M/s Texport Overseas Private Limited , Bangalore V. The Deputy Commissioner of Income Tax Circle-7(1)(1), Bangalore

ITA 2213/BANG/2018

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 1101 (ITAT-BANGALORE)
• Duration Of Justice: 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-09-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 17-07-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Transfer pricing; Opportunity of being heard; Principle of natural justice; Question of law
• Section: 92C; 92D; 234B; 14A; 10B; 6; 15

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI G. MANJUNATHA , ACCOUNTANT MEMBER IT (TP) A NO. 2213 /BANG/201 8 ASSESSMENT YEAR S : 20 1 4 - 1 5 M/S. TEXPORT OVERSEAS PRIVATE LIMITED, #86, D-1, 2 ND STAGE, INDUSTRIAL SUBURB, YESHWANTPUR, BENGALURU 560 022. PAN : AAACC 73 85 F VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 7(1)(1), 2 ND FLOOR, BMTC BUILDING, 80 FEET ROAD, BENGALURU 560 095. APPELLANT RESPONDENT ASSESSEE BY : SHRI. TATA KRISHNA , ADVOCATE REVENUE BY : MS. NEERA MALHOTRA, CIT-DR DATE OF HEARING : 06 . 09 .201 8 DATE OF PRONOUNCEMENT : 12 . 09 .201 8 O R D E R PER SUNIL KUMAR YADAV, JUDICIAL MEMBER THIS APPEAL IS PREFERRED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A), INTER ALIA, ON FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED ASSESSING OFFICER IS NOT JUSTIFIED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE DIRECTIONS OF THE HONOURABLE DRP ARE NOT JUSTIFIED IN LAW AND ON FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE FINAL ASSESSMENT ORDER DATED 21.05.2018 PASSED BY THE LEARNED ASSESSING OFFICER IS BARRED BY THE LIMITATION UNDER SECTION 144C (13) BEING BASED ON DRP'S DIRECTION DATED 28.03.2018. 4. AS REGARDS TRANSFER PRICING ADJUSTMENT OF RS. 4,88,51,169/- IN RESPECT OF SPECIFIC DOMESTIC TRANSACTION: 4.1. AS REGARDS SECTION 92BA (I) OF THE IT ACT, BEING OMITTED, NO ADJUSTMENT CAN BE DIRECTED UNDER SAID SECTION: IT(TP)A NO. 2213/BANG/2018 PAGE 2 OF 8 4.1.1. THE LEARNED ASSESSING OFFICER AND THE LEARNED DRP HAVE FAILED TO APPRECIATE THAT SECTION 92BA (I) OF THE IT ACT HAS BEEN OMITTED BY FINANCE ACT 2017, W.E.F 01.04.2017 WITHOUT A SAVING CLAUSE, THEREBY IMPLYING THAT SUCH LAW NEVER EXISTED IN THE STATUTE BOOK. HENCE, THE TRANSACTION OF REMUNERATION PAID BY THE APPELLANT COMPANY TO ITS PERSONNEL REFERRED TO IN SECTION 40A (2) (B) IS NOT A SPECIFIED DOMESTIC TRANSACTION UNDER SECTION 92BA OF THE IT ACT. 4.1.2. THE HON'BLE DRP HAS ERRED IN FAILING TO FOLLOW THE BINDING ORDER OF THE HON'BLE ITAT PASSED ' THE APPELLANT'S OWN CASE IN IT(TP) A NO. 1722/BANG/2017 DATED 22.12.2017 FOR EARLIER ASSESSMENT YEAR 2013- 14, WHEREIN IT WAS HELD THAT AS SECTION 92BA(I) BEING OMITTED BY FINANCE ACT 2017, THE SAME HAS TO BE UNDERSTOOD THAT IT HAD NEVER EXISTED IN THE STATUTE BOOK. 4.2. AS REGARDS REFERENCE MADE UNDER SECTION 92CA (1): 4.2.1. WITHOUT PREJUDICE TO THE ABOVE, THE REFERENCE TO THE TPO UNDER SECTION 92CA (1) BY THE LEARNED ASSESSING OFFICER IS IN DEFIANCE TO INSTRUCTION NOS. 15 OF 2015 86 3 OF 2016 AND AGAINST THE PRINCIPLES OF NATURAL JUSTICE IS BAD IN LAW. 4.2.2. THE HONOURABLE DRP HAS FAILED TO APPRECIATE THAT AS THE REFERENCE UNDER SECTION 92CA (1) OF THE IT ACT BEING BAD 86 VOID-AB-INITIO, THE DRAFT ASSESSMENT ORDER PASSED BY THE LEARNED ASSESSING OFFICER IS INVALID RENDERING ALL THE SUBSEQUENT PROCEEDINGS AS BAD. 4.2.3. THE HONOURABLE DRP HAS FAILED TO APPRECIATE THAT AS THE REFERENCE UNDER SECTION 92CA (1) BEING BAD 86 VOID-AB-INITIO, THE IMPUGNED ASSESSMENT ORDER PASSED BY THE LEARNED ASSESSING OFFICER IS BARRED BY LIMITATION IN TERMS OF SECTION 153 (1) OF THE IT ACT. 4.3. AS REGARDS REJECTING THE INFORMATION AND DOCUMENT (TP DOCUMENT) MAINTAINED BY THE APPELLANT IN ACCORDANCE WITH THE PROVISIONS OF SECTION 92D OF THE IT ACT: 4.3.1. THE HON'BLE DRP IS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE LEARNED TPO IN INVOKING THE PROVISIONS OF SECTION 92C (3) OF THE IT ACT WITHOUT SATISFYING THE CONDITIONS THEREIN BY MAKING EXTRANEOUS REASONING BASED ON SECTION 92CA (1). 4.3.2. THE HON'BLE DRP IS NOT JUSTIFIED IN IMPLIEDLY UPHOLDING THE ACTION OF THE LEARNED TPO REJECTING THE TP DOCUMENT WITHOUT EVEN STATING THE REASONS FOR SUCH REJECTION. 4.4. AS REGARDS THE LEARNED DRP DIRECTING ADJUSTMENT OF RS.4,88,51,169/- IN RESPECT OF SPECIFIC DOMESTIC TRANSACTION IN THE NATURE OF REMUNERATION PAID TO THE DIRECTORS BY THE APPELLANT: 4.4.1. THE HON'BLE DRP IS NOT JUSTIFIED IN UPHOLDING THE TRANSFER PRICING ADJUSTMENT OF RS. 4,88,51,169/- IN RESPECT OF DIRECTORS' REMUNERATION. IT(TP)A NO. 2213/BANG/2018 PAGE 3 OF 8 4.4.2. THE HON'BLE DRP HAS FAILED TO APPRECIATE THAT LEARNED TPO'S MANNER OF COMPUTATION OF ALP UNDER TNMM IS NOT IN ACCORDANCE WITH SECTION 92C (1) OF THE IT ACT READ WITH RULE 10B(1)(E) OF THE IT RULES. 4.4.3. THE LEARNED TPO AND THE HON'BLE DRP HAVE ERRED IN ADOPTING PLI OF DIRECTORS' REMUNERATION TO OPERATING PROFITS IN CONTRAVENTION OF PLI MANDATE OF RULE 10B (1)(E). 4.4.4. THE LEARNED TPO AND THE HON'BLE DRP HAVE ERRED IN CONSIDERING CONTROLLED TRANSACTIONS I.E. DIRECTORS REMUNERATION OF COMPARABLE COMPANIES FOR BENCHMARKING THE APPELLANT'S TRANSACTION UNDER TNMM METHOD IN DEFIANCE OF RULE 10A(AB). 4.4.5. WITHOUT PREJUDICE TO THE ABOVE, THE HON'BLE DRP HAS FAILED TO APPRECIATE THAT WHEN THE LEARNED TPO HAS ACCEPTED THE ALP OF THE APPELLANT UNDER TNMM IN RESPECT OF ALL OTHER SPECIFIED DOMESTIC TRANSACTIONS WHERE THE OPERATING COST INCLUDED DIRECTORS' REMUNERATION, THE LEARNED TPO OUGHT NOT TO HAVE MADE ANY ADJUSTMENT IN RESPECT _OF DIRECTORS' REMUNERATION SEPARATELY. 4.4.6. THE LEARNED TPO AND THE HON'BLE DRP HAVE FAILED TO APPRECIATE THAT THE APPELLANT'S OPERATING PROFIT /OPERATING REVENUE (OP/OR) BEING 10.08% AND AVERAGE MARGIN OF 12 COMPANIES BEING 11.86%, THE NET MARGIN OF THE APPELLANT IS WITHIN THE PERMISSIBLE BANDWIDTH UNDER SECOND PROVISO TO SECTION 92C (2) AND HENCE, THE SPECIFIED DOMESTIC TRANSACTION ENTERED INTO BY THE APPELLANT IS AT ARM'S LENGTH PRICE. 4.4.7. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED DRP IS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE LEARNED TPO IN SELECTING BIBA APPARELS PVT LIMITED, AS COMPARABLE COMPANY, SINCE THE FINANCIAL STATEMENTS OF THE SAID COMPANIES ARE NOT AVAILABLE IN PUBLIC DOMAIN. 4.4.8. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED DRP IS NOT JUSTIFIED IN UPHOLDING THE ACTION OF TPO IN SELECTING COMPANIES NAMELY; MONARCH APPARELS LTD., PAGE INDUSTRIES LIMITED, SVG FASHIONS LTD, AND JAGANNATH TEXTILES CO. LTD WITHOUT CARRYING ANY FAR ANALYSIS AND WITHOUT CARRYING OUT ANY ADJUSTMENT FOR ELIMINATING THE DIFFERENCES THEREIN. 4.4.9. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED TPO AND THE HON'BLE DRP OUGHT TO HAVE CONSIDERED THE PROFITS BEFORE MANAGERIAL REMUNERATION FOR DETERMINING ALP. 4.4.10. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED DRP 8S TPO OUGHT TO HAVE COMPUTED THE ALP UNDER RULE 10AB AND AFTER CARRYING OUT APPROPRIATE ADJUSTMENT TOWARDS FAR. 4.4.11. WITHOUT PREJUDICE TO THE ABOVE, THE HON'BLE DRP HAS ERRED IN STATING THAT THERE IS A TAX ARBITRAGE WHEN THE APPELLANT AND ALL ITS DIRECTORS IT(TP)A NO. 2213/BANG/2018 PAGE 4 OF 8 ARE CHARGEABLE TO TAX AT THE SAME RATE IN SO FAR AS DISALLOWED REMUNERATION IS CONCERNED. 4.4.12. THE LEARNED TPO AND THE HON'BLE DRP HAVE FAILED TO APPRECIATE THAT WHEN IN A PRECEDING AY I.E. 2012-13, TOTAL REMUNERATION OF RS. 9 CRORE WAS ALLOWED IN THE CONTEXT OF TURNOVER OF RS. 387,81,06,962/- AND NET PROFITS OF RS.55,24,99,081/-, THE IMPUGNED REMUNERATION IN THE CONTEXT OF CURRENT TURNOVER OF RS. 368,58,05,399/- AND NET PROFITS OF RS. 40,08,73,243/- IS IMMENSELY ALLOWABLE. 5. AS REGARDS DISALLOWANCE OF RS. 14,88,870/- UNDER SECTION 14A R.W. RULE 8D (2) (III): 5.1. THE HON'BLE DRP IS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFICER IN DISALLOWING RS. 14,88,870/- UNDER SECTION 14A OF THE IT ACT R.W RULE 8(2)(III) OF IT RULES. 5.2. THE HON'BLE DRP HAS FAILED TO APPRECIATE THAT THE LEARNED ASSESSING OFFICER ACTED ON HIS IPSE DIXIT AND HAS NOT RECORDED HIS SATISFACTION TO COUNTER THE CLAIM OF THE APPELLANT THAT IT DID NOT INCUR ANY EXPENDITURE TO EARN THE DIVIDEND INCOME OF RS.4,05,714/- . 5.3. THE HON'BLE DRP HAS ERRED IN UPHOLDING THE ACTION OF LEARNED ASSESSING OFFICER IN CONSIDERING THE INVESTMENTS IN GAJANAND MITTAL INVESTMENTS PVT LTD AND SHORT-TERM CAPITAL INVESTMENTS IN COMPUTING THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8(2)(III), FAILING TO APPRECIATE THAT THE INCOME FROM SAID INVESTMENTS ARE EXEMPT. 5.4. WITHOUT PREJUDICE TO THE ABOVE, THE HON'BLE DRP IS NOT JUSTIFIED IN UPHOLDING THE ACTION OF THE LEARNED ASSESSING OFFICER IN COMPUTING DISALLOWANCE OF RS 14,88,870/- UNDER SECTION 14A WHEN THE ACTUAL DIVIDEND INCOME EARNED BY THE APPELLANT IS RS.4,05,714/-. 6. THE HONOURABLE DRP IS NOT JUSTIFIED IN UPHOLDING THE LEVY OF INTEREST OF RS. 90,00,606/- UNDER SECTION 234B OF THE IT ACT WHEN THE CONDITIONS FOR LEVYING SUCH INTEREST DID NOT EXIST IN THE PRESENT CASE. FOR THE ABOVE GROUNDS AND FOR SUCH OTHER GROUNDS WHICH MAY BE ALLOWED BY THE HONOURABLE MEMBERS TO BE URGED AT THE TIME OF HEARING, IT IS PRAYED THAT THE AFORESAID APPEAL BE ALLOWED. 2. WITH REGARD TO TRANSFER PRICING ADJUSTMENT ISSUE, THE LEARNED COUNSEL FOR THE ASSESSEE HAS INVITED OUR ATTENTION THAT THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2013- 14 IN WHICH THE MATTER WAS RESTORED TO THE AO WITH A DIRECTION TO THE AO TO IT(TP)A NO. 2213/BANG/2018 PAGE 5 OF 8 ADJUDICATE THE ISSUE OF CLAIM OF EXPENDITURE IN ACCORDANCE WITH LAW AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. 3. THE LEARNED COUNSEL FOR THE ASSESSEE FURTHER FILED A COPY OF THE ORDER OF THE TRIBUNAL WITH A REQUEST THAT FOLLOWING THE ORDER OF THE TRIBUNAL FOR EARLIER YEARS, THE MATTER MAY BE RESTORED BACK TO THE AO FOR READJUDICATION OF THE ISSUE. THE LEARNED DR DID NOT DISPUTE THESE FACTS. HE, HOWEVER, PLACED RELIANCE UPON THE ORDER OF THE CIT(A). 4. HAVING CAREFULLY EXAMINED THE ORDERS OF LOWER AUTHORITIES, WE FIND THAT IMPUGNED ISSUE IS SQUARELY COVERED BY THE ORDER OF THE TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2013-14. THE RELEVANT OBSERVATION OF THE TRIBUNAL IS EXTRACTED HEREUNDER FOR THE SAKE OF REFERENCE: 7. HAVING CAREFULLY EXAMINED THE ORDERS OF AUTHORITIES BELOW IN THE LIGHT OF RIVAL SUBMISSIONS AND RELEVANT PROVISIONS AND VARIOUS JUDICIAL PRONOUNCEMENTS, WE FIND THAT BY VIRTUE OF THE INSERTION OF SECTION 92BA ON THE STATUTE AS PER CLAUSE (I), ANY EXPENDITURE IN RESPECT OF WHICH PAYMENT HAS BEEN MADE OR IS TO BE MADE TO PERSON REFERRED TO IN CLAUSE (B) OF SUB SECTION 2 OF SECTION 40A EXCEEDS THE PRESCRIBED LIMIT, IT WOULD BE A SPECIFIED DOMESTIC TRANSACTION FOR WHICH AO IS REQUIRED TO MAKE A REFERENCE TO TPO UNDER SECTION 92CA OF THE ACT FOR DETERMINATION OF THE ALP. IN THE INSTANT CASE, SINCE THE TRANSACTION EXCEEDS THE PRESCRIBED LIMIT IT BECOMES THE SPECIFIED DOMESTIC TRANSACTION FOR WHICH REFERENCE WAS MADE BY THE AO TO THE TPO UNDER SECTION 92CA FOR DETERMINATION OF THE ALP. CONSEQUENTLY, THE TPO SUBMITTED A REPORT WHICH WAS OBJECTED TO BY THE LEARNED COUNSEL FOR THE ASSESSEE AND FILED A OBJECTION BEFORE THE DRP. HAVING ADJUDICATED THE OBJECTIONS, THE DRP HAS ISSUED CERTAIN DIRECTIONS AND CONSEQUENTLY THE AO PASSED AN ORDER. SUBSEQUENTLY, BY FINANCE ACT, 2017 W.E.F. 01.04.2017, CLAUSE (I) OF SECTION 92BA WAS OMITTED FROM THE STATUTE. NOW THE QUESTION ARISES AS TO WHETHER ON ACCOUNT OF OMISSION OF CLAUSE (I) FROM THE STATUTE, THE PROCEEDINGS ALREADY INITIATED OR ACTION TAKEN UNDER CLAUSE (I) BECOMES REDUNDANT OR OTIOSE. IN THIS REGARD, OUR ATTENTION WAS INVITED TO JUDGMENT OF THE APEX COURT IN THE CASE OF KOLHAPUR CANESUGAR WORKS LTD., (SUPRA) IN WHICH THE IMPACT OF OMISSION OF OLD RULE 10 AND 10A WAS EXAMINED. HAVING CAREFULLY EXAMINED THE ISSUE IN THE LIGHT OF PROVISIONS OF SECTION 6 OF THE GENERAL CLAUSES ACT, THEIR LORDSHIP HAS OBSERVED THAT IN SUCH A CASE, THE COURT IS TO LOOK TO THE PROVISIONS IN THE RULE WHICH HAS BEEN INTRODUCED IT(TP)A NO. 2213/BANG/2018 PAGE 6 OF 8 AFTER OMISSION OF THE PREVIOUS RULE TO DETERMINE WHETHER A PENDING PROCEEDING WILL CONTINUE OR LAPSE. IF THERE IS A PROVISION THEREIN THAT PENDING PROCEEDINGS SHALL CONTINUE AND BE DISPOSED OF UNDER THE OLD RULE AS IF THE RULE HAS NOT BEEN DELETED OR OMITTED THEN SUCH A PROCEEDING WILL CONTINUE. IF THE CASE IS COVERED BY SECTION 6 OF THE GENERAL CLAUSES ACT OR THERE IS A PARI-MATERIA PROVISION IN THE STATUTE UNDER WHICH THE RULE HAS BEEN FRAMED IN THAT CASE ALSO THE PENDING PROCEEDING WILL NOT BE AFFECTED BY OMISSION OF THE RULE. IN THE ABSENCE OF ANY SUCH PROVISIONS IN THE STATUTE OR IN THE RULE, THE PENDING PROCEEDING WILL LAPSE UNDER RULE UNDER WHICH THE NOTICE WAS ISSUED OR PROCEEDING BEING OMITTED OR DELETED. 8. IN THE CASE OF GENERAL FINANCE CO., VS. ACIT, THEIR LORDSHIP OF THE APEX COURT HAS AGAIN EXAMINED THE ISSUE AND HELD THAT THE PRINCIPLE UNDERLYING SECTION 6 AS SAVING THE RIGHT TO INITIATE PROCEEDINGS FOR LIABILITIES INCURRED DURING THE CURRENCY OF THE ACT WILL NOT APPLY TO OMISSION OF A PROVISION IN AN ACT BUT ONLY TO REPEAL, OMISSION BEING DIFFERENT FROM REPEAL AS HELD IN DIFFERENT CASES. FOLLOWING THE AFORESAID JUDGMENTS, THE JURISDICTIONAL HIGH COURT HAS ALSO EXPRESSED THE SAME VIEW IN THE CASE OF CIT VS. GE THERMOMETRICS INDIA PVT. LTD. THE RELEVANT OBSERVATION OF THE JURISDICTIONAL HIGH COURT IS EXTRACTED HEREUNDER: 8. ADMITTEDLY, IN THE INSTANT CASE, THERE IS NO SAVING CLAUSE OR PROVISION INTRODUCED BY WAY OF AN AMENDMENT WHILE OMITTING SUB-SECTION (9) OF SECTION 10B. THEREFORE, ONCE THE AFORESAID SECTION IS OMITTED FROM THE STATUTE BOOK, THE RESULT IS IT HAD NEVER BEEN PASSED AND BE CONSIDERED AS A LAW THAT NEVER EXISTS AND THEREFORE, WHEN THE ASSESSMENT ORDERS WERE PASSED IN 2006, THE AO WAS NOT JUSTIFIED IN TAKING NOTE OF A PROVISION WHICH WAS NOT IN THE STATUTE BOOK AND DENYING BENEFIT TO THE ASSESSEE. THE WHOLE OBJECT OF SUCH OMISSION IS TO EXTEND THE BENEFIT UNDER SECTION 10B OF THE ACT IRRESPECTIVE OF THE FACT WHETHER DURING THE PERIOD TO WHICH THEY ARE ENTITLED TO THE BENEFIT, THE OWNERSHIP CONTINUES WITH THE ORIGINAL ASSESSEE OR IT IS TRANSFERRED TO ANOTHER PERSON. BENEFIT IS TO THE UNDERTAKING AND NOT TO THE PERSON WHO IS RUNNING THE BUSINESS. WE DO NOT SEE ANY MERIT IN THESE APPEALS. THE SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. ACCORDINGLY, THE APPEALS ARE DISMISSED. 9. FROM THE AFORESAID JUDGMENTS, IT HAS BECOME ABUNDANTLY CLEAR THAT ONCE A PARTICULAR PROVISION OF SECTION IS OMITTED FROM THE STATUTE, IT SHALL BE DEEMED TO BE OMITTED FROM ITS INCEPTION UNLESS AND UNTIL THERE IS SOME SAVING CLAUSE OR PROVISION TO MAKE IT CLEAR THAT ACTION TAKEN OR PROCEEDING INITIATED UNDER THAT PROVISION OR SECTION WOULD CONTINUE AND WOULD NOT BE LEFT ON ACCOUNT OF OMISSION. 10. IN THE INSTANT CASE, UNDISPUTEDLY, BY THE FINANCE ACT, 2017, CLAUSE (I) OF SECTION 92BA HAS BEEN OMITTED W.E.F. 01.04.2017. ONCE THIS CLAUSE IS OMITTED BY SUBSEQUENT AMENDMENT, IT WOULD BE DEEMED THAT CLAUSE (I) WAS NEVER BEEN ON THE STATUTE. WHILE OMITTING THE CLAUSE (I) OF SECTION 92BA, IT(TP)A NO. 2213/BANG/2018 PAGE 7 OF 8 NOTHING WAS SPECIFIED WHETHER THE PROCEEDING INITIATED OR ACTION TAKEN ON THIS CONTINUE. THEREFORE, THE PROCEEDING INITIATED OR ACTION TAKEN UNDER THAT CLAUSE WOULD NOT SURVIVE AT ALL. IN THIS LEGAL POSITION, THE COGNIZANCE TAKEN BY THE AO UNDER SECTION 92B(I) AND REFERENCE MADE TO TPO UNDER SECTION 92CA IS INVALID AND BAD IN LAW. THEREFORE, THE CONSEQUENTIAL ORDER PASSED BY THE TPO AND DRP IS ALSO NOT SUSTAINABLE IN THE EYES OF LAW. 11. UNDER THESE CIRCUMSTANCES, WHERE THIS CLAUSE (I) IS OMITTED FROM THE STATUTE SINCE ITS INCEPTION, THE AO OUGHT HAVE REQUIRED TO FRAME THE ASSESSMENT IN NORMAL COURSE AFTER MAKING NECESSARY ENQUIRIES OF PARTICULAR CLAIM OF EXPENDITURE IN ACCORDANCE WITH LAW. BUT THIS EXERCISE COULD NOT HAVE BEEN DONE ON ACCOUNT OF PROVISIONS OF SECTION 92BA CLAUSE (I) OF THE ACT. NOW WHEN THIS CLAUSE (I) HAS BEEN OMITTED FROM THE STATUTE BY VIRTUE OF THE AFORESAID AMENDMENTS, THE AO IS REQUIRED TO ADJUDICATE THE ISSUE OF CLAIM OF EXPENDITURES IN ACCORDANCE WITH LAW AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. WE THEREFORE SET ASIDE THE ORDERS OF THE AO AND THE DRP AND RESTORE THE MATTER TO THE AO WITH THE DIRECTION TO READJUDICATE THE ISSUE OF CLAIM OF EXPENDITURE INCURRED IN RESPECT OF WHICH PAYMENT HAS BEEN MADE OR IS TO BE MADE TO PERSON REFERRED TO IN CLAUSE (B) OF SUB SECTION 2 OF SECTION 40A OF THE ACT. ACCORDINGLY, SINCE WE HAVE RESTORED THE MATTER TO THE AO, WE FIND NO JUSTIFICATION TO DEAL WITH THE OTHER ISSUES ON MERIT. ACCORDINGLY, APPEAL OF THE ASSESSEE STAND ALLOWED FOR STATISTICAL PURPOSES. 5. SINCE THE IMPUGNED ISSUE IS SQUARELY COVERED BY THE AFORESAID ORDER OF THE TRIBUNAL, WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER TO THE AO, FOLLOWING EARLIER ORDER OF THE TRIBUNAL. 6. THE OTHER GROUND RELATES TO THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT. IN THIS REGARD, OUR ATTENTION WAS INVITED TO THE FACT THAT IN THE ASSESSMENT ORDER, AO HAS NOTED THAT ASSESSEE DID NOT EARN ANY EXEMPTED INCOME AND THE SAID FACT WAS AGAIN TAKEN COGNIZANCE BY THE CIT(A). DESPITE HAVING NOTED THESE FACTS, THE LOWER AUTHORITIES HAVE MADE DISALLOWANCES UNDER SECTION 14A OF THE ACT. 7. DURING THE COURSE OF HEARING, THE LEARNED COUNSEL FOR THE ASSESSEE HAS CANDIDLY ADMITTED THAT ASSESSEE HAD SOME EXEMPTED INCOME. BUT THIS ASPECT WAS NEVER EXAMINED BY THE LOWER AUTHORITIES. THE AUTHORITIES HAVE MADE DISALLOWANCE HAVING NOTED THAT THE ASSESSEE DID NOT HAVE ANY EXEMPTED INCOME. ON THIS ISSUE, IT HAS BEEN REPEATEDLY HELD BY THE TRIBUNAL, HONBLE APEX COURT IT(TP)A NO. 2213/BANG/2018 PAGE 8 OF 8 AND THE HIGH COURT THAT WHEREVER THERE IS NO EXEMPTED INCOME, PROVISIONS OF SECTION 14A CANNOT BE INVOKED. IN THE LIGHT OF THESE FACTS, THE FINDING OF THE LOWER AUTHORITIES APPEARS TO BE WRONG AS THEY HAVE MADE THE DISALLOWANCE EVEN AFTER HAVING NOTED THAT THERE IS NO EXEMPTED INCOME. BUT IN FACT, THE ASSESSEE HAS EXEMPTED INCOME. THEREFORE, THE DISALLOWANCE CAN BE MADE IN ACCORDANCE WITH THE PROVISIONS OF SECTION 14A OF THE ACT. SINCE THIS ASPECT WAS NEVER EXAMINED BY THE AO, WE SET ASIDE THE ORDER OF THE CIT(A) AND RESTORE THE MATTER TO THE AO WITH A DIRECTION TO READJUDICATE THE ISSUE AFRESH AFTER AFFORDING OPPORTUNITY OF BEING HEARD TO THE ASSESSEE, KEEPING IN VIEW THAT EARLIER ISSUE WAS ALSO RESTORED TO THE AO FOR READJUDICATION. 8. IN THE RESULT, APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON 12 TH SEPTEMBER, 2018. SD/- SD/- ( G. MANJUNATHA ) (SUNIL KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PLACE : BANGALORE DATED : 12/09/2018 /NS/* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A) BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER SR. PRIVATE SECRETARY, ITAT, BANGALORE.