DCIT, CHENNAI V. AVT Infotech P Ltd., CHENNAI

ITA 529/CHNY/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 8002 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-02-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 15-12-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 28-03-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A B KOLI
• Assessee Lawyers: R MEENAKSHISUNDARAM
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 10B

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , B B ENCH, CHENNAI . . . , . , & BEFORE SHRI N.R.S.GANESAN, JUDICIAL MEMBER AND SHRI A.MOHAN ALANKAMONY, ACCOUNTANT MEMBER ./ I.T.A.NO.529/MDS/2013 ( / ASSESSMENT YEAR: 2009-10) THE DEPUTY COMMISSIONER OF INCOME TAX , COMPANY CIRCLE-I(1) CHENNAI-34. VS M/S. AVT INFOTECH P.LTD. 64,RUKMANI LAKSHMIPATHY SALAI, EGMORE, CHENNAI-8. PAN: AACCA8938J ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. A.B.KOLI, JCIT /RESPONDENT BY : MR. R.MEENAKSHISUNDARAM, ADVOCATE /DATE OF HEARING : 15 TH DECEMBER, 2015 /DATE OF PRONOUNCEMENT : 12 TH FEBRUARY, 2016 / O R D E R PER A. MOHAN ALANKAMONY, AM:- THIS APPEAL IS FILED BY THE REVENUE AGGRIEVED BY TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (AP PEALS)- IX, CHENNAI DATED 28.12.2012 IN ITA NO.216/11-12 PA SSED UNDER SECTION 143(3) READ WITH SECTION 250(6) OF TH E ACT. 2. THE REVENUE HAS RAISED FOUR ELABORATE GROUNDS O F APPEAL. HOWEVER, THE CRUXES OF THE ISSUES ARE REPRO DUCED HEREIN BELOW:- I) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE OF RS.5,49,4 16/- MADE UNDER SECTION 14A READ WITH RULE 8D. 2 ITA NO.529 /MDS/2013 II) THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS ) HAS ERRED IN DIRECTING THE LEARNED ASSESSING OFFICE R TO RE-COMPUTE THE DEDUCTION UNDER SECTION 10A OF THE A CT BY EXCLUDING FREIGHT, TELECOMMUNICATION CHARGES ETC . INCURRED IN FOREIGN CURRENCY BOTH FROM THE EXPORT TURNOVER AND FROM THE TOTAL TURNOVER FOR COMPUTATIO N OF DEDUCTION UNDER SECTION 10A OF THE ACT. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE I S A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINESS OF SOFTWARE AND BPO SERVICES FILED ITS RETURN OF INCOME ON 29. 09.2009 FOR THE ASSESSMENT YEAR 2009-10 ADMITTING TOTAL INCOME OF RS.20,16,880/-. SUBSEQUENTLY RETURN WAS TAKEN UP FO R SCRUTINY AND ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) ON 7.12.2011 WHEREIN THE LEARNED ASSESSING O FFICER MADE ADDITION INVOKING SECTION 14A OF THE ACT AND C OMPUTED THE CLAIM OF DEDUCTION 10B OF THE ACT BY EXCLUDING FREIGHT AND TELECOMMUNICATION CHARGES ETC., INCURRED IN FOR EIGN CURRENCY FROM THE EXPORT TURNOVER IN THE NUMERATOR. GROUND NO.1 :- DISALLOWANCE OF RS.5,49,416/- UNDER SECTION 14A READ WITH RULE 8D: 4. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS OBSERVED BY THE LEARNED ASSESSING OFFICER THAT THE ASSESSEE HAS EARNED DIVIDEND OF RS.75.00 LAKHS DURING THE RE LEVANT ASSESSMENT YEAR. THE LEARNED ASSESSING OFFICER QUE RIED AS 3 ITA NO.529 /MDS/2013 TO WHY SECTION 14A OF THE ACT CANNOT BE INVOKED IN THE CASE OF THE ASSESSEE TO WHICH THE ASSESSEE REPLIED STATI NG THAT IT HAD NOT INCURRED ANY EXPENDITURE FOR EARNING THE EX EMPT DIVIDEND INCOME. HOWEVER, THE LEARNED ASSESSING OFF ICER DID NOT ACCEPT TO THE EXPLANATION OFFERED BY THE ASSESS EE BECAUSE OF THE FOLLOWING REASONS:- I) THE ASSESSEE HAD INCURRED AN AMOUNT OF RS.1,97,507/- AS INTEREST ON ITS BORROWED CAPITAL D URING THE YEAR AND THE ASSESSEE COULD NOT ESTABLISH THAT SUCH BORROWED FUNDS WERE NOT UTILIZED FOR MAKING THE INVESTMENT ON WHICH DIVIDEND INCOME IS EARNED. II) IT IS LOGICAL TO CONCLUDE THAT AMONGST THE ROUT INE EXPENDITURE INCURRED BY THE ASSESSEE CERTAIN PORTIO N WOULD BE ATTRIBUTABLE FOR EARNING THE EXEMPT INCOME . III) RELIANCE WAS PLACED IN THE DECISION OF THE HO NBLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE WHEREIN IT IS HELD THAT DISALLOWANCE UNDER RULE 8D INVOKING SECTION 14A(II) IS FAIR AND REASONABLE. WITH THE ABOVE OBSERVATION, THE LEARNED ASSESSING O FFICER INVOKED THE PROVISIONS OF SECTION 14A READ WITH RU LE 8D AND 4 ITA NO.529 /MDS/2013 DISALLOWED THE EXPENDITURE OF RS.5,49,416/- IN THE HANDS OF THE ASSESSEE. 5. ON APPEAL, THE LEARNED COMMISSIONER OF INCOME TA X (APPEALS) DELETED THE ADDITION MADE BY LEARNED ASSE SSING OFFICER BY INVOKING SECTION 14A OF THE ACT BECAUSE THE ASSESSING OFFICER HAS APPLIED RULE 8D OF THE RULES WITHOUT MAKING ANY SPECIFIC FINDING WITH REGARD TO THE EXPE NDITURE INCURRED BY THE ASSESSEE TOWARDS EARNING EXEMPT INC OME. 6. BEFORE US THE LEARNED AUTHORIZED REPRESENTATIVE ARGUED IN SUPPORT OF THE ORDER OF THE LEARNED COMMI SSIONER OF INCOME TAX (APPEALS) WHILE AS THE LEARNED DEPART MENTAL REPRESENTATIVE RELIED ON THE ORDER OF THE LEARNED A SSESSING OFFICER. 7. WE HAVE HEARD BOTH THE PARTIES AND CAREFULLY PER USED THE MATERIALS AVAILABLE ON RECORD. SECTION 14A(2) O F THE ACT HAS MADE IT CLEAR THAT THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO E XEMPT INCOME AS PER THE METHOD PRESCRIBED IN THE RULES IF HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURES INCURRED FOR EARNING EXEMPT INCOME 5 ITA NO.529 /MDS/2013 AFTER VERIFYING THE ACCOUNTS OF THE ASSESSEE. IN TH E RELEVANT CASE BEFORE US IT APPEARS THAT THE ASSESSEE HAS DEN IED FOR HAVING INCURRED ANY EXPENDITURE FOR EARNING THE EXE MPT INCOME. WE DO NOT AGREE WITH THIS SUBMISSION OF THE ASSESSEE. AS POINTED OUT BY THE LEARNED ASSESSING O FFICER, THERE WOULD BE VARIOUS EXPENDITURES INCURRED BY THE ASSESSEE THAT ARE ATTRIBUTABLE FOR EARNING EXEMPT I NCOME. ACCORDINGLY, THE LEARNED ASSESSING OFFICER HAS RIGH TLY INVOKED THE PROVISIONS OF SECTION 14A AND RULE 8D O F THE ACT. HOWEVER, FROM THE ORDER OF THE LEARNED ASSESSING OF FICER IT IS NOT CLEAR AS TO WHETHER THE INTEREST EXPENDITURE OF RS.1,97,507/- INCURRED BY THE ASSESSEE IS RELATED T O THE INVESTMENTS MADE. IF THE ASSESSEE HAS OWN FUNDS WHI CH ARE NON-INTEREST BEARING, TO THE EXTENT OF INVESTMENTS MADE, INTEREST CANNOT BE TAKEN INTO CONSIDERATION FOR TH E PURPOSE OF COMPUTING DISALLOWANCE UNDER RULE 8D OF THE ACT. T HEREFORE, WE REMIT BACK THE MATTER TO THE FILE OF LEARNED ASS ESSING OFFICER FOR COMPUTING THE DISALLOWANCE UNDER SECTIO N 14A READ WITH RULE 8D OF THE ACT AFRESH. 6 ITA NO.529 /MDS/2013 GROUND NO.2 : COMPUTATION OF DEDUCTION U/S.10A BY EXCLUDING FREIGHT & TELECOMMUNICATION CHARGES ETC. , INCURRED IN FOREIGN CURRENCY BOTH FROM EXPORT TURNOVER& TOTA L TURNOVER:- 8. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE LEARNED ASSESSING OFFICER HAS DISALLOWED A SUM OF RS.88,21,730/- IN RELATION TO THE EXPENDITURE INCUR RED IN FOREIGN CURRENCY WHILE COMPUTING DEDUCTION UNDER SE CTION 10B OF THE ACT BY EXCLUDING IT FROM THE EXPORT TURN OVER IN THE NUMERATOR. ON APPEAL THE LEARNED COMMISSIONER OF IN COME TAX (APPEALS) FOLLOWING THE DECISION OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. SAKSOFT LTD., R EPORTED IN 121 TTJ 865, DIRECTED THE LEARNED ASSESSING OFFICER TO EXCLUDE THE TELECOMMUNICATION EXPENSES INCURRED IN FOREIGN CURRENCY FROM THE TOTAL TURNOVER AS WELL IN THE DEN OMINATOR FOR THE PURPOSE OF COMPUTING THE DEDUCTION UNDER SECTIO N 10B OF THE ACT, AGGRIEVED BY WHICH THE ASSESSEE IS IN APPE AL BEFORE US. 9. AT THE OUTSET WE DO NOT FIND ANY INFIRMITY IN TH E ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ON THIS ISSUE BECAUSE HE HAS ONLY FOLLOWED THE ORDER OF THE SPECIAL 7 ITA NO.529 /MDS/2013 BENCH OF THE TRIBUNAL IN THE CASE OF ITO VS. SAKSOF T LTD WHILE ARRIVING AT THIS DECISION. HENCE WE HEREBY CONFIRM THE SAME. 10. IN THE RESULT, THE APPEAL OF THE REVENUE IS PAR TLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH FEBRUARY, 2016 SD/- SD/- ( . . . ) ( . ) (N.R.S.GANESAN) ( A.M OHAN ALANKAMONY ) # % / JUDICIAL MEMBER % / ACCOUNTANT MEMBER # /CHENNAI, ( /DATED 12 TH FEBRUARY, 2016 SOMU *+ ,+ /COPY TO: 1. APPELLANT 2. RESPONDENT 3. - () /CIT(A) 4. - /CIT 5. + 1 /DR 6. /GF