EIH Associated Hotels Limited, CHENNAI V. DCIT, CHENNAI

ITA 1674/CHNY/2015

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 8899 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 27-04-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 21-07-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: N V BALAJI
• Keywords: Earning of tax free income; Deemed to accrue or arise in india; Proportionate interest
• Section: 43B; 143(3); 14A; 115JB; 6; 12

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , . , # $ BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI G.PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A.NOS.1673 & 1674/MDS/2015 ( / ASSESSMENT YEARS: 2009-10 & 2010-11) M/S. EIH ASSOCIATED HOTELS LTD., 1/24, GST ROAD, MEENAMBAKKAM, CHENNAI-600 027. VS THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(1), CHENNAI-34. PAN:AAACE2125M ( /APPELLANT) ( /RESPONDENT) & ./ I.T.A.NOS.1919 & 1920/MDS/2015 ( / ASSESSMENT YEARS: 2009-10 & 2010-11) THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(1), CHENNAI-34. VS M/S. EIH ASSOCIATED HOTELS LTD., 1/24, GST ROAD, MEENAMBAKKAM, CHENNAI - 600 027. PAN:AAACE2125M ( /APPELLANT) ( /RESPONDENT) ASSESSEE BY : MR. N.V.BALAJI, ADVOCATE REVENUE BY : MR. A.V.SREEKANTH, JCIT /DATE OF HEARING : 27 TH APRIL, 2016 /DATE OF PRONOUNCEMENT : 1 ST JULY, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THESE APPEALS ARE FILED BY THE ASSESSEE AND REVEN UE RESPECTIVELY AGGRIEVED BY THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-6, CHENNAI DAT ED 2 ITA NOS.1673 & 1674/MDS/2015 & ITA NOS.1919 & 1920/MDS/2015 13.03.2015 IN ITA NOS.119/CIT(A)-6/2011-12 & IN IT A NO.49/CIT(A)-6/2013-14 PASSED UNDER SECTION 143(3) R.W.S. 250(6) OF THE ACT. SINCE THE ISSUES RAISED IN THES E APPEALS ARE IDENTICAL, THEY ARE CLUBBED TOGETHER AND DISPOS ED OFF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. ITA NOS.1673 & 1674/MDS/2015: (ASSESSEES APPEAL) 2. THE ASSESSEE IN THESE APPEALS HAS RAISED SEVERAL IDENTICAL GROUNDS AND THEY ARE CONCISED HEREIN BELO W FOR ADJUDICATION:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY TH E LEARNED ASSESSING OFFICER TOWARDS PROVISION FOR LEA VE ENCASHMENT OF `12,25,159/- & `6,45,604/- FOR THE ASSESSMENT YEARS 2009-10 & 2010-11 RESPECTIVELY DEBITED TO THE PROFIT AND LOSS ACCOUNT BY INVOKING THE PROVISIONS OF SECTION 43B(F) OF THE ACT UNDER NORMA L COMPUTATION AND UNDER SECTION 115JB OF THE ACT. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED BY NOT ALLOWING FULL RELIEF AS CLAIMED BY THE APPELLANT IN RESPECT OF THE ADDITION MADE BY THE LE ARNED ASSESSING OFFICER UNDER SECTION 14A OF THE ACT BOTH UNDER NORMAL PROVISIONS AND UNDER SECTION 115JB OF THE ACT. 3 ITA NOS.1673 & 1674/MDS/2015 & ITA NOS.1919 & 1920/MDS/2015 ITA NOS.1919 & 1920/MDS/2015: (REVENUES APPEAL) 3. THE REVENUE IN THESE APPEALS HAS RAISED SEVERAL IDENTICAL GROUNDS AND THEY ARE CONCISED HEREIN BELO W FOR ADJUDICATION:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BY HOLDING THAT PROVISIONS OF SECTION 40( A)(IA) OF THE ACT WILL NOT BE APPLICABLE ON CREDIT CARD COMMISSION PAYMENTS. II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN HOLDING THAT INVESTMENTS MADE IN WHOLL Y OWNED SUBSIDIARY COMPANIES HAS TO BE EXCLUDED WHILE COMPUTING DISALLOWANCE BY INVOKING SECTION 14A R.W. R 8D OF THE ACT. 4. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN HOTEL BUSINESS FILED ITS RETURN OF INCOME ON 17.9.2009 & 28.09.2010 FOR THE ASSESSMENT YEARS 2009- 10 & 2010-11 RESPECTIVELY. SUBSEQUENTLY THE CASE WA S TAKEN UP FOR SCRUTINY AND ASSESSMENTS WERE COMPLETED UNDE R SECTION 143 (3) OF THE ACT 30.12.2011 & 26.03.2013 FOR THE 4 ITA NOS.1673 & 1674/MDS/2015 & ITA NOS.1919 & 1920/MDS/2015 ASSESSMENT YEARS 2009-10 & 2010-11 RESPECTIVELY, WH EREIN THE LEARNED ASSESSING OFFICER MADE ADDITIONS BY DIS ALLOWING THE PROVISION MADE FOR LEAVE ENCASHMENT, CREDIT CAR D COMMISSION, UNDER SECTION 40(A)(IA) & 14A OF THE A CT. SUBSEQUENTLY, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) GRANTED CERTAIN RELIEF TO THE ASSESSEE AN D ALSO SUSTAINED CERTAIN ADDITIONS, AGGRIEVED BY WHICH BOT H THE PARTIES ARE IN APPEAL BEFORE US. ITA NOS.1673 & 1674/MDS/2015: (ASSESSEES APPEAL) GROUND NO.1 : DISALLOWANCE OF LEAVE ENCASHMENT U/S. 43B(F) & 115JB OF THE ACT UNDER NORMAL PROVISIONS OF THE A CT AND UNDER 115JB OF THE ACT. 5.1. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, I T WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE HAS DEBITED IN ITS PROFIT & LOSS ACCOUNT UNDER THE HEAD EMPLOYEES REMUNERATION AND WELFARE EXPENSES `12,25,159/- & `6,48,604/- FOR THE ASSESSMENT YEARS 2009-10 & 2010-11 RESPECTIVELY THOUGH THE SAME WAS NOT PAID TO THEM. SINCE THE AMOUNT DUE TO THE EMPLOYEES REMAINE D UNPAID AS ON THE DATE OF THE FILING OF RETURN, THE LEARNED 5 ITA NOS.1673 & 1674/MDS/2015 & ITA NOS.1919 & 1920/MDS/2015 ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 43B(F) OF THE ACT AND DISALLOWED THE SAME AS ALLOWABLE DEDUCT ION. THE LEARNED ASSESSING OFFICER WHILE COMPUTING BOOK PROF IT UNDER SECTION 115 JB OF THE ACT, ALSO ADDED THE SAME TO T HE PROFIT OF THE ASSESSEE. 5.2 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) CONFIRMED THE ORDER OF THE LEARNED ASSES SING OFFICER BY OBSERVING AS UNDER:- 4.1.2 I HAVE CONSIDERED THE ASSESSEE'S SUBMISSIONS CAREFULLY. THE PROVISIONS OF SECTION 43B OF THE ACT ALLOW CERTAIN EXPENSES AS ALLOWABLE DEDUCTIONS ONLY ON AC TUAL PAYMENT BASIS. EXPENSES CLAIMED BY WAY OF 'LEAVE ENCASHMENT' ARE ONE OF SUCH EXPENSES CONTAINED IN T HE SECTION 43B, AT CLAUSE (1). THE ALLOWANCE OF 'LEAVE ENCASHMENT' EXPENSE HAS BEEN INCORPORATED IN TO THE STATUES BY THE FINANCE ACT 2001 W.E.F. 01.04.2002. AS A RESULT, ANY EXPENDITURE CLAIMED BY THE ASSESSEE, BY WAY OF 'LEAVE ENCASHMENT', IS ALLOWABLE AS DEDUCTION, O NLY IF SUCH AMOUNTS ARE PAID ON OR BEFORE THE DUE DATE OF FILING THE RETURN U/S.139(1) OF THE ACT. 4.1.3 THE PROVISIONS OF SECTION 43B(1) OF THE ACT A RE UNAMBIGUOUS AND VERY CLEAR, THAT THE EXPENSES ARE ALLOWABLE ONLY ON ACTUAL PAYMENT. THE PROVISIONS OF SECTION 43B OF THE ACT ARE NOT WITH REFERENCE THE A CCRUAL OR CRYSTALLIZATION OF THE LIABILITIES. ALSO, THE QU ESTION OF ASCERTAINMENT OR UN-ASCERTAINMENT OF SUCH EXPENSES WILL NOT ARISE ONCE THE EXPENSES COME UNDER THE PURVIEW OF SECTION 43B OF THE ACT. THEREFORE, SINCE THE ALLOWA BILITY OF EXPENSES OF 'LEAVE ENCASHMENT' IS BROUGHT INTO THE PROVISIONS OF SECTION 43B OF THE ACT, IT IS ON PAR WITH .ANY OTHER SUMS MENTIONED UNDER SECTION 43B OF THE ACT, WHERE THE AMOUNTS ARE ALLOWABLE AS DEDUCTION ONLY O N ACTUAL PAYMENT BASIS. THE DECISION OF THE SUPREME C OURT IN THE CASE OF BHARAT EARTH MOVERS LTD V. CIT, 245 ITR 428 (SQ, WAS RENDERED PRIOR TO 2001, WHERE THE 'LEA VE ENCASHMENT' WAS NOT PART OF THE PROVISIONS OF SECTI ON 6 ITA NOS.1673 & 1674/MDS/2015 & ITA NOS.1919 & 1920/MDS/2015 43B OF THE ACT. ONLY SUBSEQUENT TO THE DECISION OF THE SUPREME COURT (IN BHARAT EARTH MOVERS LTD) , THE LEGISLATURE AMENDED THE STATUTES, W.E.F. 01.04.2002 , BY INCORPORATING AND BRING THE 'LEAVE ENCASHMENT' WITH IN THE AMBIT OF SECTION 43B OF THE ACT. HENCE THE DECISION OF THE SUPREME COURT IN THE CASE OF BHARAT EARTH MOVERS LT D V. CIT (245 ITR 428)(SQ, IS NO MORE APPLICABLE FOR A.Y.2002-03 ONWARDS. 4.1.4 IN THE POST 01.04.2002 ERA, THE KOLKATA HIGH COURT IN THE CASE OF EXIDE INDUSTRIES LTD V. UNION OF IND IA (292 ITR 470)(CAL), HELD THAT THE PROVISION FOR 'LEAVE ENCASHMENT CANNOT BE SUBJECTED TO THE PROVISIONS OF SECTION 43B BY HOLDING THAT THE AMENDMENT WAS CONTR ARY, UNCONSCIONABLE AND DE HORS THE SUPREME COURT DECISI ON, HOWEVER, THE APEX COURT (2009-TIOL-IIO- SC-IT) STAY ED THE OPERATION OF THE DECISION OF KO1KATA HIGH COURT IN EXIDE INDUSTRIES LTD V: UNION OF INDIA (292 ITR 470)(CAL), FURTHER, THE CONSTITUTIONAL VALIDITY OF THE ENACTME NT OF THE PROVISIONS OF SECTION 43B(F) WAS NOT THE SUBJECT MA TTER BEFORE THE KOLKATA HIGH COURT. IN ANY CASE, SINCE T HE SUPREME COURT HAS ALREADY STAYED THE DECISION OF KOLKATA HIGH COURT IN EXIDE INDUSTRIES LTD V. UNION OF INDIA (292 ITR 470)(CAL), THE SAME IS NO MORE UNDER OPERATION. IN FACT, THE APEX COURT HAS HELD THAT CL AUSE (F) OF SECTION 43B WOULD REMAIN IN STATUTES TILL FINAL DECISION IS GIVEN BY IT AND EXIDE INDUSTRIES LTD WAS DIRECTE D TO PAY THE TAX (2009- TIOL-110- SC-IT). 4.1.5 IN VIEW OF THE ABOVE DISCUSSIONS AND THE DECI SION OF THE SUPREME COURT STAYING THE DECISION OF THE KOLKA TA HIGH COURT IN EXIDE INDUSTRIES LTD V. UNION OF INDI A (292 ITR 470)(CAL), I AM OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER'S ACTION OF DISALLOWING THE 'PROV ISION FOR LEAVE ENCASHMENT' OF RS.12,25, 159/ - AND RS:6,48,6 04/-, RESPECTIVELY, IN THE 'ASSESSMENTS OF A.YS.2009-10 A ND 2010-11, BOTH UNDER THE REGULAR PROVISIONS OF THE A CT AS WELL AS U/S.115JB OF THE ACT, IS AS PER THE LAW, JUSTIFIED AND NEEDS NO INTERFERENCE. THE DISALLOWAN CES OF 'PROVISION FOR LEAVE ENCASHMENT' OF RS.12,25,159/- AND RS.6,48,604/-, RESPECTIVELY, MADE BY THE ASSESSING OFFICER IN THE ASSESSMENTS OF A.YS.2009-10 AND 2010 -11, UNDER THE REGULAR PROVISIONS OF THE ACT AS WELL AS U/S.115JB OF THE ACT, ARE CONFIRMED. THE ASSESSEE F AILS IN ITS APPEALS IN THIS REGARD. 5.3 AFTER HEARING BOTH SIDES, WE DO NOT FIND ANY IN FIRMITY IN THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX 7 ITA NOS.1673 & 1674/MDS/2015 & ITA NOS.1919 & 1920/MDS/2015 (APPEALS) AND THE LEARNED ASSESSING OFFICER BECAUSE SUCH DISALLOWANCE IS IN ACCORDANCE WITH THE PROVISIONS O F SECTION 43B(F) OF THE ACT. SECTION 43B(F) OF THE ACT CLEARL Y PROVIDES THAT ANY SUM PAYABLE BY THE ASSESSEE AS EMPLOYER IN LIEU OF ANY LEAVE AT THE CREDIT OF HIS EMPLOYEE SHALL BE AL LOWED IN WHICH THE SUM IS ACTUALLY PAID BEFORE THE DUE DATE OF FILING OF THE RETURN AS PER SECTION 139(1) OF THE ACT. HENCE THIS ISSUE IS HELD IN FAVOUR OF THE REVENUE. HOWEVER, WHILE D ETERMINING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT, THE PROVISION MADE FOR LEAVE ENCASHMENT HAS TO BE ALLOWED AS DEDU CTION BECAUSE AS PER EXPLANATION [I] (C) ASCERTAINED LIA BILITIES HAS TO BE GIVEN EFFECT FOR ARRIVING AT THE BOOK PROFIT. THEREFORE THE PROFIT & LOSS ARRIVED AFTER DEBITING THE ASCERTAINE D LIABILITY OF THE AMOUNT PAYABLE TO THE EMPLOYEES CANNOT BE ALTER ED BY THE REVENUE TO THE EXTENT IT REMAINS UNPAID. ACCOR DINGLY, THIS GROUND RAISED BY THE ASSESSEE IS PARTLY ALLOWE D FOR BOTH THE ASSESSMENT YEARS AS INDICATED HEREIN ABOVE. GROUND NO.2: ADDITION U/S.14A OF THE ACT : 8 ITA NOS.1673 & 1674/MDS/2015 & ITA NOS.1919 & 1920/MDS/2015 6.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E LEARNED ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 14A R.W.R 8D OF THE RULES AND MADE ADDITION IN THE HANDS OF THE ASSESSEE. 6.2 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) UPHELD THE COMPUTATION MADE BY THE LEARNE D ASSESSING OFFICER, HOWEVER DIRECTED THE LEARNED ASS ESSING OFFICER TO EXCLUDE THE INVESTMENT MADE IN SUBSIDIAR Y COMPANIES BY FOLLOWING THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL BY OBSERVING AS UNDER:- 4.4.2 I HAVE CONSIDERED THE ASSESSEE'S SUBMISSIONS CAREFULLY. THE ISSUE OF DISALLOWANCE OF EXPENSES U/ S.14A READ WITH RULE 8D, BOTH UNDER THE REGULAR PROVISIONS OF THE ACT AS WELL AS U/S. 115JB OF THE ACT, IS A RECURRING ISSUE. SIMILAR DISALLOWANCE WAS ALSO MADE IN A.Y.2008-09, WHERE THE CIT(A), VIDE HIS ORDER IN ITA NO.753/L0-11/ A-III DATED 11.05.2012, AS WELL AS THE ITAT (IN ITA NO. 1503&1624/ MDS/2012 DATED 17.07.2013) HAVE PARTLY CONFIRMED THE DISALLOWANCE OF EXPENSES MADE BY THE ASSESSING OFFICER U/S.14A R.W.R.8D. IN THE SAID YEAR (A.Y.200 8- 09), THE ASSESSING OFFICER WORKED OUT THE DISALLOWANCE OF EXPENSES AT RS4,32,66,500/- U/S.14A R.W.R.8D, AS UNDER: - DIRECT INTEREST UNDER CLAUSE (I) OF RULE 8D(2): `45,927 - PROPORTIONATE INTEREST UNDER CLAUSE (II) OF R-8D( 2) ` 4,02,93,500 - 0.5% OF THE INVESTMENTS UNDER CLAUSE (III) OF R-8D ` 29,73,000 TOTAL DISALLOWANCE ` 4,32,66,500 4.4.3 IN A.Y.2008-09, THE ASSESSING OFFICER CONSIDERED THE ENTIRE INTEREST PAID BY THE ASSESSEE 9 ITA NOS.1673 & 1674/MDS/2015 & ITA NOS.1919 & 1920/MDS/2015 AS COMMON INTEREST AND INCLUDED UNDER CLAUSE (H) OF RULE 8D(2} FOR WORKING OUT THE PROPORTIONATE INTERE ST EXPENSES. THE CIT(A) OBSERVED THAT THERE WERE CERTAIN SPECIFIC PURPOSE LOANS AND HENCE THE INTERE ST ON SUCH SPECIFIC PURPOSE LOANS SHOULD NOT BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE UNDER CLAUSE (II) OF RULE 8D(2). AS FAR AS THE DISALLOWAN CE OF EXPENSES UNDER CLAUSE (III) OF RULE 8 D(2), @ 0.5% OF THE AVERAGE INVESTMENTS, IS CONCERNED, THE CIT(A) CONFIRMED THE ACTION OF THE ASSESSING OFFICER. ON FURTHER APPEALS, THE ITAT UPHELD THE DECISION OF TH E CIT(A), EXCEPT TO THE EXTENT OF EXCLUDING THE INVESTMENTS IN THE SUBSIDIARY COMPANIES FROM THE AMBIT OF THE 'INVESTMENTS' FOR THE PURPOSE OF RULE 8D. 4.4.4 IN THE PRESENT A.YS.2009-10 AND 2010-11 ALSO THE FACTS ARE EXACTLY IDENTICAL. THEREFORE, THE ABO VE DECISION OF THE ITAT IS APPLICABLE TO THE CURRENT A.YS.2009-10 AND 2010-11 UNDER CONSIDERATION. RESPECTFULLY FOLLOWING THE DECISION OF THE ITAT, I HOLD THAT THE INVESTMENTS IN THE SUBSIDIARY COMPANIES SHOULD BE EXCLUDED FROM THE AMBIT OF THE 'VALUE OF INVESTMENTS' FOR THE PURPOSE OF RULE 8D. THE ASSESSING OFFICER IS DIRECTED TO EXCLUDE THE INVESTMENTS IN THE SUBSIDIARY COMPANIES FROM THE AMBIT OF THE VALUE OF INVESTMENTS FOR THE PURPOSE O F RULE 8D AND RECOMPUTED THE DISALLOWANCE UNDER SECTION 14A R.W.R.8D IN ACCORDANCE WITH THE DIRECTI ON OF THE ITAT CONTAINED IN ASSESSMENT YEAR 2008-09 NOT ONLY FOR THE PURPOSE OF NORMAL PROVISIONS OF BUT ALSO FOR THE PU RPOSE OF SECTION 115JB OF THE ACT. THE ASSESSEE PARTLY SUCCE EDS IN ITS APPEALS IN THIS REGARD. 6.3 WE DO NOT FIND IT NECESSARY TO INTERFERE WITH THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE BECAUSE HE HAS ONLY FOLLOWED THE ORDER OF THE CHENNAI BENCH OF THE TRIBUNAL, HOWEVER WE HEREBY DIRECT THE LEARNED ASSESSING OFFICER TO ENSURE WHETHER THE ASSESSEE HA D MADE INVESTMENTS IN ITS SISTER/ASSOCIATE COMPANY FOR STR ATEGIC 10 ITA NOS.1673 & 1674/MDS/2015 & ITA NOS.1919 & 1920/MDS/2015 PURPOSE AND OUT OF ITS INTEREST FREE FUNDS AS CLARI FIED BY THE CHENNAI BENCH OF THE TRIBUNAL IN THE CASE OF RANE H OLDINGS LTD. VS. ACIT IN ITA NO.115/MDS/2015 VIDE ORDER DAT ED 06.01.2016 AND IF FOUND SO DELETE THE DISALLOWANCE MADE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT O R IF OTHERWISE PASS APPROPRIATE ORDER AS PER MERITS AND LAW. THEREFORE THIS ISSUE IS REMITTED BACK TO THE FILE O F THE LEARNED ASSESSING OFFICER FOR THE LIMITED PURPOSE AS INDICA TED HEREIN ABOVE. 6.4 WITH RESPECT TO THE COMPUTATION OF BOOK PROF IT UNDER SECTION 115JB 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 218HAS CATEGORICALLY HEL D THAT WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT, DISALLOWANCE MADE BY INVOKING THE DEEMING FICT ION UNDER 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 EXP ENDITURE 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. 11 ITA NOS.1673 & 1674/MDS/2015 & ITA NOS.1919 & 1920/MDS/2015 8.1.1 THE LD. ASSESSING OFFICER WHILE COMPUTING T HE TAX AS PER PROVISIONS OF SECTION 115JB OF THE ACT MADE ADD ITIONS 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. ASSES SING 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 CIRCUMSTAN CES OF THE CASE. THE ASSESSING OFFICER HAS TAXED THE INCOME U/S.115J B SINCE THE TAX ON BOOK PROFITS IS MORE THAN THE TAX UNDER NORM AL 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 PROVISION S OF CLAUSE (F) OF EXPLANATION-1 TO S.115JB MAKES IT ABUNDANTLY CLE AR THAT THE AMOUNT OF EXPENDITURE RELATABLE TO ANY EXEMPT IN COME, 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 LA TEST DECISION OF THE ITAT MUMBAI IN THE CASE OF DABUR INDIA LTD., 37 TAXMANN.COM 289. RELIANCE IS ALSO PLACED ON THE LATEST DECISIO N OF THE ITAT MUMBAI IN THE CASE OF RBK SHARE BROKING P. LTD IN I TA NO.6678 & 7546/MUM/2011 DATED 24.7.2013 WHEREIN IT WAS HELD T HAT 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 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 CONTENTION OF THE LD. CIT (A). THE RELEVANT PROVISION OF THE ACT IS EXTRACTED HERE IN BELOW FOR REFERENCE:- SECTION.115JB EXPLANATION-[1] FOR THE PURPOSES OF THIS SECTION, BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTI ON(2), AS INCREASED BY (A) TO (E) --------------------------------------- ------------- (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO A NY INCOME TO WHICH [SECTION-10 (OTHER THAN THE PROVISI ONS CONTAINED IN CLAUSE (38) THEREOF] OR SECTION 11 OR SECTION 1 2 APPLY; (G) TO (J) --------------------------------------- -------------- 12 ITA NOS.1673 & 1674/MDS/2015 & ITA NOS.1919 & 1920/MDS/2015 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 PROFIT FOR THE PURPOSE O F SECTION- 115JB(2) OF THE ACT. FURTHER SECTION 14A OF THE ACT IS A PROVISION WITH FICTION DISALLOWING THE DEEMED EXPENDITURE ATT RIBUTABLE TO EXEMPT INCOME VIZ., DIVIDEND INCOME U/S. 10 OF THE ACT AND SECTION 115JB OF THE ACT IS ALSO A PROVISION WITH F ICTION FOR PAYMENT OF TAX IN RESPECT OF DEEMED INCOME. THEREFO RE WHILE COMPUTING THE PROFIT FOR THE PURPOSE OF SECTION 115 JB OF THE ACT ANOTHER PROVISION WITH FICTION CANNOT BE SUPERIMPOS ED. 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 ADD ITION MADE U/S.14A, INCREASING THE BOOK PROFIT WILL NOT ARISE. FURTHER THE DECISION OF HONBLE APEX COURT CITED BY THE ASSESSE E IN THE CASE M/S.APOLLO TYRES LTD. VS. CIT REPORTED IN 255 ITR 2 73 IS ALSO SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE. TH E 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 ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING B EEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. TH E ASSESSING OFFICER, THEREAFTER, HAS THE LIMITED POWER OF MAKIN G INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO SE CTION 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 PROVIDED IN THE EXPLANATION. THE USE OF THE WORDS IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI T O THE COMPANIES ACT IN SECTION 115J WAS MADE FOR THE LIMITED PURPOSE OF EMPOWERING THE ASSESSING OFFICER TO RELY UPON THE AUTHENTIC STATEM ENT 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, W HICH OBLIGATE THE COMPANY TO MAINTAIN ITS ACCOUNTS IN A MANNER PROVID ED BY THAT ACT AND THE SAME TO BE SCRUTINIZED AND CERTIFIED BY STA TUTORY AUDITORS AND APPROVED BY THE COMPANY IN GENERAL MEETING AND THER EAFTER TO BE FILED BEFORE THE REGISTRAR OF COMPANIES WHO HAS A S TATUTORY OBLIGATION ALSO TO EXAMINE AND BE SATISFIED THAT TH E ACCOUNTS OF THE COMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUI REMENTS OF THE COMPANIES ACT. SUB-SECTION (1A) OF SECTION 115J DOE S NOT EMPOWER THE ASSESSING OFFICER TO EMBARK UPON A FRESH ENQUIR Y IN REGARD TO THE ENTRIES 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 OF SECT ION 115JB OF THE ACT; ANY DISALLOWANCE MADE UNDER THE NORMAL PROVISI ONS OF THE ACT ALSO CANNOT BE GIVEN EFFECT TO FOR ARRIVING AT THE BOOK PROFIT FOR THE 13 ITA NOS.1673 & 1674/MDS/2015 & ITA NOS.1919 & 1920/MDS/2015 PURPOSE OF SECTION 115JB OF THE ACT. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED IN ITS FAVOUR . 6.4 THEREFORE, FOLLOWING THE ORDER OF THE CHENNAI B ENCH OF THE TRIBUNAL, WE HEREBY DIRECT THE LEARNED ASSESSIN G OFFICER TO COMPUTE THE BOOK PROFIT OF THE ASSESSEE WITHOUT MAKING ADDITION ON ACCOUNT OF SECTION 14A R.W.R.8D IN THE CASE OF THE ASSESSEE. ACCORDINGLY, THIS ISSUE ALLOWED IN FAVOU R OF THE ASSESSEE FOR BOTH THESE ASSESSMENT YEARS. ITA NOS.1919 & 1920/MDS/2015: (REVENUES APPEAL) GROUND NO.1: APPLICABILITY OF SECTION 40(A)(IA) OF THE ACT ON CREDIT CARD COMMISSION WITHHELD: 7.1 DURING THE COURSE OF ASSESSMENT PROCEEDINGS, TH E LEARNED ASSESSING OFFICER OBSERVED THAT THE ASSESSE E HAD PAID CREDIT CARD COMMISSION TOWARDS VARIOUS BANKS W ITHOUT DEDUCTING TDS . IT WAS EXPLAINED BY THE ASSESSEE TH AT THE RETAIL CUSTOMER SWIPES HIS CREDIT CARD WHILE PURCHA SING FROM THE RETAIL MERCHANT AND THE BILL OF THE ASSESSEE IS HONORED BY THE ACQUIRING BANK AFTER DEDUCTING THE COMMISSION D UE TO THE ACQUIRING BANK, THUS PAYMENTS ARE RECEIVED BY THE A SSESSEE. 14 ITA NOS.1673 & 1674/MDS/2015 & ITA NOS.1919 & 1920/MDS/2015 HENCE, THE ASSESSEE HAS NOT MADE ANY PAYMENT AGAINS T WHICH TDS HAS TO BE DEDUCTED BUT ONLY RECEIVED THE AMOUNT FROM THE ACQUIRING BANK AFTER THE DEDUCTION OF COMM ISSION BY THE BANK. HOWEVER, THE LEARNED ASSESSING OFFICER OP INED THAT THE ASSESSEE IS LIABLE TO DEDUCT TAX UNDER SECTION 194H OF THE ACT AND THEREFORE INVOKED THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT AND ACCORDINGLY DISALLOWED PAYMENT MADE TOWARDS CREDIT CARD COMMISSION. 7.2 ON APPEAL, THE LEARNED COMMISSIONER OF INCOME T AX (APPEALS) DECIDED THE ISSUE IN FAVOUR OF THE ASSESS EE BY RELYING IN THE DECISION OF THE BANGALORE BENCH OF T HE TRIBUNAL IN THE CASE OF TATA TELESERVICES LTD. VS. DCIT REPO RTED IN 140 ITD 451 (BANG) WHEREIN IT IS HELD AS UNDER:- II. SECTION 194H OF THE INCOME-TAX ACT, 1961 - EDUCTION OF TAX AT SOURCE- COMMISSION OR BROKERAGE ETC. - BANK CHARGES - ASSESSMENT YEARS 2006-07 TO 2008-09 - ASSESSEE HAD ARRANGEMENT WITH SEVERAL BANKS WHEREBY CUSTOMERS OF ASSESSEE, WHO ALSO HELD CREDIT CARD OF SUCH BANKS, COULD MAKE PAYMENT FOR COMMUNICATION SERVICE S UTILIZED BY THEM FROM ASSESSEE THROUGH CREDIT CARD - REVENUE AUTHORITIES OPINED THAT FEE RETAINED BY BAN K WAS IN NATURE OF COMMISSION AND, THEREFORE ASSESSEE OUG HT TO HAVE DEDUCTED TAX AT SOURCE ON SUCH PAYMENT - WHETHER PAYMENTS TO BANKS ON ACCOUNT OF UTILIZATION OF CREDIT CARD FACILITIES WOULD BE IN NATURE OF BANK CHARGE AND NO T IN NATURE OF COMMISSION WITHIN MEANING OF SECTION 194H - HELD, YES - WHETHER, THEREFORE, IMPUGNED ORDER PASSED BY AUTHORITIES BELOW WAS TO BE SET ASIDE - HELD, YES [PARA 35] [IN FAVOUR OF ASSESSEE] 15 ITA NOS.1673 & 1674/MDS/2015 & ITA NOS.1919 & 1920/MDS/2015 7.3 SINCE THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ONLY FOLLOWED THE DECISION OF THE BAN GALORE BENCH OF THE TRIBUNAL, WE DO NOT FIND IT NECESSARY TO INTERFERE WITH HIS ORDER. MOREOVER, IN THE CASE OF THE ASSESS EE, THE ASSESSEE IS NOT MAKING THE COMMISSION PAYMENT TO TH E BANK BUT RECEIVING ITS DUE AFTER DEDUCTION OF THE COMMIS SION HENCE THE PROVISIONS OF SECTION 194H OF THE ACT WIL L NOT BE APPLICABLE WHICH HAS BEEN VIVIDLY DISCUSSED IN THE ORDER OF THE TRIBUNAL CITED SUPRA. ACCORDINGLY, THIS ISSUE I S DECIDED AGAINST THE REVENUE FOR BOTH THE ASSESSMENT YEARS. GROUND NO.2: APPLICABILITY OF SECTION 14A AND RUL E 8D OF THE RULES WITH RESPECT TO INVESTMENTS MADE IN WHOLLY OW NED SUBSIDIARY COMPANIES. 8. THIS ISSUE IS ALREADY DISCUSSED AND HELD IN FAVO UR OF THE ASSESSEE HOWEVER WITH CERTAIN DIRECTION IN THE ASSE SSEES APPEAL IN PARAGRAPHS 6.3 HEREIN ABOVE. THEREFORE, THIS 16 ITA NOS.1673 & 1674/MDS/2015 & ITA NOS.1919 & 1920/MDS/2015 GROUND RAISED BY THE REVENUE IS ALSO REMITTED BACK TO THE FILE OF LEARNED ASSESSING OFFICER WITH SIMILAR DIRECTION S. 9. IN THE RESULT, THE APPEALS OF THE ASSESSEE AND T HE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSE AS INDICATED HEREIN ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 1 ST JULY, 2016 SD/- SD/- ( . ) ( . ) (G.PAVAN KUMAR) ( A.MOHAN ALANKAMONY ) ! # / JUDICIAL MEMBER # / ACCOUNTANT MEMBER ! /CHENNAI, ' /DATED 1 ST JULY, 2016 SOMU )* +* /COPY TO: 1. APPELLANT 2. RESPONDENT 3. , () /CIT(A) 4. , /CIT 5. * 0 /DR 6. /GF