DCIT, CHENNAI V. M/s. Data Software Research Co, Pvt. Ltd., CHENNAI

ITA 3129/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7440 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-03-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 23-02-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 10-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: R. DURAI PANDIAN
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 14A; 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI . . . , .. ' #$, & '( BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S. SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.3129/MDS/2016 * +* / ASSESSMENT YEAR : 2011-12 THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 1(1), CHENNAI - 600 034. V. M/S DATA SOFTWARE RESEARCH COMPANY PVT. LTD., KASTURI TOWERS, NO.6, SMITH ROAD, CHENNAI - 600 002. PAN : AAACD 1271 H (-./ APPELLANT) (/0-./ RESPONDENT) -. 1 2 / APPELLANT BY : SH. R. VIJAYARAGHAVAN, ADVOCATE /0-. 1 2 / RESPONDENT BY : SHRI R. DURAI PANDIAN, JCIT ' 1 3& / DATE OF HEARING : 23.02.2017 45+ 1 3& / DATE OF PRONOUNCEMENT : 23.03.2017 / O R D E R PER N.R.S. GANESAN, JUDICIAL MEMBER: THIS APPEAL OF THE REVENUE IS DIRECTED AGAINST T HE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) 1, CHENN AI, DATED 04.08.2016 AND PERTAINS TO ASSESSMENT YEAR 2011-12. 2 I.T.A. NO.3129/MDS/16 2. THE FIRST ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DEDUCTION CLAIMED BY THE ASSESSEE UNDER SECTION 10B OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). 3. SHRI R. DURAI PANDIAN, THE LD. DEPARTMENTAL REPR ESENTATIVE, VERY FAIRLY SUBMITTED THAT THE ASSESSING OFFICER, I N FACT, SET OFF THE LOSSES FROM VARIOUS SOURCES BEFORE ALLOWING DEDUCTI ON UNDER SECTION 10A AND 10B OF THE ACT. THE APEX COURT NOW RECENTLY IN CIT V. YOKOGAWA INDIA LTD. [2016-TIOL-228-SC-IT] HE LD THAT THE LOSSES CANNOT BE SET OFF AGAINST THE PROFIT OF ELIG IBLE UNIT BEFORE ALLOWING DEDUCTION UNDER SECTION 10A OF THE ACT. I N VIEW OF JUDGEMENT OF APEX COURT, THE LD. D.R. SUBMITTED THA T THE ISSUE IS COVERED IN FAVOUR OF ASSESSEE. 4. WE HAVE HEARD SHRI R. VIJAYARAGHAVAN, THE LD.COU NSEL FOR THE ASSESSEE ALSO. THE CIT(APPEALS) BY PLACING REL IANCE ON THE DECISION OF THIS BENCH OF THE TRIBUNAL IN SCIENTIFI C ATLANTA INDIA TECHNOLOGY (P) LTD. V. ACIT [129 TTJ 273], IN FACT, FOUND THAT IT MAY NOT BE NECESSARY TO SET OFF THE LOSSES BEFORE ALLOW ING DEDUCTION UNDER SECTION 10A OR 10B OF THE ACT. NOW THE SUPRE ME COURT HAS ALSO TAKEN THE SAME VIEW. THEREFORE, THIS TRIBUNAL DO NOT FIND ANY 3 I.T.A. NO.3129/MDS/16 REASON TO INTERFERE WITH THE ORDER OF THE LOWER AUT HORITY AND ACCORDINGLY THE SAME IS CONFIRMED. 5. THE NEXT ISSUE ARISES FOR CONSIDERATION IS WITH REGARD TO DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SE CTION 14A OF THE ACT. 6. SHRI R. DURAI PANDIAN, THE LD. DEPARTMENTAL REPR ESENTATIVE, SUBMITTED THAT THE ASSESSING OFFICER HAS NOT APPLIE D RULE 8D OF INCOME-TAX RULES, 1962 IN RIGHT PERSPECTIVE, THEREF ORE, THE MATTER MAY BE REMITTED BACK TO THE FILE OF THE ASSESSING O FFICER FOR COMPUTING THE DISALLOWANCE STRICTLY UNDER PROVISION S OF RULE 8D(2) OF INCOME-TAX RULES, 1962. 7. ON THE CONTRARY, SH. R. VIJAYARAGHAVAN, THE LD. COUNSEL FOR THE ASSESSEE, SUBMITTED THAT THE ASSESSING OFFICER FOUND THAT THE DIRECT EXPENDITURE WAS NIL. THE INDIRECT EXPENDITU RE WAS ` 47,62,95,321/-. THE ASSESSING OFFICER ALSO FOUND T HAT THE EXPENDITURE UNDER THIRD LIMB OF RULE 8D(2) IS AT ` 7,46,023/-. THE CIT(APPEALS) BY PLACING RELIANCE ON THE ORDER OF TH IS TRIBUNAL IN AMBATTUR CLOTHING LTD. V. JCIT IN I.T.A. NO.1436, 1 643/MDS/2014 & 910/MDS/2015 DATED 28.12.2015, FOUND THAT THE DISAL LOWANCE NEED 4 I.T.A. NO.3129/MDS/16 NOT EXCEED THE EXEMPT INCOME EARNED BY THE ASSESSEE . ACCORDINGLY, ACCORDING TO THE LD. COUNSEL, THE CIT( APPEALS) RESTRICTED THE DISALLOWANCE TO THE EXTENT OF ` 1760/- BEING THE INCOME EARNED BY THE ASSESSEE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS ON EITH ER SIDE AND PERUSED THE RELEVANT MATERIAL AVAILABLE ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE PROVISIONS OF RULE 8D, W HICH READS AS FOLLOWS:- METHOD FOR DETERMINING AMOUNT OF EXPENDITURE IN RELATION TO INCOME NOT INCLUDIBLE IN TOTAL INCOM E (1) WHERE THE ASSESSING OFFICER HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF THE PREVIOUS YEAR, IS NOT SATI SFIED WITH- (A) THE CORRECTNESS OF THE CLAIM OF EXPENDITURE M ADE BY THE ASSESSEE ; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITU RE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT FOR SUCH PRE VIOUS YEAR, HE SHALL DETERMINE THE AMOUNT OF EXPENDITURE I N RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROV ISIONS OF SUB-RULE (2). (2) THE EXPENDITURE IN RELATION TO INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME SHALL BE THE AGGREGATE O F FOLLOWING AMOUNTS, NAMELY:- (I) THE AMOUNT OF EXPENDITURE DIRECTLY RELATING T O INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME ; 5 I.T.A. NO.3129/MDS/16 (II) IN A CASE WHERE THE ASSESSEE HAS INCURRED EXPE NDITURE BY WAY OF INTEREST DURING THE PREVIOUS YEAR IS NOT DIR ECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT, A N AMOUNT COMPUTED IN ACCORDANCE WITH THE FOLLOWING FORMULA, NAMELY :- A X B C WHERE A = AMOUNT OF EXPENDITURE BY WAY OF INTERES T OTHER THAN THE AMOUNT OF INTEREST INCLUDED IN CLAUSE (I) INCURRED DURING THE PREVIOUS YEAR ; B = THE AVERAGE OF VALUE OF INVESTMENT, INCOME F ROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE-SHEE T 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 DA Y AND THE LAST DAY OF THE PREVIOUS YEAR ; (III) AN AMOUNT EQUAL TO ONE-HALF PER CENT. 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. (3) FOR THE PURPOSES OF THIS RULE, THE 'TOTAL ASSET S' SHALL MEAN, TOTAL ASSETS AS APPEARING IN THE BALANCE-SHEET EXCLUDING T HE INCREASE ON ACCOUNT OF REVALUATION OF ASSETS BUT INCLUDING THE DECREASE ON ACCOUNT OF REVALUATION OF ASSETS. RULE 8D(2)(I) PROVIDES FOR DISALLOWANCE OF DIRECT E XPENDITURE INCURRED BY THE ASSESSEE FOR EARNING THE EXEMPTED I NCOME. RULE 8D(2)(II) PROVIDES FOR DISALLOWANCE OF INDIRECT EXP ENDITURE BY THE ASSESSEE, WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME. 6 I.T.A. NO.3129/MDS/16 RULE 8D(2)(III) PROVIDES FOR DISALLOWANCE OF AMOUNT EQUAL TO 0.5 % OF AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME. THE DISALLOWANCE SH ALL BE THE THIRD LIMB OF RULE 8D(2). IN THIS CASE, THE ASSESSING OF FICER COMPUTED THE DISALLOWANCE UNDER FIRST LIMB OF RULE 8D(2) AT NIL, WHEREAS THE DISALLOWANCE UNDER SECOND LIMB OF RULE 8D(2) WAS CO MPUTED AS ` 17,455/. UNDER THIRD LIMB OF RULE 8D(2), THE ASSE SSING OFFICER COMPUTED THE DISALLOWANCE AT ` 7,46,023/-. THE TOTAL DISALLOWANCE CAME TO ` 7,63,478/-. THE LD. COUNSEL FOR THE ASSESSEE SUBMI TTED THAT THE INCOME OF THE ASSESSEE WAS ONLY ` 1,760/-. THEREFORE, UNDER THIRD LIMB OF RULE 8D(2), THE DISALLOWANCE CA N BE ONLY AT ` 1,760/- AND NOT ` 7,46,023/-. THIS TRIBUNAL IS OF THE CONSIDERED OPINION THAT UNDER THIRD LIMB OF RULE 8D(2), 0.5% O F AVERAGE VALUE OF INVESTMENT, INCOME FROM WHICH SHALL NOT FORM PART O R DOES NOT FORM PART OF TOTAL INCOME HAS TO BE COMPUTED. THEREFORE , WHAT IS TO BE DISALLOWED IS 0.5% OF AVERAGE VALUE OF INVESTMENT W HICH RESULTED IN INCOME OF ` 1,760/-. THEREFORE, IT IS NECESSARY TO COMPUTE 0.5 % OF THE AVERAGE VALUE OF INVESTMENT WHICH RESULTED IN I NCOME OF ` 1,760/-. THIS ASPECT WAS NOT CONSIDERED BY BOTH TH E AUTHORITIES BELOW. ACCORDINGLY, THE ORDERS OF THE AUTHORITIES BELOW ARE SET ASIDE. THE ASSESSING OFFICER IS DIRECTED TO COMPUT E 0.5% OF 7 I.T.A. NO.3129/MDS/16 AVERAGE VALUE OF INVESTMENT WHICH RESULTED IN INCOM E OF ` 1,760/- AND THEREAFTER COMPUTE THE DISALLOWANCE UNDER RULE 8D(2) OF INCOME-TAX RULES, 1962. 9. WITH THE ABOVE OBSERVATION, THE ORDERS OF THE AU THORITIES BELOW ARE SET ASIDE AND THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT IS REMITTED BACK TO THE FILE OF THE ASSE SSING OFFICER. THE ASSESSING OFFICER SHALL RE-EXAMINE THE MATTER IN TH E LIGHT OF THE OBSERVATION MADE ABOVE AND THEREAFTER DECIDE THE IS SUE, IN ACCORDANCE WITH LAW, AFTER GIVING A REASONABLE OPPO RTUNITY TO THE ASSESSEE. 10. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 23 RD MARCH, 2017 AT CHENNAI. SD/- SD/- ( . . ' #$ ) ( . . . ) (D.S. SUNDER SINGH) (N.R.S. GANESAN) & / ACCOUNTANT MEMBER /JUDICIAL MEMBER /CHENNAI, 7 /DATED, THE 23 RD MARCH, 2017. KRI. 8 I.T.A. NO.3129/MDS/16 1 /3#8 98+3 /COPY TO: 1. -. /APPELLANT 2. /0-. /RESPONDENT 3. ' :3 () /CIT(A)-1, CHENNAI 4. PRINCIPAL CIT, CHENNAI-1, CHENNAI 5. 8; /3 /DR 6. * < /GF.