Assistant Commissioner Of Income Tax, Circle- 4(1)(2), Bengaluru V. M/s. M.N. Dastur Company Private Limited, Bangalore

ITA 2054/BANG/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 0211 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-06-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2013-2014
• Appeal Filed On: 24-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 115JB; 12; 154; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B R BASKARAN , ACCOUNTANT MEMBER IT A NO. 2054/BANG/2019 ASSESSMENT YEAR : 2013 - 14 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 4(1)(2), BANGALORE. VS. M/S. M.N. DASTUR COMPANY PVT. LTD., 7 TH FLOOR, RAHEJA TOWERS, 26/27, M.G. ROAD, BANGALORE 560 001. PAN: AABCM 1236M APPELLANT RESPONDENT APPELLANT BY : SHRI PRIYADARSHI MISHRA, JT.C IT(DR)(ITAT ), BENGALURU. RESPONDENT BY : NONE DATE OF HEARING : 18. 0 6 .2020 DATE OF PRONOUNCEMENT : 24 .0 6 .2020 O R D E R PER N.V. VASUDEVAN, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST AN ORD ER DATED 30.7.2019 OF CIT(APPEALS)-4, BENGALURU, WHEREBY THE CIT(A) DI SMISSED AN APPLICATION FILED BY THE REVENUE U/S.154 OF THE INCOME-TAX ACT, 1961 [THE ACT] SEEKING RECTIFICATION OF CIT(A)S ORDER DATED 2.4.2 019 ALLOWING APPEAL OF AN ASSESSEE AGAINST THE ORDER OF AO U/S.154 OF THE ACT DATED 19.9.2017. 2. THE FACTS ARE THAT THE ASSESSEE IS A COMPANY ENG AGED IN THE BUSINESS OF RENDERING CONSULTING ENGINEERING SERVIC ES AND SOFTWARE SERVICES. FOR THE AY 2013-14, THE AO DETERMINED TH E TOTAL INCOME OF THE ASSESSEE BY HIS ORDER DATED 28.3.2016 PASSED U/S. 1 43(3) OF THE ACT AT A ITA NO.2054/BANG/2019 PAGE 2 OF 8 LOSS OF RS.10,06,35,057 AS PER THE NORMAL PROVISION S OF THE ACT AND AT RS.12,82,11,059 AS PER THE PROVISIONS OF SECTION 11 5JB OF THE ACT (TAX ON BOOK PROFITS). WHILE COMPUTING INCOME UNDER THE NO RMAL PROVISIONS OF THE ACT, THE AO HAD MADE DISALLOWANCE OF EXPENSES U/S. 14A OF THE ACT READ WITH RULE 8D OF THE I.T. RULES [THE RULES] OF A SUM OF RS.31,80,204. HOWEVER, WHILE COMPUTING BOOK PROFITS U/S. 115JB OF THE ACT AS PER CLAUSE(F) OF EXPLANATION-1 BELOW SUB-SECTION (2) OF SEC.115JB OF THE ACT, THE AMOUNT OF ANY EXPENDITURE RELATABLE TO ANY INCO ME TO WHICH SEC.10 OTHER THAN SEC.10(38) OR SEC.11 & 12 OF THE ACT WHI CH HAS TO BE ADDED BACK TO THE BOOK PROFIT WAS OMITTED TO BE DONE. HE NCE PROCEEDINGS U/S.154 OF THE ACT TO RECTIFY MISTAKE APPARENT FROM THE RECORD WAS INITIATED BY THE AO. THE AO BY AN ORDER PASSED U/S.154 OF TH E ACT DATED 19.9.2017, ADDED THE SUM DISALLOWED U/S. 14A OF THE ACT READ W ITH RULE 8D OF THE RULES OF A SUM OF RS.31,80,204 TO THE PROFIT AS PER PROFIT & LOSS ACCOUNT OF THE ASSESSEE PREPARED IN ACCORDANCE WITH THE PROVIS IONS OF THE COMPANIES ACT, 1956, WHILE COMPUTING BOOK PROFITS U/S.115JB O F THE ACT. THE BOOK PROFIT ON WHICH TAX WAS PAYABLE U/S.115JB OF THE AC T STOOD ENHANCED ACCORDINGLY. 3. AGGRIEVED BY THE SAID ORDER DATED 19.9.2017, THE ASSESSEE FILED APPEAL BEFORE CIT(A) CONTENDING THAT IN THE FIRST P LACE THERE IS NO MISTAKE APPARENT ON RECORD WHICH REQUIRES TO BE RECTIFIED A S A MISTAKE APPARENT ON RECORD, IT MUST BE AN OBVIOUS AND PATENT MISTAKE AN D NOT SOMETHING WHICH CAN BE ESTABLISHED BY A LONG DRAWN PROCESS OF REASO NING ON POINTS ON WHICH THERE MAY HE CONCEIVABLY TWO OPINIONS AS HELD IN THE CASE OF T.S BALARAM, ITO V VOLKART BROS., 82 TIR 50 (SC). THE ISSUE, WHETHER DISALLOWANCE U/S 14A CAN BE ADDED BACK TO THE BOOK PROFIT U/S. 115JB HAS BEEN DECIDED BY THE SPECIAL BENCH DELHI ITAT IN THE CASE OF ACIT V VIREET INVESTMENTS PVT LTD-58 1TR 313 DELHI (SB) WHEREIN IT IS HELD AS UNDER:- ITA NO.2054/BANG/2019 PAGE 3 OF 8 '(III) THAT THE DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D COULD NOT BE ADDED WHILE COMPUTING THE BOOK PROFITS IN TERMS OF SECTION 115JB AS THE EXPLANATION TO THAT SECTION DI D NOT SPECIFICALLY MENTION SECTION 14A OF THE ACT. HENCE THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SE CTION 115JB(2) WAS TO BE MADE WITHOUT RESORTING TO THE CO MPUTATION AS CONTEMPLATED UNDER SECTION 14A READ WITH RULE 8D OF THE RULES.' 4. THE ASSESSEE PRAYED THAT THE ADDITION TO BOOK PR OFITS OF DISALLOWANCE U/S 14A IS A DEBATABLE ISSUE AS FOR MA KING A DISALLOWANCE THE AO SHOULD CONSIDER WHETHER ANY INTEREST BEARING FUN DS ARE INVOLVED IN EXEMPT INCOME, ANY SEPARATE BOOKS OF ACCOUNTS WERE MAINTAINED OR NOT, THE BASIS ON WHICH THE DISALLOWANCE WAS MADE BY THE ASSESSEE, THE REASON TO GIVE AS TO WHY THE DISALLOWANCE IS NOT AC CEPTABLE AND THE GROUNDS ON WHICH A FRESH DISALLOWANCE OF RULE 8D IS BEING MADE. PROPER REASON HAS TO BE RECORDED BEFORE DISALLOWANCE COULD BE MADE UNDER THIS SECTION. 5. THE CIT(A) BY HIS ORDER DATED 2.4.2019 ALLOWED T HE APPEAL HOLDING AS FOLLOWS:- 6.2 I AM OF THE OPINION THAT THE DISALLOWANCE U/S. 14A MADE BY THE AO IS HIGHLY DEBATABLE ISSUE AND CANNOT BE M ADE U/S. 154 O THE IT ACT. 6.3 IN THE LIGHT OF VARIOUS DECISIONS OF THE COURT S. A NON- SPEAKING ORDER AND A DEBATABLE ISSUE CANNOT FORM A PART OF THE 154 PROCEEDINGS AND IS BAD IN LAW. KEEPING THE HON' BLE SUPREME COURT JUDGMENT IN THE CASE CIT VS. HERO CYCLES PVT. LTD. ETC. (1997) 228 ITR 463 (SC), WHEREIN THE HON'BLE SUPREM E COURT OF INDIA HAS HELD AS UNDER: RECTIFICATION UNDER SECTION 154 CAN ONLY BE MADE W HEN A GIVING MISTAKE OF FACT OR LAW COMMITTED BY THE OFFI CER PASSING THE ORDER BECOMES APPARENT FROM THE RECORD. RECTIFICATION IS NOT POSSIBLE IF THE QUESTION IS DE BATABLE. MOREOVER, A POINT WHICH WAS NOT EXAMINED ON FACTS O R IN ITA NO.2054/BANG/2019 PAGE 4 OF 8 LAW CANNOT HE DEALT WITH AS A MISTAKE APPARENT FROM THE RECORD. AND MADRAS HC IN THE CASE OF CWT VS. SRI RAM AND ORS, 15 TAXMAN. 149 (MAD.) AND ALSO [2018] 96 TAXMANN.CO M 542 (JAIPUR-TRIB) [2018] 172 LTD 571 (JAIPUR-TRIB) AND ALSO TAKING INTO CONSIDERATION THE SPECIAL BENCH DECISION IN TH E CASE OF ACTT V VIREET INVESTMENTS PVT LTD-58 ITR 313 DELHI, WHER EIN THIS ISSUE 'WHETHER DISALLOWANCE U/S 14A CAN BE ADDED BA CK TO BOOK PROFIT U/S 115JB HAS BEEN HELD IN THE FAVOUR OF AS SESSEE, THE ASSESSEE GROUNDS ARE ALLOWED. 7 IN THE RESULT, THE APPEAL IS ALLOWED. 6. AGGRIEVED BY THE AFORESAID ORDER OF THE CIT(A), THE REVENUE FILED AN APPLICATION U/S.154 OF THE ACT AGAINST THE ORDER DA TED 2.4.2019 BEFORE THE CIT(A). THE REVENUE CONTENDED IN THE SAID APPLICAT ION THAT ITAT BANGALORE IN THE CASE OF DCIT V. SHOBHA DEVELOPERS [58 TAXMANN.COM 107] VIDE ORDER DATED 09.01.2015 HAS HELD THAT WHERE EXPENDITURE WAS DISALLOWED BY THE AO BY INVOKING SECTION 14A WHILE COMPUTING TOTAL INCOME UNDER NORMAL PROVISIONS, SAME DISALLOWANCE WOULD BE ADOPTED WHILE ARRIVING AT THE BOOK PROFITS. SINCE THE CIT(A) IN THE ORDER DATED 2.4.2019 HAS ALLOWED ASSESSEES APPEAL STATING THAT DISALLOW ANCE ON ACCOUNT OF ADDITION U/S. 14A BEING HIGHLY DEBATABLE ISSUE, THE ADDITION CANNOT BE MADE U/S. 154 OF THE IT ACT, WHICH IS CONTRARY TO T HE DECISION OF THE JURISDICTIONAL ITAT REFERRED ABOVE ON THE ISSUE OF ADDITION RELATING TO 14A DISALLOWANCE U/S. 115JB, THE AO PRAYED FOR RECTIFIC ATION OF THE ORDER DATED 2.4.2019. 7. BY THE IMPUGNED ORDER THE CIT(A) DISMISSED THE S AID APPLICATION BY THE REVENUE OBSERVING AS FOLLOWS:- 3. I HAVE GONE THROUGH THE MISCELLANEOUS PETITION AND THE ISSUE RAISED THEREIN. I HAVE CONSIDERED ALL THE ARG UMENT MADE IN THE MISCELLANEOUS PETITION AND THE REASON FOR DECIS ION TAKEN IS REFLECTED IN MY ORDER DATED 02-04-2019 IN PARAS 6.1 TO 6.3 I DON'T ITA NO.2054/BANG/2019 PAGE 5 OF 8 FIND ANY INFIRMITY IN THE ORDER DATED 02-04-2019 PA SSED BY THIS OFFICE. 4. HENCE THE MISCELLANEOUS PETITION IS DISMISSED ACCORDINGLY. 8. AGGRIEVED BY THE AFORESAID ORDER OF CIT(A) THE R EVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. WE HAVE HEARD THE CONTENTION OF THE LEARNED DR WHO REITERATED THE STA ND OF THE REVENUE AS CONTAINED IN THE APPLICATION U/S.154 OF THE ACT AND THE GROUNDS OF APPEAL RAISED BEFORE THE TRIBUNAL BY THE REVENUE WHICH REA DS AS FOLLOWS: 1. THE ORDER OF THE LD.CIT (A) IS OPPOSED TO THE L AW AND FACTS OF THE CASE. 2. THE LD. CIT(A) IS NOT CORRECT IN DISMISSING THE MISC. PETITION FILED BY THE AO BY RELYING ON A DECISION O F SPECIAL BENCH ITAT, NEW DELHI BY IGNORING THE DECISION OF HON'BLE ITAT BANGALORE ON THE SAME ISSUE IN THE CASE OF DCIT CC- 2(2) BANGALORE VS SHOBHA DEVELOPERS, 58 TAXMANN.COM 107 WHICH CLEARLY HELD THAT THE AMOUNT DISALLOWED BY AO U/S.1 4A WHILE COMPUTING TOTAL INCOME UNDER NORMAL PROVISION SHOUL D ALSO BE DISALLOWED WHILE ARRIVING AT BOOK PROFIT. 3. THE LD. CIT(A) IS OUGHT TO HAVE APPRECIATED THAT THE PROVISION OF EXPLANATION 1(F) BELOW SECOND PROVISO OF SECTION 115JB(2) CLEARLY PROVIDES FOR INCREASE OF BOOK PROFIT BY AN AMOUNT OF EXPENDITURE RELATABLE TO ANY INCOME WHICH IS EXEMPT U/S.10, 11 OR 12, MAKES THE ISSUE MISTAKE APPARENT FROM RECORDS. 9. THE AR FOR THE ASSESSEE SOUGHT ADJOURNMENT BUT S INCE THE ISSUE IS COVERED BY A DECISION OF SPECIAL BENCH IN THE CASE OF VIREET INVESTMENTS (SUPRA) , THE SAME WAS NOT GRANTED. 10. AS FAR AS THE AMOUNT TO BE ADDED TO THE PROFIT AS PER P&L ACCOUNT U/S. 115JB OF THE ACT TOWARDS EXPENDITURE INCURRED IN EARNING INCOME EXEMPT U/S. CHAPTER III OF THE ACT, THE PLEA OF THE ASSESSEE WAS THAT THE DISALLOWANCE U/S. 14A OF THE ACT MADE WHILE COMPUTI NG TOTAL INCOME UNDER ITA NO.2054/BANG/2019 PAGE 6 OF 8 THE NORMAL PROVISIONS OF THE ACT SHOULD NOT BE AUTO MATICALLY ADDED WHILE DETERMINING THE BOOK PROFITS U/S. 115JB OF THE ACT. IN SUPPORT OF THE STAND TAKEN BY THE ASSESSEE, THE ASSESSEE HAS PLACED RELI ANCE ON THE DECISION OF THE DELHI SPECIAL BENCH OF ITAT IN THE CASE OF ACIT V. VIREET INVESTMENTS PVT. LTD., 165 ITD 25 (DEL)(SB) . IN THE AFORESAID DECISION, TWO QUESTIONS WERE CONSIDERED BY THE SPECIAL BENCH WHICH ARE AS F OLLOWS:- (I) WHETHER THE EXPENDITURE INCURRED TO EARN EXEM PT INCOME COMPUTED U/S 14A COULD NOT BE ADDED WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT? AND (II) WHETHER INVESTMENTS WHICH DID NOT YIELD ANY E XEMPT INCOME SHOULD ENTER INTO THE COMPUTATION UNDER RULE 8D WHI LE ARRIVING AT THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHI CH DOES NOT FORM PART OF THE TOTAL INCOME? 11. THE SPECIAL BENCH ANSWERED THE AFORESAID QUESTI ONS AS FOLLOWS:- (I) WE ANSWER THE QUESTION REFERRED TO US IN FAVO UR OF ASSESSEE BY HOLDING THAT THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2). IS TO BE MADE WI THOUT RESORTING TO THE COMPUTATION AS CONTEMPLATED U/S 14 A READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962. (II) ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED F OR COMPUTING THE AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMP T INCOME DURING THE YEAR. 12. THUS, IT IS CLEAR THAT THE AMOUNT TO BE ADDED W HILE COMPUTING BOOK PROFITS U/S. 115JB OF THE ACT, THE AO CANNOT IN TER MS OF EXPLANATION 1(F) TO SEC.115JB(2) TO THE ACT, ADD THE SUM DETERMINED AS DISALLOWANCE U/S. 14A OF THE ACT WHILE COMPUTING TOTAL INCOME UNDER THE N ORMAL PROVISIONS OF THE ACT AND HE HAS TO ADOPT A BASIS AS LAID DOWN BY THE SPECIAL BENCH IN THE AFORESAID DECISION VIZ., DIRECT EXPENDITURE ASSOCIA TED WITH EARNING OF INCOME. THE GRIEVANCE OF THE REVENUE IN THIS APPEAL AS PROJECTED IN GROUND NO.2 IS THAT THE CIT(A) OUGHT TO HAVE FOLLOWED THE DECISION IN THE CASE OF ITA NO.2054/BANG/2019 PAGE 7 OF 8 DCIT VS. SOBHA DEVELOPERS (SUPRA) RENDERED BY ITAT BANGALORE BENCH WHEREIN IT WAS HELD THAT THE DISALLOWANCE U/S.14A O F THE ACT MADE WHILE COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT CAN ALSO BE ADOPTED WHILE DETERMINING BOOK PROFITS U/S.115JB IN TERMS OF EXPLANATION- 1(F) TO SEC.115JB(2) OF THE ACT. THE RATIO LAID DO WN IN THE SAID DECISION OF THE BANGALORE BENCH HAS NOT BEEN APPROVED BY A FULL BENCH (SPECIAL BENCH) OF ITAT DELHI IN THE CASE OF VIREET INVESTMENTS (SUPRA) , WHICH DECISION WAS RENDERED AFTER THE DECISION RENDERED B Y THE BANGALORE BENCH OF ITAT. AS FAR AS THE GRIEVANCE OF THE REVENUE PR OJECTED IN GR.NO.3 IS CONCERNED, THE SUBJECT MATTER OF THE IMPUGNED ORDER IS ONLY AS TO, WHETHER THERE WAS A MISTAKE APPARENT FROM THE RECORD IN THE ORDER OF CIT(A) DATED 2.4.2019 AND NOT THE ISSUE WHETHER NOT MAKING ADDIT ION OF DISALLOWANCE U/S.115JB(2) EXPLANATION-1(F) OF EXPENSES INCURRED TO EARN INCOME WHICH IS EXEMPT U/S.10 IS A MISTAKE APPARENT FROM THE RECORD OR NOT. IN OTHER WORDS, THE ISSUE SOUGHT TO BE RAISED BY THE REVENUE IN GRO UND NO.3 CAN ARISE ONLY IN AN APPEAL AGAINST THE ORDER DATED 2.4.2019 AND NOT IN AN APPEAL AGAINST THE IMPUGNED ORDER. 13. FOR THE REASONS GIVEN ABOVE, WE FIND NO MERIT I N THIS APPEAL AND ACCORDINGLY THE SAME IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THIS 24 TH DAY OF JUNE, 2020. SD/- SD/- ( B R BASKARAN ) ( N V VASUDEVAN ) ACCOUNTANT MEMBER VICE PRESIDENT BANGALORE, DATED, THE 24 TH JUNE, 2020. / DESAI S MURTHY / ITA NO.2054/BANG/2019 PAGE 8 OF 8 COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. BY ORDER ASSISTANT REGISTRAR ITAT, BANGALORE.