Appeal details
Counselvise Citation
[2017] 130 COUNSELVISE.COM (IT) 7926 (ITAT-CHENNAI)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
2 year(s) 27 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
08-02-2017
Appeal Filed By
Department
Bench Allotted
C
Next Hearing Date
06-02-2017
Assessment Year
2009-2010
Appeal Filed On
12-01-2015
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI . , ' # . $ & ' BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A. NO.150/MDS/2015 / ASSESSMENT YEAR : 2009-10 M S. INAUTIX TECHNOLOGIES INDIA PRIVATE LIMITED, 10TH FLOOR, TIDEL PARK, 4, CANAL BANK ROAD, TARAMANI, CHENNAI - 600 013. [PAN: AAACI 6177K] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(3), CHENNAI. ( / APPELLANT) ( / RESPONDENT) ./ I.T.A. NO. 80/MDS/2015 / ASSESSMENT YEAR : 2009-10 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(3), CHENNAI. VS. M/S. INAUTIX TECHNOLOGIES INDIA PRIVATE LIMITED, 10TH FLOOR, TIDEL PARK, 4, CANAL BANK ROAD,TARAMANI, CHENNAI - 600 013. [PAN: AAACI 6177K] ( / APPELLANT) ( / RESPONDENT) ASSESSEE BY : SHRI N.V. BALAJI, ADVOCATE REVENUE BY : SHRI S. SANKARALINGAM, CIT ( /DATE OF HEARING : 06.02.2017 ( /DATE OF PRONOUNCEMENT : 08.02.2017 /O R D E R PER M. BALAGANESH, ACCOUNTANT MEMBER: THE APPEAL OF THE ASSESSEE AND CROSS APPEAL BY THE REVENUE ARE DIRECTED AGAINST COMMON ORDER OF THE COMMISSIONER O F INCOME TAX :-2-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 (APPEALS) - II, IN ITA NO. 653/2013-14 DATED 18.09. 2014 FOR THE ASSESSMENT YEAR 2009-10. SINCE, THE ISSUE IN APPEALS ARE COMMON IN NATURE, T HE APPEALS ARE CLUBBED AND HEARD TOGETHER AND DISPOSED OFF BY THE COMMON ORDER. FOR THE SAKE OF CONVENIENCE, NOW WE TAKE UP THE FACTS NARRATED IN T HE APPEAL ITA NO. 150/MDS/2015. 2. DISALLOWANCE U/S. 10A OF THE ACT:- THE FIRST DISPUTE RAISED ON THIS ISSUE BY THE ASSE SSEE IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE EXCLU SION OF PAYMENTS MADE FOR IMPORT OF GOODS AND SERVICES FROM EXPORT TURNOVER AND UPHO LDING THE EXCLUSION OF FOREIGN TRAVEL RELATED COST INCURRED IN FOREIGN CURRENCY FR OM THE EXPORT TURNOVER IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THE CASE IS THAT THE ASSESSEE IS PRIVATE LIMITED COMPANY, PRIMARILY ENGAGED IN THE BUSINESS OF SOFTW ARE DEVELOPMENT. THE ASSESSEE FILED THE RETURN OF INCOME DECLARING AN INCOME OF R S 11,08,48,280/- UNDER THE SUBSEQUENT PROVISION OF THE ACT, AFTER CLAIMING DED UCTION OF RS. 39,04,10,134/- U/S. 10A OF THE ACT. THE ASSESSEE ALSO RETURNED BOOK PR OFIT OF RS.51,08,13,364/-U/S. 115JB OF THE ACT. THE ASSESSMENT WAS FRAMED BY THE LD. AO U/S. 143(3) OF THE ACT COMPUTING THE TOTAL INCOME UNDER NORMAL PROVISIONS AS WELL AS U/S. 115JB OF THE ACT AFTER MAKING CERTAIN ADDITIONS THEREON. ONE SUCH A DDITION MADE WAS WITH REGARD TO THE EXCLUSION OF EXPENDITURE IN THE FORM OF SALARY, WAGES AND ALLOWANCES, TRAVELLING EXPENSES AND IMPORT PAYMENT FOR GOODS AND SERVICES FROM EXPORT TURNOVER FOR THE PURPOSE OF COMPUTING DEDUCTION U/S. 10A OF THE ACT. THE REASON FOR MAKING THIS :-3-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 EXCLUSION WAS IN VIEW OF THE FACT THAT THE LD. AO H AD TREATED SUCH EXPENDITURE AS EXPENDITURE INCURRED TOWARDS TECHNICAL SERVICES OUT SIDE INDIA. 4. THIS ACTION OF THE LD. AO WAS UPHELD BY THE LD. CIT(A). HOWEVER, THE LD. CIT(A) GRANTED RELIEF TO THE ASSESSEE ON THE GR OUND THAT WHATEVER IS EXCLUDED FROM EXPORT TURNOVER NEED TO BE EXCLUDED FROM TOTAL TURNOVER ALSO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GR OUNDS: 4.1 THAT THE LD. AO HAS ERRED IN EXCLUDING PAYME NTS MADE FOR IMPORTS OF GOODS AND SERVICES, FROM THE EXPORT TUR NOVER. 4.2 THAT THE LD. AO HAD ERRED IN EXCLUDING FOREI GN TRAVEL RELATED COSTS INCURRED IN FOREIGN CURRENCY FROM THE EXPORT TURNOVER, WHEN THE SAME HAS NOT BEEN INCLUDED IN THE EXPORT TURNOVER IN THE FIRST PLACE. 5. THE SECOND DISPUTE IN RESPECT OF THIS ISSUE OF D ISALLOWANCE U/S. 10A OF THE ACT IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFI ED IN UPHOLDING THE EXCLUSION OF TELECOMMUNICATION EXPENDITURE FROM THE EXPORT TURNO VER AS NOT ATTRIBUTABLE TO THE DELIVERY OF COMPUTER SOFTWARE OUTSIDE INDIA, WHILE COMPUTING DEDUCTION U/S. 10A OF THE ACT. THE LD. AO EXCLUDED TELECOMMUNICATION EXP ENDITURE OF RS. 1,29,82,852/- INCURRED IN INDIAN RUPEES FROM THE EXPORT TURNOVER WHILE COMPUTING DEDUCTION U/S. 10A OF THE ACT. 6. THIS ACTION OF THE LD. AO WAS UPHELD BY THE LD. CIT(A). HOWEVER, THE LD. CIT(A) GRANTED RELIEF TO THE ASSESSEE ON THE GR OUND THAT WHATEVER IS EXCLUDED FROM EXPORT TURNOVER NEED TO BE EXCLUDED FROM TOTAL TURNOVER ALSO. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GR OUNDS: :-4-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 6.1 THAT THE LD. AO HAS ERRED IN EXCLUDING THE EN TIRE TELECOMMUNICATION EXPENDITURE FROM THE EXPORT TURN OVER, WHICH IS NOT ATTRIBUTABLE TO DELIVERY OF COMPUTER SOFTWARE OUTS IDE INDIA. 6.2 THAT THE LD. AO HAS ERRED IN EXCLUDING TELECO MMUNICATION EXPENDITURE FROM THE EXPORT TURNOVER, WHEN THE SAM E HAS BEEN INCURRED IN INDIAN RUPEES AND NOT IN FOREIGN CURRENCY. 7. THE LD. AR ARGUED THAT THESE ISSUES ARE COVERED BY THE ORDER OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE IN THE ASSESSMENT Y EAR 2002-03 TO 2006-07 IN ITA NO 541/MDS/2006; 1439/MDS/2007; 2091-2093/MDS/2010 DATED 09.08.2011. HE DREW THE ATTENTION OF THIS TRIBUNAL TO THE OPERATIV E PORTION OF THE SAID TRIBUNAL ORDER. IN RESPONSE TO THIS THE LD. DR ARGUED THAT THE LD. CIT(A) DID NOT ADJUDICATE ON THE MERITS OF EXCLUSION OF THE AFORE SAID EXPEND ITURE FROM EXPORT TURNOVER AT ALL. HE ARGUED THAT THE LD CIT(A) BY PASSING RELIANCE ON THE DECISION OF THIS TRIBUNAL DIRECTED THE LD. AO TO EXCLUDE THIS EXPENDITURE FRO M TOTAL TURNOVER ALSO AND ACCORDINGLY THE DEDUCTION U/S. 10A OF THE ACT DOES NOT GET DISTURBED THEREON. HENCE, THE RELIANCE PLACED BY THE LD. AR ON THE DEC ISION OF THIS TRIBUNAL ORDER (SUPRA) WAS NEVER ADJUDICATED BY LD. CIT(A) AND ACC ORDINGLY, HE PRAYED FOR SETTING ASIDE OF THIS ISSUE TO THE FILE OF THE LD. CIT(A) F OR OBTAINING HIS FINDINGS THEREON. 8. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL AVAILABLE ON RECORD INCLUDING THE COMPILATION OF VARIOUS CASE LA WS IN THE FORM OF VARIOUS TRIBUNAL ORDERS IN THE ASSESSEE'S OWN CASE AND OTHERS FILED BY THE LD. AR. WE FIND THAT THE FIRST DISPUTE OF THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE (SUPRA) WHEREIN IT WAS HELD: :-5-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 ' 7. THE CASE AS PUT FORTH BY DR.ANITA SUMANTH, THE I D.ADVOCATE, IS THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF 'SOFTWAR E DEVELOPMENT' AND NOT IN PROVIDING 'TECHNICAL SERVICES' AS HAS BEEN ALLEGED BY THE DEPARTMENT. THIS CONTENTION OF THE ID.AR IS FOUND SUPPORTED BY THE S TPI APPROVED (FOR ASSESSMENT YEAR 2002-03) ANNEXED AT PAGE 97 OF THE ASSESSEE'S PAPER BOOK. THE STATEMENT OF WORK (PAGE 95 OF PAPER BOOK), INVO ICE AT PAGE 97 OF THE PAPER BOOK, ETC. ARE SUCH PIECES OF EVIDENCE WHICH SUPPORT HER CONTENTION THAT THE ASSESSEE-COMPANY IS ENGAGED IN THE DEVELOP MENT OF SOFTWARE. TO CROWN THIS FACT, THE EVIDENCE IN THE FORM OF TRANSF ER PRICING ORDER FOR ASSESSMENT YEAR 2002-03 DATED 14.12.2005, IN WHICH THE ASSESSEE-COMPANY HAS BEEN TREATED AS DOING 'SOFTWARE DEVELOPMENT' CA NNOT BE IGNORED. THEREFORE, THE EXCLUSION OF THESE EXPENSES FROM EXP ORT TURNOVER IS. NOT CORRECT. THE DECISION OF ITAT CHENNAI SPECIAL BENCH IN THE CASE OF ZYLOG SYSTEMS 135 TT) 129, INTER ALIA, SUPPORTS HER CONTE NTION. WE HAVE TO ACCEPT THIS CONTENTION OF THE ID.AR MAINLY BECAUSE WE ARE CONVINCED AFTER RUNNING THROUGH THE VARIOUS PIECES OF EVIDENCE REFERRED TO ABOVE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF 'SOFTWARE DEVELOPMENT', THEREFORE/ WE DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGAINST THE REV ENUE. WE ALSO FOUND THAT THE SECOND DISPUTE OF THIS ISSU E IS COVERED BY THE DECISION OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE IN ITA NO. 1163/MDS/2012 FOR ASSESSMENT YEAR 2007-08 DATED 05.04.2013 WHEREIN IT WAS HELD : ' 14. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSI NG THE MATERIALS ON RECORD, WE FIND THAT IN THE INSTANT CASE, THE AS SESSING OFFICER OBSERVED THAT THE ASSESSEE HAS INCURRED RS. 1,35,42,325/- BY WAY OF TELECOMMUNICATION EXPENSES FOR DELIVERY OF GOODS/SE RVICES TO THE CLIENTS. HE ESTIMATED 30% OF THE SAID TELECOMMUNICATION CHARGES AMOUNTING TO RS. 40,62,697/- AS INCURRED OUTSIDE THE COUNTRY AND EXC LUDED THE SAME FROM THE EXPORT TURNOVER. :-6-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 15. ON APPEAL, THE ID. CIT(A) CONFIRMED THE ORDER OF THE ASSESSING OFFICER. 16. WE FIND THAT SIMILAR ISSUE HAD COME UP BEFORE THE CHENNAI SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ITA VS SAK SOF T LTD., [2009] 30 SOT 55(CHENNAI)(SB), WHEREIN THE TRIBUNAL HAS HELD AS U NDER: 27. AT THIS JUNCTURE, IT IS NECESSARY TO REFER TO ONE ASPECT OF THE MATTER. IT MAY BE AN EASY TASK TO EXCLUDE THE FREIG HT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF COMPUT ER SOFTWARE OUTSIDE INDIA OR EXPENSES, IF ANY, INCURRED IN FOREIGN EXCH ANGE IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA FROM THE EXPORT TU RNOVER AND THE TOTAL TURNOVER IF THEY ARE SEPARATELY MENTIONED IN THE IN VOICE RAISED BY THE ASSESSEE. IN THE COURSE OF THE ARGUMENTS ADDRESSED ON BEHALF OF M/S. SAK SOFT LTD., A QUESTION AROSE AS TO WHAT WOULD HA PPEN IF THESE ITEMS ARE NOT SEPARATELY SHOWN IN THE INVOICE AND ARE INC LUDED IN THE TOTAL AMOUNT RAISED BY THE INVOICE. IT WAS CONCEDED ON BE HALF OF THE ASSESSEE BY ITS LEARNED REPRESENTATIVE THAT IN SUCH A CASE, THE ASSESSING OFFICER WILL HAVE THE POWER TO GO BEHIND THE INVOICE AND FI ND OUT HOW MUCH OF THE INVOICE AMOUNT PERTAINS TO THE RECOVERY OF THE AFORESAID ITEMS. WE ARE ALSO OF THE VIEW THAT IN AN APPROPRIATE CASE IT WOULD BE OPEN TO THE ASSESSING OFFICER TO EXERCISE SUCH A POWER IN ORDER TO APPLY THE FORMULA IN A MEANINGFUL MANNER. 32. THE LEARNED REPRESENTATIVE FOR ADVENTNET DEVEL OPMENT CENTRE (INDIA), ONE OF THE INTERVENERS SUBMITTED THAT THE DEFINITION OF 'EXPORT TURNOVER' IN CLAUSE (III) OF EXPLANATION 2 BELOW SE CTION 10B WAS NOT BASED ON THE CONCEPT OF 'NET INFLOW OF FOREIGN EXCH ANGE' AS SOUGHT TO BE MADE OUT IN THE ORDER OF THE CHENNAI BENCH OF TH E TRIBUNAL IN CALIFORNIA SOFTWARE CO. LTD. 'S CASE (SUPRA) BECAUS E THE CONDITION THAT THE ASSESSEE SHOULD HAVE USED FOREIGN CURRENCY IS A PPLICABLE ONLY TO THE EXPENSES INCURRED BY IT IN PROVIDING THE TECHNICAL SERVICES OUTSIDE INDIA AND IS NOT APPLICABLE TO THE EXPENSES INCURRED IN F REIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY O F THE GO OUTSIDE INDIA. :-7-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 WE HAVE GONE THROUGH THE ORDER ESPECIALLY IN PARA 2 2.3 AND 23. IN PARA 22.3 THE TRIBUNAL HAS 0BSERVED THAT THE EFFECT OF T HE JUDGMENT OF THE SUPREME COURT IN THE CASE OF K. RAVINDRANATHAN NAIR (SUPRA) IS THAT 'WHAT IS DEDUCTED FROM THE 'EXPORT TURNOVER' (THE N UMERATOR IN THE FORMULA) NEED NOT NECESSARILY BE DEDUCTED FROM THE 'TOTAL' TURNOVER' (THE DENOMINATOR IN THE FORMULA). IT APPEARS TO US, WITH RESPECT, THAT THIS MAY NOT BE AN ACCURATE DESCRIPTION OF THE CONT ROVERSY BEFORE THE SUPREME COURT BECAUSE IN K. RAVINDRANATHAN NAIR'S C ASE (SUPRA) THE SUPREME COURT WAS CONCERNED WITH THE 'PROFITS OF TH E BUSINESS' AND THE 'TOTAL TURNOVER' AND THE ARGUMENT OF THE ASSESSEE W AS THAT THE PROCESSING CHARGES, WHICH-WAS INCLUDIBLE IN THE PRO FITS OF THE BUSINESS, SHOULD BE EXCLUDED FROM THE TOTAL TUMOVER. THE RELA TIONSHIP BETWEEN 'EXPORT TURNOVER' AND 'TOTAL TUMOVER', WHICH ARE TH E NUMERATOR AND THE DENOMINATOR IN THE FORMULA IN SECTION 80HHC WAS NOT THE SUBJECT MATTER OF DECISION BY THE SUPREME COURT. IN PARA 23 THE TR IBUNAL OBSERVED THAT CERTAIN EXPENSES INCURRED IN FOREIGN EXCHANGE ARE D EDUCTED FROM THE EXPORT TURNOVER BY DEFINITION, THE OBJECT OF WHICH 'APPARENTLY' WAS NETTING IN RELATION TO THE FOREIGN EXCHANGE INFLOW AND OUTFLOW AND NOT BECAUSE SUCH EXPENSES WERE PART OF THE EXPORT TURNO VER. THE BENCH FURTHER OBSERVED THAT THERE CAN BE NO LOGICAL REASO N TO EXCLUDE FROM THE TOTAL TURNOVER WHAT WAS NEVER PART OF IT IN THE FIR ST INSTANCE. THE CONCEPT OF NET INFLOW OF FOREIGN EXCHANGE, WITH RES PECT, SEEMS INAPPROPRIATE TO THE DEFINITION OF 'EXPORT TURNOVER ' IN SECTION 10B BECAUSE, AS POINTED OUT ON BEHALF OF THE INTERVENER , THIS CONCEPT CANNOT IN THE VERY NATURE OF THINGS APPLY TO FREIGHT, TELE COM CHARGES AND INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE GOODS OUTSIDE INDIA BECAUSE THESE EXPENSES WERE NOT REQUIRED TO BE INCURRED IN FOREIGN EXCHANGE; THE ASSESSEE COULD INCUR THEM IN INDIAN CURRENCY IN WHICH CASE THERE IS NO QUESTION OF NET INFLOW OF FOREIGN EXCHANGE SO FA R AS THESE EXPENSES ARE CONCERNED. IT CANNOT POSSIBLY BE ARGUED THAT TH E CONCEPT IS LIMITED TO THAT PART OF THE DEFINITION WHICH REQUIRES THE E XPENSES TO BE INCURRED IN FOREIGN EXCHANGE. HOWEVER, THE OBSERVATION OF TH E BENCH THAT THERE :-8-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 CAN BE NO LOGICAL REASON TO EXCLUDE FROM THE TOTAL TURNOVER WHAT WAS NEVER PART OF IT IN THE FIRST INSTANCE, WITH RESPEC T, APPEARS TO BE IN FAVOUR OF THE CONTENTION CANVASSED BEFORE US ON BEH ALF OF THE ASSESSEE AND THE INTERVENERS, WHOSE CONTENTION ALSO IS THAT THE ITEMS EXCLUDED FROM THE EXPORT TURNOVER SHOULD ALSO BE EXCLUDED FR OM THE TOTAL TURNOVER BECAUSE THEY CAN NEVER BE CONSIDERED AS PA RT OF THE TURNOVER, FOR THEY HAVE NO ELEMENT OF TURNOVER IN THEM AND AR E MERE REIMBURSEMENT OF THE EXPENSES. 35. IN CALIFORNIA SOFTWARE CO. LTD.'S CASE (SUPRA) , THE CHENNAI BENCH OF THE TRIBUNAL, AS ALREADY NOTICED, HAS HELD THAT THE OBJECTIVE OF THE DEFINITION OF 'EXPORT TURNOVER' IN SECTION 10B WAS TO APPLY THE PRINCIPLE OF NETTING BY COMPARING THE INFLOW AND OUTFLOW OF FORE IGN EXCHANGE FROM OR INTO THE COUNTRY. WE HAVE ALREADY HELD THAT THIS COULD NOT HAVE BEEN THE OBJECTIVE. THE ORDER OF THE CHENNAI BENCH, TO T HE EXTENT IT HOLDS SO, WITH RESPECT, CANNOT BE APPROVED. HOWEVER, IN THE S AME PARAGRAPH (PARA 23) THE BENCH HAS ALSO HELD THAT WHAT WAS NEV ER PART OF TILE TURNOVER IN THE FIRST INSTANCE CANNOT BE EXCLUDED T HEREFROM. WE HAVE ALREADY HELD THAT IMPLIEDLY AT LEAST THE BENCH SEEM S TO HAVE HELD THAT THE RECEIPTS BY WAY OF FREIGHT, TELECOM CHARGES OR INSURANCE ATTRIBUTABLE TO THE DELIVERY OF THE COMPUTER SOFTWARE OUTSIDE IN DIA OR EXPENSES INCURRED IN FOREIGN EXCHANGE IN CONNECTION WITH THE PROVISION OF THE TECHNICAL SERVICES OUTSIDE INDIA CANNOT BE INCLUDED IN THE TOTAL TURNOVER. WE HAVE ALSO, INTER ALIA, ADOPTED A SIMILAR LINE OF REASONING IN THE SENSE THAT MERE REIMBURSEMENT OR RECOVERY OF SUCH EXPENSE S CAN IN NO SENSE BE CONSIDERED TO HAVE AN ELEMENT OF TURNOVER. TO TH E EXTENT OUR VIEW ACCORDS WITH THE VIEW TAKEN BY THE CHENNAI BENCH IN PARAGRAPH 23 OF ITS ORDER, THE SAME IS APPROVED.' 17. A READING OF THE ABOVE QUOTED DECISION OF THE CHENNAI SPECIAL BENCH OF THE TRIBUNAL SHOWS THAT EVEN EXPENSES INCU RRED ON TELECOMMUNICATION CHARGES BY THE ASSESSEE FOR EXPOR T OF GOODS/SERVICES IN :-9-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 INDIAN RUPEES HAVE TO BE EXCLUDED FROM THE EXPORT T URNOVER OF THE ASSESSEE. FURTHER, WE WOULD LIKE TO STATE THAT THE QUANTUM OF DEDUCTION OF TELECOMMUNICATION CHARGES FROM THE EXPORT TURNOVER OF THE ASSESSEE BY THE ASSESSING OFFICER IS NOT IN DISPUTE BEFORE US. THER EFORE, RESPECTFULLY FOLLOWING THE DECISION OF THE CHENNAI SPECIAL BENCH OF THE TR IBUNAL IN THE CASE OF ITO VS SAK SOFT DEDUCTING RS. 40,62,697/- FROM THE EXPO RT TURNOVER OF THE ASSESSEE. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN RE SPECT OF THIS ISSUE ARE DISMISSED.' RESPECTFULLY FOLLOWING THE AFORE SAID DECISIONS AND IN THE ABSENCE OF ANY OTHER CONTRARY DECISION FURNISHED BY THE LD. DR IN THIS R EGARD, WE ALLOW THE CLAIM MADE BY THE ASSESSEE. ACCORDINGLY, THE GROUNDS 1 TO 4 RAIS ED BY THE ASSESSEE ARE ALLOWED. 9. WE ALSO FIND THAT THE REVENUE HAS FILED AN APPEA L BEFORE US IN ITA NO. 80/MDS/2015 OBJECTING TO THE RELIEF GRANTED BY THE LD. CIT(A) FOR DEDUCTION OF THE IMPUGNED EXPENDITURE FROM EXPORT TURNOVER AS WELL A S TOTAL TURNOVER INCURRED TO FOLLOW THE PRINCIPLES OF PARTY BY PLACING RELIANCE ON THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE OF SAK SOFT LTD. WE FIND THAT THIS ISS UE IS SQUARELY COVERED BY THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN THE C ASE OF ITO VS. SAK SOFT LIMITED IN (2009) 30 SOT 55 (CHENNAI) (SB). RESPECTFULLY FOLL OWING THE SPECIAL BENCH DECISION WE DISMISS THE GROUND RAISED BY THE REVENUE IN THEI R APPEAL. :-10-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 10. DISALLOWANCE U/S. 14A OF THE ACT:- THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE U/S. 14A OF THE ACT IN THE SUM OF RS. 2,43,50,989/- IN THE FACTS AND CIRCUMSTANCES O F THE CASE. 11. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSE SSEE DERIVED AN AMOUNT OF RS. 6,98,42,823/- TOWARDS DIVIDEND INCOME AND CLAIM ED THE SAME AS EXEMPTION U/S. 10(35) OF THE ACT. THE LD. AO OBSERVED THAT ASSESS EE HAD NOT DISALLOWED ANY EXPENDITURE U/S. 14A OF THE ACT FOR THE PURPOSE OF EARNING THIS EXEMPT INCOME. ACCORDINGLY, HE SOUGHT TO INVOKE THE PROVISIONS OF SECTION 14A OF THE ACT R.W.R. 8D OF THE INCOME TAX RULES AND MADE DISALLOWANCE UNDER TH E 3RD LIMB OF RULE 8D(2) AND MADE DISALLOWANCE OF RS. 2,43,50,989/-. THE LD. AO ARRIVED AT THE AVERAGE VALUE OF INVESTMENT OF RS. 2,43,50,989/- AND APPLIED 1% THER EON FOR THE PURPOSE OF MAKING THIS DISALLOWANCE. THE LD. AO DISALLOWED THE SAID AMOUNT OF RS. 2,43,50,989/- FOR THE COMPUTATION OF BOOK PROFITS U/S. 115JB OF THE A CT. THE LD CIT(A) UPHELD THE ACTION OF THE LD. AO BY STATING THAT DEFINITELY SOM E AMOUNT OF EXPENDITURE IN THE FORM OF MANPOWER COST AND INFRASTRUCTURE FACILITIES WOULD HAVE TO BE USED BY THE ASSESSEE FOR THE PURPOSE OF MAKING THIS INVESTMENT WHICH HAD YIELDED DIVIDEND INCOME AND ACCORDINGLY THERE WAS NOTHING WRONG IN L D. AO INVOKING RULE 8D2(III) OF THE INCOME TAX RULES. 12. AGGRIEVED, THE ASSESSEE IS IN THE APPEAL BEFORE US ON THE FOLLOWING GROUNDS: :-11-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 12.1 THE LD. CIT(A) HAS ERRED IN SUSTAINING THE DI SALLOWANCE OF RS. 2,43,50,989/- U/S. 14A OF THE ACT R.W.R. 8D OF THE INCOME TAX RULES,1962 ('THE RULES') 12.2 THE LD. CIT(A) HAS ERRED IN INVOKING THE PR OVISIONS OF SECTION 14A WITHOUT APPRECIATING THE FACT THAT THE APPELLA NT DOES NOT HAVE BORROWED FUNDS. 12.3 THE LD. CIT(A) OUGHT TO HAVE RESTRICTED THE DISALLOWANCE TO THE AMOUNT REFLECTED IN THE INVESTMENT PROCESS DOCUMEN TATION MAINTAINED BY THE APPELLANT. 12.4 THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN ADDING THE AMOUNT OF RS. 2,43, 50,989/- DISALLOWED U/S. 14A R.W.R.8D OF THE RULES, WHILE COMPUTING BO OK PROFIT U/S. 115JB OF THE ACT. 13. THE LD. AR ARGUED THAT THE ASSESSEE HAD NOT INC URRED ANY EXPENDITURE FOR THE PURPOSE OF EARNING THIS DIVIDEND INCOME. H E ALSO PLACED ON RECORD A COPY OF THE BALANCE SHEET OF THE ASSESSEE WHEREIN IT WAS ME NTIONED THAT OUT OF THE TOTAL INVESTMENT OF RS. 2,57,17,36,597/-, ONLY THE SUM OF RS. 114,35,64,497/- REPRESENTS INVESTMENT IN MUTUAL FUND WHICH HAD YIELDED EXEMPT INCOME (I.E., DIVIDEND) AND REMAINING INVESTMENTS REPRESENTS INVESTMENTS IN COR PORATE BONDS WHICH HAD YIELDED INTEREST INCOME WHICH IS TAXABLE AS PER LAW. HE AL SO ARGUED THAT THIS INTEREST INCOME RECEIVED FROM CORPORATE BONDS WERE DULY OFFERED TO TAX. ACCORDINGLY, HE ARGUED THAT THE REVENUE HAD GROSSLY ERRED IN CONSIDERING THE VA LUE OF INVESTMENTS YIELDING TAXABLE INCOME WHILE APPLYING RULE 8D2(III) AND ACC ORDINGLY PRAYED FOR EXCLUSION OF THE SAME FOR THIS YEAR AS WELL AS IN THE IMMEDIATEL Y PRECEDING YEAR IN ORDER TO ARRIVE AT THE AVERAGE VALUE OF INVESTMENTS. HE ALSO FILED THE PETITION PRAYING FOR ADMISSION OF ADDITIONAL EVIDENCE WHEREIN HE HAD MADE A WORKIN G OF DISALLOWANCE U/S. 14A OF :-12-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 THE ACT R.W.R. 8D2(III) OF THE RULES IN THE SUM OF RS. 7,77,600/- REPRESENTING INVOLVEMENT OF COMPANY OFFICIALS AND THEIR TIME DEV OTED FOR THE PURPOSE OF INVESTMENT ACTIVITY. HE ARGUED THAT THE PORTION OF THE SALARY PAID OF THESE OFFICIALS MAY BE TAKEN INTO ACCOUNT FOR THE PURPOSE OF MAKING DISALLOWANCE U/S. 14A R.W.R. 8D2(III) OF THE RULES. HE FAIRLY AGREED THAT THIS ADDITIONAL EVIDENCE AND THE AMOUNT OF DISALLOWANCE SUO-MOTO OFFERED BY THE ASSESSEE BE VERIFIED BY THE LD. AO AND ACCORDINGLY PRAYED FOR SETTING ASIDE OF THIS ISSUE TO THE FILE OF THE LD. AO. HE ALSO BROUGHT TO THE NOTICE OF THIS BENCH THAT THE LD. AO THOUGH SOUGHT TO DISALLOW ONLY 0.5% OF AVERAGE VALUE OF INVESTMENTS, BUT ERRED IN DISALLOWING 1% OF AVERAGE VALUE OF INVESTMENT UNDER RULE 8D2(III) OF THE RULES, FOR WHICH HE SOUGHT NECESSARY DIRECTIONS TO BE GIVEN TO THE LD. AO IN CASE IF THE PLEA MADE IN ADDITIONAL EVIDENCE IS NOT ACCEPTED. HE ALSO MADE A PLEA THAT THE LD. AO HAD NOT RECORDED ANY SATISFACTION IN TERMS OF RULE 8D(1) OF THE RULES AN D ACCORDINGLY NO DISALLOWANCE UNDER RULE 8D(2) WOULD OPERATE IN THE FACTS AND CIR CUMSTANCES OF THE CASE. WITH REGARD TO THE ISSUE OF DISALLOWANCE U/S. 14A WHILE COMPUTING THE BOOK PROFITS U/S. 115JB OF THE ACT, THE LD. AR ARGUED THAT THE SAME D OES NOT FALL IN THE LIST OF ADDITIONS CONTEMPLATED IN THE EXPLANATION TO SECTIO N 115JB OF THE ACT AND ACCORDINGLY ARGUED THAT THE BOOK PROFITS CANNOT BE DISTURBED THEREON. IN SUPPORT OF THIS, HE PLACED RELIANCE ON THE DECISION OF THIS TR IBUNAL IN THE ASSESSEE'S OWN CASE IN ITA NO. 2277/MDS/2014 FOR THE ASSESSMENT YEAR 2008- 09 AND M.P. NO. 152/MDS/2015 FOR THE ASSESSMENT YEAR 2008-09 VIDE O RDER DATED 19.02.2016. HE ALSO PLACED RELIANCE ON THE DECISION OF THIS TRIBUN AL IN THE CASE OF BEACH MINERAL COMPANY (P) LTD VS. ACIT (2015) 64 TAXMANN.COM 218( CHENNAI TRIBUNAL) DATED 06.08.2015 IN SUPPORT OF THIS CONTENTION. :-13-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 14. IN RESPONSE TO THIS, THE LD. DR BROUGHT THE ATT ENTION OF THIS BENCH TO THE FINDINGS OF THE LD. AO, WHEREIN HE HAD DULY REC ORDED HIS SATISFACTION WITH REGARD TO THE ACCOUNTS OF THE ASSESSEE AND ACCORDINGLY ASS AILED THE ARGUMENTS OF THE LD. AR ON THE ISSUE RELATING TO SATISFACTION AS FALLACI OUS. WITH REGARD TO THE ADDITIONAL EVIDENCE FILED BY THE LD. AR, THE LD. DR ARGUED THA T THE ASSESSEE IN THIS CASE HAD NOT OFFERED ANY AMOUNT FOR DISALLOWANCE U/S. 14A OF THE ACT R.W.R. 8D OF THE RULES. IN THE ABSENCE OF VOLUNTARY DISALLOWANCE BY THE ASS ESSEE THERE WAS NOTHING WRONG ON THE PART OF THE LD. AO TO ADOPT RULE 8D AND THE COMPUTATION MECHANISM CONTEMPLATED THEREIN, WHICH IS MANDATORY IN NATURE. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD INCLUDING VARIOUS COMPILATION OF CASE LAW S FILED BY THE LD. AR IN THIS REGARD. WE FIND THAT THE ADDITIONAL EVIDENCE FILED BY THE LD. AR DESERVES TO BE ADMITTED WHEREIN HE HAD CONTEMPLATED THE INVOLVEMEN T OF CERTAIN MANAGERIAL PERSONNEL FOR THE PURPOSE OF INVESTMENT ACTIVITY OF THE ASSESSEE AND ACCORDINGLY A FAIR PORTION OF THEIR SALARY TO BE TAKEN INTO ACCOU NT FOR THE PURPOSE OF COMPUTING DISALLOWANCE U/S. 14A OF THE ACT. WE FIND THAT THE LD. AR HAS ALSO ARGUED THAT THE ADOPTION OF RULE 8D IS NOT MANDATORY IN NATURE AND THE SAME WOULD COME INTO OPERATION ONLY IF THE PROVISIONS CONTAINED IN THE A CT FAILS. HE ARGUED THAT THE PROVISIONS OF SECTION 14A ARE VERY CLEAR THAT THE L D. AO IS EMPOWERED TO MAKE DISALLOWANCE OF EXPENSES BY TAKING INTO ACCOUNT THE FACTS AND CIRCUMSTANCES OF THE CASE AND THE ACCOUNTS OF THE ASSESSEE. HE NEED NOT ALWAYS REFER ONLY TO DISALLOWANCE MECHANISM CONTEMPLATED IN RULE 8D. WE FIND LOT OF FORCE IN THIS :-14-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 ARGUMENT OF LD. AR AND ACCORDINGLY ADMITTING THE AD DITIONAL EVIDENCE AND DIRECT THE LD. AO TO VERIFY THE CLAIM OF THE ASSESSEE IN THIS REGARD AND MAKE DISALLOWANCE ACCORDINGLY WITHOUT RESORTING TO RULE 8D OF THE RUL ES IN THESE FACTS AND CIRCUMSTANCES OF THE CASE. W ALSO FIND LOT OF FORC E IN THE ARGUMENTS ADVANCED BY THE LD. AR THAT IN ANY CASE, INVESTMENTS YIELDING T AXABLE INCOME NEED TO BE EXCLUDED WHILE COMPUTING DISALLOWANCE UNDER RULE 8D OF THE RULES. HOWEVER, THIS FINDING BECOMES INFRUCTOUS IN VIEW OF OUR EARLIER D IRECTIONS GIVEN HEREIN ABOVE. 16. WITH REGARD TO DISALLOWANCE U/S. 14A IN THE COM PUTATION U/S. 115JB OF THE ACT, WE FIND THAT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF BEACH MINERALS LIMITED REPORTED IN 64 TAXMANN.COM 218 (SUPRA) WHER EIN IT WAS HELD: ' 8.1 GROUND NO. 5.(A) - COMPUTATION OF BOOK PROFIT U/S. 115JB OF THE ACT BY GIVING EFFECT TO THE DISALLOWANCE OF EXPENDI TURE MADE INVOKING THE PROVISIONS OF THE SECTION-14A OF THE ACT FOR RS. 3, 11,34,630/- AND ALSO THE DISALLOWANCE OF EXPENDITURE UNDER THE NORMAL PROVIS IONS OF THE ACT. 8.1.1 THE LD. ASSESSING OFFICER WHILE COMPUTING TH E TAX AS PER PROVISIONS OF SECTION 115JB OF THE ACT MADE ADDITIO NS TO THE BOOK PROFIT WITH RESPECT TO THE DISALLOWANCE MADE U/S. 14A OF THE AC T READ WITH RULES-8D OF THE INCOME TAX RULES. ON APPEAL, THE LD. CIT (A) CI TING THE PROVISIONS OF CLAUSE (F) OF EXPLANATION-1 TO SECTION-115JB, CONFI RMED THE ORDER OF THE LD. ASSESSING OFFICER. THE RELEVANT PORTION OF THE ORDE R OF THE LD. CIT (A) IS REPRODUCED HEREIN BELOW FOR REFERENCE:- '10.2 I HAVE GONE THROUGH THE FACTS AND CIRCUMSTAN CES OF THE CASE. THE ASSESSING OFFICER HAS TAXED THE INCOME U/S. 115 JB SINCE THE TAX ON BOOK PROFITS IS MORE THAN THE TAX UNDER NORMAL COMP UTATION. WHILE DOING SO, SHE MADE DISALLOWANCE OF THE AMOUNT RELAT ABLE TO EXEMPT INCOME ON THE BASIS OF THE AMOUNT WORKED OUT U/S. 1 4A R.W.RULE 8D :-15-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 UNDER NORMAL COMPUTATION. THE PROVISIONS OF CLAUSE (F) OF EXPLANATION-1 TO S.115JB MAKES IT ABUNDANTLY CLEAR THAT THE AMOUN T OF EXPENDITURE 'RELATABLE TO' ANY EXEMPT INCOME, OTHER THAN S.10(3 8), IS LIABLE TO BE ADDED BACK TO THE AMOUNT OF NET PROFIT AS SHOWN IN THE P&L ALC. RELIANCE IS PLACED ON THE LATEST DECISION OF THE IT AT MUMBAI IN THE CASE OF DABUR INDIA LTD., 37 TAXMANN.COM 289. RELIANCE I S ALSO PLACED ON THE LATEST DECISION OF THE ITA T MUMBAI IN THE CASE OF RBK SHARE BRAKING P. LTD. IN ITA NO. 6678 & 7546IMURNL2011 DATED 24.7.20 13 WHEREIN IT WAS HELD THAT THE AMOUNT DISALLOWABLE U/S. 14A CAN BE A DDED BACK WHILE COMPUTING BOOK PROFIT UNDER EXPLANATION-1 TO S. 115 JB(PARA 6). RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, I UPHOL D THE ADDITION MADE BY THE ASSESSING OFFICER. THIS GROUND IS DISMISSED. ' HOWEVER, ON PERUSING THE EXPLANATION-1 (F) OF SECT ION-115JB(2) OF THE ACT, WE DO NOT FIND MERIT IN THE CONTENTION OF THE LD. CIT (A). THE RELEVANT PROVISION OF THE ACT IS EXTRACTED HEREIN BELOW FOR REFERENCE:- 'SECTION. 115JB EXPLANATION-[1J - FOR THE PURPOSES OF THIS SECTION , 'BOOK PROFIT' MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOS S ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION(2 ), AS INCREASED BY- (A) TO (F) . . . . . . (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH [SECTION-10 (OTHER THAN THE PROVISIONS CONTAI NED IN CLAUSE (38) THEREOF] OR SECTION 11 OR SECTION 12 APPLY; (G) TO (J) ' FROM THE ABOVE IT IS APPARENT THAT THE AFORESAID P ROVISION OF THE ACT DOES NOT REFER TO ANY DISALLOWANCE MADE U/S. 14A OF THE ACT WHILE ARRIVING AT THE BOOK PROFIT FOR THE PURPOSE OF SECTION-115JB(2) OF THE ACT. FURTHER SECTION 14A OF THE ACT IS A PROVISION WITH FICTION DISALLOWING THE DEEMED EXPENDITURE ATTRIBUTABLE TO EXEMPT INCOME VIZ., DIV IDEND INCOME U/S. 10 OF THE ACT AND SECTION 115JB OF THE ACT IS ALSO A PROV ISION WITH FICTION FOR PAYMENT OF TAX IN RESPECT OF DEEMED INCOME. THEREFO RE WHILE COMPUTING THE :-16-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT ANOTHER PROVISION WITH FICTION CANNOT BE SUPERIMPOSED. HENCE THE QUESTION OF INCREASING THE 'BOOK PROFIT' DUE TO THE DISALLOWANCE U/S. 14A OF THE ACT WILL NOT ARISE. HOWEVER, IN THE INSTANT CASE OF THE ASSESSEE, SINCE WE HAVE ALR EADY DELETED THE ADDITION MADE U/S. 14A, INCREASING THE BOOK PROFIT WILL NOT ARISE. FURTHER THE DECISION OF HON'BLE APEX COURT CITED BY THE ASSESSEE IN THE CASE APOLLO TYRES LTD. V. CIT [2002] 255 ITR 273/122 TAXMAN 562 IS ALSO SQUAR ELY APPLICABLE TO THE CASE OF THE ASSESSEE. THE GIST OF THE SAME IS REPRO DUCED HEREIN BELOW FOR REFERENCE:- 'THE ASSESSING OFFICER, WHILE COMPUTING THE BOOK P ROFITS OF A COMPANY UNDER SECTION 115J OF THE INCOME-TAX ACT, 1 961, HAS ONLY THE POWER OF EXAMINING WHETHER THE BOOKS OF ACCOUNT ARE CERTIFIED BY THE AUTHORITIES UNDER THE COMPANIES ACT AS HAVING BEEN PROPERLY MAINTAINED IN ACCORDANCE WITH THE COMPANIES ACT. TH E ASSESSING OFFICER, THEREAFTER, HAS THE LIMITED POWER OF MAKIN G INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO SE CTION 115J . THE ASSESSING OFFICER DOES NOT HAVE THE JURISDICTION TO GO BEHIND THE NET PROFITS SHOWN IN THE PROFIT AND LOSS ACCOUNT EXCEPT TO THE EXTENT PROVIDED IN THE EXPLANATION. THE USE OF THE WORDS ' IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI T O THE COMPANIES ACT' IN SECTION 115J WAS MADE FOR THE LIMITED PURPOSE OF EMPOWERING THE ASSESSING OFFICER TO RELY UPON THE AUTHENTIC STATEM ENT OF ACCOUNTS OF THE COMPANY. WHILE SO LOOKING INTO THE ACCOUNTS OF THE COMPANY, THE ASSESSING OFFICER HAS TO ACCEPT THE AUTHENTICITY OF THE ACCOUNTS WITH REFERENCE TO THE PROVISIONS OF THE COMPANIES ACT, W HICH OBLIGATE THE COMPANY TO MAINTAIN ITS ACCOUNTS IN A MANNER PROVID ED BY THAT ACT AND THE SAME TO BE SCRUTINISED AND CERTIFIED BY STATUTO RY AUDITORS AND APPROVED BY THE COMPANY IN GENERAL MEETING AND THER EAFTER TO BE FILED BEFORE THE REGISTRAR OF COMPANIES WHO HAS A STATUTO RY OBLIGATION ALSO TO EXAMINE AND BE SATISFIED THAT THE ACCOUNTS OF THE C OMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUIREMENTS OF T HE COMPANIES ACT. :-17-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 SUB-SECTION (1A) OF SECTION 115J DOES NOT EMPOWER T HE ASSESSING OFFICER TO EMBARK UPON A FRESH ENQUIRY IN REGARD TO THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF THE COMPANY.' FROM THE ABOVE DECISION IT IS CLEAR THAT WHILE COM PUTING THE 'BOOK PROFIT' OF THE COMPANY UNDER THE PROVISIONS OF SECT ION 115JB OF THE ACT; ANY DISALLOWANCE MADE UNDER THE NORMAL PROVISIONS OF TH E ACT ALSO CANNOT BE GIVEN EFFECT TO FOR ARRIVING AT THE 'BOOK PROFIT' F OR THE PURPOSE OF SECTION 115JB OF THE ACT. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED IN ITS FAVOUR.' RESPECTFULLY FOLLOWING THE SAME, WE DIRECT THE LD. AO NOT TO MAKE ANY DISALLOWANCE U/S. 14A OF THE ACT WHILE COMPUTING BOOK PROFITS U/ S. 115JB OF THE ACT. ACCORDINGLY, GROUND NO. 8 RAISED BY THE ASSESSEE IS ALLOWED. TH E GROUND NO. 5, 6, 7, 10, AND 11 ARE ALLOWED FOR STATISTICAL PURPOSES. 17. THE ASSESSEE ALSO RAISED ANOTHER GROUND STATING THAT ANY DISALLOWANCE MADE U/S. 14A OF THE ACT WAS ONLY ON ACCOUNT OF DIS ALLOWANCE OF BUSINESS EXPENSES OF THE ASSESSEE AND THEREBY CORRESPONDINGLY WOULD O NLY INCREASE THE BUSINESS PROFIT OF THE ASSESSEE WHICH WOULD IN TURN CONSEQUENTLY IN CREASE IN THE CLAIM OF DEDUCTION U/S. 10A OF THE ACT. THE ASSESSEE HAS RAISED GROUN D 12 IN THIS REGARD AS UNDER:- 'THAT THE LD. CIT(A) ERRED ON FACTS AND IN LAW IN NOT ADJUDICATING THE PLEA RAISED BY THE APPELLANT, WITHOUT PREJUDICE, TO THE EFFECT THAT DISALLOWANCE, IF ANY, UNDER SECTION 14A SHOULD GO T O INCREASE THE PROFIT DERIVED FROM THE ELIGIBLE UNDERTAKING(S)/UNIT(S) FO R PURPOSE OF SECTIONS 10A OF THE ACT.' :-18-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 18. THE LD. AR PLACED RELIANCE ON THE DECISION OF T HIS TRIBUNAL IN ASSESSEE'S OWN CASE IN ITA NO. 2277/MDS/2014 FOR ASSESSMENT YE AR 2008-09 DATED 19.06.2015. NO ARGUMENT IN THIS REGARD WERE ADVANC ED BEFORE LD. DR BY REFERRING TO ANY CONTRARY DECISION OF THIS TRIBUNAL. 19. WE HAVE HEARD THE RIVAL SUBMISSIONS, WE FIND TH AT THE ISSUE IS SQUARELY COVERED BY THE DECISION OF THIS TRIBUNAL (SUPRA) WH EREIN IT WAS HELD : '9. IN OUR OPINION, THIS ISSUE IS SQUARELY COVERE D BY THE ORDER OF THE BOMBAY HIGH COURT IN THE CASE OF CIT V S M/S. GEM P LUS JEWELLERY INDIA LTD 330 ITR 175, WHEREIN IT WAS HELD THAT THE ASSESSEE WAS ENTITLED TO EXEMPTION U/S. 10A WITH REFERENCE TO ADDITION OR DISALLOWANCE OF VARIOUS PAYMENTS, AS THE PLAIN CONSEQUENCE OF THE DISALLOWANCE AND ADD B ACK MADE BY THE ASSESSING OFFICER IS AN INCREASE IN THE BUSINESS PR OFITS OF THE ASSESSEE AND THE SAME TO BE CONSIDERED FOR THE PURPOSE OF COMPUTATIO N OF DEDUCTION U/S. 10A OF THE ACT. ADOPTING THE SIMILAR PRINCIPLES, WE AR E INCLINED TO DIRECT THE ASSESSING OFFICER TO CONSIDER THE DISALLOWANCE U/S. 14A R.W.RULE 8D AS PART OF BUSINESS PROFIT SO AS TO COMPUTE DEDUCTION U/S. 10A OF THE ACT. IN THE RESULT, THE ASSESSEE APPEAL IS PARTLY ALLOWED. ' RESPECTFULLY FOLLOWING THE SAME, WE ALLOW THE GROUN D NO. 12 OF THE ASSESSEE. 20. DISALLOWANCE OF FRINGE BENEFIT TAX U/S. 115JB OF THE ACT :- THE NEXT ISSUE TO BE DECIDED IN THIS APP EAL IS AS TO WHETHER THE LD. CIT(A) WAS JUSTIFIED IN UPHOLDING THE ACTION OF THE LD. AO IN DISALLOWING THE FRINGE BENEFIT TAX FOR THE PURPOSE OF COMPUTING BOOK PROFI TS U/S. 115JB OF THE ACT. THE LD. AR PLACED RELIANCE ON THE CIRCULAR ISSUED BY CBDT V IDE CIRCULAR NO 8/2005 DATED 29.08.2005 BY REFERRING TO QUESTION NO. 103 OF THE SAID CIRCULAR, WHEREIN, IT HAS BEEN :-19-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 CLARIFIED BY THE CBDT WITH PAYMENT OF FRINGE BENEFI T TAX FOR THE PURPOSE OF COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. HE AL SO ARGUED THAT THE CIRCULAR ISSUED BY THE CBDT ARE BINDING ON THE TAX AUTHORITIES. IN RESPONSE TO THIS THE LD. DR FAIRLY AGREED WITH THE LD. AR. 21. WE HAVE HEARD THE RIVAL SUBMISSIONS, WE FIND TH AT CBDT VIDE NO. 8/2005 DATED 29.08.2005 IN RESPONSE TO QUESTION NO 103 HAD CLARIFIED THIS ASPECT. FOR THE SAKE OF CONVENIENCE, THE SAME IS REPRODUCED HEREIN: ' WHETHER FBT WOULD BE ALLOWABLE DEDUCTION WHILE CO MPUTING BOOK PROFITS U/S. 115JB? 103. FBT IS A LIABILITY QUA EMPLOYER. IT IS AN EXP ENDITURE LAID OUT OR EXPENDED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OR PROFESSION OF THE EMPLOYER. HOWEVER, SUB-CLAUSE (IC) OF CLAU SE (A) OF SECTION 40 OF THE INCOME TAX ACT EXPRESSLY PROHIBITS THE DEDUCTION OF THE AMOUNT OF FBT PAID, FOR THE PURPOSES OF COMPUTING THE INCOME UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THIS PROHIBITION DOES NOT APPLY TO THE COMPUTATION OF BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB. ACCO RDINGLY, THE FBT IS AN ALLOWABLE DEDUCTION IN THE COMPUTATION OF BOOK PROF IT U/S. 115JB OF THE INCOME TAX ACT. ' IN VIEW OF THE ABOVE CIRCULAR, WE DIRECT THE LD. AO TO GRANT DEDUCTION FOR FRINGE BENEFIT TAX WHILE COMPUTING BOOK PROFIT U/S. 115JB OF THE ACT. ACCORDINGLY, GROUND NO. 9 RAISED BY THE ASSESSEE IS ALLOWED. 22. GROUND NO. 14 RAISED BY THE ASSESSEE IS WITH RE GARD TO THE CHARGEABILITY OF INTEREST U/S. 234C OF THE ACT ON THE ASSESSED IN COME AS AGAINST THE RETURNED :-20-: I.T.A. NO. 150/MDS/2015 & I.T.A. NO. 80/MDS/2015 INCOME. WE FIND WITH THE PROVISIONS OF ACT ARE VER Y CLEAR IN THIS REGARD THAT INTEREST U/S. 234C HAS TO BE CHARGED ONLY ON THE RETURNED IN COME. ACCORDINGLY, GROUND 13 RAISED BY THE ASSESSEE IS ALLOWED. 23. GROUND 14 RAISED BY THE ASSESSEE IS GENERAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 24. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES AND APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED ON WEDNESDAY, THE 08TH DAY OF FEBR UARY, 2017 AT CHENNAI. SD - ( ' # . $ ) (DUVVURU RL REDDY) & /JUDICIAL MEMBER SD/ - ( . ) (M. BALAGANESH) /ACCOUNTANT MEMBER /CHENNAI, - /DATED: 08TH FEBRUARY, 2017 JPV ( .&/0 10 /COPY TO: 1. ASSESSEE 2. REVENUE 3. 2 ( )/CIT(A) 4. 2 /CIT 5. 0 .&& /DR 6. 4 /GF
