M/s. Kal Radio Ltd., CHENNAI V. ACIT, CHENNAI

ITA 2848/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7894 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 31-01-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 29-12-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 03-10-2016
• Court: TRIBUNAL
• Department Lawyers: V NANDA KUMARJCIT
• Assessee Lawyers: N DEVANATHAN SH K RAMKRISHNAN
• Keywords: Earning of tax free income; Source of fund
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . . . , .. ' #$, & '( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.2848/MDS/2016 * +* / ASSESSMENT YEAR : 2011-12 M/S KAL RADIO LIMITED, 73, MURASOLI MARAN TOWERS, MRC NAGAR MAIN ROAD, MRC NAGAR, CHENNAI - 600 028. PAN : AACCK 6712 G V. THE ASSISTANT COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 4(2), CHENNAI - 600 034. (-./ APPELLANT) (/0-./ RESPONDENT) -. 1 2 / APPELLANT BY : SH. N. DEVANATHAN, ADVOCATE SH. K. RAMKRISHNAN, CA /0-. 1 2 / RESPONDENT BY : SH. V. NANDAKUMAR, JCIT ' 1 3& / DATE OF HEARING : 29.12.2016 45+ 1 3& / DATE OF PRONOUNCEMENT : 31.01.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 8, CHENN AI, DATED 25.07.2016 AND PERTAINS TO ASSESSMENT YEAR 2013-14. 2 I.T.A. NO.2848/MDS/16 2. THE ONLY ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 14A OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962. 3. SH. N. DEVANATHAN, THE LD.COUNSEL FOR THE ASSESS EE, SUBMITTED THAT FOR THE YEAR UNDER CONSIDERATION, TH E ASSESSEE EARNED ` 1,41,72,409/- AS DIVIDEND INCOME FROM THE INVESTMEN TS. THE ASSESSEE HAD ALSO EARNED ` 54,35,46,883/- FROM ADVERTISEMENT AND OTHER INCOME OF ` 1,86,77,652/-. ACCORDING TO THE LD. COUNSEL, NO EXPENDITURE WAS INCURRED FOR EARNING THE DIVIDEN D INCOME. THE ENTIRE EXPENDITURE OF THE COMPANY WAS FOR EARNING A DVERTISEMENT INCOME OTHER THAN THE DIVIDEND INCOME. REFERRING T O SECTION 14A OF THE ACT, THE LD.COUNSEL SUBMITTED THAT THE EXPENDIT URE CLAIMED BY THE ASSESSEE FOR EARNING THE INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME, CANNOT BE ALLOWED. IF THERE WAS NO E XPENDITURE INCURRED BY THE ASSESSEE, WHICH CAN BE DIRECTLY ATT RIBUTABLE TO EXEMPT INCOME, THE QUESTION OF ALLOCATION OF ANY EX PENDITURE DOES NOT ARISE. ACCORDING TO THE LD. COUNSEL, WHEN THE ASSESSEE HAS SEVERAL SOURCE OF INCOME, ONE OR A FEW OF WHICH ARE EXEMPT, THE 3 I.T.A. NO.2848/MDS/16 COMMON EXPENDITURE NEED NOT BE ALLOCATED FOR THE PU RPOSE OF DISALLOWANCE. 4. THE LD.COUNSEL FOR THE ASSESSEE FURTHER SUBMITTE D THAT THE PRINCIPLE OF APPORTIONMENT OF EXPENDITURE CAN BE AP PLIED ONLY IN CASES WHERE ALL THE VENTURES CARRIED ON BY THE ASSE SSEE DID NOT CONSTITUTE ONE INDIVISIBLE BUSINESS. ACCORDING TO THE LD. COUNSEL, THE ASSESSEE-COMPANY IS ONE INDIVISIBLE UNIT HAVING A FEW SOURCES OF INCOME, ONE OF WHICH IS DIVIDEND INCOME FROM INV ESTMENTS. THEREFORE, THE EXPENDITURE OF THE COMPANY SHOULD NO T BE ARBITRARILY ALLOCATED BETWEEN THE TAXABLE AND NON-TAXABLE INCOM E. INTRODUCTION OF SECTION 14A OF THE ACT IN STATUTE B OOK DOES NOT ALTER THE IMPORT OF THE JUDGMENT OF VARIOUS HIGH COURTS A ND SUPREME COURT. SECTION 14A OF THE ACT PROVIDES FOR DISALLO WANCE OF EXPENDITURE DIRECTLY ATTRIBUTABLE TO EARNING OF EXE MPT INCOME. RULE 8D OF INCOME-TAX RULES, 1962 WAS INTRODUCED WITH EF FECT FROM 24.03.2008 FOR METHOD OF COMPUTATION OF EXPENDITURE . ACCORDING TO THE LD. COUNSEL, RULE 8D IS NOT AUTOMATICALLY APPLI ED IN ALL THE CASES WHERE THERE WAS EXEMPT INCOME. ACCORDING TO THE LD . COUNSEL, RULE 8D IS APPLICABLE ONLY TO THE CASES WHERE THE A SSESSING OFFICER IS NOT SATISFIED AS TO THE CLAIM OF EXPENDITURE REL ATABLE TO EARNING OF 4 I.T.A. NO.2848/MDS/16 THE EXEMPT INCOME. ALTERNATIVELY, THE LD.COUNSEL S UBMITTED THAT THE METHOD OF COMPUTATION OF DISALLOWANCE IS ALSO NOT S TRICTLY FOLLOWED BY THE ASSESSING OFFICER UNDER RULE 8D. THE ASSESS EE-COMPANY MADE THE INVESTMENTS OUT OF OWN FUNDS AND NOT OF AN Y BORROWED FUNDS, THEREFORE, ACCORDING TO THE LD. COUNSEL, THE ASSESSING OFFICER IS NOT JUSTIFIED IN MAKING DISALLOWANCE. 5. ON THE CONTRARY, SHRI V. NANDAKUMAR, THE LD. DEP ARTMENTAL REPRESENTATIVE, SUBMITTED THAT SECTION 14A OF THE A CT PROVIDES FOR DISALLOWANCE OF EXPENDITURE FOR EARNING THE EXEMPT INCOME. ACCORDING TO THE LD. D.R., THE EXPENDITURE INCURRED BY THE ASSESSEE FOR BUSINESS PURPOSE ALONE HAS TO BE ALLOWED WHILE COMPUTING THE TAXABLE INCOME. THE EXPENDITURE INCURRED BY THE AS SESSEE FOR EARNING INCOME WHICH IS OTHERWISE NOT TAXABLE, CANN OT BE ALLOWED AS EXPENDITURE WHILE COMPUTING THE TAXABLE INCOME. REFERRING TO RULE 8D, THE LD. D.R. SUBMITTED THAT WHEN THE ASSES SING OFFICER WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF ASSESSEE WITH REGARD TO EXPENDITURE, OR THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED IN RELATION TO ANY INCOME, WHICH DOES NOT FORM PART OF TOTAL INCOME, THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE AS PER THE METHOD PRESCRIBED IN RULE 8D (2). IN THE 5 I.T.A. NO.2848/MDS/16 CASE BEFORE US, ACCORDING TO THE LD. D.R., THE ASSE SSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED. THEREFORE, THE ASSESS ING OFFICER BY APPLYING RULE 8D(2) COMPUTED THE EXPENDITURE FOR DI SALLOWANCE. 6. REFERRING TO ASSESSMENT ORDER, THE LD. D.R. SUBM ITTED THAT THERE WAS NO DIRECT EXPENDITURE FOR EARNING EXEMPT INCOME. IN OTHER WORDS, THERE WAS NO EXPENDITURE IN THE FIRST LIMB OF RULE 8D(2). REFERRING TO RULE 8D(2), THE LD. D.R. SUBMI TTED THAT THE ASSESSEE INCURRED EXPENDITURE BY WAY OF INTEREST DU RING THE PREVIOUS YEAR, WHICH IS NOT DIRECTLY RELATABLE TO A NY PARTICULAR INCOME OR RECEIPT. IT IS NOT IN DISPUTE THAT THE A SSESSEE BORROWED FUNDS FOR THE PURPOSE OF BUSINESS AND PAID INTEREST , THEREFORE, THERE WAS INDIRECT EXPENDITURE WHICH MAY NOT BE DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, THEREFORE, ACCORD ING TO THE LD. D.R., RULE 8D(2) IS SQUARELY APPLICABLE. THE ASSES SING OFFICER HAS COMPUTED THE EXPENDITURE UNDER RULE 8D(2) AT ` 36,145/-. REFERRING TO THIRD LIMB OF RULE 8D(2), THE LD. D.R. SUBMITTED THAT RULE 8D(2)(III) PROVIDES FOR 0.5% 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 LAST DAY OF THE PREVIOUS YEAR , HAS TO BE 6 I.T.A. NO.2848/MDS/16 DISALLOWED. THE ASSESSING OFFICER HAS COMPUTED THE EXPENDITURE UNDER THIRD LIMB OF RULE 8D(2) AS ` 11,13,640/-. THEREFORE, THE CIT(APPEALS) HAS RIGHTLY CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WHEN THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED FO R EARNING THE EXEMPT INCOME, RULE 8D(1)(B) PROVIDES FOR COMPUTATI ON OF DISALLOWANCE UNDER RULE 8D(2). IN THE CASE BEFORE US, THE ASSESSEE CLAIMS THAT NO EXPENDITURE WAS INCURRED. THEREFORE, IN VIEW OF RULE 8D(1)(B) OF THE INCOME-TAX RULES, 1962 , DISALLOWANCE HAS TO BE COMPUTED UNDER RULE 8D(2). THE ASSESSING OFFICER AFTER CONSIDERING RULE 8D(2) FOUND THAT THERE WAS NO DIRE CT EXPENDITURE INCURRED UNDER THE FIRST LIMB OF RULE 8D(2). CONSI DERING THE SECOND LIMB OF RULE 8D(2), THE ASSESSING OFFICER FOUND THA T THE INDIRECT EXPENDITURE, WHICH IS NOT RELATABLE TO ANY PARTICUL AR INCOME, WAS ` 36,145/-. UNDER THIRD LIMB OF RULE 8D(2), THE ASSE SSING OFFICER COMPUTED THE EXPENDITURE AT ` 10,77,495/-. THE AGGREGATE OF EXPENDITURE WAS COMPUTED AT ` 11,13,640/-. THEREFORE, THE ASSESSING OFFICER HAS RIGHTLY COMPUTED THE DISALLOW ANCE AS PER THE 7 I.T.A. NO.2848/MDS/16 MANDATORY PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962. HENCE, THIS TRIBUNAL D O NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISMISSED. ORDER PRONOUNCED ON 31 ST JANUARY, 2017 AT CHENNAI. SD/- SD/- ( . . ' #$ ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) & / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 31 ST JANUARY, 2017. KRI. 1 /3#8 98+3 /COPY TO: 1. -. /APPELLANT 2. /0-. /RESPONDENT 3. ' :3 () /CIT(A)-8, CHENNAI 4. PRINCIPAL CIT, CHENNAI-4, CHENNAI 5. 8; /3 /DR 6. * < /GF.