L&T Infrastructure Development Projects Limited, CHENNAI V. ITO, CHENNAI

ITA 2331/CHNY/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8754 (ITAT-CHENNAI)
• Duration Of Justice: 7 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-08-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 02-08-2016
• Assessment Year: 2006-2007
• Appeal Filed On: 28-12-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: DR M M BHUSARI
• Assessee Lawyers: R VIJAYARAGHAVAN
• Keywords: Earning of tax free income; Deemed to accrue or arise in india; Wholly owned subsidiary
• Section: 14A; 115JB; 12

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , A B ENCH, CHENNAI . , ! ' . # , % & BEFORE SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICI AL MEMBER ./ I.T.A.NO.2330 TO 2334/MDS/2015 ( / ASSESSMENT YEARS: 2002-03, 2006-07, 2009-10 TO 2011 -12) M/S. L & T INFRASTRUCTURE DEVELOPMENT PROJECTS LTD., P.B. NO.979, MOUNT POONAMALLEE ROAD, MANAPAKKAM, CHENNAI-600 089. VS THE INCOME TAX OFFICER, COMPANY WARD-II(1) CHENNAI-34. PAN: AAACL7617D ( /APPELLANT) ( /RESPONDENT) & ./ I.T.A.NO.2336 TO 2339/MDS/2015 ( / ASSESSMENT YEARS: 2009-10 TO 2012-13) M/S. L & T REALTY LTD. (FORMERLY KNOWN AS M/S. L & T URBAN INFRASTRUCTURE LTD.) P.B. NO.979, MOUNT POONAMALLEE ROAD, MANAPAKKAM, CHENNAI-600 089. VS THE DEPUTY COMMISSIONER OF INCOME TAX OFFICER, COMPANY CIRCLE-II(4) / ITO.,CW-II(1) CHENNAI-34. PAN: AABCL1985B ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. R.VIJAYARAGHAVAN, ADVOCATE /RESPONDENT BY : DR. M.M.BHUSARI, CIT /DATE OF HEARING : 2 ND AUGUST, 2016 /DATE OF PRONOUNCEMENT : 11 TH AUGUST, 2016 / O R D E R PER BENCH :- ALL THESE NINE APPEALS ARE FILED BY THE ABOVE TWO ASSESSEES AGGRIEVED BY THE DIFFERENT ORDERS OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-8, CHENNAI DAT ED 30.09.2015 IN ITA NOS.12/09-10, 09/08-09, 97 & 27/1 3-14 & 2 ITA NO.2330 TO 2334 & 2336 TO 2339 /MDS/2015 45/14-15 PASSED UNDER SECTION 143(3)/143(3) R.W.S. 147 /92CA(3) & 250(6) OF THE ACT AND ITA NOS. 64/11-1 2, 45/13- 14, 70/14-15 & 120/15-16 PASSED UNDER SECTION 143(3 ) R.W.S. 250(6) OF THE ACT. SINCE COMMON ISSUE IS INVOLVED I N ALL THESE APPEALS, THEY ARE HEARD TOGETHER AND DISPOSED OFF B Y THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEES HAS RAISED SEVERAL GROUNDS IN ITS APPEALS, HOWEVER, THE ONLY COMMON ISSUE PRESSED B Y THE LEARNED AUTHORIZED REPRESENTATIVE AT THE TIME OF HE ARING IS AS FOLLOWS:- ( ASSESSMENT YEARS: 2002-03, 2006-07, 2009-10 TO 2012 -13): I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING THE ORDER OF THE LEARNED ASSESSING OFFICER WHO HAD DISALLOWED THE INTEREST EXPENDITURE ON THE INVESTMENTS BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. ( ASSESSMENT YEARS: 2009-10 TO 2012-13): II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN SUSTAINING THE ORDER OF THE LEARNED ASSESSING OFFICER WHO HAD WHO HAD DISALLOWED THE INTEREST EXPENDITURE ON THE INVESTMENTS BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 3 ITA NO.2330 TO 2334 & 2336 TO 2339 /MDS/2015 3. BRIEF FACTS OF THE CASE ARE THAT BOTH THE ASSESS EES ARE LIMITED COMPANY ENGAGED IN INFRASTRUCTURE BUSINESS. IN THE COURSE OF SCRUTINY ASSESSMENTS, IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEES HAD M ADE INVESTMENT, THE INCOME DERIVED FROM WHICH IS EXEMPT FROM TAX, AND THEREFORE OPINED THAT THE EXPENDITURE INCU RRED BY THE ASSESSEES IN RELATION TO SUCH INCOME WHICH DO NOT F ORM PART OF TOTAL INCOME UNDER THIS ACT CANNOT BE ALLOWED AS DEDUCTION BY VIRTUE OF SECTION 14A OF THE ACT. ACCORDINGLY, T HE LEARNED ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SEC TION 14A OF THE ACT R.W.R 8D OF THE RULES COMPUTED SUCH EXPENDI TURE AND DISALLOWED THE SAME FOR ALL THE ABOVE MENTIONED ASS ESSMENT YEARS. FURTHER, THE LEARNED ASSESSING OFFICER FOR T HE ASSESSMENT YEAR 2009-10 TO 2012-13 L & T REALITY LI MITED DISALLOWED SUCH EXPENDITURE COMPUTED UNDER SECTION 14A R.W.R 8D OF THE RULES FOR THE PURPOSE OF COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT. 4. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) SUSTAINED THE ORDERS OF THE LEARNED ASSES SING 4 ITA NO.2330 TO 2334 & 2336 TO 2339 /MDS/2015 OFFICER WITH RESPECT TO BOTH THESE ISSUES, AGGRIEVE D BY WHICH THE ASSESSEES ARE NOW IN APPEAL BEFORE US. GROUND I) DISALLOWANCE OF EXPENDITURE BY INVOKING T HE PROVISIONS OF SECTION 14A R.W.R 8D OF THE RULES UND ER NORMAL COMPUTATION OF TAXABLE INCOME FOR BOTH THE ASSESSEES. ( ASSESSMENT YEARS: 2002-03, 2006-07, 2009-10 TO 2012-13): 5. AT THE OUTSET, THE LEARNED AUTHORIZED REPRESENTA TIVE POINTED OUT THAT THIS BENCH OF THE TRIBUNAL ON THE EARLIER OCCASION HAD HELD THAT WHERE INVESTMENTS ARE MADE F OR EARNING EXEMPT INCOME IN SISTER CONCERNS OUT OF ITS INTEREST FREE FUNDS FOR STRATEGIC REASONS, PROVISIONS OF SEC TION 14A CANNOT BE INVOKED. IT WAS THEREFORE PLEADED THAT TH E MATTER MAY BE REMITTED BACK TO THE FILE OF THE LEARNED ASS ESSING OFFICER FOR VERIFYING THE FACT WHETHER THE INVESTME NTS FOR EARNING EXEMPT INCOME ARE MADE IN THE SISTER CONCER NS AND OUT OF ITS INTEREST FREE FUNDS AND FOR STRATEGIC PU RPOSES AND THEREAFTER DECIDE THE MATTER IN PARITY WITH THE DEC ISION OF THE TRIBUNAL. 6. THE LEARNED DEPARTMENTAL REPRESENTATIVE, ON THE OTHER HAND, VEHEMENTLY ARGUED IN SUPPORT OF THE ORDERS OF THE 5 ITA NO.2330 TO 2334 & 2336 TO 2339 /MDS/2015 LEARNED ASSESSING OFFICER AND REQUESTED FOR SUSTAIN ING THE SAME BUT COULD NOT CONTROVERT TO THE SUBMISSIONS OF THE LEARNED ASSESSEES REPRESENTATIVE. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULL Y PERUSED THE MATERIALS AVAILABLE ON RECORD. THE LEAR NED AUTHORIZED REPRESENTATIVE HAS ARGUED BEFORE US BY S TATING THAT THE ASSESSEE HAD MADE INVESTMENTS FOR EARNING EXEMPT INCOME ONLY IN ITS SISTER CONCERNS OUT OF ITS INTER EST FREE FUNDS FOR STRATEGIC REASONS. ON THE EARLIER OCCASION, THI S BENCH OF THE TRIBUNAL HAS HELD THE ISSUE IN FAVOUR OF THE AS SESSEE AS POINTED OUT BY THE LD.A.R. THE GIST OF THE RELEVAN T TRIBUNAL DECISION IN THE CASE OF RANE HOLDINGS LTD. VS. ACIT IN ITA NO.115/MDS/2015 DATED 06.01.2016 IS REPRODUCED HERE IN BELOW FOR REFERENCE:- 5. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PE RUSED THE MATERIALS AVAILABLE ON RECORD. ON THE IDENTICAL ISSUE AS POIN TED OUT BY THE LD. A.R. THE CHENNAI BENCH OF THE TRIBUNAL IN ITA NO.156/MDS /2013 VIDE ORDER DATED 20/08/13 FOR THE ASSESSMENT YEAR 2009-10 HAS REMITTED BACK THE MATTER TO THE LD. ASSESSING OFFICER TO DECIDE THE M ATTER ONCE AGAIN AFRESH BASED ON THE FINDINGS WHETHER THE ASSESSEE H AD ACTUALLY INCURRED ANY EXPENDITURE IN EARNING THE DIVIDEND INCOME. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED HEREIN BELOW FOR REFERENCE:- FURTHER, ON THE IDENTICAL ISSUE VARIOUS BENCHES OF THE TRIBUNAL AND THE HONBLE BOMBAY HIGH COURT HAVE HELD AS FOLLOWS:- 6 ITA NO.2330 TO 2334 & 2336 TO 2339 /MDS/2015 I) GARWARE WALL ROPES LTD., VS. ACIT REPORTED IN (2 014) 65 SOT 086 (MUM.) HELD AS FOLLOWS:- II) WHEN ASSESSEE HAS PRIMA FACIE BROUGHT OUT CASE THA T NO EXPENDITURE HAS BEEN INCURRED FOR EARNING INCOME, W HICH DOES NOT FORM PART OF TOTAL INCOME, THEN IN ABSENCE OF A NY FINDING THAT EXPENDITURE HAS BEEN INCURRED FOR EARNING EXEMPT IN COME PROVISIONS 14A CANNOT BE APPLIED.. III) INTEGLOBE ENTERPRISES LTD., VS. DCIT REPORTED IN (2014) 40 CCH 0022(DEL. TRIB.) HELD AS FOLLOWS:- NO DISALLOWANCE OF INTEREST IS REQUIRED TO BE MADE UNDER RULE 8D(I) & 8D(II) WHERE NO DIRECT OR INDIRECT INT EREST EXPENDITURE WAS INCURRED FOR MAKING INVESTMENTS.WHE RE THE ASSESSEE HAD UTILIZED INTEREST FREE FUNDS FOR M AKING FRESH INVESTMENTS AND THAT TOO INTO ITS SUBSIDIARIE S, WHICH WAS NOT FOR THE PURPOSE OF EARNING EXEMPT INCOME AN D WHICH WAS FOR STRATEGIC PURPOSES ONLY, NO DISALLOWA NCE OF INTEREST WAS REQUIRED TO BE MADE UNDER RULE 8D(I) & 8D(II) AND STRATEGIC INVESTMENT HAS TO BE EXCLUDED FOR PUR POSE OF ARRIVING AT DISALLOWANCE UNDER RULE 8D(III). IV) M/S.JM FINANCIAL LTD., VS. ACIT REPORTED IN 201 4- TIOL-202-ITAT-MUM HELD AS FOLLOWS: THE DEPARTMENT HAS NOT DISPUTED THIS FACT OUT OF THE TOTAL INVESTMENT ABOUT 98% OF THE INVESTMENT ARE IN SUBSI DIARY COMPANIES OF THE ASSESSEE AND, THEREFORE, THE PURPO SE OF INVESTMENT IS NOT FOR EARNING THE DIVIDEND INCOME B UT HAVING CONTROL AND BUSINESS PURPOSE AND CONSIDERATION. THE ASSESSEE HAS BROUGHT OUT A CASE TO SHOW THAT NO EXPENDITURE HAS BEEN INCURRED FOR MAINTAINING THE 98% OF THE INVESTMENT MADE IN T HE SUBSIDIARY COMPANIES, THEREFORE, IN THE ABSENCE OF ANY FINDING THAT ANY EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMP T INCOME, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT J USTIFIED, ACCORDINGLY THE SAME IS DELETED. (IV) CIT VS. BHARTI TELEVENTURE LTD. REPORTED IN (2 011) 331 ITR 0502. WHERE THE ASSESSEE WAS FOUND TO BE HAVING ADEQUATE NON- INTEREST BEARING FUND BY WAY OF SHARE CAPITAL AND R ESERVES AND THERE WAS NO NEXUS BETWEEN THE BORROWALS OF ASSESSE E AND THE ADVANCES GIVEN, NO DISALLOWANCE FOR INTEREST WAS CA LLED FOR . (V) CIT VS. RELIANCE UTILITIES & POWER LTD., REPORT ED IN (2009) 313 ITR 0340(BOM.) HAS HELD AS FOLLOWS:- TRIBUNAL HAVING RECORDED A CLEAR FINDING THAT THE ASSESSEE POSSESSED SUFFICIENT INTEREST-FREE FUNDS OF ITS OWN WHICH WERE GENERATED IN THE COURSE OF THE RELEVANT FINANCIAL Y EAR, APART FROM SUBSTANTIAL SHAREHOLDERS FUND, PRESUMPTION STANDS E STABLISHED 7 ITA NO.2330 TO 2334 & 2336 TO 2339 /MDS/2015 THAT THE INVESTMENTS IN SISTER CONCERNS WERE MADE B Y THE ASSESSEE OUT OF INTEREST FREE FUNDS AND THEREFORE NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS. (VI) EIH ASSOCIATED HOTELS LTD VS. DCIT REPORTED IN 2013- TIOL-796-ITAT-MAD . THE INVESTMENTS MADE BY THE ASSESSEE IN THE SUB SIDIARY COMPANY ARE NOT ON ACCOUNT OF INVESTMENT FOR EARNIN G CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVESTMENTS HAVE BEE N MADE BY THE ASSESSEE TO PROMOTE SUBSIDIARY COMPANY INTO THE HOTEL INDUSTRY. THE ASSESSEE IS NOT INTOTHE BUSINESS OF I NVESTMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACCOUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNED BY THE ASSESSEE FRO M INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INCIDENTAL. THEREFO RE THE INVESTMENT MADE BY THE ASSESSEE IN ITS SUBSIDIARY I S NOT TO BE RECKONED FOR DISALLOWANCE U/S.14A R.W.R.8D. THE ASS ESSING OFFICER IS DIRECTED TO RE-COMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER THE PROVISIONS OF RULE 8D AFTER DELETING INVE STMENTS MADE BY THE ASSESSEE IN SUBSIDIARY COMPANY. TAKING NOTE OF THE ABOVE DECISIONS AND THE DECISION OF THE CHENNAI BENCH OF THE TRIBUNAL IN ITA NO.156/MDS/13 CITED SUPRA, WE HEREBY REMIT THE MATTER BACK TO THE FILE OF LD. ASSESSING OFFICER TO EXAMINE THE ISSUE INVOLVED IN THIS CASE AFRESH AND PASS APPROPRIATE ORDER AS PER LAW AND ME RITS AND IN THE LIGHT OF THE DECISIONS CITED HEREIN ABOV E. WHILE DOING SO, WE ALSO DIRECT THE LD. ASSESSING OFFICER TO CONSIDER THE DECISION OF THE TRIBUNAL IN THE CASE M /S AGILE ELECTRIC SUB ASSEMBLY PVT. LTD. CITED SUPRA WHEREIN IT WAS HELD AS FOLLOWS:- 7.2 IN REGARD TO APPLICABILITY OF SECTION 14A OF THE ACT READ WITH RULE 8D ALSO; THE ABOVE VIEW WILL BE APPLICABL E. MOREOVER IN THE CASE EIH ASSOCIATED HOTELS LTD V. D CIT REPORTED IN 2013 (9) TMI 604 IN ITA NO.1503, 1624/MDS/2012 DATED 17 TH JULY, 2013, IT HAS BEEN HELD BY THE CHENNAI BENCH OF THE TRIBUNAL AS FOLLOWS:- DISALLOWANCE U/S. 14A RW RULE 8D CIT UPHELD DISAL LOWANCE HELD THAT INVESTMENTS MADE BY THE ASSESSEE IN T HE SUBSIDIARY COMPANY ARE NOT ON ACCOUNT OF INVESTMENT FOR EARNING CAPITAL GAINS OR DIVIDEND INCOME. SUCH INVE STMENTS HAVE BEEN MADE BY THE ASSESSEE TO PROMOTE SUBSIDIAR Y COMPANY INTO THE HOTEL INDUSTRY. A PERUSAL OF THE ORDER OF THE CIT(APPEALS) SHOWS THAT OUT OF TOTAL INVESTMENT OF RS.64,18,19,775/-, RS.63,31,25,715/- IS INVESTED IN WHOLLY OWNED SUBSIDIARY. THIS FACT SUPPORTS THE CASE OF TH E ASSESSEE THAT THE ASSESSEE IS NOT INTO THE BUSINESS OF INVES TMENT AND THE INVESTMENTS MADE BY THE ASSESSEE ARE ON ACCOUNT OF BUSINESS EXPEDIENCY. ANY DIVIDEND EARNED BY THE ASSESSEE FRO M INVESTMENT IN SUBSIDIARY COMPANY IS PURELY INCIDENT AL. THEREFORE, THE INVESTMENTS MADE BY THE ASSESSEE IN ITS 8 ITA NO.2330 TO 2334 & 2336 TO 2339 /MDS/2015 SUBSIDIARY ARE NOT TO BE RECKONED FOR DISALLOWANCE U/S. 14A R.W.R. 8D. THE ASSESSING OFFICER IS DIRECTED TO RE- COMPUTE THE AVERAGE VALUE OF INVESTMENT UNDER THE PROVISIONS OF RULE 8D AFTER DELETING INVESTMENTS MADE BY THE ASSESSEE IN SUBSIDIARY COMPANY DECIDED IN FAVOUR OF ASSESSEE. FOR THE ABOVE SAID REASONS, WE HEREBY HOLD THAT IN THE CASE OF THE ASSESSEE THE PROVISIONS OF SECTION 14A READ WITH RU LE 8D WILL NOT BE APPLICABLE IN REGARD TO INVESTMENTS MADE FOR ACQUIR ING THE SHARES OF THE ASSESSEES SISTER CONCERNS. ACCORDINGLY WE REST RAIN OURSELVES FROM INTERFERING WITH THE ORDER OF THE LD.CIT(A) ON THIS REGARD. THEREFORE, FOLLOWING THE AFORESAID DECISION OF THE TRIBUNAL, WE HEREBY DIRECT THE LEARNED ASSESSING OF FICER TO DELETE THE ADDITION MADE BY INVOKING THE PROVISI ONS OF SECTION 14A R.W. RULE 8D OF THE ACT, SUBJECT TO VERIFICATION THAT INVESTMENTS ARE MADE BY THE ASSES SEE IN ITS SISTER CONCERNS ONLY AND FROM ITS INTEREST F REE FUNDS. 8. FOLLOWING THE ABOVE DECISION OF THE TRIBUNAL, WE REMIT ALL THESE APPEALS TO THE FILE OF THE LEARNED ASSESS ING OFFICER TO VERIFY WHETHER THE INVESTMENTS ARE MADE BY THE A SSESSEE OUT OF ITS INTEREST FREE FUNDS IN ITS SISTER CONCER N FOR STRATEGIC REASONS AND IF FOUND SO DELETE THE ADDITION AND IF FOUND OTHERWISE, PASS APPROPRIATE ORDERS AS PER MERIT & L AW. GROUND II) DISALLOWANCE OF EXPENDITURE BY INVOKING THE PROVISIONS OF SECTION 14A R.W.R 8D OF THE RULES FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT IN THE CASES OF L & T U REALITY LTD. ( ASSESSMENT YEARS: 2009-10 TO 2012-13): 9. AT THE OUTSET, THE LEARNED AUTHORIZED REPRESENTA TIVE SUBMITTED THAT FOR THE ASSESSMENT YEARS 2009-10 TO 2012-13, 9 ITA NO.2330 TO 2334 & 2336 TO 2339 /MDS/2015 THE LEARNED ASSESSING OFFICER HAS COMPUTED THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT BY DISALLOWING THE E XPENDITURE COMPUTED UNDER RULE 8D OF THE RULES. IT WAS FURTHER SUBMITTED THAT THIS BENCH OF THE TRIBUNAL IN THE CASE M/S. BE ACH MINERALS COMPANY P.LTD. VS. ACIT REPORTED IN 64 TAXMANN.COM 218 HAS HELD THAT DISALLOWANCE UNDER SE CTION 14A OF THE ACT R.W.R 8D OF THE RULES CANNOT BE IMPO SED WHILE COMPUTING THE BOOK PROFIT OF THE ASSESSEE UNDER SEC TION 115JB OF THE ACT BECAUSE A PROVISION OF ACT WITH FI CTION CANNOT BE SUPERIMPOSED ON ANOTHER PROVISION OF THE ACT WHICH HAS FICTION. THE GIST OF THE RELEVANT DECISIO N IN THE CASE OF BEACH MINERALS COMPANY P.LTD. (SUPRA) IS REPRODU CED HEREIN BELOW FOR REFERENCE: 8.1. GROUND NO.5.(A) COMPUTATION OF BOOK PROFIT U/S.115JB OF THE ACT BY GIVING EFFECT TO THE DISALLOWANCE OF EXP ENDITURE MADE INVOKING THE PROVISIONS OF THE SECTION-14A OF THE ACT FOR ` 3,11,34,630/- AND ALSO THE DISALLOWANCE OF EXPENDIT URE UNDER THE NORMAL PROVISIONS OF THE ACT. 8.1.1 THE LD. ASSESSING OFFICER WHILE COMPUTING T HE TAX AS PER PROVISIONS OF SECTION 115JB OF THE ACT MADE ADD ITIONS TO THE BOOK PROFIT WITH RESPECT TO THE DISALLOWANCE MADE U /S.14A OF THE ACT READ WITH RULES-8D OF THE INCOME TAX RULES. ON APPEAL, THE LD. CIT (A) CITING THE PROVISIONS OF CLAUSE (F) OF EXPLANATION-1 TO SECTION-115JB, CONFIRMED THE ORDER OF THE LD. ASSES SING OFFICER. THE RELEVANT PORTION OF THE ORDER OF THE LD. CIT (A ) IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 10.2 I HAVE GONE THROUGH THE FACTS AND CIRCUMSTAN CES OF THE CASE. THE ASSESSING OFFICER HAS TAXED THE INCOME U/S.115J B SINCE THE 10 ITA NO.2330 TO 2334 & 2336 TO 2339 /MDS/2015 TAX ON BOOK PROFITS IS MORE THAN THE TAX UNDER NORM AL COMPUTATION. WHILE DOING SO, SHE MADE DISALLOWANCE OF THE AMOUNT RELATABLE TO EXEMPT INCOME ON THE BASIS OF THE AMOUNT WORKED OUT U/S.14A R.W.RULE 8D UNDER NORMAL COMPUTATION. THE PROVISION S OF CLAUSE (F) OF EXPLANATION-1 TO S.115JB MAKES IT ABUNDANTLY CLE AR THAT THE AMOUNT OF EXPENDITURE RELATABLE TO ANY EXEMPT IN COME, OTHER THAN S.10(38), IS LIABLE TO BE ADDED BACK TO THE AMOUNT OF NET PROFIT AS SHOWN IN THE P&L A/C. RELIANCE IS PLACED ON THE LA TEST DECISION OF THE ITAT MUMBAI IN THE CASE OF DABUR INDIA LTD., 37 TAXMANN.COM 289. RELIANCE IS ALSO PLACED ON THE LATEST DECISIO N OF THE ITAT MUMBAI IN THE CASE OF RBK SHARE BROKING P. LTD IN I TA NO.6678 & 7546/MUM/2011 DATED 24.7.2013 WHEREIN IT WAS HELD T HAT THE AMOUNT DISALLOWABLE U/S.14A CAN BE ADDED BACK WHILE COMPUTING BOOK PROFIT UNDER EXPLANATION-1 TO S. 115JB(PARA 6) . RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, I UPHOLD THE ADDITIO N MADE BY THE ASSESSING OFFICER. THIS GROUND IS DISMISSED. HOWEVER, ON PERUSING THE EXPLANATION-1(F) OF SECTIO N-115JB(2) OF THE ACT, WE DO NOT FIND MERIT IN THE CONTENTION OF THE LD. CIT (A). THE RELEVANT PROVISION OF THE ACT IS EXTRACTED HERE IN BELOW FOR REFERENCE:- SECTION.115JB EXPLANATION-[1] FOR THE PURPOSES OF THIS SECTION, BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTI ON(2), AS INCREASED BY (A) TO (E) --------------------------------------- ------------- (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO A NY INCOME TO WHICH [SECTION-10 (OTHER THAN THE PROVISI ONS CONTAINED IN CLAUSE (38) THEREOF] OR SECTION 11 OR SECTION 1 2 APPLY; (G) TO (J) --------------------------------------- -------------- FROM THE ABOVE IT IS APPARENT THAT THE AFORESAID PR OVISION OF THE ACT DOES NOT REFER TO ANY DISALLOWANCE MADE U/S.14A OF THE ACT WHILE ARRIVING AT THE BOOK PROFIT FOR THE PURPOSE O F SECTION- 115JB(2) OF THE ACT. FURTHER SECTION 14A OF THE ACT IS A PROVISION WITH FICTION DISALLOWING THE DEEMED EXPENDITURE ATT RIBUTABLE TO EXEMPT INCOME VIZ., DIVIDEND INCOME U/S. 10 OF THE ACT AND SECTION 115JB OF THE ACT IS ALSO A PROVISION WITH F ICTION FOR PAYMENT OF TAX IN RESPECT OF DEEMED INCOME. THEREFO RE WHILE COMPUTING THE PROFIT FOR THE PURPOSE OF SECTION 115 JB OF THE ACT ANOTHER PROVISION WITH FICTION CANNOT BE SUPERIMPOS ED. HENCE THE QUESTION OF INCREASING THE BOOK PROFIT DUE TO THE DISALLOWANCE U/S.14A OF THE ACT WILL NOT ARISE. HOWEVER, IN THE INSTANT CASE OF THE ASSESSEE, SINCE WE HAVE ALREADY DELETED THE ADD ITION MADE 11 ITA NO.2330 TO 2334 & 2336 TO 2339 /MDS/2015 U/S.14A, INCREASING THE BOOK PROFIT WILL NOT ARISE. FURTHER THE DECISION OF HONBLE APEX COURT CITED BY THE ASSESSE E IN THE CASE M/S.APOLLO TYRES LTD. VS. CIT REPORTED IN 255 ITR 2 73 IS ALSO SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE. TH E GIST OF THE SAME IS REPRODUCED HEREIN BELOW FOR REFERENCE:- THE ASSESSING OFFICER, WHILE COMPUTING THE BOOK PR OFITS OF A COMPANY UNDER SECTION 115J OF THE INCOME-TAX ACT, 1 961, HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING B EEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. TH E ASSESSING OFFICER, THEREAFTER, HAS THE LIMITED POWER OF MAKIN G INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO SE CTION 115J . THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFITS SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION. THE USE OF THE WORDS IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI T O THE COMPANIES ACT IN SECTION 115J WAS MADE FOR THE LIMITED PURPOSE OF EMPOWERING THE ASSESSING OFFICER TO RELY UPON THE AUTHENTIC STATEM ENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOKING INTO THE ACCOUNTS OF THE COMPANY, THE ASSESSING OFFICER HAS TO ACCEPT THE AUTHENTICITY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE COMPANIES ACT, W HICH OBLIGATE THE COMPANY TO MAINTAIN ITS ACCOUNTS IN A MANNER PROVID ED BY THAT ACT AND THE SAME TO BE SCRUTINIZED AND CERTIFIED BY STA TUTORY AUDITORS AND APPROVED BY THE COMPANY IN GENERAL MEETING AND THER EAFTER TO BE FILED BEFORE THE REGISTRAR OF COMPANIES WHO HAS A S TATUTORY OBLIGATION ALSO TO EXAMINE AND BE SATISFIED THAT TH E ACCOUNTS OF THE COMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUI REMENTS OF THE COMPANIES ACT. SUB-SECTION (1A) OF SECTION 115J DOE S NOT EMPOWER THE ASSESSING OFFICER TO EMBARK UPON A FRESH ENQUIR Y IN REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COMPANY . FROM THE ABOVE DECISION IT IS CLEAR THAT WHILE COMP UTING THE BOOK PROFIT OF THE COMPANY UNDER THE PROVISIONS OF SECT ION 115JB OF THE ACT; ANY DISALLOWANCE MADE UNDER THE NORMAL PROVISI ONS OF THE ACT ALSO CANNOT BE GIVEN EFFECT TO FOR ARRIVING AT THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED IN ITS FAVOUR . 10. THEREFORE, FOLLOWING THE ORDER OF THE CHENNAI B ENCH OF THE TRIBUNAL, WE HEREBY DIRECT THE LEARNED ASSESSIN G OFFICER TO COMPUTE THE BOOK PROFIT OF THE ASSESSEE WITHOUT MAKING ADDITION ON ACCOUNT OF SECTION 14A R.W.R.8D OF THE RULES IN 12 ITA NO.2330 TO 2334 & 2336 TO 2339 /MDS/2015 THE CASE OF THE ASSESSEE. ACCORDINGLY, THIS ISSUE IS ALLOWED IN FAVOUR OF THE ASSESSEE. 11. IN THE RESULT, THE APPEALS OF THE ASSESSEES ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES AS INDICATED HEREI N ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 11 TH AUGUST, 2016 SD/- SD/- ( ! ' . # ) ( . ) ( DUVVURU RL REDDY ) ( A. MOHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 11 TH AUGUST, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF