M/s PJB Engineers Pvt Ltd , Bangalore V. The Assistant Commissioner of INcome Tax Circle-5(1)(2), Bangalore

ITA 2081/BANG/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7581 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-07-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2014-2015
• Appeal Filed On: 27-10-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, B E NGAL U R U BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER AND SHRI LALI E T KUMAR, JUDICIAL MEMBER ITA NO. 2081 / BANG/ 201 7 (ASSESSMENT YEAR : 201 4 - 15 ) M/S.PJB ENGINEERS PVT. LTD. NO.143, RATHNA BUILDING, 4 TH FLOOR, RICHMOND ROAD, BENGALURU - 560025. PAN: AACCP3694C VS. APPELLANT ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE 5(1)(2), BENGALURU. RESPONDENT AND ITA NO.2136/BANG/ 201 7 (ASSESSMENT YEAR : 201 4 - 15 ) (BY REVENUE) A SSESSEE BY : SHRI SURESH MUTHUKRISHN A, CA. REVENUE BY : DR. P.V.PRADEEP KUMAR, ADDL.CIT(DR) DATE OF HEARING : 06/07/2018 DATE OF PRONOUNCEMENT : 31 /0 7 /2018 O R D E R PER I NTURI RAMA RAO, AM : TH ESE ARE CROSS APPEALS FILED BY THE REVENUE AS WE LL AS THE ASSESSEE - COMPANY DIRECTED AGAINST THE ORDER OF THE LEARNED COMMISSIONER OF INCOME - TAX (APPEALS) - 5, BENGALURU, DATED 26/07/2017 FOR THE ASSESSMENT YEAR 2014 - 15. 2. BRIEFLY , FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY DULY INCORPORATED UN DER THE PROVISIONS OF THE COMPANIES ACT, 1956. IT IS ENGAGED IN THE BUSINESS OF EXECUTE OF CIVIL CONTRACTS. THE RETURN OF INCOME FOR THE ASSESSMENT YEAR 2014 - 15 WAS FILED ON 20/11/2014 DECLARING INCOME OF RS.5,84,97,588/ - . AGAINST THE SAID RETURN OF INCO ME, THE ITA NO . 2081 & 2136 /BANG/201 7 PAGE 2 OF 4 ASSESSMENT WAS COMPLETED BY THE ASSISTANT COMMISSIONER OF INCOME - TAX, CIRCLE 5(1)(2), BENGALURU, [AO], VIDE ORDER DATED 15/11/2016 PASSED U/S 143(3) OF THE INCOME - TAX ACT, 1961 [HEREINAFTER REFERRED TO AS 'THE ACT' FOR SHORT]. WHILE DOING SO, AO M ADE DISALLOWANCE OF RS.1,12,27,401/ - UNDER THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE IT RULES REJECTING THE CONTENTION OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED TO EARN ANY EXEMPT INCOME. FURTHER IT IS STATED THAT NO BORROWE D FUNDS WERE UTILIZED FOR THE PURPOSE OF MAKING INVESTMENT IN THE ASSETS YIELDING EXEMPT INCOME. AO, HOWEVER, REJECTED THE ABOVE CONTENTION AND INVOKING THE PROVISIONS OF SECTION 14A R.W.S. RULE 8D, MADE ADDITION OF RS.1,12,27,401/ - . 3. BEING AGGRIEVED, A N APPEAL WAS PREFERRED BEFORE THE LD.CIT(A) WHO, VIDE IMPUGNED ORDER, HAD UPHELD THE APPLICABILITY OF SECTION 14A OF THE ACT , H OWEVER, DIRECTED THE AO TO RESTRICT THE AMOUNT OF DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME. 4. BEING AGGRIEVED, THE REVENUE I S IN APPEAL IN ITA NO.2136/BANG/2017 AND THE ASSESSEE IS IN APPEAL IN ITA NO.2081/BANG/2017 CONTESTING THE VERY APPLICABILITY OF SECTION 14A OF THE ACT. 5. NOW, WE SHALL TAKE UP THE REVENUE APPEAL. WE FIND FROM THE PERUSAL OF THE ORDER OF THE LD.CIT(A) TH AT THE DIRECTION OF THE LD.CIT(A) TO RESTRICT THE AMOUNT OF DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME IS CONSONANCE WITH LAW LAID DOWN BY THE DHAR WAD BENCH OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF PRAGMATIC KRISHNA GARMIN BANK VS. JCIT IN ITA NOS.100001 & 100002/2018 DT.28/05/018 AND THE DECISION OF THE SPECIAL BENCH OF TRIBUNAL ( HYDERABAD ) IN THE CASE OF ACIT VS. PROGRESSIVE CONSTRUCTIONS LTD. (92 TAXMAN.COM 104(HYD. TRIB)(SB) . THUS THE PROPOSITION THAT THE AMOUNT OF DISALLOWANCE CANNOT E XCEED EXEMPT INCOME IS SETTLED. ACCORDINGLY, WE HOLD THAT THE DISALLOWANCE CANNOT EXCEED THE AMOUNT OF EXEMPT INCOME. THEREFORE, WE DO NOT FIND ANY FALLACY IN THE REASONING OF THE ITA NO . 2081 & 2136 /BANG/201 7 PAGE 3 OF 4 LD.CIT(A). ACCORDINGLY, W E DISMISS THE GROUNDS OF APPEAL FILED BY THE RE VENUE . 6. AS REGARDS THE APPEAL FILED BY THE ASSESSEE VIZ. ITA NO.2081/BANG/2017, IT IS CONTENDED THAT ONLY INVESTMENT YIELDING EXEMPT INCOME ALONE HAS TO BE CONSIDERED FOR THE PURPOSE OF COMPUTING AMOUNT OF DISALLOWANCE UNDER RULE 8D. IT IS FURTHER SUB MITTED THAT LONG - TERM CAPITAL GAINS HAVE ARISEN IN RESPECT OF MUTUAL FUNDS WHICH YIELDED INTEREST INCOME WHICH CANNOT BE CONSIDERED AS INVESTMENTS YIELDING EXEMPT INCOME , I T IS FURTHER SUBMITTED THAT EXEMPT INCOME IN THE FORM OF LONG TERM CAPITAL GAINS HAD ARISEN ONLY IN RESPECT OF INVESTMENT YIELDING TAXABLE INCOME. THEREFORE, NO EXEMPT INCOME HAS BEEN EARNED DURING HT YEAR AND THE PROVISIONS OF SECTION 14A CANNOT BE APPLIED. 7. WE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND FROM RECORD THAT THE ASSESSEE HA D BEEN RAISING THE ABOVE CONTENTION EVEN BEFORE THE LOWER AUTHORITIES , NONE OF LOWER AUTHORITIES DEALT WITH SAME . THEREFORE, WE DEEM IT PROPER TO REMIT THE MATTER TO THE FILE OF THE AO FOR THE LIMITED PURPOSE OF VERIFICATION A ND ADJUDICATION OF THE FOLLOWING LINES : ( I ) WHETHER LONG - TERM CAPITAL GAINS HAD ARISEN IN RESPECT OF INVESTMENTS YIELDING TAXABLE INCOME? IF SO, NO DISALLOWANCE IS REQUIRED TO BE MADE U/S 14A AS THERE IS NO EXEMPT INCOME FOR THE YEAR UNDER CONSIDERATION. (II) IN CASE, THERE IS ANY EXEMPT INCOME, TO RESTRICT THE AMOUNT OF DISALLOWANCE U/S 14A TO THE EXTENT OF EXEMPT INCOME AND TO CONSIDER VALUE OF INVESTMENTS WHICH YIELDED EXEMPT INCOME FOR THE PURPOSE OF COMPUTING THE AVERAGE VALUE OF INVESTMENTS IN COMP UTING DISALLOWANCE U/S 14A READ WITH RULE 8D. IN ANY EVENT, WE MAKE IT CLEAR THAT THE AMOUNT OF DISALLOWANCE CANNOT EXCEED THE EXEMPT INCOME. ITA NO . 2081 & 2136 /BANG/201 7 PAGE 4 OF 4 8. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED AND THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALL OWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 31 ST JULY 2018. SD/ - SD/ - ( LALI E T KUMAR ) (INTURI RAMA RAO) JUDICIAL MEMBER ACCOUNTANT ME MBER PLACE : B EN GAL URU D A T E : 31 /0 7 / 2018 SRINIVASULU, SPS COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) - 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY INCOME - TAX APPELLATE TRIBUNAL BANGALORE