TECHPROCESS PAYMENT SERVICES LTD, MUMBAI V. DCIT 10(1), MUMBAI

ITA 7026/MUM/2016

• Counselvise Citation: [2019] 112 COUNSELVISE.COM (IT) 6485 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 01-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: D G
• Assessee Lawyers: KRUPA GANDHI MS MANSHI PADHIAR
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A; 115JB; 201; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES E , MUMBAI BEFORE S HRI SHAMIM YAHYA (AM) AND SHRI RAM LAL NEGI (JM) ITA NO. 7026/MUM/2016 ASSESSMENT Y EAR: 2011 - 12 M/S TECHPROCESS PAYMENT SERVICES LTD. (FORMERLY KNOWN AS M/S TECHPROCESS SOLUTION LT D.), BLDG. NO. 2, 1 ST FLOOR, MEHRA INDUSTRIAL ESTATE, NEXT TO JASWANT LANDMARK, MUMBAI 400079 PAN: AABCB5216D VS. THE DEPUTY COMMISSIONER OF INCOME TAX 10(1), 455, AAYAKAR BHAVAN, M.K. ROAD, MUMBAI (APPELLANT) (RESPONDENT) ASSESSEE BY : MS. KRUPA GANDHI/ MS. MANSHI PADHIAR (A R) REVENUE BY : SHRI D.G. PANSARI (DR) DATE OF HEARING: 19 / 11 /201 8 DATE OF PRONOUNCEMENT: 15 / 02 /201 9 O R D E R PER RAM LAL NEGI, JM THIS APPEAL H AS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER DATED 09.08.2016 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 22 (FOR SHORT THE CIT(A) , MUMBAI, FOR THE ASSESSMENT YEAR 2011 - 12 , WHEREBY THE LD. CIT(A) HAS PARTLY ALLOWED T HE APPEAL FILED BY THE ASSESS EE AGAINST THE ASSESSMENT ORDER PASSED BY AO U/S 143 (3) OF THE INCOME TAX ACT, 1961 (FOR SHORT THE ACT). 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY ENGAGED IN PROVIDING ELECTRIC BILL PRESENTATION AND PAYMENT SERVICES, FILED ITS RETURN OF INCOME DECLARING THE TOTAL INCOME OF RS. 4,91,86,419/ - . SINCE, THE CASE WAS 2 ITA NO. 7026 MUM/2016 ASSESSMENT YEAR: 2011 - 12 SELECTED FOR SCRUTINY, THE AO ISSUED NOTICE U/S 143 (2) AND 142 (1) OF THE ACT. IN RESPONSE TO THE SAID NOTICES, THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE APPEARED BEFORE THE AO AND FILED THE RELEVANT DETAILS CALLED FOR. IT WAS NOTICED THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS. 1,37,77,805/ - AND THE ASSESSEE HAD CLAIMED EXEMPTION U/S 10(34) OF THE ACT, THE AO ASKED THE AR TO FURNISH THE WORKING OF DISALLOWANCE U/S 14 A READ WITH RULE 8D. THE AR SUBMITTED THAT SINCE NO EXPENDITURE HAS BEEN INCURRED TOWARD EARNING OF THE EXEMPT INCOME, NO DISALLOWANCE U/S 14A OF THE ACT IS REQUIRED TO BE MADE. HOWEVER, THE AO REJECTING THE CONTENTION OF THE ASSESSEE WORKED OUT THE TOTAL DISALLOWANCE U/S 14A READ WITH RULE 8D (2)( I), (II) AND (III) AT RS. 20,41,380/ - AND AFTER DEDUCTING THE DISALLOWANCE OF RS. 2,60,257/ - , THE AO MADE ADDITION OF RS. 17,81,123/ - AND DETERMINED THE TOTAL INCOME OF THE ASSESSEE AT RS. 5,09,67,540/ - UNDER THE NORMAL PROVISIONS OF ACT AND RS. 75,69,233/ - U/S 115JB OF THE ACT. THE ASSESSEE CHALLENGED THE ASSESSMENT ORDER BEFORE THE LD. CIT (A). THE LD. CIT (A) VIDE THE IMPUGNED ORDER REDUCED THE ADDITION FROM 17,81,123/ - TO 12,39,009/ - HOLDING THAT APPELLANT HAD NOT BORROWINGS DURING THE YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, IN ORDER TO DISALLOW THE INTEREST EXPENDITURE OF RS. 62,575/ - . AS REGARDS, RULE 8D(2)(III), THE LD. CIT (A) HAS OBSERVED THAT THE ASSESSEE HAS MADE SUO MOTO DISALLOWANCE OF RS. 2,60,257/ - AS EXPENSES ATTRIBUTABLE FOR EARNING FOR EXEMPT INCOME AND THE ASSESSING OFFICER HAS WORKED OUT THE DISALLOWANCE WITHOUT RECORDING THE REASONS FOR THE SATISFACTION WITH THE DISALLOWANCE MADE BY THE AO AND THE ASSESSEE HAS WORKED OUT THE DIS ALLOWANCE CONSIDERING THE SALARY OF ONE EMPLOYEE. THEREFORE, THE DISALLOWANCE OF RS. 17,81,123/ - MADE BY THE AO IS OVER AND ABOVE THE SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE. 3 . AGGRIEVED BY THE ORDER OF LD. CIT (APPEAL S ), THE ASSESSEE HAS PREFERRED T HIS APPEAL BEFORE THE TRIBUNAL ON THE FOLLOWING EFFECTIVE GROUNDS : - GROUND I: DISALLOWANCE U/S 14A R.W.S 8D OF THE INCOME TAX RULES, 1962 (THE RULES) OF RS. 12,39,009/ - : 3 ITA NO. 7026 MUM/2016 ASSESSMENT YEAR: 2011 - 12 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, HONBLE CIT (A) ERRED IN CO NFIRMING THE ACTION OF THE DEPUTY COMMISSIONER OF INCOME TAX 10(1), MUMBAI ( THE AO) TO THE EXTENT OF RS. 12,39,009/ - U/S 14A OF THE ACT. 2. HONBLE CIT (A) FAILED TO APPRECIATE AND OUGHT TO HAVE HELD THAT: I. FOR COMPUTING THE DISALLOWANCE U/S 14A OF THE AC T ONLY EXPENDITURE IN RELATION TO EARNING DIVIDEND INCOME IS TO BE CONSIDERED AND, II. DISALLOWANCE CANNOT BE MADE ON AD - HOC BASIS. 3. THE APPELLANT PRAYS THAT THE DISALLOWANCE U/S 14A OF THE ACT BE RESTRICTED TO RS. 2,60,257/ - AS WORKED OUT BY THE APPELLANT AND THE ADDITIONAL DISALLOWANCE U/S 14A OF RS. 12,39,009/ - DIRECTED TO BE MADE BY HONBLE CIT (A) BE DELETED OR APPROPRIATELY REDUCED. 4. WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT PRAYS THAT THE AO BE DIRECTED TO EXCLUDE STRATEGIC INVESTMENTS WHILE COMPU TING DISALLOWANCE U/S 14A OF THE ACT R.W.R 8D OF THE INCOME TAX RULES, 1962. GROUND NO. II: ADDITION OF DISALLOWANCE U/S 14A OF THE ACT FOR COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, HONBLE C IT (A) ERRED IN CONFIRMING THE ACTION OF THE AO OF ADDING DISALLOWANCE U/S 14A OF THE ACT FOR THE PURPOSE OF COMPUTATION OF BOOK PROFITS U/S 115JB OF THE ACT. 2. THE APPELLANT PRAYS THAT THE ADDITION OF DISALLOWANCE U/A 14A OF THE ACT FOR COMPUTATION OF BOO K PROFITS U/S 115JB OF THE ACT BE DELETED. 4 AT THE OUTSET THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT BOTH THE ISSUES ARE COVERED IN FAVOUR OF THE ASSESSE E BY THE ORDER OF COORDINATE BENCH RENDERED IN THE ASSESEES OWN CASE ITA NO. 8547/MUM/2011 FOR THE A.Y. 2008 - 09. SINCE, THE ITAT, MUMBAI AHS DELETED THE 4 ITA NO. 7026 MUM/2016 ASSESSMENT YEAR: 2011 - 12 IDENTICAL DISALLOWANCE BY UPHOLDING THE ORDER OF THE THEN CIT (A), THERE IS NO MERIT IN THE APPEAL OF THE ASSESSEE. AS REGARDS, GROUND NO. 2 OF THE APPEAL, THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE IDENTICAL ISSUES HAS BEEN DEALT WITH BY THE ITAT, MUMBAI IN ASSESSEES OWN CASE FOR THE A.Y. 2008 - 09 (SUPRA) AND DELETED THE DISALLOWANCE MADE BY THE AO, THE IMPUGNED ORDER PASSED BY THE LD. CIT (A) IS LIABLE TO BE SET ASIDE. 5. ON THE OTHER HA ND, THE LD. DEPARTMENTAL REPRESENTATIVE (DR) FAIRLY ADMITTED THAT BOTH THE GROUNDS OF APPEAL ARE COVERED BY THE ORDER OF THE TRIBUNAL RENDERED IN THE ASSESEES OWN CASE FOR THE A.Y. 2008 - 09 AND 2009 - 10. 6. AS POINTED OUT BY THE LD. COUNSEL FOR THE ASSESS EE THE COORDINATE BENCH HAS DECIDED THE ISSUE OF DISALLOWANCE U/S 14A READ WITH RULE 8D OF THE INCOME TAX RULES IN THE ASSESSEES OWN CASE ITA NO. 8547/MUM/2011 FOR THE A.Y. 2008 - 09 AND ITA NO. 5395/MUM/2013 FOR THE A.Y. 2009 - 10. THE RELEVANT PARA OF THE ORDER OF THE COORDINATE BENCH READS AS UNDER: - 6. WE HAVE GONE THROUGH THE ASSESSMENT ORDER AND NOTICED THAT THE ASSESSING OFFICER HAVE NOWHERE POINTED OUT ANY DEFECT IN THE SUO MOTO DISALLOWANCE COMPUTED BY THE ASSESSEE IN REGARD TO EXPENSES RELATABL E TO EXEMPT INCOME. SIMPLY THE AO HAS APPLIED RULE 8D(2)(III) AND BY APPLYING THE SAID FORMULA HE HAS COMPUTED THE DISALLOWANCE. ACCORDING TO US, THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT [2018] 402 ITR 640 (SC), HELD AS UNDER: - 41. HAVING REGARD TO THE LANGUAGE OF SECTION 14A(2) OF THE ACT, READ WITH RULE 8D OF THE RULES, WE ALSO MAKE IT CLEAR THAT BEFORE APPLYING THE THEORY OF APPORTIONMENT, THE AO NEEDS TO RECORD SATISFACTIO N THAT HAVING REGARD TO THE KIND OF THE ASSESSEE, SUO MOTO DISALLOWANCE UNDER SECTION 14A 5 ITA NO. 7026 MUM/2016 ASSESSMENT YEAR: 2011 - 12 WAS NOT CORRECT. IT WILL BE IN THOSE CASES WHERE THE ASSESSEE IN HIS RETURN HAS HIMSELF APPORTIONED BUT THE AO WAS NOT ACCEPTING THE SAID APPORTIONMENT. IN THAT EVENT UALITY, IT WILL HAVE TO 5 RECORD ITS SATISFACTION TO THIS EFFECT. FURTHER, WHILE RECORDING SUCH A SATISFACTION, NATURE OF LOAN TAKEN BY THE ASSESSEE FOR PURCHASING THE SHARES/ MAKING THE INVESTMENT IN SHARES IS TO BE EXAMINED BY THE AO. 7. WE ARE OF THE VIEW THAT SATISFACTION IS MANDATORY IN VIEW OF THE ABOVE DECISION OF HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD AND IN THE PRESENT CASE, THERE IS NO WHISPER ABOUT REJECTION OF ASSESSEES CONTENTION OF EXPENSES DISALLOWED SUO MOTO IN RELATI ON TO EARNING OF EXEMPT INCOME. HENCE, ACCORDING TO US THERE IS NO SATISFACTION RECORDED BY THE AO FOR REJECTION OF THE ASSESSEES DISALLOWANCE AND ACCORDINGLY, WE DELETE THE DISALLOWANCE. 8. SIMILAR ARE THE FACTS IN AY 2008 - 09 AND HENCE, TAKING A CONSIS TENT VIEW, WE DELETE THE DISALLOWANCE IN AY 2008 - 09 IN ITA NO. 8547/MUM/2011 ALSO. 7. SINCE, THE COORDINATE BENCH HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN ASSESSEES OWN CASES FOR THE A.Y. 2008 - 09 AND 2009 - 10 AND SINCE THE FACTS OF TH E PRESENT CASE ARE IDENTICAL TO THE FACTS OF THE CASE OF THE ASSESSEE FOR THE A.Y . 2008 - 09 AND 2009 - 10, WE RESPECTFULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH DECIDE THIS GROUND OF APPEAL IN FAVOUR OF THE ASSESSEE. 8. SIMILARLY, THE COORDINATE B ENCH HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN THE ASSESSEES OWN CASE FOR THE A.Y. 2008 - 09 AND 2009 - 10. THE RELEVANT PARAS OF THE ORDER OF THE COORDINATE BENCH READ AS UNDER: - 9. ANOTHER ISSUE IN ITA NO. 8547/MUM/2011 FOR AY 2008 - 09 IS AS REGARDS TO THE ORDER OF CIT(A) CONFIRMING THE DISALLOWANCE OF EXPENSES RELATABLE TO EXEMPT INCOME UNDER SECTION 14A WHILE COMPUTING THE BOOK PROFIT UNDER SECTION 6 ITA NO. 7026 MUM/2016 ASSESSMENT YEAR: 2011 - 12 115JB OF THE ACT. FOR THIS ASSESSEE HAS RAISED THE FOLLOWING GROUND NO. II: - 1. ON TH E FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE ID. CIT(A) ERRED IN CONFIRMING THE ADDITION MADE BY THE AO OF A SUM OF RS. 15.24.386/ - TO THE COMPUTATION OF THE APPELLANT U/S 115JB OF THE ACT U/S. 14A READ WITH RULE 8D OF INCOME TAX RULES, 1962. 2. THE APPELLANT PRAYS THAT AS NO DISALLOWANCE IS WARRANTED U/S 14A OF THE ACT, THE AFORESAID ADDITION OF RS. 15,24,386/ - BE DELET ED. 3. WITHOUT PREJUDICE. THE APPELLANT PRAYS THAT THE ADDITION BE RESTRICTED TO RS. 3,15,255/.' 10. AT THE OUTSET, IT IS NO TICED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF ASSESSEE AND AGAINST REVENUE BY THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF VIREET INVESTMENTS (P.) LTD. [2017] 58 ITR (AT) 313 (DELHI - TRIB.) (SB) WHEREIN THE TRIBUNAL HAS CLEARLY H ELD THAT NO DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W.R 8D OF THE RULES CAN BE MADE WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT. THE LEARNED SR. DR COULD NOT CONTROVERT THE ABOVE PROPOSITION. ACCORDINGLY, WE ARE OF THE VIEW THAT THIS ISS UE IS COVERED BY THE SPECIAL BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF VIREET INVESTMENTS (P.) LTD. (SUPRA). RESPECTFULLY FOLLOWING THE SAME, WE DELETE THE DISALLOWANCE AND ALLOW THIS ISSUE OF ASSESSEES APPEAL. 9. SINCE, THE COORDINATE BENCH HAS DECIDED THE IDENTICAL ISSUE IN FAVOUR OF THE ASSESSEE IN THE ASSESSEES OWN CASE FOR THE A.Y. 2008 - 09 AND 2009 - 10 AND SINCE THE FACTS OF THE PRESENT CASE ARE IDENTICAL TO THE FACTS OF THE CASE OF THE ASSESSEE FOR THE AFORESAID ASSESSMENT YEARS, WE RESPECTF ULLY FOLLOWING THE DECISION OF THE COORDINATE BENCH ALLOW THIS GROUND OF APPEAL OF THE ASSESSEE. 7 ITA NO. 7026 MUM/2016 ASSESSMENT YEAR: 2011 - 12 IN THE RESULT, APPEAL FILED BY THE ASSESSEE FOR ASSESSMENT YEAR 2011 - 2012 IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 15 TH FEBRUARY , 2019 . SD/ - SD/ - ( SHAMIM YAHYA ) ( RAM LAL NEGI ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 15 / 02 / 201 9 ALINDRA, PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A) - 4. / CIT 5. , , / DR, ITAT, MUMBAI 6. / GUARD FILE . / BY ORDER, //TRUE COPY// / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI