M/s. Kal Airways Pvt. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 2847/CHNY/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4149 (ITAT-CHENNAI)
• Duration Of Justice: 8 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-06-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 20-06-2017
• Assessment Year: 2012-2013
• Appeal Filed On: 03-10-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATH PEERYA
• Assessee Lawyers: N DEVANATHAN; K RAMAKRISHNAN
• Keywords: Earning of tax free income; Assessment record
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH : CHENNAI . . . , ! . '#'$ , % !& ' [BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ] ./I.T.A. NOS. 2846 & 2847/MDS/2016 / ASSESSMENT YEARS : 2011-12 & 2012-13 M/S. KAL AIRWAYS PRIVATE LTD, 73, MURASOLI MARAN TOWERS, MRC NAGAR MAIN ROAD, MRC NAGAR, CHENNAI 600 028. [PAN AADCK 9818J] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(4) CHENNAI 600 034. ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : SHRI. K. RAMAKRISHNAN, C.A. AND SHRI. N. DEVANATHAN, ADV. /RESPONDENT BY : SHRI. PATHLAVATH PEERYA, CIT. /DATE OF HEARING : 20-06-2017 ! /DATE OF PRONOUNCEMENT : 29-06-2017 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER ASSESSEE IN THESE APPEALS IS AGGRIEVED ON DISALL OWANCE U/S. 14A OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT ) R.W.R. 8D OF THE ITA NOS.2846 & 2847/MDS/16 :- 2 -: INCOME TAX RULES, 1962 (IN SHORT THE RULES) FOR THE IMPUGNED ASSESSMENT YEARS. 2. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DISALLO WANCE U/S. 14A OF THE ACT WERE MADE FOR BOTH THESE YEARS FOR INVESTMENTS OF THE ASSESSEE COMPANY IN MUTUAL FUND UNITS AND EQUIT Y SHARES OF M/S.SPICEJET LIMITED. AS PER LD. AUTHORISED REPRE SENTATIVE EXEMPTION CLAIMED BY THE ASSESSEE U/S. 10(33) OF THE ACT FOR ASSESSMENT YEAR 2012-2013 WAS ONLY E240/- BEING DIVIDEND INCOME F ROM MUTUAL FUND UNITS. FOR ASSESSMENT YEAR 2011-2012, AS PER LD. A UTHORISED REPRESENTATIVE THERE WAS NO EXEMPT INCOME CLAIMED AT ALL. ACCORDING TO HIM, BY VIRTUE OF JUDGMENT OF HONBLE JURISDICTI ONAL HIGH COURT IN THE CASE OF CIT VS. CHETTINAD LOGISTICS (P) LTD (2017) 80 TAXMA NN.COM 221 THERE COULD BE NO DISALLOWANCE U/S. 14A OF THE ACT WHERE THERE WAS NO EXEMPTED INCOME CLAIMED. FURTHER, ACCORDING TO HIM, ANY DISALLOWANCE U/S. 14A OF THE ACT COULD NOT EXCEED T HE QUANTUM OF EXEMPT INCOME CLAIMED. FOR THIS ARGUMENT RELIANCE WAS PLACED ON THE JUDGMENT OF HONBLE DELHI HIGH COURT IN THE CAS E OF JOINT INVESTMENTS P. LTD VS. CIT 372 ITR 694. 3. PER CONTRA, LD. DEPARTMENTAL REPRESENTATIVE SUBMIT TED THAT THE LD. ASSESSING OFFICER IN THE ASSESSMENT ORDER F OR ASSESSMENT YEAR 2011-2012 HAD MENTIONED THAT ASSESSEE HAD EARNED D IVIDEND INCOME ITA NOS.2846 & 2847/MDS/16 :- 3 -: OF E5,55,08,071/-. FOR ASSESSMENT YEAR 2012-13, AS PER LD. DEPARTMENTAL REPRESENTATIVE ASSESSEE HAD CLAIMED EXEMPTION OF E3,34,91,729/- FROM SHORT TERM CAPITAL GAINS UNDER SECTION 10(33) OF THE ACT IN ADDITION TO DIVIDEND OF E240/-. EVEN OT HERWISE AS PER LD. DEPARTMENTAL REPRESENTATIVE, A DISALLOWANCE U/S. 14A OF THE ACT COULD BE MADE EVEN WHERE THERE WAS NO EXEMPT INCOME CLAIMED BY THE ASSESSEE. 4. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. CLAIM OF THE ASSESSEE IS THAT FOR PREVIOUS RELEVANT ASSESSMENT YEAR 2011-12, IT HAD NO EXEMPT INCOME AN D FOR PREVIOUS YEAR RELEVANT TO ASSESSMENT YEAR 2012-13, THE EXEMP T INCOME CLAIMED WAS ONLY E240/- FROM MUTUAL FUNDS. HOWEVER, AS PE R LD. DEPARTMENTAL REPRESENTATIVE LD. ASSESSING OFFICER HAS MENTIONED ABOUT A DIVIDEND INCOME OF E5,55,08,071/- IN THE AS SESSMENT ORDER FOR THE ASSESSMENT YEAR 2011-2012 AND STCG ON MUTUAL F UND E3,34,91,729/- CLAIMED AS EXEMPT IN ASSESSMENT ORDE R FOR ASSESSMENT YEAR 2012-2013. BEFORE LD. COMMISSIONER OF INCOME TAX (APPEALS) ASSESSEE HAD ARGUED THAT THE SUM OF E5,55,08,071/- MENTIONED AS DIVIDEND INCOME BY THE LD. ASSESSING OFFICER FOR AS SESSMENT YEAR 2011- 12 WAS ACTUALLY INTEREST INCOME FROM FIXED DEPOSITS , WHICH WAS NEVER CLAIMED AS EXEMPT. ASSESSEE HAD SPECIFICALLY STATE D THAT THERE WAS NO EXEMPT INCOME EARNED IN THE SAID YEAR. LD. COMMISS IONER OF INCOME ITA NOS.2846 & 2847/MDS/16 :- 4 -: TAX (APPEALS) IN HIS ORDER DID NOT MAKE ANY COMMENT S ON THIS CLAIM OF THE ASSESSEE. HE HAD SUSTAINED THE DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER, TAKING A VIEW THAT SEC 14A R.W.R . 8D COULD BE INVOKED EVEN WHERE INVESTMENTS MADE WERE FOR BUSINE SS PURPOSE. LD. COMMISSIONER OF INCOME TAX (APPEALS) DID NOT GIVING ANY SPECIFIC FINDING ON THE CLAIM OF THE ASSESSEE THAT IT HAD NI L OR NEGLIGIBLE EXEMPT INCOME, AND THERE COULD BE NO DISALLOWANCE UNDER SE CTION 14A OF THE ACT, FOR THAT REASON. HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHETTINAD LOGISTICS (P) LTD (SUPRA ) HAD HELD AS UNDER AT PARAGRAPHS 11 TO 15 AS UNDER:- 11. FURTHERMORE, WE MAY NOTE THAT A SIMILAR ARGUM ENT WAS SOUGHT TO BE ADVANCED BY THE REVENUE IN THE MATTER CONCERN ING, M/S.REDINGTON (INDIA) LIMITED VS. THE ADDITIONAL CO MMISSIONER OF INCOME TAX, WHICH WAS, SUBJECT MATTER OF T.C.A.NO.5 20 OF 2016. 11.1. A CO-ORDINATE BENCH OF THIS COURT, VIDE JUDGMENT DATED 23.12.2016, REJECTED THE PLEA OF THE REVENUE ADVANC ED IN THAT BEHALF. 11.2. AS A MATTER OF FACT, A PERUSAL OF THE JUDGMEN T WOULD SHOW THAT THE REVENUE HAD SOUGHT TO ARGUE THAT BECAUSE EXEMPT INCOME COULD BE EARNED IN FUTURE YEARS, THEREFORE, RECOURSE COUL D BE TAKEN TO THE PROVISIONS OF SECTION 14A OF THE ACT, TO DISALLOW E XPENDITURE. IN OTHER WORDS THE STAND TAKEN BY THE REVENUE WAS IRRE SPECTIVE OF THE FACT WHETHER OR NOT INCOME WAS EARNED IN THE CONCER NED ASSESSMENT YEAR EXPENDITURE UNDER SECTION 14A COULD BE DISALLO WED AGAINST ANTICIPATED INCOME. 11.3. PERTINENTLY, THE DIVISION BENCH IN M/S.REDING TON (INDIA) LIMITED CASE HAS REPELLED THIS PRECISE ARGUMENT. 12. THE DIVISION BENCH, IN OUR VIEW, QUIET CORRECTL Y HELD THAT, THE COMPUTATION OF TOTAL INCOME, IN TERMS OF SECTION 5 OF THE ACT, IS MADE QUA REAL INCOME AND NOT, VIS-A-VIS, NOTIONAL INCOME . 12.1. THE DIVISION BENCH WENT ON TO HOLD THAT SECTI ON 4 OF THE ACT BRINGS TO TAX, THAT INCOME, WHICH IS RELATABLE TO T HE ASSESSMENT YEAR ITA NOS.2846 & 2847/MDS/16 :- 5 -: IN ISSUE. THE DIVISION BENCH, THUS, HELD THAT WHER E NO EXEMPT INCOME IS EARNED IN THE PREVIOUS YEAR, RELEVANT TO THE ASSESSMENT YEAR IN ISSUE, PROVISIONS OF SECTION 14 A OF THE AC T, READ WITH RULE 8 D COULD NOT BE INVOKED. 12.2. WHILE COMING TO THIS CONCLUSION, THE DIVISION BENCH ALSO TOOK NOTE OF THE AFOREMENTIONED CIRCULAR, ISSUED BY THE BOARD. 12.3. THE REASONING OF THE DIVISION BENCH IS CONTAI NED IN THE FOLLOWING PART OF THE JUDGMENT: 4.THE ADMITTED POSITION IS THAT NO EXEMPT INCOME HAS BEEN EARNED BY THE ASSESSEE IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR IN ISSUE. THE ORDE R OF ASSESSMENT RECORDS A FINDING OF FACT TO THAT EFFECT . THE ISSUE TO BE DECIDED THUS LIES WITHIN THE SHORT COMP ASS OF WHETHER A DISALLOWANCE IN TERMS OF S.14A OF THE ACT READ WITH RULE 8D OF THE RULES CAN BE CONTEMPLATED EVEN IN A SITUATION WHERE NO EXEMPT INCOME HAS ADMITTEDLY BEE N EARNED BY THE ASSESSEE IN THE RELEVANT FINANCIAL YE AR. 7.PER CONTRA, SRI.T.RAVIKUMAR APPEARING ON BEHALF O F THE REVENUE DREW OUR ATTENTION TO THE MARGINAL NOTES OF S.14 A POINTING OUT THAT THE PROVISION WOULD APPLY NOT O NLY WHERE EXEMPTED INCOME IS 'INCLUDED' IN THE TOTAL IN COME, BUT ALSO WHERE EXEMPT INCOME IS 'INCLUDABLE' IN TOT AL INCOME. 8.HE RELIED UPON A CIRCULAR ISSUED BY THE CENTRAL B OARD OF DIRECT TAXES IN CIRCULAR NO.5 OF 2014 DATED 11.2 .2014 TO THE EFFECT THAT S.14A WAS INTENDED TO COVER EVEN THOSE SITUATIONS WHETHER THERE IS A POSSIBILITY OF EXEMPT INCOME BEING EARNED IN FUTURE. THE CIRCULAR, AT PARAGRAPH 4, STATES THAT IT IS NOT NECESSARY FOR EX EMPT INCOME TO HAVE BEEN INCLUDED IN THE INCOME OF A PARTICULAR YEAR FOR THE DISALLOWANCE TO BE TRIGGERE D. ACCORDING TO THE LEARNED STANDING COUNSEL, THE PROVISIONS OF S.14A ARE MADE APPLICABLE, IN TERMS O F SUB SECTION (1) THEREOF TO INCOME 'UNDER THE ACT' AND N OT 'OF THE YEAR' AND A DISALLOWANCE UNDER S.14A R.W.RULE 8 D CAN THUS BE EFFECTED EVEN IN A SITUATION WHERE A TA X PAYER HAS NOT EARNED ANY TAXABLE INCOME IN A PARTIC ULAR YEAR. 9.WE ARE UNABLE TO SUBSCRIBE TO THE AFORESAID VIEW. THE PROVISIONS OF SECTION 14A WERE INSERTED AS A RESPON SE TO THE JUDGMENTS OF THE SUPREME COURT IN COMMISSIONER OF INCOME TAX VS. MAHARASHTRA SUGAR MILLS LIMITED (197 1) ITA NOS.2846 & 2847/MDS/16 :- 6 -: (82 ITR 452) AND RAJASTHAN STATE WARE HOUSING CORPORATION VS. COMMISSIONER OF INCOME TAX ((2002) 242 ITR 450) IN TERMS OF WHICH, EXPENDITURE INCURRE D BY AN ASSESSEE CARRYING ON A COMPOSITE BUSINESS GIVING RISE TO BOTH TAXABLE AS WELL AS NON-TAXABLE INCOME, WAS ALLOWABLE IN ENTIRETY WITHOUT APPORTIONMENT. IT WA S THUS THAT S.14A WAS INSERTED PROVIDING THAT NO DEDUCTION SHALL BE ALLOWABLE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO THE EARNING OF INCOME EXEMPT FROM TAXAT ION. AS OBSERVED BY THE SUPREME COURT IN THE JUDGMENT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. WALFORT SHARE AND STOCK BROKERS (P) LTD (2010) 326 ITR 1 '.... THE MANDATE OF S.14A IS CLEAR. IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAINST TAXABLE INCOME AN D AT THE SAME TIME AVAIL OF THE TAX INCENTIVE BY WAY OF AN EXEMPTION OF EXEMPT INCOME WITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME.' 10.THE PROVISION THIS IS CLEARLY RELATABLE TO THE E ARNING OF ACTUAL INCOME AND NOT NOTIONAL OR ANTICIPATED INCOM E. THE SUBMISSION OF THE DEPARTMENT TO THE EFFECT THAT S.14A WOULD BE ATTRACTED EVEN TO EXEMPT INCOME 'INCLUDABLE' IN TOTAL INCOME WOULD ENTAIL THE ASSES SMENT OF NOTIONAL INCOME, ASSUMED TO BE EXEMPT IN THE FUT URE, IN THE PRESENT ASSESSMENT YEAR. THE COMPUTATION OF TOTAL INCOME IN TERMS OF S.5 OF THE ACT IS ON REAL INCOME AND THERE IS NO SANCTION IN LAW FOR THE ASSESSMENT OF ADMITTEDLY NOTIONAL INCOME, PARTICULARLY IN THE CON TEXT OF EFFECTING A DISALLOWANCE IN CONNECTION THEREWITH. 11.THE COMPUTATION OF DISALLOWANCE IN TERMS OF RULE 8D IS BY WAY OF A DETERMINATION INVOLVING DIRECT AS WE LL AS INDIRECT ATTRIBUTION. THUS, ACCEPTING THE SUBMISSI ON OF THE REVENUE WOULD RESULT IN THE IMPOSITION OF AN AR TIFICIAL METHOD OF COMPUTATION ON NOTIONAL AND ASSUMED INCOME. WE BELIEVE THIS WOULD BE CARRYING THE ARTI FICE TOO FAR.(EMPHASIS IS OURS) 13.MR.SENTHIL KUMAR, SEEKS TO DISTINGUISH THE JUDGM ENT IN M/S.REDINGTON (INDIA) LIMITED CASE BASED ON THE FAC T THAT RULE 8D HAD NOT KICKED-IN BY AY 2007-08, WHICH WAS THE AY B EING CONSIDERED IN THE SAID CASE. 14.ACCORDING TO US, THIS WAS NOT THE ARGUMENT, PUT FORTH, BEFORE THE DIVISION BENCH. AS A MATTER OF FACT, THE REVENUE R ELIED HEAVILY ON RULE 8D. ITA NOS.2846 & 2847/MDS/16 :- 7 -: 14.1.MR.RAVIKUMAR, WHO APPEARED FOR THE REVENUE, IN THAT MATTER AND WHO IS PRESENT IN THIS COURT, INFORMS US THAT HE HA D IN FACT ARGUED THAT THE RULE WAS CLARIFACTORY IN NATURE AND WOULD APPLY RETROSPECTIVELY, AND THAT, THE DIVISION BENCH, THEREFORE, DISCUSSED THE IMPACT OF RULE 8D OF THE RULES. 15.HOWEVER, IT IS, OUR VIEW, AS INDICATED ABOVE, IN DEPENDENT OF THE REASONING GIVEN IN M/S.REDINGTON (INDIA) LIMITED CA SE THAT RULE 8D CANNOT BE READ IN A MANNER, WHICH TAKES IT BEYOND T HE SCOPE AND CONTENT OF THE MAIN PROVISION, WHICH IS, SECTION 14 A OF THE ACT. 15.1.THEREFORE, AS ADVERTED TO ABOVE, RULE 8D, CANN OT COME TO THE RESCUE OF THE REVENUE. 15.2.IN ANY EVENT, THE TRIBUNAL, VIA, THE IMPUGNED JUDGMENT HAS REMITTED THE MATTER TO THE ASSESSING OFFICER. 15.3.THEREFORE, FOR THE FOREGOING REASONS, WE ARE O F THE VIEW, THAT NO INTERFERENCE IS CALLED FOR QUA THE IMPUGNED JUDGMEN T. ACCORDINGLY, WE ARE OF THE OPINION THAT IN THE YEA R IN WHICH THERE WAS NO EXEMPT INCOME, THERE COULD NOT HAVE BEEN ANY D ISALLOWANCE U/S. 14A OF THE ACT. HOWEVER, LD. ASSESSING OFFICER HA S NOTED FOR ASSESSMENT YEAR 2011-12 THAT ASSESSEE HAD CLAIMED EXEMPT INCOME OF E5,55,08,071/- AND FOR ASSESSMENT YEAR 2012-13 C LAIMED EXEMPTION FOR SHORT TERM CAPITAL GAINS OF E3,34,91,729/-. WH EREAS ASSESSEE IS SAYING IT HAD NIL OR NEGLIGIBLE EXEMPT INCOME. IN SUCH CIRCUMSTANCES, THE QUESTION WHETHER ASSESSEE HAD ANY EXEMPT INCOME FOR THESE YEARS REQUIRES A REVISIT BY THE LD. ASSESSING OFFICER. IN SO FAR AS CLAIM OF THE ASSESSEE THAT EVEN WHERE THERE WAS EXEMPT INCOME, DISALLOWANCE SHOULD BE LIMITED TO THE CLAIM OF THE EXEMPT INCOME , WE FIND THAT BOMBAY BENCH OF THE TRIBUNAL IN THE CASE OF MANISH D. INNANI VS. ACIT (ITA NO.861/MUM/2012, DATED 01.08.2012 ) HAS TAKEN A VIEW IN ITA NOS.2846 & 2847/MDS/16 :- 8 -: FAVOUR OF THE ASSESSEE. THE BENCH HELD THAT DISAL LOWANCE U/S. 14A R.W.R. 8D OF THE ACT COULD NOT EXCEED THE EXEMPT IN COME. WE FIND THAT HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVES TMENTS PVT. LTD (SUPRA) HAD ALSO TAKEN A SIMILAR VIEW AND HELD THA T SEC. 14A R.W.R. 8D COULD NOT BE SO INTERPRETED TO MEAN THAT ENTIRE TAX EXEMPTED INCOME COULD BE DISALLOWED. WE ARE THUS OF THE OPINION TH AT THE QUESTION OF DISALLOWANCE U/S. 14A FOR BOTH THE ASSESSMENT YEARS REQUIRES A RELOOK BY THE LD. ASSESSING OFFICER TO VERIFY THE CLAIM OF THE ASSESSEE THAT IT HAD NO OR NEGLIGIBLE INCOME AND IF FOUND CORRECT, NOT TO MAKE ANY DISALLOWANCE UNDER SEC. 14A OF THE ACT MORE THAN T HE EXEMPT INCOME IF ANY DERIVED. 5. IN THE RESULT, THE APPEALS OF THE ASSESSEE FOR BOT H THE ASSESSMENT YEARS ARE ALLOWED FOR STATISTICAL PURPOS E. ORDER PRONOUNCED ON THURSDAY, THE 29TH DAY OF JUN E, 2017, AT CHENNAI. SD/- SD/- ( . . . ' ) (N.R.S. GANESAN) / JUDICIAL MEMBER ( ! . '#'$ ) (ABRAHAM P. GEORGE) % / ACCOUNTANT MEMBER #$ / CHENNAI %& / DATED:29TH JUNE, 2017 KV &' ()*) / COPY TO: 1 . / APPELLANT 3. +,' / CIT(A) 5. )-. / / DR 2. / RESPONDENT 4. + / CIT 6. .01 / GF