NETMAGIC SOLUTIONS P. LTD, MUMBAI V. DCIT 9(2), MUMBAI

ITA 5247/MUM/2011

• Counselvise Citation: 524719914 RSA 2011
• Duration Of Justice: 2 year(s) 8 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 06-02-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 08-07-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: PITAMBAR DAS; SU RENDRA KUMAR
• Assessee Lawyers: VIJAY MEHTA
• Keywords: Earning of tax free income
• Section: 14A; 115JB

Judgement Text

, CH CHCH CH INCOME TAX APPELLATE TRIBUNAL MUMBAI - B BENCH MUMBAI . . , / ! ! ! ! , BEFORE S/SH.B.R.MITTAL,JUDICIAL MEMBE R & RAJENDRA,ACCOUNTANT MEMBER /. ITA NO. 5247/MUM/2011, ' ' ' ' # # # # / ASSESSMENT YEAR 2008-09 NETMAGIC SOLUTIONS PVT. LTD. 2 ND FLOOR (NORTH SIDE) BLOCK-B 2, PHASE-I, NIRLON KNOWLEDGE PARK, WESTERN EXPRESS HIGHWAY, GOREGAON (E) MUMBAI-400063 VS. DCIT (9)(2 ), MUMBAI. PAN: AABCN1254B ( $% / APPELLANT ) ( &'$% / RESPONDENT) $% $% $% $% ( (( ( ) ) ) ) / ASSESSEE BY : SHRI VIJAY MEHTA &'$% ( ) / REVENUE BY : SHRI PITAMBAR DAS & SHRI SURENDRA KUMAR ' ' ' ' ( (( ( *+ *+ *+ *+ / DATE OF HEARING : 21 . 02 .201 4 ,-# ( *+ / DATE OF PRONOUNCEMENT : 12.03 .201 4 ' ' ' ' , 1961 ( (( ( 254 )1( *.* *.* *.* *.* / / / / ORDER U/S.254(1)OF THE INCOME-TAX ACT,1961(ACT) PER RAJENDRA,A.M: CHALLENGING THE ORDER,DATED 28.04.2011,OF THE CIT(A )-20,MUMBAI ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.RE: DISALLOWANCE U/S. 14A AMOUNTING TO RS. 11,95, 925/-: 1.1THE LEARNED CIT(A) (HEREINAFTER REFERRED AS THE CIT(A) GROSSLY ERRED IN UPHOLDING THE CONTENTION OF THE ASSESSING OFFICER BY DISALLOWING RS 11,95,925/ - U/S 14A READ WITH RULE 8D.THE CIT(A) OUGHT TO HAVE APPRECIATED THAT APPLICATION O F RULE 8D IS NOT AUTOMATIC AND THAT NO SATISFACTION WAS REACHED BY THE ASSESSING OFFICER T O THE EFFECT THAT THE AMOUNT DISALLOWED BY THE APPELLANT WAS NOT ADEQUATE. 1.2.WITHOUT PREJUDICE TO THE ABOVE HAVING REGARD TO THE FACTS OF THE CASE AND IN LAW,THE DISALLOWANCE U/S 14A SHOULD BE SUBSTANTIALLY REDUCE D. 2.RE: COMPUTATION OF BOOK PROFITS U/S 115JB: 2.1.THE LEARNED CIT(A) GROSSLY ERRED IN UPHOLDING T HE CONTENTION OF THE ASSESSING OFFICER BY DISALLOWING RS 11,95,925/-U/S.14A READ WITH RULE 8D WHILE COMPUTING BOOK PROFIT U/S 115JB. 2.2.WITHOUT PREJUDICE TO THE ABOVE HAVING REGARD TO THE FACTS OF THE CASE AND IN LAW, THE DISALLOWANCE U/S.14A WHILE COMPUTING BOOK PROFIT U/ S.115JB SHOULD BE SUBSTANTIALLY REDUCED. 3.RE: DEDUCTION U/S 80-IA NOT ALLOWED ON DISALLOWAN CE U/S 14A. 3.1.THE CIT(A)GROSSLY ERRED IN UPHOLDING THE CONTEN TION OF THE APPELLANT BY NOT ALLOWING DEDUCTION U/S 80-IA ON THE REVISED INCOME COMPUTED AFTER MAKI NG DISALLOWANCE U/S.14A.THE CIT(A) GROSSLY ERRED IN HOLDING THAT THE DISALLOWANCE U/S. 14A IS NOT UNDER ANY OF THE PROVISIONS OF COMPUTATION OF PROFITS AND GAINS OF BUSINESS. 4.THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AMEN D OR DELETE ANY GROUND OF APPEAL. ASSESSEE-COMPANY,ENGAGED IN THE BUSINESS OF PROVID ING INTERNET SERVICES AND INTERNET DATA,FILED ITS RETURN OF INCOME ON 29.09.2008,DECLARING TOTAL INCOME OF RS.59.20 LAKHS.ASSESSING OFFICER (AO)FINALISED THE ASSESSMENT ORDER U/S.143(3) OF TH E ACT,ON 30.11.2010,DETERMINING THE TOTAL INCOME AT RS.71,16,425/-,UNDER THE NORMAL PROVISION S OF THE ACT. 2. FIRST GROUND OF APPEAL IS ABOUT DISALLOWANCE MADE U /S.14A OF THE ACT.DURING THE COURSE OF HEARING BEFORE US,AUTHORISED REPRESENTATIVE(AR) OF THE ASSESSEE DID NOT PRESS GROUND NO.1. 2 ITA NO. 5247/MUM/2011 NETMAGIC SOLUTIONS PVT. LTD. HENCE,SAME IS DISMISSED,AS NOT PRESSED. 3. SECOND GROUND OF APPEAL IS ABOUT COMPUTATION OF BOO K PROFITS U/S.115JB OF THE ACT.WHILE COMPUTING THE INCOME OF THE ASSESSEE,UNDER THE MAT PROVISIONS,AO ADDED RS.14.45 LAKHS TO THE ITS TAXABLE INCOME.IN THE APPELLATE PROCEEDINGS,FAA DECIDED THE ISSUE AGAINST THE ASSESSEE. BEFORE US,AR SUBMITTED THAT IN THE DECISIONS OF RELIANCE I NDUSTRIAL INFRASTRUCTURE LTD.(ITA/69- 70/MUM/2009, DATED 05.04.2013-AY.2005-06 & 2006-07) AND ESSAR TELEHOLDINGS LTD.(ITA/ 3850/MUM/2010, AY. 2005-06 -DATED 29.07.2011) MUMBA I TRIBUNAL HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. DEPARTMENTAL REPRESENTATIVE (DR)SUPPORTED THE ORDER OF THE FAA.WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIA L BEFORE US.WE FIND THAT IN THE CASE OF ESSAR TELEHOLDINGS LTD.(SUPRA)THE ISSUE WAS DECIDED IN FA VOUR OF THE ASSESSEE.TRIBUNAL HAD HELD AS UNDER: 8.. FURTHER, NO ACTUAL EXPENDITURE WAS DEBITED IN THE PROFIT & LOSS ACCOUNT RELATING TO THE EARNING OF EXEMPT INCOME.THEREFORE THE PROVISIONS OF SEC. 1 4A CANNOT BE IMPORTED INTO WHILE COMPUTING THE BOOK PROFIT U/S. 115JB OF THE ACT INASMUCH AS CLAUS E (F) OF EXPLANATION TO SEC. 115JB REFERS TO THE AMOUNT DEBITED TO THE PROFIT & LOSS ACCOUNT WHICH C AN BE ADDED BACK TO THE BOOK PROFIT WHILE COMPUTING BOOK PROFIT U/S. 115]B OF THE ACT. IN THI S CONNECTION, RELIANCE CAN BE PLACED UPON THE DECISION OF THAT DELHI BENCH IN THE CASE OF GOETZE (INDIA) LTD. VS CIT (2009) 32 SOT 101 (DEL), WHEREIN IT HAS BEEN HELD THAT PROVISIONS OF SUB-SEC . (2) & (3) OF SEC. 14A CANNOT BE IMPORTED INTO CLAUSE (F) OF THE EXPLANATION TO SEC. 115JA OF THE ACT. IN THIS VIEW OF THE MATTER, WE THEREFORE, DELE TE THE DISALLOWANCE OF EXPENSES CONFIRMED BY THE CIT(A ) WHILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. IN OTHER WORDS, NO ADDITION TO THE BOOK PROFIT SHALL BE MADE ON ACCOUNT OF ALLEGED EXPENDITURE INCURRED TO EARN EXEMPT INCOME WHILE COMPUTING INCO ME U/S. 115JB OF THE ACT. THUS GROUND NO. 2 IS DECIDED IN FAVOUR OF THE ASSESSEE. SIMILAR VIEW WAS TAKEN IN THE CASE OF RELIANCE INDU STRIAL INFRASTRUCTURE LTD.(SUPRA).FOLLOWING THE ABOVE,WE DECIDE GROUND NO.2 IN FAVOUR OF THE ASSESS EE. 4. NEXT GROUND RELATES TO DEDUCTION U/S.80IA OF THE AC T NOT ALLOWED ON DISALLOWANCE U/S.14A OF THE ACT.AS PER THE ASSESSEE,IT HAD CLAIMED DEDUCTION AM OUNTING TO RS.6,57,68,836/-, U/S.80IA AND AO HAD MADE A DISALLOWANCE U/S.14A OF THE ACT,THAT WHI LE COMPUTING THE CLAIM UNDER CHAPTER VI I.E. 80IA AO DID NOT ALLOW THE SAID DISALLOWANCE MADE,TH AT HE DID NOT MENTION ANY REASON FOR NOT ALLOWING THE DISALLOWANCE. 5. IN THE APPELLATE PROCEEDINGS FAA HELD THAT IF THE A RGUMENT OF THE ASSESSEE WAS ACCEPTED,THE DISALLOWANCE MADE U/S.14A WOULD GET NULLIFIED,THAT IN EARLIER YEARS FAA HAD NOT GIVEN ANY SPECIFIC FINDING IN THAT REGARD,THAT FAA HAD MENTIONED THAT AO WOULD KEEP IN HIS MIND THE ISSUE WHILE RE- COMPUTING THE INCOME OF THE ASSESSEE.HE REJECTED TH E GROUND OF APPEAL FILED BY THE ASSESSEE. 6. BEFORE US,AUTHORISED REPRESENTATIVE(AR) SUBMITTED T HAT DISALLOWANCE MADE BY THE AO U/S. 14A OF THE ACT HAD TO BE TAKEN INTO CONSIDERATION WHILE COMPUTING THE DEDUCTION U/S. 80 IA OF THE ACT.HE RELIED UPON THE JUDGMENT OF HONBLE BOMBAY H IGH COURT DELIVERED IN THE MATTER OF GEM PLUS JEWELLERY INDIA LTD.(330ITR175).DEPARTMENTAL R EPRESENTATIVE (DR) SUPPORTED THE ORDER OF THE FAA. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL BEFORE US.WE FIND THAT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD.(SUPRA)ASSESSEE HAD CLAIMED DEDUCTION U/S 10A OF THE ACT AND DISALLOWANCES WERE MADE BY THE AO U/S.43B OF THE AC T.AO WAS OF THE VIEW THAT THE ASSESSEE WAS NOT BE ELIGIBLE FOR DEDUCTION U/S.10A OF THE ACT ON THE ENHANCED INCOME. HOWEVER, THE HONBLE BOMBAY HIGH COURT DECIDED THE ISSUE IN FAVOUR OF AS SESSEE AND HELD THAT THE ASSESSEE WOULD BE ENTITLED TO DEDUCTION U/S 10A OF THE ACT ON THE ENH ANCED INCOME.WE WOULD LIKE TO REPRODUCE THE RELEVANT PORTION OF THE ORDER,WHICH READS AS UNDER: ..IT WAS AN ADMITTED POSITION THAT THE ASSESSEE H AD DEPOSITED BOTH THE EMPLOYER'S AND THE 3 ITA NO. 5247/MUM/2011 NETMAGIC SOLUTIONS PVT. LTD. EMPLOYEES' CONTRIBUTION TOWARDS PROVIDENT FUND AND ESIC, THOUGH BEYOND THE DUE DATE INCLUDING THE GRACE PERIOD. THE ASSESSING OFFICER ADDED THESE PAY MENTS TO THE TOTAL INCOME OF THE ASSESSEE. THE DISALLOWANCE WHICH WAS EFFECTED BY THE ASSESSING OF FICER HAD NOT BEEN CHALLENGED BY THE ASSESSEE. THE PLAIN CONSEQUENCE OF THE DISALLOWANCE AND THE A DD BACK THAT HAD BEEN MADE BY THE ASSESSING OFFICER WAS AN INCREASE IN THE BUSINESS PROFITS OF THE ASSESSEE. THE CONTENTION OF THE REVENUE THAT IN COMPUTING THE DEDUCTION UNDER SECTION 10A THE ADDIT ION MADE ON ACCOUNT OF THE DISALLOWANCE OF THE PROVIDENT FUND/ESIC PAYMENTS OUGHT TO BE IGNORED CO ULD NOT BE ACCEPTED. NO STATUTORY PROVISION TO THAT EFFECT HAVING BEEN MADE, THE PLAIN CONSEQUENCE OF THE DISALLOWANCE MADE BY THE ASSESSING OFFICER MUST FOLLOW. THE TRIBUNAL WAS JUSTIFIED IN DIRECTING THE ASSESSING OFFICER TO GRANT THE EXEMPTION UNDER SECTION 10A OF THE ACT ON THE ASSES SED INCOME, WHICH WAS ENHANCED DUE TO DISALLOWANCE OF THE EMPLOYER'S AS WELL AS EMPLOYEES ' CONTRIBUTION TOWARDS PF/ESIC. RESPECTFULLY,FOLLOWING THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT,WE ALLOW GROUND NO.3 RAISED BY THE ASSESSEE AND DIRECT THE AO TO ALLOW D EDUCTION U/S.10A OF THE ACT ON ENHANCED INCOME. AS A RESULT,APPEAL FI ELD BY THE ASSESSEE STANDS PARTLY ALLOWED. 0*1'2* 4 5 /*1 ( * 6 7. ORDER PRONOUNCED I N THE OPEN COURT ON 12 TH MARCH, 2014. / ( ,-# 9 12 EKPZ EKPZ EKPZ EKPZ , 2014 - ( . . SD/- SD/- ( . . . B.R.MITTAL) ( ! ! ! ! / RAJENDRA) / JUDICIAL MEMBER /ACCOUNTANT MEMBER / MUMBAI, :' /DATE: 12.03.2014 SK / / / / ( (( ( &*; &*; &*; &*; < ;#* < ;#* < ;#* < ;#* / COPY OF THE ORDER FORWARDED TO : 1. ASSESSEE / $% 2. RESPONDENT / &'$% 3. THE CONCERNED CIT(A)/ = > , 4. THE CONCERNED CIT / = > 5. DR B BENCH, ITAT, MUMBAI / ;?. &*' C CC CH HH H , . . . 6. GUARD FILE/ . 0 . ';* &* //TRUE COPY// /' / BY ORDER, @ / 6 DY./ASST. REGISTRAR , /ITAT, MUMBAI.