Appeal details
Counselvise Citation
[2015] 140 COUNSELVISE.COM (IT) 90493 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
8 month(s) 2 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
19-06-2015
Appeal Filed By
Department
Order Result
Partly Allowed
Bench Allotted
D
Assessment Year
2008-2009
Appeal Filed On
17-10-2014
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , ! ' , # $% BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./ I.T.A. NO.2277/MDS/2014 ( / ASSESSMENT YEAR : 2008-2009) M/S. INAUTIX TECHNOLOGIES INDIA PVT. LTD, 10 TH FLOOR, TIDAL PARK, NO.4, CANAL BANK ROAD, TARAMANI, CHENNAI 600 113. (PAN NO.AAACI 6177K) VS THE ASSISTANT COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(3), CHENNAI ITA NO.2625/MDS/2014 ( / ASSESSMENT YEAR : 2008-2009 ) THE ASSISTANT COMMISSIONER OF M/S. INAUTIX TECHNOL OGIES INDIA INCOME TAX, VS PVT. LTD, COMPANY CIRCLE II(3), 10 TH FLOOR, TIDAL PARK, CHENNAI NO.4, CANAL BANK ROAD, TARAMANI, CHENNAI 600 113. (PAN NO.AAACI 6177K) ( &' /APPELLANT) ( '(&' /RESPONDENT) ASSESSEE BY : DR. ANITHA SUMANTH, ADVOCATE DEPARTMENT BY : SHRI. A. SREEKANTH, IRS, JCIT !'# /DATE OF HEARING : 04.06.2015 $% !'# /DATE OF PRONOUNCEMENT : 19.06.2015 I.T.A.NOS.2277 &2625/MDS/14 :- 2 -: ) / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE ASSESSEE AND THE REVENUE ARE IN CROSS APPEALS AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-II, CHENNAI, DATED 19.05.2014 FOR THE ASSESSMENT YEAR 2 008-2009. 2. THE FIRST GROUND RAISED BY THE ASSESSEE IS TO REGAR D TO DISALLOWANCE U/S.14A OF THE INCOME TAX ACT. 3. THE FACTS OF THE CASE ARE THAT T HE ASSESSEE COMPANY WAS FOUND TO HAVE INVESTED AN AMOUNT OF B92.35 CRORES I N SHARES/FUNDS AS ON 31.03.2008, AS COULD BE SEEN FRO M THE INVESTMENTS OF THE BALANCE DURING THE FINANCIAL YEA R 2007- 08, AND ALSO EARNED DIVIDENDS OF B4,92,32,251/- AND CLAIMED THE SAME AS EXEMPT U/S.10(34) OF THE ACT. HOWEVER T HE ASSESSEE HAS NOT SEGREGATED ANY EXPENDITURE ATTRIBU TABLE TO SUCH INVESTMENTS WHOSE INCOME (DIVIDENDS INCOME) IS EXEMPT FROM TAX. HENCE THE ASSESSING OFFICER INVOKE D THE PROVISIONS OF SEC.14A OF THE ACT READ WITH RULE 8D AND DETERMINED THE EXPENDITURE ATTRIBUTABLE FOR EARNING SUCH EXEMPT INCOME AT B37,28,239/- AND DISALLOWED THE SA ME, BOTH UNDER THE REGULAR PROVISIONS OF THE ACT AS WEL L AS I.T.A.NOS.2277 &2625/MDS/14 :- 3 -: U/S.115JB OF THE ACT. THE RELEVANT PORTION OF THE A SSESSMENT ORDER HELD AS UNDER:- 6. DISALLOWANCE OF EXPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPTED INCOME : DURING THE PERIOD UNDER REFERENCE THE ASSESSEE COMPANY HAS RECEIVED A DIVIDEND OF 4,92,32,251/- WHICH HAS BEEN CLAIMED AS EXEMPT U/S 10(34). HOWEVER, THE ASSESSEE HAS NOT CONSIDERED ANY EXPENDITURE ATTRIBUTABLE TOWARDS THE EARNING OF SUC H EXEMPTED INCOME. A REASONABLE EXPENDITURE IS NECESSARY TO EARN THE EXEMPT INCOME CONSIDERING THE HUMAN RESOURCES COST, INTEREST COST OF THE INVESTME NT AND OTHER RELEVANT COST WHICH SHOULD GO INTO EARNIN G OF THE EXEMPT INCOME. THE ASSESSEE WAS ACCORDINGLY ASKED TO GIVE DETAILS OF THE EXPENDITURE INCURRED O N EARNING THE ABOVE INCOME IN THE COURSE OF HEARING. THE ASSESSEE VIDE WRITTEN SUBMISSION FILED ON 02-12-11 STATED MAINLY AS FOLLOWS : I) THE INVESTMENTS IN MUTUAL FUNDS WERE NOT MADE OUT OF BORROWED FUNDS BUT SURPLUS FUNDS AVAILABLE WITH THE COMPANY. II) THE COMPANY DID NOT INCUR ANY EXPENDITURE TOWARDS BANKER CHARGES, BROKERAGE OR DEMAT CHARGES DURING THE SUBJECT F. Y. FOR EARNING THE INCOME. 6 .1 I HAVE CAREFULLY GONE THROUGH THE SUBMISSION OF THE ASSESSEE. UNDER SEC. 14A, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME. AGAIN A PER RULE 8D OF INCOME TAX RULES, 1962 THE EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE AT FOLLOWING AMOUNTS, NAMELY (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME; (II} IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPENDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, AN AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY B A X ----- C WHERE A= AMOUNT OF EXPENDITURE BY WAY OF INTEREST OTHER THAN THE AMOUNT OF INTEREST I.T.A.NOS.2277 &2625/MDS/14 :- 4 -: INCLUDE IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR; B= THE AVERAGE OF VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR; C= THE AVERAGE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LAST OF THE PREVIOUS YEAR; (III) AN AMOUNT EQUAL TO ONE-HALF PERCENT OF THE AVERAGE OF THE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE, ON THE FIRST DAY AND THE LST DAY OF THE PREVIOUS YEAR. ACCORDINGLY, THE EXPENSES INCURRED FOR EARNING THE EXEMPT INCOME AS PRESCRIBED VIDE RULE 8D OF IT RULES, 1962 IS CALCULATED AS BELOW: AMOUNT OF INTEREST EXPENDITURE: NIL. AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH HIS EXEMPT. 92,35,12,831 + 55,77,81,586/- = 74,56,47,712/- 2 % OF 74,56,47,712/- = 37,28,239/- ACCORDINGLY THE AMOUNT OF 37,28,239/- IS ADDED BACK WITH THE TOTAL INCOME BEING THE EXPENSE INCURRED FOR EARNING THE DIVIDEND INCOME EXEMPT U/S.10(34). ACCORDINGLY, ASSESSING OFFICER ADDED BACK AN AMOUN T OF B37,28,239/- WITH THE TOTAL INCOME BEING THE EXPENSE INCURRED FO R EARNING THE DIVIDEND INCOME EXEMPT U/S.10(34). AGGRIEVED, THE A SSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (AP PEALS). I.T.A.NOS.2277 &2625/MDS/14 :- 5 -: 4. ON APPEAL, THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE ASSESSEES TOTAL INVESTMENTS IN SHARES/FUNDS WERE B92.35 CRORES AS ON 31.03.2008 (AND B55.77 CRORES A S ON 31.03.2007), AS COULD BE SEEN FROM THE INVESTMENTS OF THE BALANCE DURING THE FINANCIAL YEAR 2007-08, AND ALSO EARNED DIVIDENDS OF B4,92,32,251/- AND CLAIMED THE SAME AS EXEMPT U/S.10(34) OF THE ACT. 4.1 THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERV ED THAT THE ASSESSEE WAS NOT MAINTAINING ANY SEPARATE BOOKS OF ACCOUNTS FOR THE INVESTMENTS IN SHARES/FUNDS. NO R THERE WAS A SEPARATE ESTABLISHMENT TO LOOK AFTER THE INVE STMENTS IN SHARES/FUNDS. THE ASSESSEE MAY BE HAVING SUBSTAN TIAL INTEREST FREE OWN FUNDS (IN THE FORM OF CAPITAL/RES ERVES AND SURPLUSES ETC). BUT THIS DOES NOT MEAN THAT THE INV ESTMENTS ARE MADE ONLY FROM THESE OWN INTEREST FREE FUNDS, ESPECIALLY IF THE BOOKS ARE NOT MAINTAINED SEPARATE LY. FURTHER, ALL THE FUNDS, I.E. THE INTEREST-FREE OWN FUNDS AND THE INTEREST BEARING BORROWED FUNDS ARE PUT INTO A COMMON POOL OF FUNDS. FROM THIS COMMON KITTY ALL THE OUTGO INGS (I.E. INVESTMENTS IN SHARES, REGULAR BUSINESS EXPENSES ET C) ARE MET WITH. IN OTHER WORDS, ONCE THE FUNDS, I.E. WHET HER THE I.T.A.NOS.2277 &2625/MDS/14 :- 6 -: INTEREST- FREE OWN FUNDS OR THE INTEREST BEARING BO RROWED FUNDS, ARE PUT INTO A COMMON POOL OF FUNDS, THEY WI LL LOOSE THEIR DISTINCTION AND ALL TYPES OF FUNDS WILL BE TR EATED ALIKE. IN SUCH A SITUATION, THE ONLY WAY TO ASCERTAIN THE INVESTMENTS MADE FROM THE BORROWED FUNDS, IF ANY, W AS ON A PROPORTIONATE BASIS. THEREFORE, THE INTEREST EXPE NSES, WHICH COULD NOT BE DIRECTLY LINKED TO ANY ACTIVITY, ARE TO BE TREATED AS COMMON INTEREST EXPENSES AND CONSIDERED IN THE STEP-2 OF THE FORMULA GIVEN IN RULE-8D FOR THE PURP OSE OF ATTRIBUTING THE INDIRECT INTEREST BURDEN ON THE INV ESTMENTS MADE, ON A PROPORTIONATE BASIS. EVEN BOMBAY HIGH CO URT, IN THE CASE OF GODREJ BOYCE MFG CO LTD V. CLT, DECIDED ON 12.08.2010, HELD THAT SEC. 14A(2) & (3) OF THE ACT, WAS CONSTITUTIONALLY VALID AND IS APPLICABLE FROM ASS ESSMENT YEAR 2008-09 ONWARDS. IN THIS CASE, THE HIGH COURT HAS CLEARLY AND CATEGORICALLY HELD THAT 'THE PROVISIONS OF RULE 8D OF THE INCOME TAX RULES WHICH HAVE BEEN NOTIFIED WITH EFFECT FROM 24 MARCH 2008 SHALL APPLY WITH EFFECT FROM ASSESSMENT YEAR 2008-09 '. 4.2. HE OBSERVED THAT T HE DISALLOWANCE OF EXPENSES U/S.14 A R. W. RULE 8D IS IN RELATION TO THE EARNING OF THE EXE MPT INCOME AND NOT IN RELATION TO THE EXEMPT INCOME EARNED AS SUCH . THE I.T.A.NOS.2277 &2625/MDS/14 :- 7 -: DISALLOWANCE OF EXPENSES IS ALWAYS IN RELATION TO T HE EFFORTS MADE FOR EARNING SUCH EXEMPT INCOME AND NOT PROPORTIONAT E TO THE EXEMPT INCOME EARNED. IT IS PARTICULARLY SO BECAUSE , IN SOME YEARS THE INCOME SO EARNED MAY BE LESS OR NIL. THEREFORE, THE DISALLOWANCE TO BE COMPUTED SHOULD ALWAYS BE WITH R EFERENCE TO THE INVESTMENTS MADE IN SUCH ACTIVITY AND THE EFF ORT MADE THEREIN, AS HELD BY SPECIAL BENCH OF ITAT DELHI IN THE CASE OF CHEMINVEST LTD. V. ITO [2009] (121 ITD 318)(DEL)(SB) / (124 IT J 577)(DEL) (SB), WHEREIN IT WAS HELD AS UNDER: CHEMINVEST LTD. V. ITO [2009) (121 ITD 318)(DEL)(SB ) SECTION 14A, READ WITH SECTION 10(34), OF THE INCOM E-TAX ACT, 1961 - EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOME - ASSESSMENT YEAR 20 04-05 - WHETHER SINCE DIVIDEND INCOME IS EXEMPTED FROM TAX BY VIRTUE OF SECTION 10(34), INTEREST PAID ON BORROWED CAPITAL UTILIZED IN PURCHASE OF SHARES, BEING EXPENDITURE I NCURRED IN RELATION TO DIVIDEND INCOME NOT FORMING PART OF ASSESSEE'S TOTAL INCOME, CANNOT BE ALLOWED AS A DED UCTION - HELD, YES- WHETHER SUCH DISALLOWANCE UNDER SECTION 14A CAN BE MADE EVEN IN A YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY ASSESSEE - HELD, YES 4.3 THUS, FROM THE ABOVE DECISION IT WAS CLEAR THAT THE AMOUNT OF EXEMPT INCOME EARNED DURING THE YEAR WAS NOT RELEVANT FOR THE PURPOSE OF DISALLOWANCE OF EXPENSE S U/S.14A READ WITH RULE 8D. WHAT WAS TO BE SEEN THE AMOUNT OF INVESTMENTS MADE AND THE EFFORTS TAKEN BY THE AS SESSEE IN THE SAID PROCESS. THEREFORE THE AMOUNT OF DISALL OWANCE I.T.A.NOS.2277 &2625/MDS/14 :- 8 -: WAS TO BE WORKED OUT PROPORTIONATE TO THE INVESTMEN TS MADE AND THE EXPENSES (EITHER DIRECT OR INDIRECT) I NVOLVED IN THE PROCESS, EVEN IF THERE ARE NO SUCH EXEMPT INCOM E EARNED DURING THE YEAR. 4.4 AS COULD BE SEEN FROM THE P&L ACCOUNT, THE ASSE SSEE HAS SEVERAL ACTIVITIES INCLUDING INVESTMENTS IN SHA RES. FOR THE PURPOSE OF MAKING THESE INVESTMENTS ETC, THE SA ME MANAGEMENT, MANPOWER, MACHINERY AND INFRASTRUCTURAL FACILITIES OF THE ASSESSEE ARE BEING USED. HENCE, T HERE WAS AN ELEMENT OF EXPENDITURE INVOLVED IN THE PROCESS. THIS EXPENDITURE MAY NOT BE DIRECT. THUS, THERE WAS AN EXPENDITURE INVOLVED IN MAKING THESE INVESTMENTS. THEREFORE, THERE WAS A NEED TO IDENTIFY AND APPORTI ON A REASONABLE AMOUNT OF EXPENSES AS ATTRIBUTABLE FOR E ARNING THE EXEMPTED INCOME. FOR THIS PURPOSE RELIANCE PLAC ED ON THE FOLLOWING DECISIONS: DY. CIT VS. SREI INTERNATIONAL FINANCE LTD. (2006) 10 S OT 722 (DELHI) TRIBUNAL:- IN LIGHT OF CLEAR PROVISIONS OF SECTION 14A, EVEN IN C ASE IT IS NOT POSSIBLE TO IDENTIFY EXPENSES INCURRED IN EARNING INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, DISALLOWANCE HAS TO BE MADE ON SOME BASIS. MAREZBAN BHARUCHA V. ASSTT. CIT (2007)12 SOT 133 (MUM.- TRIB): I.T.A.NOS.2277 &2625/MDS/14 :- 9 -: WHERE AN EXPENDITURE IS COMPOSITE ONE, I.E., RELATING TO TAXABLE RECEIPTS AS WELL AS NON-TAXABLE RECEIPTS, A SSESSING OFFICER IS DUTY-BOUND TO DISALLOW PROPORTIONATE AMO UNT OF EXPENDITURE RELATABLE TO NON-TAXABLE OR EXEMPTED IN COME BY INVOKING PROVISIONS OF SECTION 14A. 4.5 ACCORDING TO THE COMMISSIONER OF INCOME TAX (APPEALS) IN ORDER TO ARRIVE AT A REASONABLE AMOUNT OF EXPENDITURE, WHICH MAY VARY FROM CASE TO CASE AND S ITUATION TO SITUATION, THE LEGISLATURE, AFTER TAKING VARIOUS FACTORS INTO CONISATION, CAME TO A CONCLUSION THAT SUCH EXPENSES CAN BE REASONABLY CALCULATED @ 0.5% OF THE AVERAGE INVESTMENTS MADE BY THE ASSESSEE. FOR THIS PURPOSE, THE LEGISLA TURE HAS ARRIVED AT A COMMON FORMULA TO CALCULATE THE EXPENS ES @ 0.5% OF THE AVERAGE INVESTMENTS MADE AS PER STEP-3 OF THE FORMULA GIVEN IN RULE-8D. ACCORDINGLY THE LEGISLATU RE INCORPORATED AND INTRODUCED THE RULE-8D. 4.6 FURTHER, AS COULD BE SEEN FROM THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS ANALYSED THE ASSES SEE'S ACTIVITY OF INVESTING IN SHARES AND OBSERVED THAT T HERE WILL BE SOME ELEMENT OF EXPENDITURE, BOTH IN TERMS OF FINAN CIAL BURDEN (INTEREST ELEMENT) AS WELL AS THE IN TERMS O F USE OF MANPOWER AND INFRASTRUCTURAL FACILITIES IN MAKING T HE INVESTMENTS IN SHARES/FUNDS. HENCE THERE WAS A SATI SFACTION I.T.A.NOS.2277 &2625/MDS/14 :- 10 -: OF THE ASSESSING OFFICER THAT THERE WAS SOME ELEMEN T OF EXPENSES INCURRED BY THE ASSESSEE IN RELATION TO TH E INVESTMENTS IN SHARES AND EARNING THE EXEMPT INCOME , WHICH NEEDS TO BE QUANTIFIED AND DISALLOWED U/S.14A OF THE ACT. ACCORDINGLY, AS PROVIDED U/S.14A OF THE ACT TH E ASSESSING OFFICER QUANTIFIED THE SAID EXPENSES AT B37,28,239/-, BY USING THE RULE 8D, AND DISALLOWED U/S.14A OF THE ACT . 4.7 ACCORDING TO THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVED THAT THE ASSESSING OFFICER WAS S ATISFIED THAT THERE WAS AN ELEMENT OF EXPENSES INVOLVED IN M AKING INVESTMENTS WHOSE INCOME WAS EXEMPT FROM TAX. THE ASSESSING OFFICER WAS DUTY BOUND TO INVOKE THE PROV ISIONS OF RULE-8D. ONCE THE PROVISIONS OF RULE- 8D ARE INVOKE D, THE ASSESSING OFFICER HAS NO OPTION BUT TO ARRIVE AT TH E EXPENSES @ 0.5% AS PER STEP-3 OF THE FORMULA WHICH WAS MANDATO RY. IN FACT, THE ASSESSING OFFICER IN HIS ORDER HAS CLE ARLY STATED THESE FACTS BEFORE INVOKING THE PROVISIONS OF SECTI ON 14A R.W.R.8D. HENCE THE ASSESSING OFFICER RIGHTLY INVOK ED THE RULE-8D AND ARRIVED AT THE DISALLOWANCE OF EXPENSES U/S.14A R.W.RULE-8D. I.T.A.NOS.2277 &2625/MDS/14 :- 11 -: 4.8 IN VIEW OF THE ABOVE HE CONFIRMED THE ASSESSI NG OFFICERS ACTION OF DETERMINING THE EXPENSES ATTRIB UTABLE FOR EARNING EXEMPT INCOME AT B37,28,239/- U/S.14A, R.W. RULE 8D, BOTH UNDER THE REGULAR PROVISIONS OF THE ACT AS WELL AS U/S.115JB OF THE ACT. AGAINST THIS, THE ASSESSEE I S IN APPEAL BEFORE US. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED TH E MATERIAL ON RECORD. IN THIS CASE THE LD. AUTHORISED REPRESENTAT IVE FOR ASSESSEE SUBMITTED THAT NO DISALLOWANCE IS WARRANTED U/S.14A R.W. RULE 8D, SINCE THE INTEREST FREE FUNDS AVAILABLE WITH THE AS SESSEE IN THE FORM OF SHARE CAPITAL, RESERVE AND SURPLUS, AND THE SAME WE RE USED FOR THE PURPOSE OF INVESTMENT IN ASSETS, THE INCOME FROM WH ICH SHALL NOT OR DOES NOT FORM PART OF THE TOTAL INCOME. SHE DREW OU R ATTENTION TO THE FINANCIAL STATEMENT FOR THE YEAR ENDING 31.03.2008 , STATING THAT THE ASSESSEE IS HAVING SHARE CAPITAL, RESERVE AND SURPL US THAT ARE INTEREST FREE FUNDS. THE SOURCES OF FUNDS ARE UNDER;- SCHEDULE 31 ST MARCH, 08 31 ST MARCH, 07 SOURCES OF FUNDS SHAREHOLDERSFUNDS SHARE CAPITAL 1 181,825,600 181,825,600 RESERVES AND SURPLUS-PROFIT AND LOSS ACCOUNT 2,659,340,503 2,204,527,633 TOTAL ---------------------- 2,841,166,103 --------------------- ------------------- 2,386,353,233 --------------------- APPLICATION OF FUNDS FIXED ASSETS 2 I.T.A.NOS.2277 &2625/MDS/14 :- 12 -: GROSS BLOCK 728,324,538 626,273,101 LESS: ACCUMULATED DEPRECIATION 523,981,710 455,974,749 NET BLOCK 204,342,828 170,298,352 CAPITAL WORK IN PROGRESS 568,934 ----- INVESTMENTS 3 2,298,461,187 1,899,618,086 DEFERRED TAX ASSETS 4 33,063,233 33,881,196 CURRENT ASSETS, LOANS AND ADVANCES INTEREST ACCRUED ON INVESTMENTS 82,388,219 81,956,301 SUNDRY DEBTORS 5 173,057,736 174.539,282 CASH AND BANK BALANCES 6 165,586,832 2,874,554 OTHER CURRENT ASSETS 7 16,326,220 54,718,411 LOANS AND ADVANCE 8 159,978,633 99,903,794 ------------------- 597,337,640 -------------------- 413,992,342 LESS: CURRENT LIABILITIES AND PROVISIONS 9 292,607,719 131,436,743 NET CURRENT ASSETS ----------------------- 304,729,921 ------------------- 282,555,599 TOTAL --------------------- 2,841,166,103 --------------------- ------------------ 2,386,353,233 ------------------- THE LD. AUTHORISED REPRESENTATIVE FOR ASSESSEE SUBM ITTED THAT THE ASSESSEE IS HAVING ENOUGH INTEREST FREE FUNDS TO MA KE INVESTMENTS WHICH ARE YIELDING TAX FREE INCOME NOT USED THE BOR ROWED FUNDS TO MAKE SUCH INVESTMENT. 6. ON THE OTHER HAND, THE DEPARTMENTAL REPRESENTATIVE RELIED ON THE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEA LS). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS. ADMITTEDLY, IN THIS CASE THE ASSESSEE IS HAVING ENOUGH INTEREST FREE FUNDS I N THE FORM OF SHARE I.T.A.NOS.2277 &2625/MDS/14 :- 13 -: CAPITAL AND RESERVE AND SURPLUS. THE AMOUNT OF INV ESTMENT MADE BY THE ASSESSEE IS LESS THAN THE INTEREST FREE FUNDS. FURTHER, RULE 8D WAS INTRODUCED WITH EFFECT FROM 24.03.2008, WHICH WAS P ROSPECTIVE IN OPERATION AND CANNOT BE REGARDED AS BEING RETROSPEC TIVE AS HELD BY DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD VS. CIT 347 ITR 272. HOWEVER , INCURRING CERTAIN ADMINISTRATIVE EXPENSES CANNOT BE RULED OUT. ACCORDINGLY, PLACING RELIANCE ON THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF SIMPSON & CO LTD IN T.C. NO.2621/2006, DATED 15.10.2012, WE DIRECT THE ASSESSING OFFICER TO DISALLOW 2% OF EXEMPT INCOME AS INCOME EXPENDITURE TOWARDS EARNING THAT INCOME. THIS GROUND OF THE ASSESSEE IS PARTLY ALLOWED. 8. THE NEXT GROUND FOR OUR CONSIDERATION IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN NOT ADJUDICATING T HE FOLLOWING GROUND. ADMITTEDLY, THE ASSESSEE RAISED THE FOLLOW ING GROUND BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS), WHICH WAS NOT ADJUDICATED BY THE COMMISSIONER OF INCOME TAX (APPEALS). THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERR ED ON FACTS AND IN LAW IN NOT ADJUDICATING THE PLEA RAISE D BY THE APPELLANT, WITHOUT PREJUDICE, TO THE EFFECT THAT DI SALLOWANCE, IF ANY, UNDER SECTION 14A SHOULD GO TO INCREASE THE PROFIT DERIVED FROM THE ELIGIBLE UNDERTAKING(S)/UNIT(S) FO R PURPOSE OF SECTIONS 10A OF THE ACT. I.T.A.NOS.2277 &2625/MDS/14 :- 14 -: 9. IN OUR OPINION, THIS ISSUE IS SQUARELY COVERED BY T HE ORDER OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. GEM PLUS JEWELLERY INDIA LTD 330 ITR 175 , W HEREIN IT WAS HELD THAT THE ASSESSEE WAS ENTITLED TO EXEMPTION U/S.10A WITH REFERENCE TO AD DITION OR DISALLOWANCE OF VARIOUS PAYMENTS, AS THE PLAIN CONS EQUENCE OF THE DISALLOWANCE AND ADD BACK MADE BY THE ASSESSING OFF ICER IS AN INCREASE IN THE BUSINESS PROFITS OF THE ASSESSEE AN D THE SAME TO BE CONSIDERED FOR THE PURPOSE OF COMPUTATION OF DEDUCT ION U/S.10A OF THE ACT. ADOPTING THE SIMILAR PRINCIPLE, WE ARE INCLINE D TO DIRECT THE ASSESSING OFFICER TO CONSIDER THE DISALLOWANCE U/S. 14A R.W RULE 8D AS PART OF BUSINESS PROFIT SO AS TO COMPUTE DEDUCTION U/S.10A OF THE ACT. IN THE RESULT, THE ASSESSEE APPEAL IS PARTLY ALLOWE D. 10. COMING TO THE APPEAL OF THE REVENUE, THE GRIEVANCE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLIN G THAT TRAVELLING EXPENSES INCURRED IN FOREIGN CURRENCY ARE TO BE RED UCED FROM TOTAL TURNOVER ALSO FOR THE PURPOSE OF COMPUTATION OF DED UCTION U/S.10A OF THE ACT. 11. AFTER HEARING BOTH SIDES, WE ARE OF THE OPINION THA T THIS ISSUE IS SQUARELY COVERED BY THE ORDER OF THE SPECIAL BENCH CHENNAI IN THE CASE OF ITO VS. SAK SOFT LTD, 121 TTJ 865 (SB), WHEREIN IT WAS HELD THAT FOR THE PURPOSE OF APPLYING THE FORMULA UNDER -SUB-SECTION (4) OF I.T.A.NOS.2277 &2625/MDS/14 :- 15 -: SECTION 10B, THE FREIGHT, TELECOM CHARGES OR INSURA NCE ATTRIBUTABLE TO THE DELIVERY OF THE ARTICLES OR THINGS OR COMPUTER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCH ANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA ARE TO BE EXCLUDE D BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVER, WHICH ARE THE NUMERATOR AND THE DENOMINATOR RESPECTIVELY IN THE FORMULA. 12. PLACING RELIANCE ON THE ABOVE ORDER OF THE TRIBUNAL , WE ARE INCLINED TO DECIDE THE ISSUE IN FAVOUR OF THE ASSES SEE AND AGAINST REVENUE. IN THE RESULT, THE APPEAL BY THE REVENUE IS DISMISSED. 13. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMIS SED AND ASSESSEES APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED ON FRIDAY, THE 19 TH DAY OF JUNE, 2015, AT CHENNAI. SD/- SD/- ( ! ' ) (CHALLA NAGENDRA PRASAD) # / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER &'( /CHENNAI. )* /DATED:19.06.2015. KV *'+ , !-. /'.! /COPY TO: 1. 01/ APPELLANT 2. ,301 / RESPONDENT 3. 4! ( )/CIT(A) 4. 4! /CIT 5. .56 , ! 7 /DR 6. 68 9 /GF. I.T.A.NOS.2277 &2625/MDS/14 :- 16 -:
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