DCIT, CHENNAI V. Helios & Matheson Information Technology Limited, CHENNAI

ITA 2027/CHNY/2014

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8159 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 5 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2006-2007
• Appeal Filed On: 28-07-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MILIND MADHUKAR BHUSARI
• Keywords: Wholly owned subsidiary; Commercial expediency; Rule 8D
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 14A; 139(1); 139(4); 22

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , . !'# ! , % !& BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NOS.2027, 2028, 2029 & 2030/MDS/2014 ( )( / ASSESSMENT YEARS : 2006-07, 2008-09, 2009-10 & 20 10-11 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(2), CHENNAI - 600 034. V. M/S HELIOS & MATHESON INFORMATION TECHNOLOGY LIMITED, NO.9, ADWAVE TOWERS, SOUTH BOAG ROAD, T. NAGAR, CHENNAI - 600 017. PAN : AAACE 0805 A (+,/ APPELLANT) (-.+,/ RESPONDENT) +, / 0 / APPELLANT BY : DR. MILIND MADHUKAR BHUSARI, CIT -.+, / 0 / RESPONDENT BY : SH. R. VIJAYARAGHAVAN, ADVOCAT E 1 / 2% / DATE OF HEARING : 30.12.2015 3') / 2% / DATE OF PRONOUNCEMENT : 22.01.2016 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: ALL THE APPEALS OF THE REVENUE ARE DIRECTED AGAI NST THE COMMON ORDER OF THE COMMISSIONER OF INCOME TAX (APP EALS) II, CHENNAI, DATED 19.02.2014, FOR THE ASSESSMENT YEARS 2006-07, 2008-09, 2009-10 AND 2010-11. SINCE COMMON ISSUE A RISES FOR 2 I.T.A. NOS.2027 TO 2030/MDS/14 CONSIDERATION IN ALL THESE APPEALS, WE HEARD ALL TH ESE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON O RDER. 2. DR. MILIND MADHUKAR BHUSARI, THE LD. DEPARTMENTA L REPRESENTATIVE, SUBMITTED THAT THE FIRST ISSUE ARIS ES FOR CONSIDERATION IS WITH REGARD TO DEDUCTION CLAIMED B Y THE ASSESSEE UNDER SECTION 10A OF THE INCOME-TAX ACT, 1961 (IN S HORT 'THE ACT') ACCORDING TO THE LD. D.R., THE ASSESSEE CLAIMED DED UCTION UNDER SECTION 10A OF THE ACT AND THE COMMISSIONER GRANTED THE DEDUCTION BY DIRECTING THE ASSESSING OFFICER TO REDUCE THE FO REIGN CURRENCY EXPENSES FROM TOTAL TURNOVER. ACCORDING TO THE LD. D.R., FOR CLAIMING DEDUCTION UNDER SECTION 10A OF THE ACT, TH E ASSESSEE IS EXPECTED TO FILE RETURN OF INCOME WITHIN THE TIME S PECIFIED UNDER SECTION 139(1) OF THE ACT. REFERRING TO SECTION 10 A OF THE ACT, MORE PARTICULARLY, 5 TH PROVISO TO SECTION 10A(1) OF THE ACT, THE LD. D.R. SUBMITTED THAT NO DEDUCTION SHALL BE ALLOWED UNDER SECTION 10A OF THE ACT IF THE RETURN WAS NOT FILED WITHIN THE DUE DATE AS SPECIFIED UNDER SECTION 139(1) OF THE ACT. IN VIEW OF THE AB OVE, THE CIT(APPEALS) IS NOT JUSTIFIED IN DIRECTING THE ASSE SSING OFFICER TO ALLOW THE CLAIM OF DEDUCTION UNDER SECTION 10A OF T HE ACT. 3 I.T.A. NOS.2027 TO 2030/MDS/14 3. ON THE CONTRARY, SH. R. VIJAYARAGHAVAN, THE LD.C OUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE FILED THE RETURNS OF INCOME FOR THE ASSESSMENT YEARS 2006-07 AND 2010-11 WITHIN THE TIME SPECIFIED UNDER SECTION 139(1) OF THE ACT. FO R THE ASSESSMENT YEARS 2008-09 AND 2009-10, THE RETURNS OF INCOME WE RE NOT FILED WITHIN THE TIME SPECIFIED UNDER SECTION 139(1) OF T HE ACT. ACCORDING TO THE LD. COUNSEL, WHERE THE RETURN WAS FILED WITH IN THE DUE DATE, THE CIT(APPEALS) CONSIDERED THE SAME AND ALLOWED TH E CLAIM OF THE ASSESSEE. REFERRING TO THE DECISION OF THE SPECIAL BENCH OF THIS TRIBUNAL IN ITO V. SAK SOFT LTD. [313 ITR (AT) 353] , THE LD.COUNSEL SUBMITTED THAT THE FOREIGN CURRENCY EXPENSES WERE E XCLUDED FROM THE TOTAL EXPORT TURNOVER, THEREFORE, THE SAME HAS TO BE EXCLUDED FROM THE TOTAL TURNOVER. IN FACT, THE CIT(APPEALS) HAS DIRECTED THE ASSESSING OFFICER TO EXCLUDE FROM TOTAL TURNOVER AL SO. THEREFORE, THE REVENUE MAY NOT HAVE ANY GRIEVANCE AT ALL. 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. IN RESPECT OF FOREIGN CURRENCY EXPENSES, WHAT IS EXCLUDED IN THE EXPORT TURNOVER HAS ALSO TO BE EXCLUDED FROM TOTAL TURNOVER. IN OT HER WORDS, NUMERATOR AND DENOMINATOR SHOULD BE OF THE SAME FIG URE. SINCE 4 I.T.A. NOS.2027 TO 2030/MDS/14 THE ASSESSING OFFICER HAS EXCLUDED FROM EXPORT TURN OVER, THE SAME HAS ALSO TO BE EXCLUDED FROM TOTAL TURNOVER. FOR T HE PURPOSE OF CLAIMING DEDUCTION UNDER SECTION 10A OF THE ACT, TH E ASSESSEE HAS TO NECESSARILY FILE THE RETURN OF INCOME WITHIN THE TIME PRESCRIBED UNDER SECTION 139(1) OF THE ACT. THE DUE DATE SPEC IFIED UNDER SECTION 139(1) OF THE ACT IS THE DATE SPECIFIED UND ER SECTION 139(1) AND NOT UNDER SECTION 139(4) OF THE ACT. THEREFORE , MERELY BECAUSE THE ASSESSEE FILED RETURN OF INCOME WITHIN THE EXTENDED PERIOD UNDER SECTION 139(4) OF THE ACT, IT WILL NOT MAKE THE ASSESSEE ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 10A OF TH E ACT. IN FACT, A SPECIAL BENCH OF THIS TRIBUNAL AT RAJKOT IN SAFFIRE GARMENTS V. ITO (2013) 140 ITD 6 EXAMINED THIS ISSUE ELABORATELY. BY PLACING RELIANCE ON THE JUDGMENT OF APEX COURT IN PRAKASH N ATH KHANNA V. CIT (266 ITR 1), THE SPECIAL BENCH FOUND THAT 5 TH PROVISO TO SECTION 10A IS MANDATORY AND NOT DIRECTORY. THE SPECIAL BE NCH FURTHER FOUND THAT WHEN ONE OF THE CONSEQUENCES FOR NOT FIL ING RETURN OF INCOME WITHIN THE DUE DATE PRESCRIBED UNDER SECTION 139(1) OF THE ACT IS MANDATORY, THEN OTHER CONSEQUENCE OF THE SAM E FAILURE OF THE ASSESSEE CANNOT BE DIRECTORY. THE TRIBUNAL HAS FOU ND THAT THE ASSESSEE HAS TO NECESSARILY FILE THE RETURN OF INCO ME WITHIN THE DUE DATE SPECIFIED UNDER SECTION 139(1) OF THE ACT FOR THE PURPOSE OF 5 I.T.A. NOS.2027 TO 2030/MDS/14 CLAIMING DEDUCTION UNDER SECTION 10A OF THE ACT. T HEREFORE, THE CIT(APPEALS) IS NOT JUSTIFIED IN ALLOWING THE CLAIM OF DEDUCTION UNDER SECTION 10A OF THE ACT ON THE GROUND THAT THE ASSES SEE FILED RETURN OF INCOME WITHIN THE PERIOD SPECIFIED UNDER SECTION 139(4) OF THE ACT. THIS TRIBUNAL IS OF THE CONSIDERED OPINION TH AT THE RETURN HAS TO BE NECESSARILY FILED UNDER SECTION 139(1) OF THE AC T. THEREFORE, WHEN THE RETURN WAS NOT FILED WITHIN THE PERIOD SPE CIFIED UNDER SECTION 139(1) OF THE ACT, THEN NATURALLY THE ASSES SEE IS NOT ELIGIBLE TO CLAIM DEDUCTION UNDER SECTION 10A OF THE ACT. 5. THE LD.COUNSEL FOR THE ASSESSEE NOW CLAIMS THAT THE RETURNS OF INCOME FOR THE ASSESSMENT YEARS 2006-07 AND 2010 -11 WERE FILED WITHIN THE DUE DATE. HOWEVER, FOR THE ASSESSMENT Y EARS 2008-09 AND 2009-10, IT WAS NOT FILED WITHIN THE DUE DATE S PECIFIED UNDER SECTION 139(1) OF THE ACT. ON PERUSAL OF THE ASSES SMENT ORDER, IT APPEARS THAT FOR THE ASSESSMENT YEAR 2006-07, THE A SSESSEE FILED RETURN OF INCOME ON 30.11.2006. IT IS NOT KNOWN WH AT WAS THE DUE DATE FOR FILING RETURN OF INCOME FOR THE ASSESSMENT YEAR 2006-07. SIMILARLY, FOR OTHER ASSESSMENT YEAR ALSO IT IS NOT CLEAR FROM THE ORDERS OF THE LOWER AUTHORITIES THE DUE DATE FOR FI LING RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT SPECIFIED BY THE CBDT. 6 I.T.A. NOS.2027 TO 2030/MDS/14 THEREFORE, THE ORDER OF THE CIT(APPEALS) IS SET ASI DE ON THIS ISSUE AND THE MATTER IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER TO VERIFY THE DUE DATE FOR FILING RETURN OF INCOME UND ER SECTION 139(1) FOR THE RESPECTIVE ASSESSMENT YEARS. AFTER VERIFIC ATION, IF THE ASSESSING OFFICER FOUND THAT THE RETURN OF INCOME W AS FILED WITHIN THE DUE DATE SPECIFIED UNDER SECTION 139(1), THEN T HE ASSESSEE IS ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT . IF, FOR ANY REASON, IF THE ASSESSING OFFICER CAME TO A CONCLUSI ON THAT THE RETURN OF INCOME WAS NOT FILED UNDER SECTION 139(1), THEN THE ASSESSEE IS NOT ELIGIBLE FOR DEDUCTION UNDER SECTION 10A OF THE ACT. THEREFORE, FOR A LIMITED PURPOSE OF VERIFYING THE DUE DATE FOR FILING THE RETURN OF INCOME UNDER SECTION 139(1) OF THE ACT, THE MATTER IS REMITTED BACK TO THE FILE OF THE ASSESSING OFFICER. 6. THE NEXT ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 14A OF THE ACT. 7. DR. MILIND MADHUKAR BHUSARI, THE LD. DEPARTMENTA L REPRESENTATIVE, SUBMITTED THAT THE ASSESSING OFFICE R FOUND THAT THE ASSESSEE HAS MADE INVESTMENT IN THE SHARES AND MUTU AL FUNDS, THEREFORE, INCOME FROM SUCH INVESTMENTS DOES NOT FO RM PART OF TOTAL 7 I.T.A. NOS.2027 TO 2030/MDS/14 INCOME. HENCE, ACCORDING TO THE LD. D.R., THE EXPE NDITURE RELATED TO EARNING THE INCOME WAS DISALLOWED. HOWEVER, THE CIT(APPEALS) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER. 8. ON THE CONTRARY, SH. R. VIJAYARAGHAVAN, THE LD.C OUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSEE INVESTED IN SHARES AND MUTUAL FUNDS OF 100% SUBSIDIARY COMPANIES. IN FACT , THE ASSESSEE HAS RECEIVED INCOME ONLY FROM THE BANGALORE SUBSIDI ARY COMPANY, WHERE THE INVESTMENT WAS ABOUT ` 9 CRORES. THE SUBSIDIARY COMPANY IS ALSO ENGAGED IN I.T. BUSINESS AND THE IN VESTMENT IS IN THE NATURE OF CAPITAL. ACCORDING TO THE LD. COUNSE L, THE INITIAL INVESTMENT WAS MADE DURING FINANCIAL YEAR 2001-02 A ND SUBSEQUENTLY IT WAS EMPHASIZED THAT THE OBJECT OF T HE INVESTMENT WAS NOT TO EARN THE DIVIDEND INCOME BUT FOR COMMERC IAL EXPEDIENCY. 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. SECTION 14A OF THE ACT PROVIDES FOR DISALLOWANCE OF EXPENDITURE IN CURRED BY THE ASSESSEE FOR EARNING THE INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. RULE 8D OF THE INCOME-TAX RULES, 1962 PROV IDES FOR METHOD OF COMPUTATION FOR DISALLOWANCE. THE CIT(AP PEALS), AFTER CONSIDERING THE MATERIAL AVAILABLE ON RECORD AND TH E INVESTMENT 8 I.T.A. NOS.2027 TO 2030/MDS/14 MADE BY THE ASSESSEE, DIRECTED THE ASSESSING OFFICE R TO CONSIDER THE DISALLOWANCE OF ` 24,39,220/- AND ` 35,43,108/- FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11 RESPECTIVELY A GAINST ` 1,20,90,107/- AND ` 1,83,22,970/- DISALLOWED BY THE ASSESSING OFFICER IN HIS ORDER. THE BALANCE DISALLOWANCE OF ` 96,50,887/- AND ` 1,47,79,862/- WERE DELETED. IN FACT, THE CIT(APPEA LS) APPLIED THE PROVISIONS OF RULE 8D FOR COMPUTING THE DISALLOWANC E FOR THE ASSESSMENT YEARS 2009-10 AND 2010-11. FOR THE ASSE SSMENT YEARS 2006-07 AND 2008-09, THE INVESTMENTS WERE MAD E IN 100% FOREIGN SUBSIDIARY COMPANIES. NO FRESH INVESTMENT HAD BEEN MADE IN THE FINANCIAL YEARS 2008-09 AND 2009-10. SINCE T HE INVESTMENT WAS MADE IN THE SUBSIDIARY COMPANIES IN THE FORM OF EQUITY, THE CIT(APPEALS) FOUND THAT SUCH INVESTMENT IS OUTSIDE THE SCOPE OF SECTION 14A OF THE ACT. WHEN THE ASSESSEE INVESTED THE FUNDS IN SUBSIDIARY COMPANIES, AS RIGHTLY SUBMITTED BY THE L D.COUNSEL FOR THE ASSESSEE, THE INTENTION IS NOT FOR EARNING THE EXEM PT INCOME BUT BECAUSE OF COMMERCIAL EXPEDIENCY. THEREFORE, AS RI GHTLY FOUND BY THE CIT(APPEALS), THE PROVISIONS OF SECTION 14A WOU LD NOT BE APPLICABLE FOR THE ASSESSMENT YEAR 2006-07 AND 2008 -09. IN VIEW OF THIS, WE FIND NO REASON TO INTERFERE WITH THE OR DER OF THE CIT(APPEALS) AND ACCORDINGLY, THE SAME IS CONFIRMED . 9 I.T.A. NOS.2027 TO 2030/MDS/14 10. IN THE RESULT, THE APPEALS FILED BY THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 22 ND JANUARY, 2016 AT CHENNAI. SD/- SD/- (. !'# ! ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) % / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 5 /DATED, THE 22 ND JANUARY, 2016. KRI. / -267 87)2 /COPY TO: 1. +, /APPELLANT 2. -.+, /RESPONDENT 3. 1 92 () /CIT(A)-II, CHENNAI 4. 1 92 /CIT-II, CHENNAI 5. 7: -2 /DR 6. ( ; /GF.