Questnet Enterprises Indai Pvt. Ltd. , CHENNAI V. ACIT Circle 1 , Vellore

ITA 2031/CHNY/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5009 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-01-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 22-08-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: G SEETHARAMAN
• Section: 43B; 143(3); 14A; 115JB

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , ! , ' # BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI, M. BALAGANESH ACCOUNTANT MEMBER . / I.T.A.NO.2031/MDS./2017 / ASSESSMENT YEAR :2013-14 M/S.QUESTNET ENTERPRISES INDIA PVT. LTD., THE RAIN TREE PLACE, B WING, 9 TH FLOOR, NO.7 MCNICHOLS ROAD, CHETPUT, CHENNAI 600 031. VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 5(2), CHENNAI 600 034. [PAN AAACQ 1177 H ] ( $% / APPELLANT) ( &'$% /RESPONDENT) / APPELLANT BY : MR.G.SEETHARAMAN, C.A /RESPONDENT BY : MR.AR.V.SREENIVASAN, JCIT, DR /DATE OF HEARING : 17-01-2018 /DATE OF PRONOUNCEMENT : 18-01-2018 /O R D E R PER M. BALAGANESH, ACCOUNTANT MEMBER: THIS APPEAL OF THE ASSESSEE ARISE OUT OF THE ORDE R OF THE LD COMMISSIONER OF INCOME TAX (APPEALS)3, CHENNAI , IN ITA NO. 208/2015-16/CIT(A)-3 DATED 31.05.2017. 2 . THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE MA DE U/S 14A OF THE ACT ITA NO.2031/MDS./2017 :- 2 -: READ WITH RULE 8D OF THE RULES, IN THE FACTS AND CI RCUMSTANCES OF THE CASE. 2 .1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSES SEE FILED ITS RETURN OF INCOME FOR THE ASSESSMENT YEAR 2013-14 ON 30.9.201 3 DECLARING LOSS OF ` 1,32,89,903/- UNDER NORMAL PROVISIONS OF THE ACT AN D LOSS OF ` 9,99,888/- U/S 115JB OF THE ACT. THE ASSESSEE COMPANY IS ENGAG ED IN THE BUSINESS OF TRADING OF GOLD JEWELLERY AND OTHER VALUABLE JEW ELLERY. THE ASSESSEE RECEIVED DIVIDEND INCOME OF ` 10,53,146/- OUT OF INVESTMENTS IN MUTUAL FUNDS. THE LD AO OBSERVED THAT THE ASSESSEE HAD NOT DISALLOWED ANY AMOUNT U/S 14A OF THE ACT FOR THE PURPOSE OF EARNIN G THE AFORESAID DIVIDEND INCOME. ACCORDINGLY, HE DIRECTLY RESORTED TO MAKE DISALLOWANCE UNDER RULE 8D(2)(III) OF THE RULES AND MADE DISALLO WANCE OF ` 7,24,321/- (0.5% OF AVERAGE VALUE OF INVESTMENTS). THE LD CITA OBSERVED THAT THE DISALLOWANCE U/S 14A OF THE ACT READ WITH RULE 8D O F THE RULES WAS ULTIMATELY REDUCED TO ` 6,14,219/- BY THE LD AO WHICH WAS UPHELD BY THE LD CITA. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFOR E US ON THE FOLLOWING GROUNDS :- 1. THE LD.CIT(A) ERRED IN BOTH IN LAW AND ON THE FACTS OF THE CASE IN SUSTAINING THE FOLLOWING ADDITIONS:- (I) DISALLOWNACE U/S.14A 7,24,321 (II) CUSTOMS DUTY 21,42,227 28,66,548 2. HE OVERLOOKED THAT THE APPELLANT HAD NEITHER MA DE ANY NEW INVESTMENTS NOR HAD BORROWED ANY MONEY DURING THE Y EAR. ITA NO.2031/MDS./2017 :- 3 -: 3. HE OVERLOOKED THAT NO EXPENDITURE HAD BEEN INCU RRED IN RESPECT OF THE DIVIDEND AS IT COULD NOT EVEN BEEN COLLECTED. 4. HE OVERLOOKED THE PRINCIPLES LAID DOWN BY THE SU PREME COURT IN THE CASE OF GODREJ & BOYCE (394 ITR 449(SC) ). 2.2. THE LD AR ARGUED THAT THE ASSESSEE HAD NOT IN CURRED ANY EXPENDITURE FOR EARNING DIVIDEND INCOME FROM MUTUAL FUNDS AS THE SAME ARE CREDITED THROUGH ELECTRONIC CLEARING SERVICE (E CS). THERE IS NO PORTFOLIO MAINTAINED BY THE ASSESSEE WARRANTING ITS MANAGEMENT AND INCURRENCE OF EXPENDITURE THEREON. NO EXPENDITURE W AS INCURRED TOWARDS COLLECTION CHARGES. NO INVESTMENTS WERE MADE DURING THE YEAR UNDER APPEAL BY THE ASSESSEE. THESE ARGUMENTS WERE MADE B EFORE THE LD AO AND THE LD AO DID NOT WHISPER ABOUT THE SAME IN HIS ORDER BEFORE PROCEEDING TO INVOKE RULE 8D(2)(III) OF THE RULES. WITHOUT PREJUDICE TO THE MAIN ARGUMENT THAT NO SATISFACTION WAS RECORDED BY THE LD AO IN TERMS OF RULE 8D(1) OF THE RULES, HE ARGUED THAT ONLY THE DI VIDEND BEARING MUTUAL FUNDS SHOULD BE CONSIDERED FOR MAKING DISALLOWANCE UNDER THE THIRD LIMB OF RULE 8D(2) OF THE RULES. ON THE CONTRARY, THE LD DR ARGUED THAT THE APPLICABILITY OF RULE 8D IS MANDATORY IN NATURE FRO M ASST YEAR 2008-09 AND THE SAME HAS BEEN RIGHTLY APPLIED BY THE LD AO. 2.3. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD. AT THE OUTSET, IT IS NOT IN DI SPUTE THAT THE LD AO HAD NOT RECORDED ANY SATISFACTION IN TERMS OF SECTION 1 4A(2) OF THE ACT HAVING ITA NO.2031/MDS./2017 :- 4 -: REGARD TO THE ACCOUNTS OF THE ASSESSEE. THE SAME IS ALSO MANDATED IN TERMS OF RULE 8D(1) OF THE RULES. THE ASSESSEE HAD CLEARLY STATED THAT NO EXPENSES WERE INCURRED BY THE ASSESSEE FOR THE PURP OSE OF EARNING DIVIDEND INCOME FROM MUTUAL FUNDS IN THE INSTANT CA SE. THE SCHEME OF TAXATION PROVIDES FOR SATISFACTION TO BE RECORDED B Y THE LD AO HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE AND THE CORR ECTNESS OF THE CLAIM OF THE ASSESSEE AND WITHOUT DOING THE SAME, THE LD AO CANNOT DIRECTLY PROCEED TO INVOKE THE WORKINGS FOR DISALLOWANCE AS PROVIDED IN RULE 8D(2) OF THE RULES. IN CASE IF THE STAND TAKEN BY T HE ASSESSEE ARE TO BE REJECTED, THE SAME COULD BE DONE ONLY WITH COGENT R EASONS BY THE LD AO AND HE CANNOT STRAIGHT AWAY EMBARK UPON COMPUTING D ISALLOWANCE UNDER RULE 8D(2) OF THE RULES. RELIANCE IN THIS REGARD IS PLACED ON THE DECISION OF THE HONBLE CALCUTTA HIGH COURT IN THE CASE OF C IT VS R.E.I. AGRO LTD IN GA 3022 OF 2013 IN ITAT 161 OF 2013 DATED 23.12.201 3 WHEREIN IT WAS HELD THAT :- THE ASSESSING OFFICER ALSO DISALLOWED THE EXPENDIT URE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 WITHOUT FIR ST RECORDING THAT HE WAS NOT SATISFIED WITH THE CORRECTNESS OF T HE CLAIM AS REGARDS THE CLAIM THAT NO EXPENDITURE WAS MADE BY THE ASSESSEE. CHALLENGING THE ORDER OF THE TRIBUNAL, THE PRESENT APPEAL HAS BEEN FILED. WE HAVE HEARD MR.BHOWMIK AND ARE OF THE OPI NION THAT NO POINT OF LAW HAS BEEN RAISED. THEREFORE, THIS APPEA L IS DISMISSED. RESPECTFULLY FOLLOWING THE AFORESAID DECISION, WE H OLD THAT NO DISALLOWANCE COULD BE MADE U/S 14A OF THE ACT IN TH E INSTANT CASE. IN ITA NO.2031/MDS./2017 :- 5 -: VIEW OF THIS DECISION, THE OTHER ARGUMENTS ADVANCED BY THE LD AR NEED NOT BE GONE INTO. ACCORDINGLY, THE GROUNDS 1(I) , 2 TO 4 RAISED BY THE ASSESSEE ARE ALLOWED. 3. THE LAST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN NOT ALLOWING THE DEDUCTION TO WARDS CUSTOMS DUTY PAID IN THE SUM OF ` 21,42,227/- IN THE FACTS AND CIRCUMSTANCES OF THE C ASE. 3.1. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASS ESSEE PAID A SUM OF ` 21,42,227/- AS DIFFERENTIAL CUSTOMS DUTY IN PURSUAN CE OF AN ORDER OF THE HONBLE SETTLEMENT COMMISSION AND CLAIMED IT AS EXP ENSES IN THE NEXT YEAR I.E ASST YEAR 2014-15. THE ASSESSMENT ORDER WAS PAS SED U/S 143(3) OF THE ACT ON 30.11.2016 FOR THE ASST YEAR 2014-15 WHEREIN THE DISALLOWANCE OF ` 21,42,227/- TOWARDS CUSTOMS DUTY WAS MADE BY THE LD AO, WHICH WAS APPEALED AGAINST BY THE ASSESSEE BEFORE THE LD CITA . THE LD AO DISALLOWED THE SAID CLAIM U/S 43B OF THE ACT FOR THE ASST YEAR 2014-15 ON THE GROUND THAT THE SAID DUTY HAS BEEN PAID DURING THE ASST YE AR 2013-14. THE ASSESSEE FILED ADDITIONAL GROUNDS OF APPEAL BEFORE THE LD CI TA FOR THE ASST YEAR 2013- 14, PRAYING THAT THE SUM OF ` 21,42,227/- SHOULD BE ALLOWED U/S 43B OF THE ACT ON PAYMENT BASIS. THE LD CITA OBSERVED THAT THE ASSESSEE HAD NOT FILED ANY DETAILS TOWARDS CUSTOMS DUTY EXCEPT STATING THA T COPY OF ORDER AND PAYMENTS RECEIVED WERE ENCLOSED. HE OBSERVED THAT S INCE THE PRIMARY ONUS WAS NOT DISCHARGED BY THE ASSESSEE BY PROVING WHETH ER THE CUSTOMS DUTY ITA NO.2031/MDS./2017 :- 6 -: WAS PAID OR NOT, THE ASSESSEE IS NOT ENTITLED FOR D EDUCTION U/S 43B OF THE ACT IN ASST YEAR 2013-14. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 1. THE LD.CIT(A) ERRED IN BOTH IN LAW AND ON THE FACTS OF THE CASE IN SUSTAINING THE FOLLOWING ADDITIONS:- (I) DISALLOWNACE U/S.14A 7,24,321 (II) CUSTOMS DUTY 21,42,227 28,66,548 5. HE ERRED FACTUALLY IN HOLDING THAT PRIMARY EVIDENCE REGARDING THE CUSTOMS DUTY HAS NOT BEEN FILED. 3.2. WE HAVE HEARD THE RIVAL SUBMISSIONS. THE LD A R FURNISHED THE COPY OF DEMAND DRAFTS FOR PAYMENT OF CUSTOMS DUTY AS UNDER: - 13.3.2013 9,90,000 13.3.2013 3,32,005 19.4.2013 8,20,222 -- -- -- -- -- -- -- -- 21,42,227 -- -- -- -- -- -- -- -- THE LD DR ARGUED THAT THE SAID PAPERS WERE NOT PROD UCED BEFORE THE LD AO AND PRAYED FOR EXAMINATION OF THE SAME BY THE LD AO AND THE ALLOWABILITY OF THE CLAIM U/S 43B OF THE ACT FOR THE ASST YEAR 2013 -14. FOR THIS PROPOSITION, THE LD AR ALSO AGREED FOR SETTING ASIDE OF THIS ISS UE TO THE FILE OF THE LD AO. IN VIEW OF THE SAME, WE DEEM IT FIT AND APPROPRIATE TO REMAND THIS ISSUE TO THE FILE OF THE LD AO TO DECIDE THIS ISSUE AFRESH I N ACCORDANCE WITH LAW, WITH A DIRECTION TO EXAMINE WHETHER THE CUSTOMS DUTY HAS B EEN PAID FOR THE PURPOSE OF THE BUSINESS OF THE ASSESSEE OR NOT. IF IT IS FOUND TO BE MEANT FOR THE PURPOSE OF BUSINESS, THEN THE SAME SHOULD BE AL LOWED U/S 43B OF THE ACT ITA NO.2031/MDS./2017 :- 7 -: ON PAYMENT BASIS AS THE FIRST TWO PAYMENTS ABOVE HA D BEEN PAID BEFORE THE END OF THE PREVIOUS YEAR AND THE THIRD PAYMENT ABOV E HAD BEEN MADE BEFORE THE DUE DATE OF FILING THE RETURN OF INCOME U/S 139(1) OF THE ACT. ACCORDINGLY, THE GROUNDS 1(II) AND 5 RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES SUBJECT TO DIRECTIONS GIVEN HE REINABOVE. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 18 TH JANUARY, 2018 AT CHENNAI. SD/- SD/- ( ! . . ! . '# ) ( N.R.S. GANESAN) / JUDICIAL MEMBER ( !$ % & '# ) (M. BALAGANESH) ' / ACCOUNTANT MEMBER '( /CHENNAI, )* /DATED: 18 TH JANUARY, 2018 K S SUNDARAM *# +, -, /COPY TO: 1. APPELLANT 2. /RESPONDENT 3. . ( ) /CIT(A) 4. . /CIT 5. ,/' 0 /DR 6. '1 2 /GF