DCIT, CHENNAI V. M/s. Polaris Financial Technology Ltd., CHENNAI

ITA 2257/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4175 (ITAT-CHENNAI)
• Duration Of Justice: 11 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-06-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 29-07-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R VIJAYARAGHAVAN
• Assessee Lawyers: S BALASUBRAMANIAN
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI . . . , . !' , $ % BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ ITA NO.2257/MDS/2016 ' (' / ASSESSMENT YEAR : 2010-11 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 5(2), CHENNAI - 600 034. V. M/S POLARIS FINANCIAL TECHNOLOGY LTD., POLARIS HOUSE, 244, ANNA SALAI, CHENNAI - 600 006. PAN : AAACP 4341 E (*+/ APPELLANT) (,-*+/ RESPONDENT) ./ ITA NO.2315/MDS/2016 ' (' / ASSESSMENT YEAR : 2010-11 M/S POLARIS CONSULTING AND SERVICES LTD. (FORMERLY KNOWN AS POLARIS FINANCIAL TECHNOLOGY LTD.), POLARIS HOUSE, 244, ANNA SALAI, CHENNAI - 600 006. V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 5(2), CHENNAI - 600 034. (*+/ APPELLANT) (,-*+/ RESPONDENT) './ 0 1 /ASSESSEE BY : SHRI S. BALASUBRAMANIAN, CIT 2 0 1 /REVENUE BY : SH. R. VIJAYARAGHAVAN, ADVOCATE 3 0 /$ / DATE OF HEARING : 04.05.2017 4!( 0 /$ / DATE OF PRONOUNCEMENT : 29.06.2017 2 I.T.A. NO.2257/MDS/16 I.T.A. NO.2315/MDS/16 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: BOTH THE APPEALS OF THE REVENUE AND ASSESSEE ARE DIRECTED AGAINST THE VERY SAME ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-3, CHENNAI, DATED 31.03.2016 AND PERTAIN TO ASSESSMENT YEAR 2010-11. THEREFORE, WE HEARD BOTH THE APPEALS TOGETHER AND DISPOSING OF THE SAME BY THIS COMMON ORDER. 2. FIRST, LETS TAKE REVENUES APPEAL IN I.T.A. NO.2257/MDS/2016. 3. THE ONLY ISSUE ARISES FOR CONSIDERATION IS EXCLU SION OF EXPENDITURE INCURRED BY THE ASSESSEE IN FOREIGN CUR RENCY TOWARDS COMMUNICATION EXPENSES, PROJECT TRAVEL, SOFTWARE DE VELOPMENT CHARGES, ETC. 4. WE HAVE HEARD SHRI S. BALASUBRAMANIAN, THE LD. DEPARTMENTAL REPRESENTATIVE AND SH. R. VIJAYARAGHAV AN, THE LD.COUNSEL FOR THE ASSESSEE. THE CIT(APPEALS) DIRE CTED THE ASSESSING OFFICER TO EXCLUDE COMMUNICATION EXPENSES , PROJECT COST, SOFTWARE DEVELOPMENT CHARGES AND OVERSEAS PROJECT E XPENSES INCURRED IN FOREIGN CURRENCY FROM THE TOTAL TURNOVE R SINCE THE SAME 3 I.T.A. NO.2257/MDS/16 I.T.A. NO.2315/MDS/16 WERE EXCLUDED FROM THE EXPORT TURNOVER. THE CIT(AP PEALS), IN FACT, PLACED HIS RELIANCE ON THE DECISION OF THIS TRIBUNA L IN VISTEON TECHNICAL & SERVICES CENTRE (P) LTD. V. ACIT (24 TA XMANN.COM 353). WE HAVE CAREFULLY GONE THROUGH THE PROVISION S OF SECTION 10A OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). FOR THE PURPOSE OF MAINTAINING PARITY, THE FACTORS WHICH WERE EXCLUDED FROM THE EXPORT TURNOVER SHOULD ALSO BE EXCLUDED FROM TOTAL TURNOVE R. SINCE, ADMITTEDLY, THE EXPENSES INCURRED IN FOREIGN CURREN CY TOWARDS COMMUNICATION EXPENSES, PROJECT TRAVEL COST, SOFTWA RE DEVELOPMENT CHARGES, OVERSEAS PROJECT EXPENSES WERE EXCLUDED FR OM EXPORT TURNOVER, THE SAME SHALL ALSO BE EXCLUDED FROM TOTA L TURNOVER. THEREFORE, THE CIT(APPEALS) HAS RIGHTLY DIRECTED TH E ASSESSING OFFICER TO EXCLUDE THE SAME FROM TOTAL TURNOVER. H ENCE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH T HE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRM ED. 5. NOW COMING TO THE ASSESSEES APPEAL IN I.T.A. NO.2315/MDS/2016, THE FIRST ISSUE ARISES FOR CONSID ERATION IS DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 14A OF THE ACT. 4 I.T.A. NO.2257/MDS/16 I.T.A. NO.2315/MDS/16 6. WE HAVE HEARD SH. R. VIJAYARAGHAVAN, THE LD.COUN SEL FOR THE ASSESSEE AND SHRI S. BALASUBRAMANIAN, THE LD. D EPARTMENTAL REPRESENTATIVE. THE ASSESSING OFFICER FOUND THAT T HE ASSESSEE EARNED DIVIDEND INCOME OF ` 14,76,75,464/- WHICH WAS EXEMPTED FROM TAXATION. THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE BY APPLYING PROVISIONS OF RULE 8D(2) OF THE INCOME-TAX RULES, 1962. THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS P AID INTEREST ON BORROWED FUNDS TO THE EXTENT OF ` 47,41,678/-. THE ASSESSING OFFICER ALSO FOUND THAT THE INVESTMENT DURING THE Y EAR ROSE FROM OPENING BALANCE OF ` 3,21,68,40,000/- TO A CLOSING BALANCE OF ` 5,17,93,70,000/-. THE ASSESSING OFFICER FURTHER FO UND THAT THE VALUE OF ASSET ROSE TO ` 1,84,18,32,000 FROM ` 1,76,96,30,000/-. THEREFORE, BY APPLYING RULE 8D, THE ASSESSING OFFIC ER MADE ADDITION OF ` 1,71,68,777/- UNDER SECTION 14A OF THE ACT BEING TH E PROPORTIONATE EXPENDITURE FOR EARNING THE EXEMPTED INCOME. THE MAIN CONTENTION OF THE ASSESSEE BEFORE THIS TRIBUNA L IS THAT NO EXPENDITURE WAS INCURRED FOR EARNING DIVIDEND INCOM E, THEREFORE, THERE CANNOT BE ANY DISALLOWANCE. 7. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF SECTION 14A OF THE ACT AND RULE 8D OF THE INCOME-TAX RULES, 1962. 5 I.T.A. NO.2257/MDS/16 I.T.A. NO.2315/MDS/16 WHENEVER THE ASSESSING OFFICER IS NOT SATISFIED THA T THE CLAIM MADE BY THE ASSESSEE TOWARDS EXPENDITURE FOR EARNING THE INCOME IS NOT CORRECT, HE CAN RECOMPUTE THE SAME BY APPLYING RULE 8D. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT COMPUTAT ION OF EXPENDITURE UNDER RULE 8D IS MANDATORY. THE METHOD OF COMPUTATION BY APPLYING RULE 8D IS NOT IN DISPUTE. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY REASON TO INTERFERE WITH T HE ORDER OF THE LOWER AUTHORITY AND ACCORDINGLY THE SAME IS CONFIRM ED. 8. THE ASSESSEE HAS ALSO RAISED ONE MORE GROUND WIT H REGARD TO EXCLUSION OF EXPENDITURE INCURRED IN FOREIGN CUR RENCY WHILE COMPUTING DEDUCTION UNDER SECTION 10A OF THE ACT. 9. THIS ISSUE WAS CONSIDERED BY THIS TRIBUNAL IN TH E EARLIER PART OF THIS ORDER IN REVENUES APPEAL. THIS TRIBUNAL S PECIFICALLY FOUND THAT BOTH EXPORT TURNOVER AND TOTAL TURNOVER SHALL BE OF THE SAME FACTOR, THEREFORE, WHEN THE EXPENDITURE INCURRED IN FOREIGN CURRENCY IS NOT INCLUDED IN THE TOTAL TURNOVER, THE SAME CAN NOT ALSO BE INCLUDED IN THE EXPORT TURNOVER. IN OTHER WORDS, T HERE SHOULD BE A PARITY BETWEEN EXPORT TURNOVER AND TOTAL TURNOVER. HENCE, WHATEVER EXPENDITURE INCURRED IS NOT INCLUDED IN THE EXPORT TURNOVER, THE SAME CANNOT FORM PART OF TOTAL TURNOVER ALSO. 6 I.T.A. NO.2257/MDS/16 I.T.A. NO.2315/MDS/16 10. IN THE RESULT, BOTH THE APPEALS FILED BY THE RE VENUE AS WELL AS THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED ON 29 TH JUNE, 2017 AT CHENNAI. SD/- SD/- (. !' ) ( . . . ) (A. MOHAN ALANKAMONY) (N.R.S. GANESAN) $ / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 6 /DATED, THE 29 TH JUNE, 2017. KRI. 0 ,/78 98(/ /COPY TO: 1. './ / ASSESSEE 2. ASSESSING OFFICER 3. 3 :/ () /CIT(A)-3, CHENNAI 4. PRINCIPAL CIT, CHENNAI-5, CHENNAI 5. 8; ,/ /DR 6. <' = /GF.