DCIT, CC - 7(1), MUMBAI V. PAN INDIA NETWORK INFRAVEST PVT. LTD., MUMBAI

ITA 2962/MUM/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 4900 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-05-2019
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Appeal Filed On: 08-05-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: AWUNGSHI GIMSEN
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 115JB; 154

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, MUMBAI BEFORE SHRI SAKTIJIT DEY , JUDICIAL MEMBER AND SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER IT A NO. 2962 & 2963 /MUM./2018 ( ASSESSMENT YEAR : 20 1 3 14 AND 2014 15 ) DY. COMMISSIONER OF INCOME TAX CENTRAL CIRCLE 7(1), MUMBAI . APP ELL ANT V/S PAN INDIA NETWORK INFRAVEST P. LTD. 135, CONTINENTAL BUILDING DR. ANNIE BESANT ROAD WORLI, MUMBAI 400 018 PAN AACCP2459H . RESPONDENT REVENUE BY : SHRI AWUNGSHI GIMSEN ASSESSEE BY : SHRI JAY BHANSALI DATE OF HEARING 13 .0 5 .2019 DATE OF ORDER 17.05.2019 O R D E R PER SAKTIJIT DEY. J.M. T HE AFORESAID APPEALS HAVE BEEN FILED BY THE REVENUE CHALLENGING SEPARATE ORDERS, BOTH DATED 21 ST FEBRUARY 2018, PASSED BY THE LEARNED COMMISSIONER (APPEALS) 49, MUMBAI, FOR THE ASSESSMENT YEAR 2013 14 AND 2014 15 . 2 . THE COMMON DISPUTE ARISING FOR CONSIDERATION RELATES TO DISALLOWANCE MADE UNDER SECTION 14A R/W RULE 8D, WHILE COMPUTING THE 2 PAN INDIA NETWORK INFRAVEST P. LTD. INCOME UNDER THE NORMAL PROVISIONS AS WELL AS UNDER SECTION 115JB OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT' ). 3 . BRIEF FACTS ARE, THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING INTERNET DATA SERVICE. IN THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSE SSING OFFICER NOTICED THAT IN THE ASSESSMENT YEAR 2013 14, THE ASSESSEE HAS EARNED EXEMPT INCOME BY WAY OF DIVIDEND AMOUNTING TO ` 48,865, AND IN ASSESSMENT YEAR 2014 15, IT HAD EARNED EXEMPT INCOME BY WAY OF DIVIDEND OF ` 1,08,136. HOWEVER, HE NOTICED THA T THE ASSESSEE HAD NOT DISALLOWED ANY EXPENDITURE UNDER SECTION 14A R/W RULE 8D FOR EARNING THE EXEMPT INCOME. ACCORDINGLY, HE CALLED UPON THE ASSESSEE TO EXPLAIN WHY DISALLOWANCE UNDER SECTION 14A R/W RULE 8D SHOULD NOT BE MADE. THOUGH, THE ASSESSEE OBJEC TED TO THE PROPOSED DISALLOWANCE BY STATING THAT THE DISALLOWANCE OF EXPENDITURE MADE VOLUNTARILY ALSO TAKES CARE OF THE EXPENDITURE ATTRIBUTABLE TO EXEMPT INCOME, HOWEVER, THE ASSESSING OFFICER REJECTING THE EXPLANATION OF THE ASSESSEE PROCEEDED TO COMPUT E THE DISALLOWANCE UNDER RULE 8D(2)(III) FOR AN AMOUNT OF ` 4, 00, 61,500, IN THE ASSESSMENT YEAR 2013 14 AND ` 3,73,61,000. HE ALSO MADE IDENTICAL DISALLOWANCE WHILE COMPUTING BOOK PROFIT UND ER SECTION 115JB OF THE ACT. OF COURSE, ULTIMATELY THE ASSESSING O FFICER COMPUTED THE TAX LIABILITY OF THE ASSESSEE UNDER THE NORMAL PROVISIONS OF THE ACT. 3 PAN INDIA NETWORK INFRAVEST P. LTD. 4 . THE ASSESSEE CHALLENGED THE AFORESAID DISALLOWANCE BEFORE LEARNED COMMISSIONE R (APPEALS). WHILE DISPOSING OF ASSESSEES APPEAL S , LEARNED COMMISSIONER (APPEALS) RESTR ICTED THE DISALLOWANCE TO ` 57,42,904, IN THE ASSESSMENT YEAR 2013 14. WHEREAS IN THE ASSESSMENT YEAR 2014 15, HE SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. HOWEVER, SUBSEQUENTLY, ON APPLICATION S MADE BY THE ASSESSEE UNDER SECTION 154 OF THE ACT, LEARNED COMMISSIONER (APPEALS) RESTRICTED THE DISALLOWANCE UNDER SECTION 14A R/W RULE 8D IN BOTH THE ASSESSMENT YEARS TO THE EXEMPT INCOME EARNED DURING THE YEAR BY THE ASSESSEE. IN OTHER WORDS, LEARNED COMMISSIONER (APPEALS) RESTRICTED THE DISALLOWA NCE IN ASSESSMENT YEAR 2013 14 TO ` 48,865 AND TO ` 1,08,136, IN ASSESSMENT YEAR 2014 15. AS REGARDS THE DISALLOWANCE OF EXPENDITURE WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT, LEARNED COMMISSIONER (APPEALS) RELYING UPON THE SPECIAL BENCH DECISION OF THE TRIBUNAL, DELHI BENCH, IN CIT V/S VI REET INVESTMENT PVT. LTD., [2017] 82 TAXMANN.COM 415 (DEL.) , HELD THAT WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT, NO DISALLOWANCE UNDER SECTION 14A R/W RULE 8D CAN BE MADE. 5 . THE LEARNED DEPARTMENTAL REPRESENTATIVE RELYING UPON THE OBSE RVATIONS OF THE ASSESSING OFFICER SUBMITTED THAT THERE IS NO CONDITION UNDER THE PROVISIONS OF SECTION 14A OF THE ACT TO RESTRICT THE DISALLOWANCE TO THE EXEMPT INCOME EARNED. HE SUBMITTED , DISALLOWANCE OF EXPENDITURE UNDER SECTION 14A OF THE ACT HAS TO BE 4 PAN INDIA NETWORK INFRAVEST P. LTD. MADE AS PER RULE 8D(2). FURTHER, HE SUBMITTED , AS PER THE DECISION OF THE TRIBUNAL, MUMBAI BENCH, IN DCIT V/S VIRAJ PROFILES LTD., [2016] 156 ITD 72 (MUM.), DISALLOWANCE OF EXPENDITURE FOR EARNING EXEMPT INCOME HAS TO BE MADE AS PER EXPLANATION 1(F) OF SE CTION 115JB(2). 6 . THE LEARNED AUTHORISED REPRESENTATIVE STRONGLY RELYING UPON THE OBSERVATIONS OF THE FIRST APPELLATE AUTHORITY SUBMITTED , DISALLOWANCE UNDER SECTION 14A R/W RULE 8D CANNOT EXCEED THE EXEMPT INCOME EARNED DURING THE YEAR. IN SUPPORT OF SUC H CONTENTION, HE RELIED UPON THE FOLLOWING DECISIONS: I ) CHEMINVEST V/S CIT, [2015] 378 IT 33; II ) JOINT INVESTMENTS PVT. LTD. V/S CIT, [2015] 372 ITR 694; III ) PCIT V/S CARAF BUILDERS AND CONSTRUCTIONS PVT. LTD., 101 TAXMANN.COM 167; AND IV ) DCIT V/S MAHINDRA CIE AUTOMOTIVE LTD., ITA NO.6659/MUM./ 2014, DATED 11.04.2018. 7 . FURTHER, LEARNED AUTHORISED REPRESENTATIVE SUBMITTED THAT WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB(2) OF THE ACT, THE ASSESSING OFFICER HAS MADE DISALLOWANCE UNDER SECTION 14A R/W RULE 8D WHICH IS CONTRARY TO THE RATIO LAID DOWN IN VIREET INVESTMENT (SUPRA). 8 . WE HAVE CONSIDERED RIVAL SUBMISSIONS AND PERUSED MATERIAL ON RECORD. WE HAVE ALSO APPLIED OUR MIND TO THE DECISIONS RELIED UPON. 5 PAN INDIA NETWORK INFRAVEST P. LTD. UNDISPUTEDLY, THE EXEMPT INCOME EARNED BY THE ASSESSEE DURING THE ASSESSMENT YEAR 2013 14, WAS ` 48,865 AND IN ASSESSMENT YEAR 2014 15, WAS ` 1,08,136. WHEREAS, THE ASSESSING OFFICER HAS MADE HUGE DISALLOWANCE BY INVOKING THE PROVISIONS OF RULE 8D(2)(III). NOW, IT IS FAIRLY WELL SETTLED THAT THE DISALLOWANCE UNDER SECTION 14A R/W RULE 8D CANNOT EXCEED THE QUANTUM OF EXEMPT INCOME EARNED DURING THE YEAR. THE DECISIONS RELIED UPON BY THE LEARNED AUTHORISED REPRESENTATIVE SQUARELY SUPPORT THIS VIEW. THAT BEING THE CASE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE DECISION OF THE LEARNED COMMISSIONER (APPEALS) IN DIRECTING THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT TO THE EXEMPT INCOME EARNED BY THE ASSESSEE IN RESPECT IVE ASSESSMENT YEAR S . 9 . AS REGARDS DISALLOWANCE MADE BY THE ASSESSING OFFICER WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT, IT IS EVIDENT THAT THE ASSESSING OFFICER HAS MADE SUCH DISALLOWANCE BY RESORTING TO THE PROVISIONS OF SECTION 14A R/W RULE 8D. IN OUR VIEW, AS PER THE RATIO LAID DOWN BY THE TRIBUNAL , SPECIAL BENCH DELHI, IN VIREET INVESTMENT (SUPRA), THE ASSESSING OFFICER W HILE COMPUTING THE BOOK PROFIT UNDER SECTION 115JB OF THE ACT CANNOT MAKE ANY DISALLOWANCE BY MAKING REFERENCE TO THE PROVISIONS OF SECTION 14A R/W RULE 8D. HOWEVER, THE ASSESSING OFFICER RETAINS THE POWER TO MAKE DISALLOWANCE OF EXPENDITURE INCURRED FOR E ARNING EXEMPT INCOME AS PER EXPLANATION 1(F) OF SECTION 115JB OF THE ACT. THEREFORE, THE DISALLOWANCE MADE BY 6 PAN INDIA NETWORK INFRAVEST P. LTD. THE ASSESSING OFFICER WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB(2 ) OF THE ACT IS UNSUSTAINABLE. THUS , THE ASSESSING OFFICER HAS IS DIRECTED TO EXAMINE AND QUANTIFY THE EXPENDITURE INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INCOME IN TERMS OF EXPLANATION 1(F) OF SECTION 115JB OF THE ACT WITHOUT TAKING AID OF RULE 8D(2) R/W SECTION 14A OF THE ACT. GROUNDS NO. (I) AND (II) IN BOTH THE APPEALS AR E DISMISSED AND GROUND NO. (III) IS PARTLY ALLOWED FOR STATISTICAL PURPOSES . 10 . IN THE RESULT, BOTH THE APPEALS ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN C OURT ON 17.05.2019 SD/ - MANOJ KUMAR AGGARWAL ACCOUNTANT MEMBER SD/ - SAKTIJIT DEY JUDICIAL MEMBER MUMBAI, DATED: 17.05.2019 COPY OF THE ORDER FORWARDED TO : ( 1 ) THE ASSESSEE; ( 2 ) THE REVENUE; ( 3 ) THE CIT(A); ( 4 ) THE CIT, MUMBAI CITY CONCERNED; ( 5 ) THE DR, ITAT, MUMBAI; ( 6 ) GUARD FILE . TRUE COPY BY ORDER PRADEEP J. CHOWDHURY SR. PRIVATE SECRETARY (ASSISTANT REGISTRAR) ITAT, MUMBAI