DCIT, Bangalore V. M/s Quest Informatics Pvt. Ltd., Bangalore

ITA 65/BANG/2016

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 7259 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-11-2017
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 25-07-2017
• Assessment Year: 2011-2012
• Appeal Filed On: 22-01-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PADMA MEENAKSHI
• Assessee Lawyers: SUDHEENDRA B R
• Keywords: Opportunity of being heard
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER A ND SHRI LALIET KUMAR, JUDICIAL MEMBER IT A NO. 65/BANG/2016 ASSESSMENT YEAR : 20 11 - 12 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 5(1)(1), BANGALORE. VS. M/S. QUEST INFORMATICS PVT. LTD., NO. 960, 2 ND MAIN ROAD, VITH BLOCK, RAJAJI NAGAR, BANGALORE 560 010. PAN: AAACQ 0717H APPELLANT RESPONDENT C.O. NO. 72/BANG/2017 (IN ITA NO. 65/BANG/2016) ASSESSMENT YEAR : 2011 - 12 M/S. QUEST INFORMATICS PVT. LTD., NO. 960, 2 ND MAIN ROAD, VITH BLOCK, RAJAJI NAGAR, BANGALORE 560 010. PAN: AAACQ 0717H VS. THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE 5(1)(1), BANGALORE. APPELLANT RESPONDENT ASSESSEE BY : SHRI SUDHEENDRA B.R, CA REVENUE BY : SMT. PADMAMEENAKSHI, JCIT (DR) DATE OF HEARING : 0 8 . 1 1 .201 7 DATE OF PRONOUNCEMENT : 10 .1 1 .2017 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE REVENUE AND THE CO IS F ILED BY THE ASSESSEE AND THESE ARE DIRECTED AGAINST THE ORDER OF CIT(A)-5, B ANGALORE DATED 13.10.2015 FOR ASSESSMENT YEAR 2011-12. 2. THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL ARE AS UNDER:- 1. THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPE ALS)-5, BANGALORE, IS OPPOSED TO THE LAW AND NOT ON THE FAC TS AND CIRCUMSTANCES OF THE CASE. ITA NO. 65/BANG/2016 & C.O. NO. 72/BANG/2017 PAGE 2 OF 7 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN LAW IN HOLDING THAT THE STPI UNIT ESTABLISHED BY THE ASSESSEE FOR WHICH 10A DEDUCTION IS CLAIMED WAS NOT FORMED BY SP LITTING UP OR RECONSTRUCTION OR TRANSFER OF USED ASSETS OF AN EXI STING UNIT, WITHOUT APPRECIATING THE FACT THAT THE STPI UNIT IS NOT A N EW UNDERTAKING, BUT FORMED BY SPLITTING UP OF THE EXISTING UNIT AND REC ONSTRUCTION OF THE BUSINESS ALREADY IN EXISTENCE. HENCE, THE SAME IS I N CONTRAVENTION TO THE CONDITIONS FOR ALLOWING DEDUCTION U/S 10A. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, THE CIT(A) ERRED IN LAW IN DIRECTLY ADMITTING THE ADDITIONAL EVIDENC E SUBMITTED BY THE ASSESSEE W.R.T SOFTWARE EXPENSES WITHOUT GIVING OPP ORTUNITY TO THE AO TO EXAMINE THE EVIDENCE PRODUCED BY THE ASSESSEE BE FORE THE CIT(A) AS PER THE PROVISION OF RULE 46A. 4. FOR THESE AND OTHER GROUNDS THAT MAY BE URGED UP ON, THE ORDER OF THE CIT(A) MAY BE REVERSED AND THAT ASSESSMENT ORDE R BE RESTORED. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR DELETE ANY OTHER GROUNDS ON OR BEFORE HEARING OF THE APPEAL. 3. THE LD. DR OF REVENUE SUPPORTED THE ASSESSMENT O RDER AND LD. AR OF ASSESSEE SUPPORTED THE ORDER OF CIT(A). HE ALSO SUBMITTED T HAT THIS ISSUE IS COVERED BY THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT IN ASS ESSEES OWN CASE FOR ASSESSMENT YEARS 2007-08 TO 2009-10 IN ITA NOS. 188 TO 190/2014 DATED 05.01.2015, COPY AVAILABLE ON PAGES 69 TO 75 OF PAP ER BOOK. IN PARTICULAR, OUR ATTENTION WAS DRAWN TO PARA NO. 3 OF THIS JUDGMENT AND IT WAS SUBMITTED THAT IN THIS PARA, THE FACTS ARE AVAILABLE. AFTER READING THIS PARA OF JUDGMENT OF HON'BLE KARNATAKA HIGH COURT, IT WAS OBSERVED BY THE BENCH THAT IN THOSE YEARS, A CATEGORICAL FINDING HAS BEEN GIVEN BY THE HON'BLE K ARNATAKA HIGH COURT THAT THE ASSESSEE ALSO CONTINUED TO CARRY OUT ITS BUSINE SS FROM NON-STPI UNIT ALSO AND SEPARATE BOOKS OF ACCOUNTS WERE MAINTAINED BY T HE ASSESSEE FOR THE STPI UNIT AND NON-STPI UNIT. THE BENCH WANTED TO KNOW T HE FACTS IN THE PRESENT YEAR TO SEE AS TO WHETHER IN THE PRESENT YEAR ALSO, THE ASSESSEE HAS CONTINUED TO CARRY OUT ITS BUSINESS FROM NON-STPI UNIT ALSO A ND WHETHER SEPARATE BOOKS OF ACCOUNTS WERE MAINTAINED BY THE ASSESSEE IN THE PRESENT YEAR ALSO FOR STPI AND NON-STPI UNIT. IN REPLY, IT WAS SUBMITTED BY L D. AR OF ASSESSEE THAT THE CLAIM IN THE PRESENT YEAR IS IN RESPECT OF THE SAME UNIT AND THEREFORE, IT SHOULD BE HELD THAT THE ASSESSEE IS ELIGIBLE FOR DEDUCTION U/S. 10A OF THE IT ACT. ITA NO. 65/BANG/2016 & C.O. NO. 72/BANG/2017 PAGE 3 OF 7 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRST OF ALL WE REPRODUCE PARA NO. 3 OF THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT IN ASSESSEES OWN CASE FROM PAGES 73 AND 74 OF PAPER BOOK. THE SAME READS AS U NDER:- 3. THE ASSESSEE IS AN INDIAN COMPANY ENGAGED IN THE BUSINESS OF COMPUTER SOFTWARE DEVELOPMENT AND BUSINESS PROCESSI NG OUT SOURCE. DURING THE FINANCIAL YEAR 2005-2006 THE ASSESSEE WA S RUNNING ITS BUSINESS FROM A NON-STPI UNIT UNDER A RENTAL PREMIS ES. IN THIS PERIOD THE PARTY HAS APPLIED FOR PERMISSION TO SET UP THE STPI UNIT AT GROUND FLOOR OF THE SAID PREMISES. THE STPI AUTHORITIES G RANTED APPROVAL FOR SETTING UP OF THE STPI UNIT FOR DEVELOPMENT OF COMP UTER SERVICE / IT ENABLED SERVICES (ITES) 31.02.2006. THE ASSESSEE S TARTED THE BUSINESS IN THE NEWLY SET UP UNIT DURING THE FINANC IAL YEAR 2006-2007. THE ASSESSEE ALSO CONTINUED TO CARRYOUT ITS BUSINES S FROM NON-STPI UNIT ALSO. SEPARATE BOOKS OF ACCOUNTS WERE MAINTAI NED BY THE ASSESSEE FOR THE STPI UNIT AND NON-STPI UNIT. IN R ESPECT OF STPI UNIT THE CLAIM FOR REDUCTION UNDER SECTION 10A MADE BY T HE ASSESSEE WAS REJECTED ON THE GROUND THAT STPI UNIT IS FOUND BY S PLITTING OF THE EXISTING UNIT. IN APPEAL, ON APPRECIATION OF THE M ATERIAL ON RECORD, THE SAID ORDER WAS SET ASIDE AND THE BENEFIT UNDER SECTION 10A WAS EXTENDED TO THE STPI UNIT AND THE REVENUE PREFERRED AN APPEAL BEFORE THE TRIBUNAL WHICH HAS CONFIRMED THE SAME. 5. FROM THE ABOVE PARA REPRODUCED FROM THE JUDGMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN ASSESSEES OWN CASE FOR ASSESSMEN T YEARS 2007-08 TO 2009-10, IT IS SEEN THAT THE MAIN BASIS OF THIS JUD GMENT IS THIS THAT THE ASSESSEE CONTINUED TO CARRY OUT ITS BUSINESS FROM NON STPI U NIT ALSO AND SEPARATE BOOKS OF ACCOUNTS WERE MAINTAINED BY THE ASSESSEE FOR STP I AND NON STPI UNIT. THESE FACTS FOR THE PRESENT YEAR ARE NOT MADE AVAIL ABLE BEFORE US AND THEREFORE, WE FEEL IT PROPER TO RESTORE THIS MATTER BACK TO THE FILE OF CIT(A) FOR FRESH DECISION AFTER EXAMINING THESE FACTUAL ASPECT S. THE LD. CIT(A) SHOULD EXAMINE THE FACTS OF THE PRESENT YEAR IN THE LIGHT OF THIS JUDGMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN ASSESSEES OWN CAS E AND THEREAFTER, HE SHOULD PASS NECESSARY ORDER AS PER LAW AFTER PROVI DING REASONABLE OPPORTUNITY OF BEING HEARD TO BOTH SIDES. 6. IN THE RESULT, THE APPEAL FILED BY THE REVENUE S TANDS ALLOWED FOR STATISTICAL PURPOSES. 7. NOW WE TAKE UP THE CO FILED BY THE ASSESSEE. TH E GROUNDS RAISED BY THE ASSESSEE IN ITS CO ARE AS UNDER. 1. THE LEARNED CIT(A) HAS ERRED IN CONFIRMING THE D ISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(III) AMOUNTI NG TO RS. ITA NO. 65/BANG/2016 & C.O. NO. 72/BANG/2017 PAGE 4 OF 7 7,40,992. ON FACTS AND CIRCUMSTANCES OF THE CASE AN D LAW APPLICABLE, THE IMPUGNED DISALLOWANCE SHOULD BE DELETED FULLY. 2. IN ANY CASE AND WITHOUT PREJUDICE, COMPUTATION O F DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D(2)(III) IS INCO RRECT. 8. ALTHOUGH THIS IS ONE OF THE GROUNDS THAT THERE S HOULD BE NO DISALLOWANCE U/S. 14A OF IT ACT READ WITH RULE 8D(2)(III) AND THIS IS AN ALTERNATIVE CONTENTION THAT THE COMPUTATION OF DISALLOWANCE AT RS. 7,40,992/- B Y THE AO IS INCORRECT. THE LD. AR OF ASSESSEE DID NOT MAKE ANY ARGUMENT REGARD ING THE FIRST ASPECT THAT NO DISALLOWANCE SHOULD BE MADE U/S. 14A AND HIS ONL Y ARGUMENT WAS REGARDING SECOND ASPECT THAT THE COMPUTATION OF DISALLOWANCE SHOULD BE CORRECTED. IN THIS REGARD, HE SUBMITTED THAT AS PER THE BALANCE S HEET OF THE ASSESSEE AVAILABLE ON PAGE NO. 6 OF THE PAPER BOOK, INVESTME NTS AS ON 31.03.2011 IS RS. 5,08,13,789/- AND AS ON 31.03.2010, THE INVESTMENT WAS RS. 4,79,85,253/-. HE SUBMITTED THAT AS PER THE PROVISIONS OF RULE 8D(2)( III), HALF PERCENT DISALLOWANCE HAS TO BE MADE ON AVERAGE INVESTMENT AND THE SAME C ANNOT BE RS. 7,40,992/-. THE LD. DR OF REVENUE SUPPORTED THE ORDER OF CIT(A) . 9. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT ALTHOUGH NOT MUCH ARGUMENT WAS MADE BY LD. AR OF ASSESSEE ON THIS ASP ECT THAT THERE SHOULD BE NO DISALLOWANCE U/S. 14A BUT STILL WE DECIDE THIS A SPECT ALSO. AS PER SCHEDULE 13 OF THE P & L ACCOUNT AVAILABLE ON PAGES 18 AND 1 9 OF PAPER BOOK, THE ASSESSEE HAS INCURRED AN AMOUNT OF RS. 14368715/- U NDER THE HEAD ADMINISTRATIVE AND OTHER EXPENSES AND THIS INCLUDES ANNUAL MAINTENANCE CHARGES OF RS. 79,269/- AND PROFESSIONAL & CONSULTA NCY CHARGES OF RS. 38,83,244/-. THIS IS TO BE NOTED THAT FOR HAVING I NVESTMENT IN SHARES, DEMAT ACCOUNT HAS TO BE MAINTAINED AND FOR THAT, ANNUAL M AINTENANCE CHARGES ARE GENERALLY REQUIRED TO BE PAID. PAYMENT OF COMMISSI ON TO THE EXTENT OF RS. 1,60,418/- IS ALSO THERE. PART OF PROFESSIONAL & C ONSULTANCY CHARGES AND COMMISSION MAY BE ON ACCOUNT OF INVESTMENT IN SHARE S AND THE DETAILS OF THESE EXPENSES HAS NOT BEEN MADE AVAILABLE BEFORE US AND THEREFORE, THIS CANNOT BE EXAMINED AND CONCLUDED THAT THESE EXPENSES DEBITED IN P & L ACCOUNT DO NOT INCLUDE ANY EXPENSES INCURRED IN RESPECT OF INVESTM ENT IN SHARES AND THEREFORE, WE FIND NO INFIRMITY IN THE ORDER OF AUTHORITIES BE LOW ON THIS ASPECT. ACCORDINGLY GROUND NO. 1 OF THE CO IS REJECTED. ITA NO. 65/BANG/2016 & C.O. NO. 72/BANG/2017 PAGE 5 OF 7 10. REGARDING GROUND NO. 2 OF THE ASSESSEES CO, WE FIND FORCE IN THE ARGUMENTS OF LD. AR OF ASSESSEE THAT THE AMOUNT OF DISALLOWAN CE COMPUTED BY THE AO SEEMS TO BE INCORRECT BECAUSE 0.5% OF AVERAGE INVES TMENT CANNOT BE RS. 7,40,992/- BECAUSE AS PER THE AO ALSO, AMOUNT OF IN VESTMENT AS ON 31.03.2011 IS RS. 5,08,13,789/- AND RS. 4,79,85,253/-AS ON 31. 03.2010 AS NOTED BY THE AO IN PARA NO. 8 OF THE ASSESSMENT ORDER AND AS PER TH ESE FIGURES, THE AVERAGE INVESTMENT WILL BE 493.99 LAKHS AND 0.5% OF THIS AM OUNT WILL BE ABOUT 2.50 LAKHS. EVEN IF DISALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE IS THERE, THEN ALSO, IT CANNOT BE RS. 7,40,992/- BECAUSE THE TOTAL FINANCIAL EXPENSES DEBITED TO P & L ACCOUNT IS ONLY RS. 195,812/-. HENCE ON THIS ASPECT, WE SET ASIDE THE ORDER OF CIT(A) AND RESTORE THE MATTER BACK TO THE FILE OF AO FOR FRESH DECISION BY COMPUTING THE CORRECT AMOUNT OF DISALLOWANCE TO BE MADE U/S. 14A AFTER ALLOWING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY GROUND NO. 2 OF THE CO IS ALLOWED FOR STATISTICAL P URPOSES. 11. ONE MORE ARGUMENT WAS MADE BY LD. AR OF ASSESSE E THAT EVEN IF SOME DISALLOWANCE U/S. 14A IS CONFIRMED THEN ALSO, THE S AME SHOULD BE CONSIDERED AS INCOME FOR THE PURPOSE OF COMPUTING DEDUCTION AL LOWABLE TO ASSESSEE U/S. 10A OF THE IT ACT. THE BENCH OBSERVED THAT NO SUCH GROUND IS THERE IN THE CO FILED BY THE ASSESSEE. IN REPLY, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT THE ASSESSEE IS RAISING THIS ISSUE UNDER RULE 27 OF APP ELLATE TRIBUNAL RULES, 1963. THE BENCH OBSERVED THAT AS PER RULE 27 OF APPELLATE TRIBUNAL RULES, 1963, THE ASSESSEE CAN RAISE THAT ASPECT OF AN ISSUE IF THAT ASPECT OF THE ISSUE HAS BEEN RAISED BEFORE THE CIT(A) AND WAS DECIDED AGAINST TH E ASSESSEE ALTHOUGH THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BUT ON SOME OTHER ASPECT OF THAT ISSUE AND IN THIS MANNER, HE CAN SUPPORT THE ORDER OF CIT(A). THE BENCH WANTED TO KNOW AS TO WHETHER THIS ASPECT OF THE ISS UE WAS RAISED BEFORE CIT(A) AND WAS DECIDED BY CIT(A) AGAINST THE ASSESSEE AND THE ISSUE WAS DECIDED IN FAVOUR OF THE ASSESSEE BUT ON SOME OTHER ASPECT. I N REPLY, HE SUBMITTED THAT THIS ASPECT OF THE ISSUE WAS NOT RAISED BEFORE CIT( A) REGARDING CONSIDERATION OF THIS DISALLOWANCE U/S. 14A FOR THE PURPOSE OF DEDUC TION U/S. 10A OF IT ACT. THE LD. DR OF REVENUE SUBMITTED THAT THIS ISSUE IS NOT REQUIRED TO BE DECIDED BECAUSE THE SAME IS NEVER RAISED BY THE ASSESSEE BE FORE THE CIT(A) AND THERE ITA NO. 65/BANG/2016 & C.O. NO. 72/BANG/2017 PAGE 6 OF 7 IS NO GROUND BEFORE THE TRIBUNAL ALSO IN THIS REGAR D AND THEREFORE, THIS ISSUE CANNOT BE RAISED AS PER RULE 27 OF THE APPELLATE TR IBUNAL RULES, 1963. 12. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRS T OF ALL WE REPRODUCE RULE 27 OF APPELLATE TRIBUNAL RULES, 1963. THE SAME READS AS UNDER:- 27. THE RESPONDENT, THOUGH HE MAY NOT HAVE APPEALED, MA Y SUPPORT THE ORDER APPEALED AGAINST ON ANY OF THE GROUNDS DE CIDED AGAINST HIM. 13. AS PER THE ABOVE RULE, IN OUR CONSIDERED OPINIO N, IF THE ASSESSEE HAS RAISED AN ISSUE BEFORE THE CIT(A) WHICH IS DECIDED BY CIT(A) IN FAVOUR OF THE ASSESSEE ON ONE ASPECT AND ALTHOUGH ARGUMENTS WERE MADE BEFO RE THE CIT(A) ON SOME OTHER ASPECT BUT DECIDED BY HIM AGAINST THE ASSESSE E ON THAT OTHER ASPECT THEN UNDER THIS RULE, THE ASSESSEE CAN SUPPORT THE FINAL DECISION OF CIT(A) BY MAKING ARGUMENT ON THAT OTHER ASPECT DECIDED AGAINST HIM B Y THE CIT (A). IN THE PRESENT CASE, IT IS ADMITTED POSITION OF FACT THAT THE ASPECT REGARDING CONSIDERING OF DISALLOWANCE U/S. 14A FOR THE PURPOS E OF COMPUTING THE DEDUCTION ALLOWABLE U/S. 10A OF THE IT ACT WAS NEVE R RAISED BEFORE THE CIT(A) AND THERE IS NO DECISION OF CIT(A) ON THIS ASPECT. HENCE, IN OUR CONSIDERED OPINION, THIS ISSUE CANNOT BE RAISED BEFORE THE TRI BUNAL BY TAKING SHELTER OF RULE 27 OF APPELLATE TRIBUNAL RULES, 1963. WE DO NOT ADM IT AND DECIDE THIS ISSUE. 14. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS ALLOWED FOR STATISTICAL PURPOSES AND THE CO FILED BY THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (LALIET KUMAR) (ARUN KUMAR GARODIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 10 TH NOVEMBER, 2017. /MS/ ITA NO. 65/BANG/2016 & C.O. NO. 72/BANG/2017 PAGE 7 OF 7 COPY TO: 1. APP ELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.