Income Tax Officer, Ward- 4(1)(2), Bangalore V. M/s. Khoday India Limited, Bangalore

ITA 2085/BANG/2019

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 7068 (ITAT-BANGALORE)
• Duration Of Justice: 11 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2020
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 07-09-2020
• Assessment Year: 2014-2015
• Appeal Filed On: 30-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: S SUNDAR RAJAN
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A; 115JB; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES A BENCH: BANGALORE BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO. 2085 /BANG/201 9 (ASSESSMENT YEAR: 20 14 - 15 ) INCOME TAX OFFICER, WARD 4(1)(2), BA NGALORE. .APPELLANT VS. M/S. KHODAY INDIA LIMITED, 7 TH MILE, BREWERY HOUSE, BANGALORE - 560 062 RESPOND ENT. PAN AAACK 6734C ASSESSEE BY: SHRI S.SUNDAR RAJAN, ADDL. CIT (D.R) REVENUE BY: SHRI V. SRIDHAR, C.A. DATE OF HEARING : 07.09 .20 20. DATE OF PRONOUNCEMENT : 08 .09 .20 20. O R D E R PER SHRI GEORGE GEORGE K , JM : TH IS APPEA L AT THE INSTANCE OF REVENUE IS DIRECTED AGAINST THE ORDER OF C OMMISSIONER OF INCOME TAX (APPEALS) - 4 , BANGALORE DT.30.07.2019 . THE RELEVANT ASSESSMENT YEAR IS 2014 - 15. 2. THE GROUNDS RAISED BY THE REVENUE ARE AS FOLLOWS : 2 ITA NO. 2085/BANG/2019 3. THE ASSESSEE IS A COMPANY. FOR THE ASSESSMENT YEAR 2014 - 15, THE ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 ('THE ACT') WAS COMPLETED ON 30.12.2016 ASSESSING THE TOTAL INCOME OF RS.2,01,79,636. IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE ACT ADDITIONS OF RS. 4,30,82,139 WAS MADE TO BUSINESS LOSS ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A OF THE ACT. HOWEVER, WHILE COMP UTING THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT, THIS DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A OF THE ACT WAS O MITTED TO ADDED BACK TO THE BOOK PROFITS. HENCE PROCEEDINGS UNDER SECTION 154 OF THE ACT WAS INITI A TED BY THE ASSESSING OFFICER AND AN ORDER UNDER SECTION 154 OF THE ACT WAS PASSED ON 8.1.2018. IN THE ORDER PASSED UNDER SECTION 154 OF THE ACT, THE ASSE SSING OFFICER ADDED THE SUM DISALLOWED UNDER SECTION 14A R.W. RULE 8D OF THE IT RULES TO THE PROFITS AS PER THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE 3 ITA NO. 2085/BANG/2019 PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT, 1956 WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE ACT. THE BOOK PROFIT ON WHICH THE TAX WAS PAYABLE UNDER SECTION 115JB OF THE ACT STOOD ENHANCED ACCORDINGLY. 4. AGGRIEVED BY THE ORDER PASSED UNDER SECTION 154 OF THE ACT DT.8.1.2018, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE F IRST APPELLATE AUTHORITY. IT WAS CONTENDED THAT THERE WAS NO MISTAKE APPARENT ON RECORD AND HENCE THE ORDER OF ASSESSING OFFICER DT.8.1.2018 IS BAD IN LAW. IT WAS SUBMITTED THAT ONLY OBVIOUS AND PATENT MISTAKE CAN BE SUBJECTED TO RECTIFICATION PROCEEDIN GS UNDER SECTION 154 OF THE ACT. WHEREAS IN THIS CASE IT WAS SUBMITTED THE ISSUE IS DEBATABLE AND CAN BE ESTABLISHED ONLY BY A LONG DRAWN PROCESS OF REASONING ON WHICH THERE MAY BE CONCEIVABLY TWO OPINIONS. IN THIS CONTEXT, THE ASSESSEE RELIED ON THE JUD GEMENT OF APEX COURT IN THE CASE OF T.S. BALRAM VS. VOLKART BROS 82 ITR 50 (SC). AS REGARD DISALLOWANCE UNDER SECTION 14A WHETHER IT CAN BE ADDED TO THE BOOK PROFITS UNDER SECTION 115JB OF THE ACT, IT WAS SUBMITTED THAT IT HAS BEEN DECIDED BY THE SPECI AL BENCH OF DELHI TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENTS PVT. LTD. 58 ITR 313 (DELHI) IN FAVOUR OF ASSESSEE . 5. THE LD. CIT (APPEALS) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT FINDINGS OF THE LD. CIT (APPEALS) IN ORDER DT.3.4.2019 READS AS UNDER : 4 ITA NO. 2085/BANG/2019 6 . AGGRIEVED BY THE AFORESAID ORDER OF THE CIT (APPEALS), THE REVENUE FILED AN APPLICATION UNDER SECTION 154 OF THE ACT. THE SAID APPLICATION OF REVENUE UNDER SECTION 154 OF THE ACT WAS DISMISSED BY THE IMPUGNED ORDER OF THE CIT (APPEALS) 5 ITA NO. 2085/BANG/2019 DT.3.7.2019. THE RELEVANT FINDING OF THE LD. CIT (APPEALS) IN THE IMPUGNED ORDER READS AS FOLLOWS : 3. I HAVE GONE THROUGH THE MISCELLANEOUS PETITION AND THE ISSUE RAISED THEREIN. I HAVE CONSIDERED ALL THE ARGUMENT MADE IN THE MI SCELLANEOUS PETITION AND THE REASON FOR DECISION TAKEN IS REFLECTED IN MY ORDER DT.3.4.2019 IN PARS 6.1 TO 6.3.1 DONT FIND ANY INFIRMITY IN THE ORDER DT.3.4.2019 PASSED BY THIS OFFICE. 7. AGGRIEVED BY THE ORDER OF THE CIT (APPEALS) DT.3.7.2019, THE REVENUE HAS PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. THE LEARNED DEPARTMENTAL REPRESENTATIVE RELIED ON THE GROUNDS RAISED. THE LEARNED AUTHORISED REPRESENTATIVE, ON THE OTHER HAND, HAS FILED THE WRITTEN SUBMISSIONS AND A PAPER BOOK ENCLOSING T HE CASE LAWS RELIED ON , VIZ. ACIT VS. VIREET INVESTMENTS PVT. LTD. 165 ITD 27 (DEL) (S B ) AND ACIT VS. M N DASTUR COMPANY PVT. LTD. (2020) 59 CCH 0139 BANG. TRIB. 8 . WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. T HE HON'BLE TRIB UNAL IN THE CASE OF ACIT VS. M N DASTUR CO. PVT. LTD. (SUPRA) CONSIDERED AN IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE. IN THE CASE OF ACIT VS. M N DASTUR CO. PVT. LTD. (SUPRA) THE GROUNDS RAISED BY REVENUE ARE IDENTICAL TO GROUNDS RAISED IN THIS CASE. T HE RELEVANT FINDING OF THE HON'BLE TRIBUNAL IN THE CASE OF ACIT VS. M N DASTUR CO. PVT. LTD. (SUPRA) READ AS FOLLOWS : 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 IN COME EXEMPT U/S. CHAPTER III OF THE ACT, THE PLEA OF THE ASSESSEE WAS 6 ITA NO. 2085/BANG/2019 THAT THE DISALLOWANCE U/S. 14A OF THE ACT MADE WHILE COMPUTING TOTAL INCOME UNDER THE NORMAL PROVISIONS OF THE ACT SHOULD NOT BE AUTOMATICALLY 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 RELIANCE 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, TW O QUESTIONS WERE CONSIDERED BY THE SPECIAL BENCH WHICH ARE AS FOLLOWS: - (I) WHETHER THE EXPENDITURE INCURRED TO EARN EXEMPT INCOME COMPUTED U/S 14A COULD NOT BE ADDED WHILE COMPUTING BOOK PROFIT U/S 115JB OF THE ACT? AND (II) WHETHER INVESTMENTS WHICH D ID NOT YIELD ANY EXEMPT INCOME SHOULD ENTER INTO THE COMPUTATION UNDER RULE 8D WHILE ARRIVING AT THE AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME? 11. THE SPECIAL BENCH ANSWERED THE AFORESAID QUESTIONS AS FOLLOWS: - (I) WE ANSWER THE QUESTION REFERRED TO US IN FAVOUR OF ASSESSEE BY HOLDING THAT THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2). IS TO BE MADE WITHOUT RESORTING TO THE COMPUTATION AS CONTEMPLATED U/S 14A READ WITH RULE 8D OF THE IN COME - TAX RULES, 1962. (II) ONLY THOSE INVESTMENTS ARE TO BE CONSIDERED FOR COMPUTING THE AVERAGE VALUE OF INVESTMENT WHICH YIELDED EXEMPT INCOME DURING THE YEAR. 12. THUS, IT IS CLEAR THAT THE AMOUNT TO BE ADDED WHILE COMPUTING BOOK PROFITS U/S. 115JB OF THE ACT, THE AO CANNOT IN TERMS 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 NORMAL 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 ASSOCIATED 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 DCIT VS. SOBH A DEVELOPERS (SUPRA) RENDERED BY ITAT BANGALORE BENCH WHEREIN IT WAS HELD THAT THE DISALLOWANCE U/S.14A OF 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 TERM S OF EXPLANATION1(F) TO SEC.115JB(2) OF THE ACT. THE RATIO LAID DOWN 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 AFTE R THE DECISION RENDERED BY THE BANGALORE BENCH OF ITAT. AS FAR AS THE GRIEVANCE OF THE REVENUE PROJECTED 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 C IT(A) DATED 2.4.2019 AND NOT THE ISSUE WHETHER NOT MAKING ADDITION 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 GROUND 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 IN THIS APPEAL AND ACCORDINGLY THE SAME IS DISMISSED. 7 ITA NO. 2085/BANG/2019 9. SINCE THE FACTUAL CIRCUMSTANCES IN THIS CASE ARE IDENTICAL TO THE FACTS CONSIDERED BY THE TRIBUNAL IN THE CASE OF ACIT VS. M N DASTUR CO. PVT. LTD. (SUPRA), WE FOLLOW CO - ORDINATE BENCH ORDER AND HOLD THAT THE CIT (APPEALS) IS JUSTIFIED IN QUASHING T HE ORDER OF ASSESSING OFFICER PASSED UNDER SECTION 154 OF IT ACT (ORDER DT.8.1.2018). IT IS ORDERED ACCORDINGLY. 10 . IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE . SD/ - SD/ - ( B.R. B ASKARAN ) ( GEORGE GEORGE K ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 08 .09.2 0 20 . *REDDY GP COPY TO 1. THE APPELLANT 2. THE RESPONDENT 3. CIT (A) 4. PR. CIT 5. DR, ITAT, BANGALORE. 6. GUA RD FILE BY ORDER ASSISTANT REGISTRAR INCOME - TAX APPELLATE T RIBUNAL BANGALORE