DCIT, CHENNAI V. HTC Global Services (India) Private Limited, CHENNAI

ITA 1703/CHNY/2015

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96239 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-10-2015
• Appeal Filed By: Department
• Bench Allotted: B
• Next Hearing Date: 13-10-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 23-07-2015
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH
• Assessee Lawyers: V THARISH
• Keywords: Depreciation; Earning of tax free income
• Section: 14A; 115JB; 10B; 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI , . ! '# , $ %& ' [ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ] ./ I.T.A.NO.1703/MDS/2015 & C.O.NO.100/MDS/2015 / ASSESSMENT YEAR : 2010-11 THE DY. COMMISSIONER OF INCOME-TAX CORPORATE CIRCLE 2(2) CHENNAI VS. M/S HTC GLOBAL S ERVICES (INDIA) PVT. LTD SDF-II, PHASE II, MEPZ TAMBARAM, CHENNAI 600 045 [PAN AAACH 9921 J ] ( A PPELLANT) (RESPONDENT /CROSS OBJECTOR ) DEPARTMENT BY : SHRI A.V. SREEKANTH, JCIT ASSESSEE BY : SHRI V. THARISH, CA / DATE OF HEARING : 13 - 10 - 2015 / DATE OF PRONOUNCEMENT : 16 - 10 - 2015 ( / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE REVENUE AND THE CROSS OBJECT ION OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF THE CO MMISSIONER OF INCOME-TAX (APPEALS)-6, CHENNAI, DATED 2.2.2015, FO R ASSESSMENT YEAR 2010-11. 2. THE ONLY GROUND IN REVENUES APPEAL IS WITH REGRD T O EXCLUSION OF OVERSEAS TRAVEL AND COMMUNICATION EXPE NDITURE INCURRED ITA NO.1703/15 CO NO.100/15 :- 2 -: IN FOREIGN CURRENCY FROM THE TOTAL TURNOVER FOR THE PURPOSE OF DEDUCTION U/S 10B OF THE ACT. 3. WE HEARD BOTH THE PARTIES ON THE ISSUE. IN OUR OPI NION, THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF THE CHENN AI SPECIAL BENCH IN THE CASE OF ITO VS SAK SOFT LTD, 313 ITR (AT) 353 W HEREIN IT WAS HELD THAT WHEN ANY SUCH AMOUNT IS DEDUCTED FROM THE EXPO RT TURNOVER FROM THE NUMERATOR, THE SAME SHALL ALSO BE DEDUCTED FROM THE TOTAL TURNOVER IN THE DENOMINATOR WHILE APPLYING THE FORM ULA (PROFIT X EXPORT TURNOVER TOTAL TURNOVER) AS PROVIDED UNDER THE ACT. 4. IN VIEW OF THE ABOVE, WE ARE INCLINED TO DISMISS TH E GROUND TAKEN BY THE REVENUE. ACCORDINGLY, THE REVENUES A PPEAL IS DISMISSED. 5. IN THE CROSS OBJECTION, THE ASSESSEE HAS TAKEN GRO UND NOS. 1.1 AND 1.2 IN SUPPORT OF THE ORDER OF THE CIT(A) A GAINST WHICH THE REVENUE IS IN APPEAL. SINCE WE HAVE DISMISSED THE REVENUES APPEAL, THESE GROUNDS HAVE BECOME INFRUCTUOUS AND HENCE, D ISMISSED. 6. THE NEXT GROUND IN THE CROSS OBJECTION IS THAT THE CIT(A) ERRED IN CONFIRMING THE ADDITION OF DISALLOWANCE UN DER SECTION 14A R.W. RULE 8D MADE BY THE ASSESSING OFFICER WHILE COMPUTI NG THE BOOK PROFIT U/S 115JB OF THE ACT. ITA NO.1703/15 CO NO.100/15 :- 3 -: 7. AFTER HEARING BOTH PARTIES, WE FIND THAT THIS ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN THE CASE OF DY. CIT VS M/S LANCO TANJORE POWER CO. LTD. IN I.T.A.NO.312/MDS/20 13, AND VIDE ORDER DATED 21.8.2013 THE TRIBUNAL HAS OBSERVED AS FOLLOWS: 13. WE HAVE HEARD BOTH SIDES, PERUSED THE MATERIAL ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES B ELOW. THE CASE OF THE REVENUE IS THAT WHETHER ADDITION TO THE BOOK PROFIT SHALL BE MADE ON ACCOUNT OF ALLEGED EXPENDITURE INCURRED TO EARN EXEMPT INCOME WHILE COMPUTING THE INCOME UNDER SECTION 115JB OF THE ACT . IN THE CASE OF GOETZE (INDIA) LTD. V. CIT (SUPRA), THE DELHI BENCH OF ITAT HAS OBSERVED AS UNDER: 4.6 WE HAVE CONSIDERED THE FACTS OF THE CASE AND RIVAL SUBMISSIONS. WE MAY AT THE OUTSET CONSIDER THE PROVISIONS CONTAINED IN C1. (F) OF THE EXPLN. TO S. 115JA AND SUB-S. (1) OF S. 14A OF THE ACT. UNDER THE AFORESAID C1. (F), THE AMOUNT OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH ANY OF THE PROVISIONS OF CHAPTER III APPLIES HAS TO BE ADDED TO THE BOOK PROFIT. UNDER THE PROVISION CONTAINED IN S. 14A, NO DEDUCTION IS TO BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. SINCE WE ARE DEALING WITH THE ISSUE OF EXPENDITURE RELATING TO DIVIDEND INCOME, A MATTER FALLING UNDER CHAPTER III, IT BECOMES CLEAR ON PERUSAL OF THESE TWO PROVISIONS THAT THEY ARE SIMILAR IN NATURE. CLAUSE (F) USES THE WORDS 'EXPENDITURE RELATABLE TO ANY INCOME', WHILE S. 14A USES THE WORDS 'EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME'. THESE WORDS HAVE THE ITA NO.1703/15 CO NO.100/15 :- 4 -: SAME MEANING. WE MAY ALSO ADD HERE THAT S. 14A CONTAINS TWO MORE SUB-SECTIONS, SUB-S. (2) AND SUB-S. (3), WHICH DO NOT FIND A PLACE IN THE CL. (F). THEREFORE, INSOFAR AS COMPUTATION OF ADJUSTED BOOK PROFIT IS CONCERNED, PROVISIONS OF SUB-S. (2) AND SUB-S. (3) OF S. 14A CANNOT BE IMPORTED INTO C1.(F). 4.7 WE MAY ALSO DEAL WITH THE ARGUMENTS OF THE RIVAL PARTIES WHICH, ACCORDING TO US, HAVE NO BEARING IN DECIDING THIS ISSUE. ONE OF THE ARGUMENTS OF THE LEARNED COUNSEL WAS THAT THE EXPENDITURE DISALLOWED BY THE LEARNED CIT(A) WAS MORE THAN THE DIVIDEND INCOME. WE FIND THAT THIS ARGUMENT IS INCONSEQUENTIAL FOR THE REASON THAT EXPENDITURE INCURRED IN EARNING AN INCOME MAY AT TIMES BE MORE THAN THE INCOME ITSELF, SAY, IN CASE OF AN INDUSTRIAL COMPANY IN THE FIRST YEAR OF ITS OPERATION WHEN LARGE AMOUNT OF DEPRECIATION IS CLAIMED FOR DEDUCTION OR WHEN LARGE AMOUNT OF ADVERTISEMENT EXPENDITURE IS INCURRED, SUCH CASES MAY RESULT INTO LOSS, WHICH CAN ALSO HAPPEN IN THE CASE OF DIVIDEND INCOME WHERE EXPENDITURE BY WAY OF INTEREST ON BORROWED CAPITAL FOR INVESTMENT AND OTHER EXPENSES MAY EXCEED THE DIVIDEND INCOME. ONE OF THE ARGUMENTS OF THE LEARNED DEPARTMENTAL REPRESENTATIVE WAS THAT THE DISALLOWANCE WORKED OUT ON THE BASIS OF THE ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF AFORESAID DAGA CAPITAL MANAGEMENT (P) LTD. (SUPRA) WILL BE MORE THAN THE DISALLOWANCE MADE BY THE LEARNED CIT. THE ORDER IN THE CASE OF DAGA CAPITAL MANAGEMENT (P) LTD. (SUPRA) HEAVILY RELIED ON THE RULES FRAMED UNDER SUB-S. (2) OF S. 14A, WHICH IS NOT ITA NO.1703/15 CO NO.100/15 :- 5 -: APPLICABLE WHILE INTERPRETING CL. (F) OF THE EXPLANATION. 14. IN THE CASE OF QUIPPO TELECOM INFRASTRUCTURE LTD. V. ACIT (SUPRA), THE TRIBUNAL HAS OBSERVED TH AT NO ADDITION TO THE BOOK PROFIT SHALL BE MADE ON ACCOUN T OF ALLEGED EXPENDITURE INCURRED TO EARN EXEMPT INCOME WHILE COMPUTING THE INCOME UNDER SECTION 115JB OF THE ACT . THEREFORE, WE, RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF DELHI ITAT IN THE CASE OF GOETZ E (INDIA) LTD. V. CIT (SUPRA) AND QUIPPO TELECOM INFRASTRUCTURE LTD. V. ACIT (SUPRA), WE DISMISS TH E GROUND RAISED BY THE REVENUE. 8. SAME VIEW WAS TAKEN BY CHARDIGARH BENCH OF THE TRIB UNAL IN I.T.A.NO.897/CHD/2012 IN THE CASE OF NAHAR INDUSTRI AL ENTERPRISES LTD VS DY. CIT, ORDER DATED 10.9.2014, BY OBSERVING A S UNDER: 6. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. WE FIND THAT RECOMPUTATION OF BOOK PROFITS UNDER SECTION 115JB OF THE ACT AROSE BEFORE THE TRIBUNAL IN ACIT VS. M/S NAHAR CAPITAL & FINANCIAL SERVICES LTD. AND THE TRIBUNAL IN ITA NO.870/CHD/2013 RELATING TO ASSESSMENT Y EAR 2010 -11 VIDE ORDER DATED 6.6.2014 HELD AS UNDER: 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE RECORD. THE ISSUE ARISING IN THE PRESENT APPEAL IS IN RELATION TO COMPUTATION OF BOOK PROFITS UNDER SECTI ON 115JB. THE ASSESSING OFFICER WHILE COMPUTING THE BOOK PROFITS HAD ADDED BACK DISALLOWANCE WORKED OUT UNDE R SECTION 14A OF THE ACT TO THE NET PROFITS OF THE BUS INESS. THE PLEA OF THE ASSESSEE IN THIS REGARD WAS THAT TH E ASSESSEE ITSELF HAD DISALLOWED SUM OF RS.42,37,722/ -ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A OF THE ACT UNDER REGULAR PROVISIONS AND RS.32,86,397/ -UNDER SECTION 115JB PROVISION IN ITS RETURN OF INCOME ON PROPORTIONATE BASIS. THE ASSESSING OFFICER RECOMPUTED THE BOOK PROFITS UNDER ITA NO.1703/15 CO NO.100/15 :- 6 -: SECTION 115JB OF THE ACT AND THE CIT (APPEALS) DELETE D THE SAME AGAINST WHICH THE REVENUE IS IN APPEAL. 6. WE FIND THAT SIMILAR ISSUE OF COMPUTATION OF BOO K PROFITS UNDER SECTION 115JB OF THE ACT IN VIEW OF READJUSTMEN T ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A OF THE AC T AROSE BEFORE THE TRIBUNAL IN ASSESSEE S OWN CASE RELATIN G TO ASSESSMENT YEAR 2008 09. THE TRIBUNAL IN ITA NO.1120/CHD/2011 VIDE ORDER DATED 27.7.2012 IN TURN RELYING ON AN EARLIER DECISION OF THE CHANDIGARH BEN CH OF THE TRIBUNAL IN DCIT VS. IND SWIFT LTD. IN ITA NO.729/CHD/2009 RELATING TO ASSESSMENT YEAR 2006 -07 DATE OF ORDER 30.11.2009 HELD AS UNDER: 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ONLY ISSUE ARISING IN THE PRESENT APPEAL IS IN RESPECT OF COMPUTATION OF BOOK PROFITS UNDER SECTION 115JB OF THE ACT. THE ASSESSING OFFICER WHILE COMPUTING THE SAID BOOK PROFITS HAD ADDED BACK THE DISALLOWANCE WORKED OUT UNDER SECTION 14A OF THE ACT OF THE NET PROFITS OF THE BUSINESS AND COMPUTED THE TAX LIABILITY OF THE ASSESSEE COMPANY THEREAFTER. WE FIND THAT THE ISSUE IN THE PRESENT CASE IS COVERED BY THE ORDER OF THE CHANDIGARH BENCH OF THE TRIBUNAL IN DCIT VS. IND- SWIFT LTD. (SUPRA) WHERE VIDE ORDER DATED 30.11.2009 VIDE PARA 8 IT WAS HELD AS UNDER: 8. THE GROUND 1(IV) RAISED BY THE REVENUE IS AGAINST THE COMPUTATION OF BOOK PROFITS U/S 115 JB OF THE ACT. THE ASSESSING OFFICER WHILE COMPUTING THE BOOK PROFIT U/S 115JB OF THE ACT HAD ADDED BACK THE DISALLOWANCE WORKED U/S 14A OF THE I.T. ACT TO THE NET PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT AND COMPUTED THE PROFITS FOR THE YEAR. THE CIT (A) REWORKED THE BOOK PROFITS BY EXCLUDING THE SAID NOTIONAL DISALLOWANCE U/S 115 JB OF THE ACT, IN TURN FOLLOWING THE RATIO LAID DOWN BY THE APEX COURT IN APOLLO TYRES LTD. 255 ITR 273 (SC). WE ARE IN CONFORMITY WITH THE ORDER ITA NO.1703/15 CO NO.100/15 :- 7 -: OF CIT(A). THE ADJUSTMENTS, IF ANY, TO BE MADE TO THE PROFIT SHOWN IN THE PROFIT AND LOSS ACCOUNT, ARE PROVIDED IN THE SECTION 115 JB OF THE ACT ITSELF. THERE IS NO PROVISION IN THE ACT TO MAKE ADJUSTMENT ON ACCOUNT OF NOTIONAL DISALLOWANCE WORKED OUT UNDER SECTION 14A OF THE ACT. THE HON'BLE SUPREME COURT IN APOLLO TYRES LTD. (SUPRA) HELD THAT THE PROFITS OF THE BUSINESS ARE NOT TO BE DISTURBED FOR COMPUTING THE BOOK PROFITS EXCEPT IN THE CIRCUMSTANCES PROVIDED UNDER THE SAID ACT. WE CONFIRM THE ORDER OF CIT IN THIS REGARD AND DISMISS THE GROUND NO.1(IV) RAISED BY THE REVENUE. 6. THE ISSUE ARISING IN THE PRESENT APPEAL IS IDENTI CAL TO THE ISSUE BEFORE THE CHANDIGARH BENCH OF THE TRIBUNAL IN DCIT VS. IND-SWIFT LTD. (SUPRA) AND FOLLOWING THE SAME WE DIRECT THE ASSESSING OFFICER TO ADOPT THE BOOK PROFITS AS PER THE PROFIT & LOSS ACCOUNT AND DO NOT MAKE ADDITION ON ACCOUNT OF DISALLOWANCE WORKED OUT UNDER SECTION 14A OF THE ACT, AS SUCH DISALLOWANCE IS COMPUTED UNDER THE NORMAL PROVISION OF THE ACT, WHICH ARE NOT APPLICABLE FOR DETERMINING BOOK PROFITS UNDER SECTI ON 115JB OF THE ACT. 7. SIMILAR ISSUE WAS AROSE IN ASSESSMENT YEAR 2009 -10 IN ASSESSEE S OWN CASE IN ITA NO.1353/CHD/2012 ORDER DATE D 16.4.2013. FOLLOWING THE PARITY OF REASONING AND ISSUE BEING IDENTICAL WE FIND NO MERIT IN THE AFORESAID ADDITIO N MADE BY THE ASSESSING OFFICER AND UPHOLDING THE ORDER OF TH E CIT (APPEALS) WE DISMISS THE GROUNDS OF APPEAL RAISED B Y THE REVENUE. 9. SAME VIEW WAS TAKEN BY MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF RELIANCE INDUSTRIAL INFRASTRUCTURE LTD VS ADDL. CIT IN I.T.A.NOS. 69 & 70/MUM/2009, ORDER DATED 5.4.2013. ITA NO.1703/15 CO NO.100/15 :- 8 -: 10. FOLLOWING THE ABOVE ORDERS OF THE TRIBUNAL, WE ARE INCLINED TO ALLOW THE CLAIM OF THE ASSESSEE IN ITS CROSS OB JECTION. 11. IN THE RESULT, THE CROSS OBJECTION OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 16 TH OCTOBER, 2015, AT CHENNAI. SD/- SD/- ( . ! '# ) ( V. DURGA RAO ) $ / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER / CHENNAI / DATED: 16 TH OCTOBER, 2015 RD ' #$ %$ / COPY TO: 1 . &' / APPELLANT 3. ( () / CIT(A) 5. $+, ' - / DR 2. '.&' / RESPONDENT 4. ( / CIT 6. ,/ 0 / GF