E AO OBSERVED THAT THE ASSESSEE HAD SHOWN AN AMOUNT OF RS. 3,63,4 9,237/- TOWARDS INVESTMENTS. WHEN THE AO ASKED THE ASSESSEE TO EXPL AIN AS TO WHY THE DISALLOWANCE U/S 14A READ WITH RULE 8D SHOULD N OT BE MADE, THE ASSESSEE FILED A LETTER STATING THAT DURING THE YEA R NO INCOME FROM DIVIDEND WAS DERIVED ON THE ABOVE INVESTMENTS. REJE CTING THE SUBMISSION OF THE ASSESSEE, THE AO WORKED THE DISAL LOWANCE OF RS. 11,16,805/- U/S 14A RWR 8D TREATING THE SAME AS REL ATABLE TO THE BUSINESS. 3. AGGRIEVED BY THE ORDER OF AO, THE ASSESSEE PREFE RRED AN APPEAL BEFORE THE CIT(A) AND SUBMITTED AS UNDER: 4. THE ASSESSEE SUBMITTED THE BALANCE SHEET AND P & L ACCOUNT AND STATED THAT THE INVESTMENTS MADE IN THE EQUITY AND PREFERENCE SHARES OF PET AVIATION SYSTEMS PVT. LTD., WERE FROM OUT OF OWN FUNDS AVAILABLE WITH THE ASSESSEE AND NOT FROM OUT OF THE LOAN FUNDS. THE PREMIUM DERIVED OF RS. 5,25,000/- WAS ADMITTED UNDE R THE HEAD 'OTHER INCOME'. WITH REGARD TO DIVIDEND INCOME DERI VED DURING THE PREVIOUS YEAR RELEVANT FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION OF RS. 1,50,050/-, THE ASSESSEE SUBMITTED THAT THE DIV IDEND WAS FROM ANUKAMPA POLYMERS AND TECH PVT. LTD., AND THE SHARE S WERE HELD BY THE COMPANY FOR A VERY LONG PERIOD AND NO INVESTMEN T WAS MADE DURING THE YEAR UNDER CONSIDERATION IN THE SAID COM PANY. THE INVESTMENT WAS MADE FROM OWN FUNDS AND NOT FROM LOA N FUNDS. IN RESPECT OF OTHER INVESTMENTS, NO INCOME FROM DIVIDE ND WAS DERIVED AND THEREFORE, THE PROVISIONS OF SEC. 14A HAVE NO A PPLICATION. 5. AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSE E, THE CIT(A) FOLLOWING THE DECISION OF THE COORDINATE BENCH OF I TAT, HYDERABAD IN THE CASE OF PRATHISTA INDUSTRIES LTD. (ITA NO. 1302 /HYD/2015 FOR AY 2011-12), UPHELD THE DISALLOWANCE MADE BY THE AO U/ S 14A RWR 8D. 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESS EE IS IN APPEAL BEFORE US RAISING THE FOLLOWING GROUNDS OF APPEAL: 3 ITA NO. 1612 /HYD/2017 PRAJNA TECHNOLOGIES AND SERVICES PVT. LTD. 1. THE CIT (A) ERRED IN LAW AND FACTS OF THE CASE IN NOT DELETING THE ADDITION OF RS. 11,16,805/- UNDER SECTION 14A R EAD WITH RULE 8D OF THE INCOME TAX ACT, IGNORING THE FACT TH AT THERE IS NO EXPENSES INCURRED FOR EARNING THE SAID DIVIDEND INC OME OF RS. 1,50,050/- WHICH DOES NOT FORM PART OF THE TOTAL IN COME. 2. YOUR APPELLANT ALTERNATIVELY SUBMITS THAT THE CI T(A) WHILE CONFIRMING THE DISALLOWANCE OUGHT TO HAVE BEEN REST RICTED IT TO THE AMOUNT OF DIVIDEND RECEIVED OF RS. 1,50,050/- A ND NOT THE AMOUNT OF RS. 11,16,805/-BEING CALCULATED BY THE AS SESSING OFFICER. FOR THESE AND SUCH OTHER GROUNDS THAT MAY BE URGED AT THE TIME OF HEARING YOUR APPELLANT PRAYS THAT THE ADDITION M AY BE DELETED. 6. CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED TH E MATERIAL ON RECORD. WE FIND THAT SECTION 14A CLEARLY STIPULATES THAT THE EXPENDITURE INCURRED FOR EARNING OF ANY INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME ALONE CAN BE DISALLOWED. I N THE CASE BEFORE US, THE ASSESSEE HAS EARNED EXEMPT INCOME OF RS. 1, 50,000/- WHEREAS THE AO HAS DISALLOWED RS. 11,16,805/- BY AP PLYING RULE 8D. THERE ARE CATENA OF DECISIONS, WHICH HAVE RESTRICTE D THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME, IN PARTICULAR, THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT LTD. VS. CIT (ITA NO. 117/2015). 6.1 FURTHER, WE NOTICE THAT SECTION 14A(1) CLEARLY INDICATES, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME. IT IS CLEAR THAT THE EXPENDITURE IN RELATIO N TO EARNING OF EXEMPT INCOME ALONE MUST BE CONSIDERED AND THE EXPE NDITURE CANNOT BE MORE THAN THE EXEMPT INCOME. IT HAS TO BE PROPOR TIONATE TO THE INCOME EARNED OR MAXIMUM TO THE EXTENT OF THE EXEMP T INCOME. THE RULE 8D INTRODUCED TO EASE OUT THE DIFFICULTY IN ID ENTIFYING THE EXPENDITURE, WHICH CANNOT BE SEPARATELY IDENTIFIED CONSIDERING THE COMPLICATIONS OF THE FINANCIAL STRUCTURE OF THE COM PANIES. IN APPLYING SUCH RULES SOMETIMES, WE REACH ABSURD RESULT, IN SU CH A SITUATION, ONE HAS TO APPLY THE RULES JUDICIOUSLY AND CANNOT B E APPLIED BLINDLY. 4 ITA NO. 1612 /HYD/2017 PRAJNA TECHNOLOGIES AND SERVICES PVT. LTD. RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT (SUPRA), WE ALLOW GROUND NO. 2 RAISED BY THE ASSES SEE. 6.3 GROUND NO. 1 WAS NOT PRESSED BY THE LD. AR OF T HE ASSESSEE AT THE TIME OF HEARING BEFORE US. 7. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED . PRONOUNCED IN THE OPEN COURT ON 21 ST MARCH, 2018. SD/- SD/- (D. MANMOHAN) (S. RIFAUR RAHM AN) VICE PRESIDENT A CCOUNTANT MEMBER HYDERABAD, DATED: 21 ST MARCH, 2018 KV COPY TO:- 1) PRAJNA TECHNOLOGIES AND SERVICES PVT. LTD., C/O. M. ANANDAM & CO., CAS, 7A, SURYA TOWERS, SD ROAD, SCUNDERABAD 500 003. 2) DCIT, CIRCLE 16(1), HYD. 3) CIT(A) 4, HYDERABAD 4) PR. CIT 4, HYD. 5) THE DEPARTMENTAL REPRESENTATIVE, I.T.A.T., HYDE RABAD. 6) GUARD FILE /