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

ITA 446/CHNY/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9316 (ITAT-CHENNAI)
• Duration Of Justice: 2 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-05-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 29-02-2016
• Court: TRIBUNAL
• Assessee Lawyers: G SEETHARAMAN
• Keywords: Earning of tax free income
• Section: 43B; 143(3); 5(2); 14A; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : CHENNAI . , . !' , # % & [ BEFORE SHRI A. MOHAN ALANKAMONY, ACCOUNTANT MEMBER AND SHRI V. DURGA RAO, JUDICIAL MEMBER ] ./ I.T.A.NO.446/MDS/2016 / ASSESSMENT YEAR : 2011-12 M/S QUESTNET ENTERPRISES INDIA PVT. LTD THE RAIN TREE PLACE B WING, 9 TH FLOOR NO.7, MCNICHOLS ROAD, CHETPUT CHENNAI 600 031 VS. THE DY. COMMISSIONER OF INCOME-TAX CORPORATE CIRCLE 5(2) CHENNAI [PAN AAACQ 1177 H ] ( '( / APPELLANT) ( )*'( /RESPONDENT) / APPELLANT BY : SHRI G. SEETHARAMAN, CA /RESPONDENT BY : SHRI GURU BASHYAM, JCIT / DATE OF HEARING : 10 - 05 - 2016 / DATE OF PRONOUNCEMENT : 12 - 05 - 2016 !' / O R D E R PER V. DURGA RAO, JUDICIAL MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX, CHENNAI-5, DATED 22 .1.2016 IN C.NO.2(28)/263/PCIT/CR-5/2015-16 PASSED U/S 263 OF THE INCOME-TAX ACT, 1961, FOR ASSESSMENT YEAR 2011-12. ITA NO. 446/16 :- 2 -: 2. FACTS ARE IN BRIEF THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING IN PRECIOUS AND NON-PRECIOUS ME TALS. IT HAS FILED THE RETURN OF INCOME DECLARING NIL INCOME. THE RET URN FILED BY THE ASSE WAS PROCESSED U/S 143(1) OF THE ACT. SUBSEQU ENTLY, AFTER DUE PROCESS, THE ASSESSMENT WAS COMPLETED U/S 143(3) O F THE ACT. THEREAFTER, THE CIT BY EXERCISING POWER U/S 263 O F THE ACT, CALLED FOR THE RECORDS FROM THE ASSESSING OFFICER AND HE HAS O BSERVED THAT AN AMOUNT OF ` 29,90,799/- AS DISALLOWABLE U/S 43B, WHEREAS THE ABOVE QUALIFIED DISALLOWANCE AS PER FORM 3CD WAS NOT ADDE D BACK BY THE ASSESSEE WHILE COMPUTING THE TAXABLE INCOME. A SHOW CAUSE NOTICE WAS ISSUED TO THE ASSESSEE CALLING FOR THE INFORMA TION. IT WAS SUBMITTED BEFORE THE CIT THAT THE AMOUNT OF ` 2,90,799/- BEING VAT PAYABLE WAS NOT DEBITED TO THE PROFIT & LOSS ACCOUN T AND THEREFORE, NOT LIABLE TO BE DISALLOWED. HOWEVER, THE CIT BEIN G NOT SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, DIRECTED THE ASSE SSING OFFICER TO VERIFY THE CLAIM IN THE LIGHT OF THE JUDGMENT OF CA LCUTTA HIGH COURT IN THE CASE OF CIT VS CHOWRINGHEE SALES BUREAU PVT. LT D, [1969] 71 ITR 131. 3. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE CIT, WHILE EXERCISING HIS POWER U/S 263, HAS M ADE SUCH AN OBSERVATION IN RESPECT OF DISALLOWANCE U/S 43B AND THUS REQUESTED ITA NO. 446/16 :- 3 -: THAT WITHOUT INFLUENCED BY THE OBSERVATION MADE BY THE CIT, THE ASSESSING OFFICER MAY BE DIRECTED TO DECIDE THE ISS UE ON MERIT IN ACCORDANCE WITH LAW. THE LD. DR HAS NOT RAISED ANY SERIOUS OBJECTION TO THE REQUEST OF THE LD. COUNSEL FOR THE ASSESSEE . THUS, WE DIRECT THE ASSESSING OFFICER TO DECIDE THE ISSUE OF DISALL OWANCE U/S 43B OF THE ACT DE NOVO IN ACCORDANCE WITH LAW. 4. FURTHER, THE CIT HAS NOTED THAT FOR ASSESSMENT YEAR 2011- 12, THE ASSESSEE-COMPANY HAS EARNED DIVIDEND INCOME OF ` ,10,78,988/- AND AVAILED EXEMPTION U/S 10(34)/(35) OF THE ACT. HE FURTHER OBSERVED THAT THE ASSESSEE HAS AVAILED AN AMOUNT OF ` 2,57,07,486/- AS EXEMPT U/S 10(38) TOWARDS LONG TE RM CAPITAL GAINS ON SALE OF SECURITIES. AS PER THE PROVISIONS OF SE C. 14A OF THE ACT, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF THE EXPEND ITURE INCURRED IN RELATION TO SUCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME WHEREAS THE ASSESSEE-COMPANY HAS NOT OFFERED ANY DI SALLOWANCE U/S 14A IN THE COMPUTATION OF INCOME. BEFORE THE CIT, IT WAS SUBMITTED THAT THE ASSESSEE-COMPANY HAS NOT INCURRED ANY EXP ENDITURE TO EARN THE EXEMPTED INCOME, THEREFORE, PROVISIONS OF SE CTION 14A R.W RULE 8D IS NOT APPLICABLE IN THE CASE OF THE ASSESSEE. HOWEVER, THE CIT AFTER CONSIDERING THE EXPLANATION OF THE ASSESSEE HAS OBSERVED THAT THE ASSESSEE CANNOT EARN DIVIDEND WITHOUT ITS EXIS TENCE AND ITA NO. 446/16 :- 4 -: MANAGEMENT, INVESTMENT DECISIONS ARE VERY COMPLEX I N NATURE. THE CIT FURTHER OBSERVED THAT PERUSAL OF THE RECORDS SH OW THAT THERE WERE QUITE A LOT OF PORTFOLIO ACTIVITY EVIDENCING BUYING AND SELLING OF SECURITIES/UNITS OF MUTUAL FUNDS DURING THE YEAR AN D THE ASSESSEE HAS ALSO CLAIMED EXEMPTION U/S 10(38) ON THE LONG TERM CAPITAL GAINS OF ` 2,57,07,486/-. IT IS LOGICAL TO CONCLUDE THAT A P ORTION OF THE ROUTINE EXPENDITURE TO MAINTAIN ITS ESTABLISHMENT AND ADMIN ISTRATION CAN BE ATTRIBUTABLE TOWARDS THE ACTIVITY OF MANAGING THE I NVESTMENT PORTFOLIO TO EARN THE EXEMPT INCOME I.E DIVIDEND AND LONG TER M CAPITAL GAINS. FURTHER, IT IS A FACT THAT MANAGERIAL STAFF AND THE DIRECTORS ARE INVOLVED IN MAKING DECISIONS ON INVESTMENTS. HENCE, A PORTI ON OF THIS MANAGERIAL REMUNERATION AND DIRECTORS REMUNERATION DEFINITELY BE ATTRIBUTABLE TOWARDS EARNING SUCH EXEMPT INCOME. WI TH THE ABOVE OBSERVATION, THE CIT HAS DIRECTED THE ASSESSING OFF ICER TO MAKE DISALLOWANCE U/S 14A R.W RULE 8D. 5. BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBMITT ED THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENSES TO EARN THE EXEMPTED INCOME AND NO BORROWALS WERE MADE FOR MAKING INVEST MENT. HE FURTHER SUBMITTED THAT THE CIT(A) IS NOT JUSTIFIED IN OBSERVING THAT THE ASSESSEE MIGHT HAVE INCURRED SOME EXPENDITURE TOWA RDS MANAGERIAL AND DIRECTORS REMUNERATION AND PRAYED THAT THE ASS ESSING OFFICER MAY ITA NO. 446/16 :- 5 -: BE DIRECTED TO DECIDE THE APPLICATION OF SEC. 14A R .W RULE 8D WITHOUT BEING INFLUENCED BY THE OBSERVATION MADE BY THE CIT . 6. ON THE OTHER HAND, THE LD. DR HAS NOT RAISED ANY SE RIOUS OBJECTION TO THE PRAYER OF THE ASSESSEE. 7. WE HAVE HEARD BOTH THE SIDES AND PERUSED THE MATER IAL AVAILABLE ON RECORD. SO FAR AS APPLICATION OF SEC. 14A R.W. RULE 8D IS CONCERNED, THE CIT HAS GIVEN A FINDING THAT THE AS SESSEE HAS INCURRED CERTAIN EXPENDITURE IN RESPECT OF MANAGERIAL AND DI RECTORS REMUNERATION AND DIRECTED THE ASSESSING OFFICER TO APPLY SEC. 14A R.W. RULE 8D. IN OUR OPINION, THE ORDER PASSED BY THE CI T NEEDS TO BE MODIFIED. ACCORDINGLY, WE DIRECT THE ASSESSING OFF ICER TO CONSIDER APPLICATION OF SEC. 14A R.W. RULE 8D WITHOUT INFLUE NCED BY THE OBSERVATION MADE BY THE CIT AND DECIDE THE ISSUE DE NOVO IN ACCORDANCE WITH LAW. 8. IN VIEW OF THE ABOVE, WE SET ASIDE THE ORDER PASSE D BY THE CIT AND DIRECT THE ASSESSING OFFICER TO DECIDE THE ISSUES AS DIRECTED ABOVE. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 446/16 :- 6 -: ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH MAY, 2016, AT CHENNAI. SD/- SD/- ( # . $ % $ ) (A. MOHAN ALANKAMONY) !& / ACCOUNTANT MEMBER ' ( ' . ! ) ) ( V. DURGA RAO ) * !& / JUDICIAL MEMBER +* / CHENNAI ,! / DATED:12 TH MAY, 2016 RD !''' -.'/. / COPY TO: ' 1 . / APPELLANT 4. ' 0 / CIT 2. / RESPONDENT 5. .1)' 2 / DR 3. ' 0'(3 / CIT(A) 6. )4'5 / GF