Forbes Campbell Finance Limited, CHENNAI V. DCIT Company Circle II(1), CHENNAI

ITA 902/CHNY/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 0166 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-06-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: D
• Assessment Year: 2011-2012
• Appeal Filed On: 15-03-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MRS C VATCHALA
• Keywords: Earning of tax free income; Deemed to accrue or arise in india; Revised return; Rule 8D; Set aside
• Section: 14A; 115JB; 143(1); 6; 12; 10; 2; 11

Judgement Text

, , IN THE INCOME-TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . , BEFORE SHRI INTURI RAMA RAO, ACCOUNTANT MEMBER & SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A. NO. 902/CHNY/2018 / ASSESSMENT YEAR: 2011-12 M/S. FORBES CAMPBELL FINANCE LIMITED [FORMERLY KNOWN AS M/S. LATHAM INDIA LIMITED], CATHOLIC CENTER, 108 ARMENIAN STREET, CHENNAI 600 001. [PAN: AAACL0532H] VS. THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE II(1), CHENNAI. ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : SHRI S.P. CHIDAMBARAM, ADVOCATE / RESPONDENT BY : MRS. C. VATCHALA, JCIT / DATE OF HEARING : 25.06.2019 /DATE OF PRONOUNCEMENT : 27.06.2019 / O R D E R PER DUVVURU RL REDDY, JUDICIAL MEMBER: THIS APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 13, CHENNAI, DATED 17.11.2017 RELEVANT TO THE ASSESSMENT YEAR 2011-12. THE EFFECTIVE GROUNDS RAISED IN THE APPEAL OF THE ASSESSEE IS THAT (I) THE LD. CIT(A) HAS ERRED IN DISALLOWING AN AMOUNT OF .4,88,202/- UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 [ACT IN SHORT] R.W. RULE 8D AS REPRESENTING EXPENDITURE INCURRED IN RELATION TO EARNING EXEMPT INCOME, WHILE COMPUTING THE TOTAL INCOME OF THE ASSESSEE AND (II) THE LD. CIT(A) ERRED IN UPHOLDING THE INCLUSION OF DISALLOWANCE MADE I.T.A. NO. 902/CHNY/18 2 UNDER SECTION 14A R.W. RULE 8D WHILE COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE ACT. 2. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE FILES RETURN OF INCOME FOR THE ASSESSMENT YEAR 2011-12 ON 12.09.2011 ADMITTING AN INCOME OF .8,29,860/-. SUBSEQUENTLY, THE ASSESSEE FILED REVISED RETURN ON 31.08.2012. THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE ACT. THEREAFTER, THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE ACT WAS ISSUED AND DULY SERVED ON THE ASSESSEE AGAINST WHICH, THE ASSESSEE FILED THE PARTICULARS AS CALLED FOR. ON PERUSAL OF THE ACCOUNTS, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE HAS MADE INVESTMENTS DURING THE YEAR, THE INCOME FROM WHICH DOES NOT FORM PART OF TOTAL INCOME. THE INCOME RECEIVED FROM SUCH INVESTMENTS WAS .4,88,202/-, WHICH WAS CLAIMED AS EXEMPT UNDER SECTION 10(34) OF THE ACT. HOWEVER, THE ASSESSEE HAS NOT ADMITTED ANY EXPENDITURE FOR EARNING THE EXEMPT INCOME. IN VIEW OF THE PROVISIONS OF SECTION 14A R.W. RULE 8D AND AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, DETERMINED EXPENDITURE COMPONENT AND DISALLOWED .4,64,147/- AND BROUGHT TO TAX. ON APPEAL, BY FOLLOWING VARIOUS DECISIONS, THE LD. CIT(A) DIRECTED THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W. RULE 8D TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. I.T.A. NO. 902/CHNY/18 3 3. ON BEING AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 5. WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIALS AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. IT IS AN ADMITTED FACT THAT THE ASSESSEE HAS EARNED EXEMPT INCOME AT .4,88,202/-. BY RELYING ON THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE IN I.T.A. NO. 56/CHNY/2014 DATED 29.03.2016 FOR THE ASSESSMENT YEAR 2009-10 , IT WAS THE CONTENTION OF THE LD. COUNSEL THAT THE INVESTMENT IN GROUP COMPANIES BEING STRATEGIC INVESTMENTS IS TO BE EXCLUDED WHILE CALCULATING THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D. THE DECISION OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 STANDS RULED OUT BY THE JUDGEMENT IN THE CASE OF MAXOPP INVESTMENT LTD. V. CIT 402 ITR 640 (SC), WHEREIN, THE HONBLE SUPREME COURT HAS CATEGORICALLY HELD THAT ANY INVESTMENT MADE WITH A VIEW TO EARN TRADING PROFITS OR AS INVESTMENT REPRESENTING CONTROLLING INTEREST AND THE ASSESSEE EARN AN INCIDENTAL EXEMPT INCOME, SECTION 14A OF THE ACT APPLIES. 5.1 WITH REGARD TO RESTRICTION OF DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME EARNED, EARNING OF EXEMPT INCOME OF .4,88,202/-. HOWEVER, BY APPLYING THE PROVISIONS OF SECTION 14A R.W. RULE 8D, THE ASSESSING OFFICER WORKED THE DISALLOWANCE AT .4,64,147/-. BY FOLLOWING VARIOUS DECISIONS OF THE TRIBUNAL AS WELL HONBLE JURISDICTIONAL HIGH COURT, THE LD. CIT(A) DIRECTED I.T.A. NO. 902/CHNY/18 4 THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. MOREOVER, THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENTS PVT. LTD. V. CIT 372 ITR 694 HAS ALSO HELD THAT THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D SHOULD BE RESTRICTED TO THE EXTENT OF EXEMPT INCOME EARNED. UNDER THE ABOVE FACTS AND CIRCUMSTANCES, THE LD. CIT(A) HAS RIGHTLY RESTRICTED THE DISALLOWANCE UNDER SECTION 14A R.W. RULE 8D TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. ACCORDINGLY, THE GROUND RAISED BY THE ASSESSEE STANDS DISMISSED. 6. THE NEXT GROUND RAISED BY THE ASSESSEE RELATES TO INCLUSION OF DISALLOWANCE UNDER SECTION 14A WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT. THE ASSESSING OFFICER INCLUDED THE EXPENDITURE ATTRIBUTABLE TO EARNING OF EXEMPT INCOME UNDER SECTION 14A R.W. RULE 8D WHILE COMPUTING BOOK PROFIT UNDER SECTION 115JB OF THE ACT. ON APPEAL, THE LD. CIT(A) CONFIRMED THE ADDITION. 6.1 WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WHILE COMPUTING THE TAX AS PER PROVISIONS OF SECTION 115JB OF THE ACT, THE ASSESSING OFFICER MADE ADDITIONS TO THE BOOK PROFIT WITH RESPECT TO THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT READ WITH RULES-8D. SIMILAR ISSUE WAS SUBJECT MATTER IN APPEAL BEFORE THE TRIBUNAL IN THE CASE OF BEACH MINERALS COMPANY PVT. LTD. V. ACIT IN I.T.A. NO. 2110/MDS/2014 & DATED 06.08.2015 AND THE I.T.A. NO. 902/CHNY/18 5 TRIBUNAL HAS ADJUDICATED THE CASE AS UNDER: 8.1. GROUND NO.5.(A) COMPUTATION OF BOOK PROFIT U/S.115JB OF THE ACT BY GIVING EFFECT TO THE DISALLOWANCE OF EXPENDITURE MADE INVOKING THE PROVISIONS OF THE SECTION-14A OF THE ACT FOR `3,11,34,630/- AND ALSO THE DISALLOWANCE OF EXPENDITURE UNDER THE NORMAL PROVISIONS OF THE ACT. 8.1.1 THE LD. ASSESSING OFFICER WHILE COMPUTING THE TAX AS PER PROVISIONS OF SECTION 115JB OF THE ACT MADE ADDITIONS TO THE BOOK PROFIT WITH RESPECT TO THE DISALLOWANCE MADE U/S.14A OF THE ACT READ WITH RULES-8D OF THE INCOME TAX RULES. ON APPEAL, THE LD. CIT (A) CITING THE PROVISIONS OF CLAUSE (F) OF EXPLANATION-1 TO SECTION-115JB, CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER. THE RELEVANT PORTION OF THE ORDER OF THE LD. CIT (A) IS REPRODUCED HEREIN BELOW FOR REFERENCE:- 10.2 I HAVE GONE THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSING OFFICER HAS TAXED THE INCOME U/S.115JB SINCE THE TAX ON BOOK PROFITS IS MORE THAN THE TAX UNDER NORMAL COMPUTATION. WHILE DOING SO, SHE MADE DISALLOWANCE OF THE AMOUNT RELATABLE TO EXEMPT INCOME ON THE BASIS OF THE AMOUNT WORKED OUT U/S.14A R.W. RULE 8D UNDER NORMAL COMPUTATION. THE PROVISIONS OF CLAUSE (F) OF EXPLANATION-1 TO S.115JB MAKES IT ABUNDANTLY CLEAR THAT THE AMOUNT OF EXPENDITURE RELATABLE TO ANY EXEMPT INCOME, OTHER THAN S.10(38), IS LIABLE TO BE ADDED BACK TO THE AMOUNT OF NET PROFIT AS SHOWN IN THE P&L A/C. RELIANCE IS PLACED ON THE LATEST DECISION OF THE ITAT MUMBAI IN THE CASE OF DABUR INDIA LTD., 37 TAXMANN.COM 289. RELIANCE IS ALSO PLACED ON THE LATEST DECISION OF THE ITAT MUMBAI IN THE CASE OF RBK SHARE BROKING P. LTD IN ITA NO.6678 & 7546/MUM/2011 DATED 24.7.2013 WHEREIN IT WAS HELD THAT THE AMOUNT DISALLOWABLE U/S.14A CAN BE ADDED BACK WHILE COMPUTING BOOK PROFIT UNDER EXPLANATION-1 TO S. 115JB(PARA 6). RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, I UPHOLD THE ADDITION MADE BY THE ASSESSING OFFICER. THIS GROUND IS DISMISSED. HOWEVER, ON PERUSING THE EXPLANATION-1(F) OF SECTION-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:- I.T.A. NO. 902/CHNY/18 6 SECTION.115JB EXPLANATION-[1] FOR THE PURPOSES OF THIS SECTION, BOOK PROFIT MEANS THE NET PROFIT AS SHOWN IN THE PROFIT AND LOSS ACCOUNT FOR THE RELEVANT PREVIOUS YEAR PREPARED UNDER SUB-SECTION(2), AS INCREASED BY (A) TO (E) ---------------------------------------------------- (F) THE AMOUNT OR AMOUNTS OF EXPENDITURE RELATABLE TO ANY INCOME TO WHICH [SECTION-10 (OTHER THAN THE PROVISIONS CONTAINED IN CLAUSE (38) THEREOF] OR SECTION 11 OR SECTION 12 APPLY; (G) TO (J) ----------------------------------------------------- FROM THE ABOVE IT IS APPARENT THAT THE AFORESAID PROVISION 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., DIVIDEND INCOME U/S. 10 OF THE ACT AND SECTION 115JB OF THE ACT IS ALSO A PROVISION WITH FICTION FOR PAYMENT OF TAX IN RESPECT OF DEEMED INCOME. THEREFORE WHILE COMPUTING THE 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 ALREADY DELETED THE ADDITION MADE U/S.14A, INCREASING THE BOOK PROFIT WILL NOT ARISE. FURTHER THE DECISION OF HONBLE APEX COURT CITED BY THE ASSESSEE IN THE CASE M/S.APOLLO TYRES LTD. VS. CIT REPORTED IN 255 ITR 273 IS ALSO SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE. THE GIST OF THE SAME IS REPRODUCED HEREIN BELOW FOR REFERENCE:- THE ASSESSING OFFICER, WHILE COMPUTING THE BOOK PROFITS OF A COMPANY UNDER SECTION 115J OF THE INCOME-TAX ACT, 1961, 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. THE ASSESSING OFFICER, THEREAFTER, HAS THE LIMITED POWER OF MAKING INCREASES AND REDUCTIONS AS PROVIDED FOR IN THE EXPLANATION TO SECTION 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 I.T.A. NO. 902/CHNY/18 7 EXPLANATION. THE USE OF THE WORDS IN ACCORDANCE WITH THE PROVISIONS OF PARTS II AND III OF SCHEDULE VI TO THE COMPANIES ACT IN SECTION 115J WAS MADE FOR THE LIMITED PURPOSE OF EMPOWERING THE ASSESSING OFFICER TO RELY UPON THE AUTHENTIC STATEMENT 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, WHICH OBLIGATE THE COMPANY TO MAINTAIN ITS ACCOUNTS IN A MANNER PROVIDED BY THAT ACT AND THE SAME TO BE SCRUTINISED AND CERTIFIED BY STATUTORY AUDITORS AND APPROVED BY THE COMPANY IN GENERAL MEETING AND THEREAFTER TO BE FILED BEFORE THE REGISTRAR OF COMPANIES WHO HAS A STATUTORY OBLIGATION ALSO TO EXAMINE AND BE SATISFIED THAT THE ACCOUNTS OF THE COMPANY ARE MAINTAINED IN ACCORDANCE WITH THE REQUIREMENTS OF THE COMPANIES ACT. SUB-SECTION (1A) OF SECTION 115J DOES NOT EMPOWER THE 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 COMPUTING THE BOOK PROFIT OF THE COMPANY UNDER THE PROVISIONS OF SECTION 115JB OF THE ACT; ANY DISALLOWANCE MADE UNDER THE NORMAL PROVISIONS OF THE ACT ALSO CANNOT BE GIVEN EFFECT TO FOR ARRIVING AT THE BOOK PROFIT FOR THE PURPOSE OF SECTION 115JB OF THE ACT. ACCORDINGLY, THIS GROUND RAISED BY THE ASSESSEE IS ALLOWED IN ITS FAVOUR. 6.2 MOREOVER, IN THE CASE OF ACIT V. VIREET INVESTMENT (P) LTD. [2017] 82 TAXMANN.COM 415 (DELHI TRIB.)(SB), THE DELHI SPECIAL BENCH OF THE TRIBUNAL HAS ALSO GIVEN A CATEGORICAL FINDINGS THAT THE COMPUTATION UNDER CLAUSE (F) OF EXPLANATION 1 TO SECTION 115JB(2) OF THE ACT IS TO BE MADE WITHOUT RESORTING TO COMPUTATION AS CONTEMPLATED UNDER SECTION 14A READ WITH RULE 8D. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND DIRECT THE ASSESSING OFFICER TO EXCLUDE THE DISALLOWANCE MADE UNDER SECTION 14A R.W. RULE 8D WHILE I.T.A. NO. 902/CHNY/18 8 COMPUTING BOOK PROFITS UNDER SECTION 115JB OF THE ACT. THUS, THE GROUND RAISED BY THE ASSESSEE STANDS ALLOWED. 7. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED ON THE 27 TH JUNE, 2019 IN CHENNAI. SD/- SD/- (INTURI RAMA RAO) ACCOUNTANT MEMBER (DUVVURU RL REDDY) JUDICIAL MEMBER CHENNAI, DATED, 27.06.2019 VM/- /COPY TO: 1. / APPELLANT, 2. / RESPONDENT, 3. ( ) /CIT(A), 4. /CIT, 5. /DR & 6. /GF.