Questnet Enerprises India Pvt. Ltd., CHENNAI V. DCIT, CHENNAI

ITA 3258/CHNY/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7445 (ITAT-CHENNAI)
• Duration Of Justice: 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-03-2017
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 30-11-2016
• Court: TRIBUNAL
• Department Lawyers: N MADHAVAN
• Assessee Lawyers: G SEETHARAMAN
• Keywords: Earning of tax free income; Question of law
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, CHENNAI , , BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU R.L REDDY, JUDICIAL MEMBER ./ ITA NOS.:3258/MDS/2016 / ASSESSMENT YEAR : 2012-13 M/S. QUESTNET ENTERPRISES INDIA PVT. LTD., THE RAIN TREE PLACE, B WING, 9 TH FLOOR, NO.7, MCNICHOLS ROAD, CHETPET, CHENNAI 600 031. PAN: AAACQ1177H V. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 5(2), CHENNAI 600 034. ( /APPELLANT) ( /RESPONDENT) /APPELLANT BY : SHRI G. SEETHARAMAN, CA /RESPONDENT BY : SHRI N. MADHAVAN, JCIT /DATE OF HEARING : 16.02.2017 /DATE OF PRONOUNCEMENT : 22.03.2017 / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST T HE ORDER OF THE LD. CIT(A)-3, CHENNAI ORDER DATED 30.09.2016 FO R ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS F OR ADJUDICATION. 2 I.T.A. NO. 3258/MDS/2016 1. THE LD.CIT(A) ERRED BOTH IN LAW ON THE FACTS OF THE CASE IN ASSESSING THE SUM OF ` 26,38,922/- TO THE TOTAL INCOME. 2. HE FAILED TO CONSIDER THAT THE ASSESSEE HAD NOT BORROWED ANY MONEY NOR ANY OF THE DECISIONS REFERRED TO BY THE ASSESSE E. 3. HE FAILED TO CONSIDER THE TOTAL EXEMPTED INCOME ON INVESTMENTS IS ` 32,78,274/-. 4. HE ALSO ERRED IN NOT CONSIDERING THAT RULE 8D DI D NOT APPLY TO THIS CASE. 5. THE ASSESSEE THEREFORE PRYAS THAT ADDITION OF ` 26,38,922/- MAY BE DELETED. 3. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE CO MPANY HAS INVESTED A SUM OF ` 19,11,35,030/- IN MUTUAL FUNDS, SHARES AND DEBENTURES. THE ASSESSEE ALSO CLAIMED AS A SUM OF ` 32,78,274/- AS EXEMPT INCOME. WHEN THE ASSESSEE WAS ASKED TO EXPLAIN WHY THE DISALLOWANCE U/S.14A R.W.RULE 8D SHOULD NOT BE APPLIED, IT WAS CLAIMED THAT NO EXPENSES WERE INCURRED IN EARNING T HE EXEMPT INCOME. HOWEVER, THE AO HAS NOT SATISFIED WITH THE EXPLANATION OF ASSESSEE AND INVOKED THE PROVISIONS OF THE SECTION 14A R.W.RULES 8D(2) OF INCOME TAX RULES, 1962. ACCORDINGLY, HE C OMPUTED THE DISALLOWANCES AS FOLLOWS:- ` AS PER RULE 8D(2)(I) : 7,50,000 AS PER RULE 8D(2)(II) 2,43,276 AS PER RULE 8D(2)(III) 16,45,646 26,38,922 3 I.T.A. NO. 3258/MDS/2016 3.1 AGGRIEVED, THE ASSESSEE CARRIED THE APPEAL BE FORE THE LD.CIT(A). THE LD.CIT(A) REMITTED THE ISSUE TO THE FILE OF AO FOR LIMITED PURPOSE OF VERIFYING WHETHER THE ASSESSEE H AS ALREADY DISALLOWED A SUM OF ` 2,43,276/- UNDER RULE 8D(II). AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. BEFORE US, LD.A.R SUBMITTED THAT THE ASSESSEE I S HAVING NO DISPUTE REGARDING DISALLOWANCE UNDER RULE 8D(I) & 8D(2)(II) AND SUBMITTED THAT WHILE COMPUTING THE TOTAL EXPENDITUR E IN THE FORMULA A X B C, TDS INTEREST PAID OF ` 9,42,465/- TO BE EXCLUDED TO THAT EXTENT FROM FORMULA A. WE ARE AGREEING WITH TH E CONTENTION OF THE LD.A.R ON THE REASON THAT IT IS SPECIFIC INTEREST A ND NOT RELATING TO EARNING EXEMPTED INCOME. ACCORDINGLY, WE DIRECT TH E AO TO EXCLUDE THIS INTEREST IN ADDITION TO EXPENDITURE B Y WAY OF INTEREST OTHER THAN THE AMOUNT OF THE INTEREST INCLUDED IN R ULE 8D(I) INCURRED DURING THE PREVIOUS YEAR. 4.1 REGARDING RULE 8D(2)(III), LD.A.R SUBMITTED TH AT THERE IS NO SATISFACTIONS RECORDED BY THE AO. AS SUCH , THE ISS UE MAY BE REMITTED BACK TO THE FILE OF AO FOR FRESH CONSIDERA TION. FOR THIS HE RELIED ON THE FOLLOWING CASE LAWS:- A) IN THE CASE OF CIT VS. KAPSONS ASSOCIATES IN [20 16] 381 ITR 204(P&H) 4 I.T.A. NO. 3258/MDS/2016 B) IN THE CASE OF CIT VS. OM PRAKASH KHAITAN IN [20 15] 234 TAXMAN 813 (DELHI) C) IN THE CASE OF DIT VS. MITCHELL DRILLING INTERNA TIONAL (P) LTD., IN [2015] 234 TAXMAN 818 (DELHI) D) IN THE CASE OF CYBER PARK DEVELOPMENT & CONSTRUC TION LTD. VS. DCIT IN [2016] 159 ITD 648. E) IN THE CASE OF PRIYA EXHIBITORS (P) LTD. VS. AC IT IN [2012] 54 SOT 356 (DELHI) 5. ON THE OTHER HAND, LD.D.R RELIED ON THE ORDER O F LOWER AUTHORITIES. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. WE HAVE CAREFULLY GONE THROUGH THE ASSESSME NT ORDER. THE AO HAS SPECIFICALLY MENTIONED IN HIS ORDER THAT HE HAS NOT SATISFIED WITH THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME, WHICH DOE S NOT FORM PART OF THE TOTAL INCOME. BEING SO, THE ASSESSEE AT THIS STAGE CANNOT SAY THAT THE AO HAS NOT RECORDED THE SATISFACTION. FUR THER, THE JURISDICTIONAL HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD., IN T.C NO.520/16 DATED 23.12.2016 WHEREIN HELD THAT:- 5 I.T.A. NO. 3258/MDS/2016 13. RELIANCE IS ALSO PLACED ON A DECISION OF THE JU RISDICTIONAL HIGH COURT IN THE CASE OF BEACH MINERALS COMPANY PVT. LTD. VS. ASSISTANT COMMISSIONE R OF INCOME TAX IN TCA NO.681 OF 2013, DATED 2.12.2013. IN THAT CASE, PAYMENTS OF INTEREST BY THE ASSESSEE WERE SOUGHT TO BE DISALLOWED INVOKING THE PROVISIONS OF S.14A ON THE PREMISE THAT THE SAME RELATED TO BORROWINGS THAT HAD BEEN INVESTED AND WOULD YIELD EXEMPT RETUR NS. THE ASSESSEE CONTESTED THE DISALLOWANCE U/S 14A ON MULTIPLE GROUNDS. IT WAS CO NTENDED THAT THERE WERE SUFFICIENT RESERVES AND SURPLUSES AVAILABLE FOR THE PURPOSE OF INVESTME NTS, AND BORROWED FUNDS, FOR WHICH THE PAYMENT OF INTEREST HAD BEEN INCURRED, HAD NOT BEEN INVESTED. THE ASSESSEE SOUGHT TO DRAW A NEXUS BETWEEN THE BORROWED FUNDS AND THE INTEREST P AYMENTS, HIGHLIGHTING THE POSITION THAT THE QUANTUM OF AVAILABLE FREE FUNDS WAS FAR IN EXCE SS OF THE INVESTMENTS MADE. THE BENCH, IN THE LIGHT OF THE ABOVE SUBMISSIONS, REMANDED THE IS SUE TO THE FILE OF THE ASSESSING OFFICER TO BE CONSIDERED DE NOVO AND AFTER CONDUCTING A PROPER EN QUIRY. INTER ALIA A DIRECTION WAS ISSUED TO THE ASSESSEE TO TENDER A PROPER EXPLANATION FOR THE INTEREST PAYMENTS. THE OPEN REMAND WAS MADE IN THE FACTS AND CIRCUMSTANCES OF THAT CASE AN D NO CONCLUSION WAS DRAWN BY THE BENCH ON THE POSITION OF LAW INVOLVED. IN FACT, THE SUBST ANTIAL QUESTION OF LAW RAISED IN THAT CASE FOR THE CONSIDERATION OF THE COURT WAS COUCHED IN GENER AL TERMS AS FOLLOWS WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE. THE INCOME TAR APPELLATE TRIBUNAL IS RIGHT IN LAW IN CONFIRMING THE DISALLOW ANCE UNDER SECTION 11.1 OF THE INCOME TAX ACT, OF AN AMOUNT OF RS.55,00.000/- IN RELATION TO ASSESSMENT YEAR 2007- 2008? 14. NOTHING MUCH TURNS ON THE USE OF THE WORD INCL UDABLE AND THE PHRASE UNDER THE ACT IN S. 14A AND WE ARE NOT PERSUADED TO ACCEPT THE EMPHASIS LAID OR THE INTERPRETATION OF THE SAME BY THE REVENUE. AN ASSESSMENT IN TERMS OF THE INCOME T AX ACT IS SPECIFIC TO AN ASSESSMENT YEAR AND THE RELATED PREVIOUS YEAR. S.4 OF THE ACT, WHIC H IMPOSES THE CHARGE TO TAX READS THUS: CHARGE OF INCOME-TAX 4. (1) WHERE ANY CENTRAL ACT ENACTS THAT INCOME TA X SHALL BE CHARGED FOR ANY ASSESSMENT YEAR AT ANY RATE OR RATES, INCOME-TAX AT THAT RATE OR THOSE RATES SHALL BE CHARGED FOR THAT YEAR IN ACCORDANCE WITH AND SUBJEC T TO THE PROVISIONS (INCLUDING PROVISIONS FOR THE LEVY OF ADDITIONAL INCOME-TAX) O F, THIS ACT IN RESPECT OF THE TOTAL INCOME OF THE PREVIOUS YEAR OF EVERY PERSON: PROVIDED THAT WHERE BY VIRTUE OF ANY PROVISION OF T HIS ACT INCOME-TAX IS TO BE CHARGED IN RESPECT OF THE INCOME OF A PERIOD OTHER THAN THE PR EVIOUS YEAR, INCOME TAX SHALL BE CHARGED ACCORDINGLY. THUS, WHERE THE STATUTE INDENTED THAT INCOME SHALL BE RECOGNIZED FOR TAXATION IN RESPECT OF ANY PREVIOUS OTHER THAN THAT IMMEDIATELY PRECEDING THE RELEVANT ASSESSMENT YEAR, THE PROVISION SHALL EXPRESSLY STATE SO. THE PROVISIONS OF S.1O IN CHAPTER III OF THE ACT DEALING WITH INCOMES 6 I.T.A. NO. 3258/MDS/2016 NOT INCLUDED IN TOTAL INCOME COMMENCES WITH THE PH RASE IN COMPUTING THE TOTAL INCOME OF A PREVIOUS YEAR, ANY INCOME FALLING WITHIN ANY OF THE FOLLOWING CLAUSES SHALL NOT BE INCLUDED. 15. THE EXEMPTION EXTENDED TO DIVIDEND INCOME WOULD RELATE ONLY TO THE PREVIOUS YEAR WHEN THE INCOME WAS EARNED AND NONE OTHER AND CONSEQUENT LY THE EXPENDITURE INCURRED IN CONNECTION THEREWITH SHOULD ALSO BE DEALT WITH IN T HE SAME PREVIOUS YEAR. THUS, BY APPLICATION OF THE MATCHING CONCEPT, IN A YEAR WHERE THERE IS N O EXEMPT INCOME, THERE CANNOT BE A DISALLOWANCE OF EXPENDITURE IN RELATION TO SUCH ASS UMED INCOME. (MADRAS INDUSTRIAL INVESTMENT CORPORATION LTD. VS. CIT (225 ITR 802). HE LANGUAE OF S.14A(1) SHOULD BE READ IN THE CONTEXT AND SUCH THAT IT ADVANCES THE SCHEME OF THE ACT RAT HER THAN DISTORT IT. IN VIEW OF ABOVE JUDGMENT OF JURISDICTIONAL HIGH CO URT, THE EXEMPTED INCOME EARNED BY THE ASSESSEE IN THE ASSESSMENT YEA R UNDER CONSIDERATION IS ` 32,78,274/- AND THE DISALLOWANCE U/S.14A R.W.RULE 8D IS LESSER THAN THIS AMOUNT. BEING SO, WE D NOT WANT TO INTERFERE WITH REGARD TO DISALLOWANCE U/S.14A R.W.RULES 8D(2( III) OF THE ACT. 7. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 22 ND MARCH, 2017 AT CHENNAI. SD/- SD/- ( (( ( ) )) ) ( ) (DUVVURU R.L REDDY) (CHAN DRA POOJARI) /JUDICIAL MEMBER / ACCOUNTANT MEMBER /CHENNAI, /DATED, THE 22 ND MARCH, 2017. KSSUNDARAM. / COPY TO: 1 . / APPELLANT 3. ( ) / CIT(A) 5. ! / DR 2. ' / RESPONDENT 4. / CIT RULE 8D(2)(II) 6. #$ %& / GF