M/s Navbharat Global Services Private Limited , Bangalore V. Deputy Commissioner of Income Tax Circle-5(1)(1), Bangalore

ITA 450/BANG/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4753 (ITAT-BANGALORE)
• Duration Of Justice: 3 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-06-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 15-02-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: KOTRESH K
• Keywords: Earning of tax free income
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER ITA NO. 450/BANG/2018 ASSESSMENT YEAR : 2013 - 14 NAVBHARAT GLOBAL SERVICES PRIVATE LTD., 421/G, FIRST MAIN, 3 RD CROSS, FIRST STAGE, INDIRANAGAR, BANGALORE 560 038. PAN: AACCK 9182C VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 5(1)(1), BENGALURU. APP ELL ANT RESPONDENT A PP EL LANT BY : SHRI KOTRESH K., CA RE SPONDENT BY : SHRI C.H. SUNDAR RAO, CIT(DR - I)(ITAT), BENGALURU. DATE OF HEARING : 2 3 . 0 5 .201 8 DATE OF PRONOUNCEMENT : 01.06.2018 O R D E R PER N.V. VASUDEVAN, JUDICIAL MEMBER THIS APPEAL BY THE ASSESSEE IS AGAINST THE ORDER DATED 01.12.2017 OF THE CIT(APPEALS)-10, BENGALURU RELATING TO ASSES SMENT YEAR 2013-14. 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE R EADS AS FOLLOWS:- BEING AGGRIEVED BY THE ORDER OF THE COMMISSIONER O F INCOME TAX (APPEALS) - 10, BENGALURU, THIS APPEAL PETITION IS BEING SUBMITTED ON THE FOLLOWING GROUNDS WHICH IT IS PRAY ED MAY BE CONSIDERED WITHOUT PREJUDICE TO ONE ANOTHER. ITA NO. 450/BANG/2018 PAGE 2 OF 5 1. THE LEARNED COMMISSIONER OF INCOME TAX - APPEAL S ERRED IN UPHOLDING THE ADDITION OF THE ASSESSING OFFICER OF RS. 1,30,98,615/- UNDER SECTION 14A IN COMPUTATION OF B OOK PROFIT UNDER SECTION 115JB OF THE INCOME TAX ACT, 1 961 (HEREINAFTER REFERRED TO AS 'THE ACT'). 2. THE LEARNED COMMISSIONER OF INCOME TAX - APPEAL S ALSO ERRED IN UPHOLDING THE RE-COMPUTATION OF INTEREST U NDER SECTION 234C MADE BY ASSESSING OFFICER WHICH OUGHT HAVE BEEN RESTRICTED TO RS. 1,76,745/- AS PER THE RETURN OF INCOME FILED BY THE APPELLANT. 3. THE APPELLANT CRAVES LEAVE TO ADD TO ALTER OR O THERWISE AMEND THE ABOVE MENTIONED GROUNDS OF APPEAL. 3. AS FAR AS GROUND NO.1 RAISED BY THE ASSESSEE IS CONCERNED, THE FACTS ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF RENDERING CONSULTANCY SERVICES IN COMMERCIAL, FINAN CIAL AND ENGINEERING FIELDS. FOR THE AY 2013-14, THE AO DETERMINED THE TOTAL INCOME OF THE ASSESSEE BY HIS ORDER DATED 28.3.2016 PASSED U/S. 1 43(3) OF THE INCOME- TAX ACT, 1961 [THE ACT] AT RS.NIL AS PER THE NORM AL PROVISIONS OF THE ACT AND AT RS.3,49,10,704 AS PER THE PROVISIONS OF SECT ION 115JB OF THE ACT (TAX ON BOOK PROFITS). WHILE COMPUTING INCOME UNDE R THE NORMAL PROVISIONS OF THE ACT, THE AO HAD MADE DISALLOWANCE OF EXPENSE S U/S. 14A OF THE ACT R.W. RULE 8D OF THE I.T. RULES [THE RULES] OF A SUM OF RS.1,32,75,360. SIMILARLY, WHILE COMPUTING BOOK PROFITS U/S. 115JB OF THE ACT, THE AO ADDED TO THE PROFIT AS PER PROFIT & LOSS ACCOUNT OF THE A SSESSEE PREPARED IN ACCORDANCE WITH THE PROVISIONS OF THE COMPANIES ACT , 1956, EXPENDITURE INCURRED IN EARNING THE DIVIDEND INCOME WHICH WAS D EBITED TO THE PROFIT & LOSS ACCOUNT IN TERMS OF SECTION 14A OF THE ACT. I T IS NOT DISPUTED THAT THE SUM SO ADDED BY THE AO WAS THE SAME SUM WHICH WAS C OMPUTED BY THE ITA NO. 450/BANG/2018 PAGE 3 OF 5 AO AS EXPENSES DISALLOWABLE U/S. 14A WHILE COMPUTIN G TOTAL INCOME AS PER NORMAL PROVISIONS OF THE ACT. 4. ACCORDING TO THE ASSESSEE, THE DISALLOWANCE OF E XPENSES U/S. 14A WHICH IS DONE WHILE COMPUTING TOTAL INCOME UNDER TH E NORMAL PROVISIONS OF THE ACT CANNOT BE AUTOMATICALLY ADOPTED WHILE COMPU TING BOOK PROFITS U/S. 115JB OF THE ACT AS PER CLAUSE(F) OF EXPLANATION-1 BELOW SUB-SECTION (2) OF SEC.115JB OF THE ACT AND THAT SUCH COMPUTATION O F EXPENSES SHOULD BE MADE INDEPENDENT OF THE PROVISIONS OF SECTION 14A R .W. RULE 8D OF THE RULES. THE ASSESSEE ACCORDINGLY FILED AN APPEAL BE FORE THE CIT(APPEALS) RAISING THE ABOVE CONTENTION. 5. THE CIT(APPEALS), HOWEVER, PLACED RELIANCE ON TH E DECISION OF ITAT BANGALORE BENCH IN THE CASE OF DCIT V. MICRO LABS REPORTED IN (2015) 39 ITR (TRIB.) 585 BANG. TRIB., WHEREIN IT WAS HELD TH AT DISALLOWANCE MADE WHILE COMPUTING TOTAL INCOME UNDER THE NORMAL PROVI SIONS OF THE ACT IN TERMS OF SECTION 14A OF THE ACT CAN BE ADOPTED WHIL E COMPUTING BOOK PROFITS U/S. 115JB OF THE ACT. THE CIT(APPEALS) AL SO NOTICED THAT THE DECISION RENDERED BY THE BANGALORE BENCH OF TRIBUNA L WAS CONFIRMED BY THE HONBLE HIGH COURT OF KARNATAKA IN THE DECISION IN THE CASE OF CIT V. MICRO LABS REPORTED IN (2016) 383 ITR 890 (KAR). 6. AGGRIEVED BY THE ORDER OF CIT(APPEALS), THE ASSE SSEE PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 7. THE GRIEVANCE OF THE ASSESSEE ON THIS ISSUE IS P ROJECTED IN GROUND NO.1 REFERRED TO IN THE EARLIER PART OF THIS ORDER. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE SPECIAL BENCH OF THE DE LHI TRIBUNAL IN THE CASE OF ACIT V. VIREET INVESTMENTS PVT. LTD. (2017) 82 TAXM ANN.COM 415 (DEL)(TRIB)(SB) HAS TAKEN THE VIEW THAT COMPUTATION OF DISALLOWANC E OF EXPENSES INCURRED TO EARN EXEMPT INCOME WHILE COMPU TING BOOK PROFITS U/S. ITA NO. 450/BANG/2018 PAGE 4 OF 5 115JB OF THE ACT BY APPLYING CLAUSE (F) TO EXPLANAT ION 1 TO SECTION 115JB(2) HAS TO BE DONE INDEPENDENTLY AND CANNOT BE BASED ON THE QUANTUM OF DISALLOWANCE US/. 14A R.W. RULE 8D OF THE RULES MAD E WHILE COMPUTING TOTAL INCOME OF AN ASSESSEE UNDER THE NORMAL PROVIS IONS OF THE ACT. IN VIEW OF THE AFORESAID DECISION OF THE SPECIAL BENCH , WE ARE OF THE VIEW THAT DISALLOWANCE U/S. 14A OF THE ACT WHILE MAKING COMPU TATION UNDER THE NORMAL PROVISIONS OF THE ACT CANNOT BE ADOPTED WHIL E COMPUTING BOOK PROFITS U/S. 115JB OF THE ACT. WE MAY ALSO MENTIO N THAT THE DECISION OF THE BANGALORE BENCH OF TRIBUNAL IN THE CASE OF MICRO LABS WAS RENDERED PRIOR TO THE DECISION OF THE SPECIAL BENCH AND THEREFORE WILL HAVE NO BINDING EFFECT. AS FAR AS THE DECISION OF THE HONBLE HIGH COURT OF KARNATAKA IN CIT V. MICRO LABS , 383 ITR 490 IS CONCERNED, THE SAME DID NOT DEAL WITH THE ISSUE OF DISALLOWANCE TO BE MADE U/S. 14A OF THE AC T WHILE COMPUTING BOOK PROFITS AND WAS ON A DIFFERENT ISSUE. THE CIT(APPE ALS) IN THIS APPEAL HAS QUOTED THIS DECISION AS A DECISION RENDERED IN THE CONTEXT OF DISALLOWANCE U/S. 14A OF THE ACT WHILE COMPUTING BOOK PROFITS U/ S. 115JB OF THE ACT WHICH IS INCORRECT. THE AO IS ACCORDINGLY DIRECTED TO CO MPUTE THE DISALLOWANCE IN TERMS OF CLAUSE (F) OF EXPLANATION 1 TO SECTION 115 JB(2) OF THE ACT, WITHOUT RESORTING TO PROVISIONS OF SECTION 14A R.W. RULE 8D OF THE RULES. GROUND NO.1 IS THEREFORE TREATED AS ALLOWED. 8. AS FAR AS GROUND NO.2 RAISED BY THE ASSESSEE IS CONCERNED, THE ISSUE OF CHARGING INTEREST U/S.234C OF THE ACT WAS NOT SUBJECT MATTER OF APPEAL BEFORE THE CIT(APPEALS) AND THEREFORE DOES N OT ARISE OUT OF THE ORDER OF CIT(APPEALS). THE ASSESSEE, IS, HOWEVER, AT LIBERTY TO TAKE RECOURSE TO OTHER REMEDY FOR REDRESSING THE GRIEVAN CE PROJECTED IN GROUND NO.2 IN ACCORDANCE WITH LAW. ITA NO. 450/BANG/2018 PAGE 5 OF 5 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TRE ATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. PRONOUNCED IN THE OPEN COURT ON THIS 1 ST DAY OF JUNE, 2018. SD/- SD/- ( INTURI RAMA RAO ) ( N.V. VASUDEVAN ) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE JUNE, 2018. / D ESAI S MURTHY / COPY TO: 1. APP ELL ANT 2. RESPONDENT 3. CIT 4. CI T(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY ITAT, BANGALORE.