M/s. Quick Heal Technologies Ltd, Pune V. Deputy Commissioner of Income-tax, Circle - 5, Pune

ITA 1710/PUN/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 2444 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 8 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 12-07-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI PARTHA SARATHI CHAUDHURY, JUDICIAL MEMBER . / ITA NOS.1500 & 1710/PUN/2017 / ASSESSMENT YEARS : 2012-13 & 2014-15 M/S. QUICK HEAL TECHNOLOGIES LTD., MARVEL EDGE, OFFICE NO.7010C & D, 7 TH FLOOR, VIMAN NAGAR, PUNE 411 014 PAN : AABCC4207H VS. DCIT, CIRCLE-5, PUNE (APPELLANT) (RESPONDENT) / ORDER PER R.S.SYAL, VP : THESE TWO APPEALS BY THE ASSESSEE RELATE TO ASSESSMENT YEARS 2012-13 & 2014-15. SINCE COMMON ISSUE IS RAISED IN BOTH TH E APPEALS, WE ARE, THEREFORE, PROCEEDING TO DISPOSE THEM O FF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. APPELLANT BY SHRI NIKHIL PATHAK RESPONDENT BY SHRI PANKAJ GARG DATE OF HEARING 11-03-2019 DATE OF PRONOUNCEMENT 12-03-2019 ITA NOS.1500 & 1710/PUN/2017 M/S. QUICK HEAL TECHNOLOGIES LTD., 2 A.Y. 2012-13 : 2. THE ONLY ISSUE RAISED IN THIS APPEAL IS AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS.27,53,812/- MADE U/S.1 4A OF THE INCOME-TAX ACT READ WITH RULE 8D OF INCOME-TAX RULES, 1962. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT THE ASSESSE E EARNED DIVIDEND INCOME OF RS.4,73,95,865/- FROM MUTUAL F UNDS, WHICH WAS CLAIMED AS EXEMPT U/S.10(35) OF THE ACT. THE ASSESSEE HAD OFFERED DISALLOWANCE OF RS.4,58,400/- AS EXPENSES TOWARDS EARNING OF THE EXEMPT INCOME. THE ASSESSING OFFICER (AO) CALLED UPON THE ASSESSEE TO EXPLAIN THE REASONS AS TO WHY THE DISA LLOWANCE WAS NOT PROPERLY OFFERED. THE ASSESSEE GAVE CERTAIN RE ASONS. REJECTING SUCH CONTENTIONS, THE AO RECORDED SATISFACTION AND PROCEEDED TO MAKE DISALLOWANCE UNDER RULE 8D(2)(III) AT RS.32,12,212/-. THE AMOUNT OF RS.4,58,400/- VOLUNTARY DISALLOWED BY THE AO WAS REDUCED TO MAKE THE FINAL DISALLOWANCE OF RS.27,53,812/-. THE LD. CIT(A) SUSTAINED THE SAME. 4. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD. THE FIRST CONTENTION OF THE LD. AR WAS TH AT THE AO FAILED TO RECORD SATISFACTION BEFORE MAKING DISALLOWANCE U/S.14A. WE DO NOT FIND ANY FORCE IN THIS CONTENTION BECAUS E THE ITA NOS.1500 & 1710/PUN/2017 M/S. QUICK HEAL TECHNOLOGIES LTD., 3 AO HAS CATEGORICALLY RECORDED THAT : THE ASSESSEE HAS INCU RRED VARIOUS KINDS OF EXPENSES IN ITS PROFIT AND LOSS ACCOUNT. TH E INVESTMENTS HAVE BEEN MADE IN VARIOUS SCHEMES OF MUTUAL FUNDS. IT IS NOT POSSIBLE THAT THE ASSESSEE HAS NOT INCURRED ANY E XPENDITURE IN CONNECTION WITH SUCH INVESTMENTS AND EARNINGS OF SUCH D IVIDEND INCOME. AS THIS INVESTMENT IS SUBSTANTIAL ASSESSEE HAS USED ITS RESOURCES TO MONITOR AND OVERSEE THE PROGRESS OF SUCH SCHEMES OF MUTUAL FUNDS. THEREFORE IT CANNOT BE SAID THAT NO EXPENDITU RE IS ATTRIBUTABLE TO SUCH ACTIVITIES. IN VIEW OF THE ABOVE EXTRACTED PORTION OF THE ASSESSMENT ORDER, IT IS CLEARLY DISCERNIBLE THA T THE AO RECORDED PROPER SATISFACTION BEFORE MAKING DISALLOWANCE U/S. 14A. 5. THE ASSESSEE HAS RAISED CERTAIN ADDITIONAL GROUNDS. NO ADDITIONAL GROUND OTHER THAN NO.1 WAS PRESSED AS PER WHICH THE INVESTMENTS WHICH DID NOT YIELD ANY TAX FREE INCOME DURING THE YEAR SHOULD HAVE BEEN EXCLUDED WHILE COMPUTING THE DISALLOWAN CE. THE LD. AR SUBMITTED THAT THE AO TOOK UP THE VALUE OF ALL INVESTMENTS FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE UN DER CLAUSE (III) OF RULE 8D(2). IT WAS EMPHASIZED THAT THE INVES TMENTS WHICH HAVE NOT YIELDED ANY EXEMPT INCOME SHOULD HAVE BEEN IGNORED WHILE COMPUTING THE AVERAGE VALUE OF INVESTMENT. T HIS ITA NOS.1500 & 1710/PUN/2017 M/S. QUICK HEAL TECHNOLOGIES LTD., 4 CONTENTION COULD NOT BE FACTUALLY CONTROVERTED ON BEHALF OF THE REVENUE. 6. THE HON'BLE DELHI HIGH COURT IN ACB INDIA LTD. VS. CIT (2015) 374 ITR 108 (DEL) , HAS HELD THAT THE AVERAGE VALUE OF INVESTMENTS, FOR THE PURPOSES OF RULE 8D(2)(III), SHOULD BE CONFINED TO THOSE SECURITIES IN RESPECT OF WHICH EXEMPT INCOME IS EARNED AND NOT THE TOTAL INVESTMENTS. SIMILAR VIEW HAS BEEN TA KEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENTS (P) LTD. (2017) 165 ITD 27 (DEL) (SB) HOLDING THAT ONLY THOSE INVESTMENTS SHOULD BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENTS WHICH YIELD EXEMPT INCOME DURIN G THE YEAR. IN VIEW OF THE AFORE REFERRED PRECEDENTS, WE SET ASIDE THE IMPUGNED ORDER TO THIS EXTENT AND REMIT THE MATTER TO THE FILE O F ASSESSING OFFICER FOR RE-COMPUTING THE DISALLOWANCE UNDER RULE 8D(2)(III) BY CONSIDERING ONLY SUCH INVESTMENTS IN CALCULATING THE AVERAGE VALUE OF INVESTMENTS, WHICH HAVE YIELDED EXEMPT INCOME DURING THE YEAR. THE ASSESSEE WILL BE ALLOWED HEARING OPPO RTUNITY IN FRESH PROCEEDINGS. 7. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NOS.1500 & 1710/PUN/2017 M/S. QUICK HEAL TECHNOLOGIES LTD., 5 A.Y. 2014-15 : 8. THE FACTS OF THIS YEAR ARE THAT THE ASSESSEE MADE SUO MOTU DISALLOWANCE U/S.14A AT RS.15.00 LAKH. THE AO OBSERVED TH AT SUBSTANTIAL AMOUNT OF EXEMPT INCOME WAS EARNED BY THE ASS ESSEE WHICH WAS CLAIMED AS EXEMPT. INVOKING THE PROVISIONS OF C LAUSE (III) OF RULE 8D(2), THE AO COMPUTED DISALLOWANCE AT RS.68,91,377/-. AFTER REDUCING THE AMOUNT VOLUNTARILY OFFE RED BY THE ASSESSEE AT RS.15.00 LAKH, THE AO MADE THE ADDITION AT RS.53,91,377/- WHICH CAME TO BE UPHELD IN THE FIRST APPEA L. 9. HAVING HEARD BOTH THE SIDES AND GONE THROUGH THE RELEVA NT MATERIAL ON RECORD, WE FIND THAT THE AO HAS RECORDED AMPLE SATISFACTION IN THE ASSESSMENT ORDER BEFORE INVOKING THE PROV ISIONS OF SECTION 14A. IT CAN BE SPECIFICALLY NOTED FROM PARA 5 O F THE ORDER THAT THE AO HAS RECORDED THAT : THE ASSESSEE IS PRIN CIPALLY AGREED FOR DISALLOWANCE U/S.14A OF THE ACT. BUT THE ASSESS EE HAS NOT PROVIDED THE WORKING OF DISALLOWANCE MADE SUO MOTO AT RS.15.00 LAKH. IT IS A FACT THAT THE POSSIBILITY OF USE OF BUS INESS HOURS, EMPLOYEES COST, ELECTRICITY, STATIONERY, ETC. IN MAKING INVESTMENT IN SHARES/MUTUAL FUND ETC. AND EARNING EXEMPTED INCOME CANNOT BE RULED OUT. THAT IS HOW HE PROCEEDED TO MAKE ITA NOS.1500 & 1710/PUN/2017 M/S. QUICK HEAL TECHNOLOGIES LTD., 6 DISALLOWANCE UNDER THE PROVISION. THUS, IT IS SEEN THAT THE AO HAS RECORDED PROPER SATISFACTION. 10. NOW TURNING TO THE ADDITIONAL GROUNDS, THE THRUST OF THE ADDITIONAL GROUNDS, AS PRESSED BY THE LD. AR, IS ON THE EX CLUSION OF THE INVESTMENTS IN BOTH SHARES AND DIVIDENDS WHICH DID NOT Y IELD ANY EXEMPT INCOME. FOLLOWING THE VIEW TAKEN HEREINABOVE FO R THE A.Y. 2012-13, WE SET ASIDE THE IMPUGNED ORDER AND DIREC T THE AO TO RE-COMPUTE THE DISALLOWANCE UNDER RULE 8D(2)(III) BY CONSIDERING ONLY SUCH INVESTMENTS IN CALCULATING THE AVERAGE V ALUE OF INVESTMENTS IN SHARES AND DEBENTURES WHICH HAVE YIELDED EXEMPT INCOME DURING THE YEAR. NEEDLESS TO SAY, THE ASSES SEE WILL BE ALLOWED AN OPPORTUNITY OF HEARING IN THIS REGARD. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH MARCH, 2019. SD/- SD/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VI CE PRESIDENT PUNE; DATED : 12 TH MARCH, 2019 ITA NOS.1500 & 1710/PUN/2017 M/S. QUICK HEAL TECHNOLOGIES LTD., 7 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-4, PUNE 4. 5. 6. THE PR. CIT-3, PUNE , , / DR B, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 11-03-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 11-03-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *