IT: Exemption under section 10B could not be allowed on training fees received from professionals, who were neither employees nor associated with business of manufacture or production of any article or thing of assessee
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[2013] 35 taxmann.com 442 (Madras)
HIGH COURT OF MADRAS
Penta Media Graphica Ltd.
v.
Assistant Commissioner of Income-tax, Co. Ward V (2)*
MRS. CHITRA VENKATARAMAN AND MS. K.B.K. VASUKI, JJ.
Tax Case (Appeal) Nos. 34 of 2010 and
332 & 333 of 2011
M.P. No. 1 of 2011
332 & 333 of 2011
M.P. No. 1 of 2011
JUNE 5, 2013
Section 10B of the Income-tax Act, 1961 - Export oriented undertaking [Computation of deduction] - Assessment year 1996-97 - Assessee claimed exemption under section 10B on income received by it by way of training fees - Assessing Officer disallowed claim on ground that training was given to outsiders - Whether exemption under section 10B is available in respect of profit and gains derived by an undertaking which is engaged in manufacture or production of an article or thing - Held, yes - Whether, since training was given to professionals who were not employees and were not associated with business of assessee in any way in production or manufacture of any article or thing, exemption under section 10B could not be allowed on training fees not being profits or gains derived by assessee from manufacture or production of any article or thing - Held, yes [Para 18] [In favour of revenue]
[2008] 19 SOT 412 (MUM.)
IN THE ITAT MUMBAI BENCH 'B'
Sovika Infotek Ltd.*
v.
Income-tax Officer, 8(3)(2), Mumbai
R.K. GUPTA, JUDICIAL MEMBER AND J. SUDHAKAR REDDY, ACCOUNTANT MEMBER
IT APPEAL NOS. 3007 AND 3008 (MUM.) OF 2004 [ASSESSMENT YEARS 1998-99 AND 2000-01]
JULY 26, 2007
Section 10B of the Income-tax Act, 1961 - Export oriented undertaking - Assessment year 2000-01 - Assessee, a public limited company, was engaged in business of computer software development and sale of software - Assessee claimed exemption under section 10B in respect of profits and gains derived from business, which included interest income received from bank deposits and advances made, income from professional fees, and income from training - Whether since interest income was not derived from export oriented undertaking, assessee would not be entitled to exemption under section 10B on same - Held, yes - Whether since income from professional fees was a business receipt and had arisen from export undertaking, assessee would be entitled to exemption under section 10B on same - Held, yes - Whether since training activity of assessee was intrinsically connected with software development, sale, maintenance, etc., assessee would be entitled to exemption under section 10B on income from training - Held, yes
During arguments before Madras High court , the counsel of assesse submitted that , the department has not filed any appeal against the above order of Mumbai Tribunal.
Now, in view of Madras High court judgement in favour of the revenue, necessary action for filing 260A needs to be examined .--
The following important judgement is available for download at itatonline.org.
CIT vs. Gujarat Flouro Chemicals (Supreme Court)
S. 244A: The department is not obliged to pay interest on interest as that is not provided in the law. Sandvik Asia 280 ITR 643 (SC) awarded compensation for inordinate delay on its facts
In Sandvik Asia 280 ITR 643 (SC) the Supreme Court held that if the department delays paying interest on the refunded amount, the assessee is entitled to interest on interest. Subsequently, in CIT vs. Gujarat Flouro Chemicals, a view was expressed that Sandvik Asia 280 ITR 643 (SC) did not lay down the correct law and ought to be reconsidered. The matter was referred to a larger Bench. HELD by the larger Bench:
The judgment in Sandvik Asia 280 ITR 643 (SC) has been misquoted and misinterpreted by the assessees and also by the Revenue. Their view that in Sandvik case this Court had directed the Revenue to pay interest on the statutory interest in case of delay in the payment and that the Revenue is obliged to pay an interest on interest in the event of its failure to refund the interest payable within the statutory period is not correct. In Sandvik Asia, the Court was considering the issue whether an assessee who is made to wait for refund of interest for decades be compensated for the great prejudice caused to it due to the delay in its payment after the lapse of statutory period. In the facts of that case, this Court came to the conclusion that there was an inordinate delay on the part of the Revenue in refunding certain amount which included the statutory interest and therefore, directed the Revenue to pay compensation for the same but not an interest on interest. S. 244A provides for interest on refunds under various contingencies. It is clarified that it is only that interest provided for under the statute which may be claimed by an assessee from the Revenue and no other interest on such statutory interest.[2013] 36 taxmann.com 103 (Delhi - Trib.)
IN THE ITAT DELHI BENCH 'C'
Hero MotoCorp Ltd.
v.
Additional Commissioner of Income-tax, Range-12, New Delhi*
R.P. TOLANI, JUDICIAL MEMBER
AND J.S. REDDY, ACCOUNTANT MEMBER
AND J.S. REDDY, ACCOUNTANT MEMBER
IT APPEAL NO. 1980 (DELHI) OF 2012
[ASSESSMENT YEAR 2007-08]
[ASSESSMENT YEAR 2007-08]
JUNE 11, 2013
58.1 DRP's Observations
"For the purpose of convenience the objections are clubbed and the gist of these is that the applicant holds that
| • | the AO erred in not appreciating that services/assistance provided by Honda were incidental to the right for ceding overseas territory and were incidental to exploring foreign territory and were not in the nature of 'fee for technical services' while the AO has held that applicant was bound to take a certificate from the AO under section 195(2) of the Act in view of the decision of the Supreme Court in the case of Transmission Corporation of India Ltd. Vs. CIT,:239 ITR 587, before remitting export commission to Honda and in absence of such certificate the assessee was required to withhold tax on export commission paid to Honda. | |
| • | The alternate argument of AO to hold that export commission constitutes capital expenditure on the ground that the same was incurred for acquiring permission/license for making export and was not allowable under section 37(1) of the Act and allowance of depreciation thereon has also been strongly objected to. |
The applicant has made comprehensive submissions before the DRP which have been carefully perused. We have also noted that most of these have been incorporated in the draft assessment order and dealt with in some details, consequently, these are not reproduced or discussed herein except to draw attention to page 182 to 195 of the draft assessment order where the AO has laid down his arguments for characterization of the payment remitted as Royalty both under the Income-tax Act, 1961 and Clause 12 of the Indo-Japan DTAA as being for the use or right to use any trademark, process or commercial experience.
DRP has also perused
| • | the Export Agreement dt 15 January, 2005, and it is observed that the Export Agreement is an integral part of and emanates from | |
| • | Article 3 of the broader LTAA (License and Technical Assistance Agreement) dt 2nd June 2004 for manufacture, sale, distribution, repair and service within a specified territory. |
Article 3 of this LTAA agreement originally provides that the applicant can sell or export outside the specified territory of Republic of India, the products manufactured/ procured by the licensee and utilize licensors distribution network for this purpose subject to a separate Export Agreement. Hence the character of the payment has admittedly to be determined with reference to the LTAA. That the payment made under the LTAA is in the nature of Royalty/ FTS for the territory of India is conceded by the applicant having paid TDS @ 10% on this remittance under the LTAA.
Now that under the same LTAA, a payment is being made for the same commercial rights to be exercised albeit in a different territory, the characterization of the payment cannot change. On these facts the DRP concludes that the action of the AO in characterization of payment termed as 'export commission' is correct and his finding that applicant was bound to take a certificate from the AO under section 195(2) of the Act in view of the decision of the Supreme Court in the case of Transmission Corporation of India Ltd. Vs. CIT 239 ITR 587, before remitting export commission to Honda and that in absence thereof required to withhold tax on export commission paid to Honda is correct as per Law. The disallowance u/s 40(i)a is also thus correct and reinforced by the decision of the Hon'ble Apex Court at 327 ITR 456 (SC). The objection of the applicant on these grounds is thus rejected.
On the alternative argument of treating payment made as export commission as capital expenditure disallowable u/s 37(1) of the Income-tax Act, 1961, DRP refuses to interfere as discussed in Objection no 35 since on this issue the Department is in appeal before High Court as per Addl CITs report in this regard. Since the matter apropos the capital nature of this payment is sub-judice, and has not attained finality, the DRP declines to interfere in this matter.
In light of discussion above, the objection of the applicant on these grounds is thus rejected.
[Addition Rs. NIL - To be considered separately in the para hereunder where TPO's disallowances have been discussed]"
Facts
58.2 During the relevant previous year, the assessee paid export commission of Rs.12.58 crores @ 5% of the FOB value of export sales in accordance with agreement, dated 15.01.2005 (effective from 21.06.2004), as consideration for according consent to the assessee to export motor cycle and their spares to certain countries, where supplies were being made by Honda or its affiliates hitherto.
58.3 The Assessing Officer held that the payment of export commission to Honda was towards royalty/fee for technical services on the ground that same was consideration for right to use trademark and managerial and technical services, which was taxable in India in terms of section 9(1)((vi)/(vii) of the Act and accordingly the assessee was under obligation to deduct tax under section 195 of the Act on such payment. In view of the failure of the assessee to deduct tax at source from the aforesaid payment, the assessing officer disallowed the entire amount of export commission paid by the assessee, invoking provision of section 40 (a)(i) of the Act.
58.4 The AO also held that since the whole arrangement between the assessee and Honda revealed that Honda directed export to specified territories and the said exports were more for the purpose of Honda than the assessee company, the same could not, therefore, be allowed under section 37(1) of the Act. According to the assessing officer, the expenditure was purely in the nature of license acquired by the assessee for the purpose of making export to the countries where Honda had exclusive privilege to operate.
Assessee's submissions:
58.5 All the aforesaid issues have been decided in favour of the assessee by the Tribunal in the assessee's own case for the assessment year 2006-07.
DR arguments
58.6 Reliance is placed on the assessment order and order passed by DRP.
Our findings & conclusion:
58.7 This issue admittedly is covered in favour of the assessee and against the revenue by earlier decision of the Tribunal in assessee's own case for A.Y. 2006-07. The Tribunal therein has held as follows:
"75. The Assessing Officer has alternatively held the payment of export commission to be capital expenditure. After considering the arguments of both the sides and the facts of the case, we are unable to accept this view of the Assessing Officer. By way of export agreement, HMCL has only permitted the assessee to export the specified goods to the specified countries, that too, subject to running payment of the export commission. The assessee has not acquired any asset or even the intangible right in the nature of a capital asset. The Assessing Officer has disallowed the royalty payment paid by the assessee by way of technical know-how agreement holding the same to be capital expenditure. From paragraph No.7 to paragraph No.29, we have discussed at length and have come to the conclusion that the payment of running royalty cannot be said to be capital expenditure. While doing so, we have also relied upon several decisions of Hon'ble Jurisdictional High Courts at pages 17 to 24. For the sake of brevity, we are not reproducing the same again but, we reiterate that the ratio of those decisions in the cases of Lumax Industries Ltd. (supra), Shriram Pistons & Rings Ltd. (supra), Sharda Motor Industrial Ltd. (supra), J.K. Synthetics Ltd. (supra), Climate systems India Ltd. (supra) and Munjal Showa Ltd. (supra) would also be applicable so as to arrive at the conclusion that the payment of running export commission paid as a percentage of export amount every year cannot be said to be capital expenditure. In view of the above, we delete the disallowance of export commission made by way of transfer pricing adjustment and also by way of general provisions of the Income-tax Act."
58.8 Respectfully following the same we allow this ground of the assessee.The following important judgement is available for download at itatonline.org.
CIT vs. Rajinder Kumar/ Naresh Kumar (Delhi High Court)
S. 40(a)(ia) TDS: Amendment by Finance Act 2010 permitting TDS payment till due date of ROI is retrospective. Bharati Shipyard 132 ITD 53 (Mum)(SB) disapproved
In 2007-2008 the assessee made professional payments for which TDS had not been paid by 31.3.2007 though it was paid before the due date for filing the return of income. The AO& CIT(A) disallowed the expenditure u/s 40(a)(ia) though the Tribunal deleted it by relying on Virgin Creations (Cal) which held that the proviso to s. 40(a)(ia) amended by the Finance Act 2010 has retrospective effect. On appeal by the department to the High Court HELD dismissing the appeal:
The intention behind s. 40(a)(ia) is to ensure that TDS is deducted and paid. The object of introduction of s. 40(a)(ia) is to ensure that TDS provisions are scrupulously implemented without default in order to augment recoveries. It is not to penalise an assessee when payment has been made within the time stated. Failure to deduct TDS or deposit TDS results in loss of revenue and may deprive the Government of the tax due and payable. The provision should be interpreted in a fair, just and equitable manner. It should not be interpreted in a manner which results in injustice and creates tax liabilities when TDS has been deposited/ paid and the respondent who is following cash system of accountancy has made actual payment to the third party for services rendered. Also, s. 40(a)(ia), prior to the insertion of the proviso by the Finance Act 2010, was not free from interpretative difficulties and problems. The amended provisions are clear and free from any ambiguity and doubt and will help curtail litigation. The amended provision clearly support the view that the expression "said due date" used in clause A of proviso to the un-amended section refers to the time specified in s. 139(1) of the Act. The amended s. 40(a)(ia) expands and further liberalises the statue when it stipulates that deductions made in the first eleven months of the previous year but paid before the due date of filing of the return, will constitute sufficient compliance. Consequently, the proviso to s. 40(a)(ia) must be treated as retrospective in operation (Virgin Creations referred/ followed; Bharati Shipyard 132 ITD 53 (Mum)(SB) disapproved)I-T - Whether when assessee wittingly reports a particular income under a wrong head to take certain benefits, penalty imposed for concealment is sustainable in law - YES: Delhi HC
By TIOL News Service
NEW DELHI, OCT 01, 2013: THE twin questions before the Bench are - Whether when the assessee wittingly reports a particular income under a wrong head to take certain benefits, penalty imposed for concealment is sustainable in law and Whether merely making a claim, which was not sustainable in law should not result in penalization u/s 271(1)(c). And the first question is answered in favour of the Revenue.
Facts of the case
The assessee filed its return of income declaring loss and the return was processed u/s 143(1) of the Act. Subsequently, re-assessment notice was issued after noticing that the assessee had claimed depreciation on plant and machinery though no manufacturing activity was conducted during the year under consideration and had wrongly claimed capital loss on sale of investments amounting to Rs.59,15,000/- as business loss.
The assessee on receipt of reasons for reopening, filed objections to the initiation of the re-assessment proceedings and contested the notice u/s 148 of the Act. The said objections of the assessee were rejected vide order sheet entry dated 24th December, 2007.
During the course of assessment proceedings, the assessee filed a revised computation in which they accepted that Rs.59,15,000/- was wrongly claimed as a revenue loss and was in fact capital loss. The assessee also accepted that unpaid interest charges of Rs.4,46,13,877/- should have been disallowed u/s 43B cannot be accounted for in the P&L account. Similarly, the respondent had erroneously accounted Rs.12,610/- and Rs.4,715/-, due and payable on account of provident fund and ESI in the P&L account, although this was not permissible and was contrary to Section 43B of the Act. The AO disallowed depreciation claim of Rs 89,95,173/- and claim on account of loss on sale of vehicles, which was treated by the assessee as revenue loss of Rs.1,27,930/-. This loss it was observed was a capital loss. On account of the aforesaid additions, total loss of the assessee was reduced as against the claimed losses. Proceedings u/s 271(1)(c) of the Act were initiated.
The AO imposed penalty of Rs.2,13,75,229/- on account of concealment and/or furnishing of inaccurate particulars. He rejected the contention of the assessee that the claims/entries were bona fide and lapse had occurred because the assessee was without competent professional staff due to closure of running operations and that the return was filed by a junior accountant, who was not well versed with the tax laws. CIT(Appeals) upheld the order imposing penalty.
Tribunal deleted the penalty, inter alia, recording that all details with regard to the loss suffered were filed along with the return of income and the change of head of income cannot be considered as concealment or furnishing inaccurate particulars of income. The legal claim made by the assessee was not found to be allowable under the head "business loss" but the same was allowed as a "capital loss".
On appeal by the Revenue, the High Court held that,
++ claim of depreciation was a debatable issue. Passive use entitles an assessee to claim depreciation. No manufacturing activities were conducted during the assessment year in question but the assessee had approached Board of Financial Reconstruction for rehabilitation of the company under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985. Penalty imposed in the last year for same reason was deleted by the tribunal;
++ the view expressed by the tribunal cannot be agreed that change of head under which income is to be assessed per se would justify cancellation of penalty for concealment for the reason that it is not a case of furnishing of inaccurate particulars. Furnishing of inaccurate particulars of income can have different connotations and may arise when income is enhanced, deduction denied or when head of income, is changed resulting in a higher rate of tax or increase in income. The real question is application of Explanation 1. Paragraphs 5.2 and 5.3 of the Tribunal order refer to the disallowance u/s 43B and observe that ESI and PF deductions as claimed were a mistake and a case of not giving proper effect to P&L account. However, this cannot be read in isolation as the assessee had not made disallowance u/s 43B even in respect of interest payable but not paid, to the financial institutions;
++ paragraphs 5.4 and 5.5 of the Tribunal order record that the respondent was continuously loss making concern for last many years and, therefore, decision in another case was distinguishable. Whether or not the assessee makes loss is not the relevant criteria or factor to determine whether penalty should be imposed u/s 271(1)(c) or not. Of course, lack of or inability to engage a good professional tax consultant is a different matter but there should be proof and basis to hold that the losses incurred prevented an assessee from getting proper tax advice and the issue in question was complicated or required professional advice of a highly expert nature. Further, this is not the correct way of applying Explanation 1. In paragraph 5.5 of the Tribunal order it is recorded that one cannot be oblivious to the explanation and justification given by the assesse. Indeed one has to take into consideration the explanation and the justification given by the assessee but it cannot be accepted as bona fide and true on mere asking. Onus under Explanation 1 is on the assessee to prove the reason as to why a particular claim or deduction was made. The justification and cause shown should be bona fide and acceptable. Penalty cannot be deleted by merely recording the explanation, though not proved and established. It is not for the Revenue to show that the explanation offered is not false or bogus;
++ section 271(1)(c) of the Act as applicable has been considered and interpreted in several judgments of the Supreme Court and the Delhi High Court. The said Section is invoked when an assessee furnishes inaccurate particulars or conceals his income. Explanation 1 can come to the rescue of the assessee in case he had offered an explanation but was unable to substantiate it, provided he is able to establish that the explanation offered was bona fide and the facts relating to furnishing of inaccurate particulars and material for computation of total income were duly disclosed by him. In the present case, the assessee had furnished inaccurate particulars of income and this is established beyond doubt. Assessment order passed u/s 143(3)/147 of the Act dated 28th December, 2007 was accepted by the assessee in which the aforesaid disallowance/additions were made. In fact, submission of the assessee is that the aforesaid errors pointed out in the assessment order were conceded to and accepted by the assessee during the course of the assessment proceedings by filing a revised computation. In these circumstances, the contradictory contention of the assessee that they had not furnished inaccurate particulars of their income is not acceptable. The moot question and issue is whether the assessee has discharged the burden under Explanation 1 to Section 271(1)(c) of the Act or rather more precisely whether the tribunal has correctly applied the said Explanation as mandated and required by the statute;
++ mens rea is not required and necessary to impose penalty for concealment. In Union of India vs. Dharmendra Textile Processors (2008-TIOL-192-SC-CX-LB), the Supreme Court examined Section 271(1)(c) of the Act and other provisions for imposition of penalty in different statutory enactments. It was held that penalty in such cases imposed for tax delinquency is a civil obligation, remedial and coercive in nature and is far different from penalty for crime or a fine or forfeiture as stipulated in criminal or penal laws. It refers to blameworthy conduct for contravention of the Act and it equally applies to tax delinquency cases. Mens rea or willful failure or conduct is not required to be proved and established. Mens rea is essential or sine-qua-non for criminal offences but is not an essential element for imposing penalty for breach of civil obligations or liabilities.
++ thus, penalty u/s 271(1)(c) is imposed when an assessee conceals his income or furnishes incorrect particulars. In terms of explanation I, we have to examine whether the case in question falls within the two limbs viz. clause (A) and (B) i.e. which of the two limbs and effect thereof. Clause (A) applies when an assessee fails to furnish explanation or when an explanation is found to be false. Clause (B) applies to cases where explanation is offered but the assessee is not able to substantiate the explanation. In such cases, we have to examine two conditions: (1) Whether the assessee has been able to show that his explanation was bonafide; (2) whether the assessee had furnished and disclosed facts and material relating to computation of his income. Onus of establishing that the assessee satisfies the two conditions is on the assessee. Both the conditions have to be satisfied. In case the assessee satisfies the twin condition, penalty should not be imposed;
++ on the second aspect, which relates to addition on account of disallowance u/s 43B of the Act, position remains the same. In the audited accounts, there is no mention or reference to the said Section or that in the P&L account expenditure which has to be disallowed u/s 43B has been debited and claimed. The fact that interest due and payable to the financial institution has not been paid but was treated as expenditure in the P&L account was not stated or adverted to. Thus, full facts relating to the assessment of income were not stated;
++ in the present case, additions or disallowance has been made on account of wrong claim of revenue loss, which was in fact capital loss and disallowance u/s 43B. From the reasoning given by the tribunal, it is not possible to decipher and hold that the explanation given by the assessee shows as to why his claims were bona fide and justified. The onus of establishing the reasons for the claim made is on the assessee. Penalty cannot be imposed because an assessee has taken a particular legal stand. However, this does not mean that the assessees can claim wrong deductions or claim without any basis or foundation to justify the claim. False, spurious and mendacious claims do not fall in this class;
++ in the guise of wrong or improper legal opinion, an assessee should not be permitted and allowed to escape penalty when the accounts are audited by a Chartered Accountant, when the provision and position in law is well-known and well-understood. It is not a case of a debatable issue or a legal provision which could have escaped or missed notice or consideration of the Chartered Accountant or the accountant or the directors of the company. We cannot stretch the plea that the issue was debatable or there was wrong advice beyond the point to believe or accept contentions when the claim itself is impossible to accept and is contrary to fundamentals of tax or accountancy. Income tax returns are mostly accepted without scrutiny or regular assessment. Self and due compliance of tax provisions is required. In the present case, the original return filed by the assessee was accepted u/s 143(1) of the Act. Subsequently, noting discrepancies, notice u/s 148 of the Act was issued. Even at that time, the assessee did not accept the fault and in their letter dated 9th August, 2007 stated that the original return may be treated as filed in response to the reassessment notice. Objections to re-opening were raised and the stand and stance of the assessee changed when they were repeatedly confronted. It is not a case where the assessee suo motu on his own or on immediately noticing the wrong claim rectified or corrected the purported errors and understatements. It is only when the assessee was cornered and confronted by the AO that the revised computation was filed. The revised computation was filed after the objections to the re-opening were dismissed by the AO;
++ whether an assessee had offered an explanation and whether the explanation was bona fide when discussed and examined as stipulated in Explanation 1, is a question of fact and depends upon several factors, including whether the assessee is an individual or corporate assessee, literate or illiterate, the nature, character and quantum of the deduction, his past conduct relating to the same claim/deduction, the provision or section applicable etc. (Failure to apply Explanation 1, as per law would make it, mixed question of law and fact) It is not one fact but several factors which have to be taken into consideration to determine whether or not the claim or explanation of an assessee is bona fide;
++ in view of the aforesaid discussion, the question of law in favour of the Revenue and against the assessee and uphold levy of penalty u/s 271(1)(c) of the Act in respect of loss on account of investments, vehicle and disallowance u/s 43B. The claims were ex facie wrong being contrary to fundamental/basic principles of accounts and Act, would not have escaped notice or missed. However, penalty not was justified and proper on the wrong claim for depreciation of plant and machinery as the legal position on the said claim was debatable.
(See 2013-TIOL-746-HC-DEL-IT)The assessee filed its return of income declaring loss and the return was processed u/s 143(1) of the Act. Subsequently, re-assessment notice was issued after noticing that the assessee had claimed depreciation on plant and machinery though no manufacturing activity was conducted during the year under consideration and had wrongly claimed capital loss on sale of investments amounting to Rs.59,15,000/- as business loss.
The assessee on receipt of reasons for reopening, filed objections to the initiation of the re-assessment proceedings and contested the notice u/s 148 of the Act. The said objections of the assessee were rejected vide order sheet entry dated 24th December, 2007.
During the course of assessment proceedings, the assessee filed a revised computation in which they accepted that Rs.59,15,000/- was wrongly claimed as a revenue loss and was in fact capital loss. The assessee also accepted that unpaid interest charges of Rs.4,46,13,877/- should have been disallowed u/s 43B cannot be accounted for in the P&L account. Similarly, the respondent had erroneously accounted Rs.12,610/- and Rs.4,715/-, due and payable on account of provident fund and ESI in the P&L account, although this was not permissible and was contrary to Section 43B of the Act. The AO disallowed depreciation claim of Rs 89,95,173/- and claim on account of loss on sale of vehicles, which was treated by the assessee as revenue loss of Rs.1,27,930/-. This loss it was observed was a capital loss. On account of the aforesaid additions, total loss of the assessee was reduced as against the claimed losses. Proceedings u/s 271(1)(c) of the Act were initiated.
The AO imposed penalty of Rs.2,13,75,229/- on account of concealment and/or furnishing of inaccurate particulars. He rejected the contention of the assessee that the claims/entries were bona fide and lapse had occurred because the assessee was without competent professional staff due to closure of running operations and that the return was filed by a junior accountant, who was not well versed with the tax laws. CIT(Appeals) upheld the order imposing penalty.
Tribunal deleted the penalty, inter alia, recording that all details with regard to the loss suffered were filed along with the return of income and the change of head of income cannot be considered as concealment or furnishing inaccurate particulars of income. The legal claim made by the assessee was not found to be allowable under the head "business loss" but the same was allowed as a "capital loss".
On appeal by the Revenue, the High Court held that,
++ claim of depreciation was a debatable issue. Passive use entitles an assessee to claim depreciation. No manufacturing activities were conducted during the assessment year in question but the assessee had approached Board of Financial Reconstruction for rehabilitation of the company under the provisions of Sick Industrial Companies (Special Provisions) Act, 1985. Penalty imposed in the last year for same reason was deleted by the tribunal;
++ the view expressed by the tribunal cannot be agreed that change of head under which income is to be assessed per se would justify cancellation of penalty for concealment for the reason that it is not a case of furnishing of inaccurate particulars. Furnishing of inaccurate particulars of income can have different connotations and may arise when income is enhanced, deduction denied or when head of income, is changed resulting in a higher rate of tax or increase in income. The real question is application of Explanation 1. Paragraphs 5.2 and 5.3 of the Tribunal order refer to the disallowance u/s 43B and observe that ESI and PF deductions as claimed were a mistake and a case of not giving proper effect to P&L account. However, this cannot be read in isolation as the assessee had not made disallowance u/s 43B even in respect of interest payable but not paid, to the financial institutions;
++ paragraphs 5.4 and 5.5 of the Tribunal order record that the respondent was continuously loss making concern for last many years and, therefore, decision in another case was distinguishable. Whether or not the assessee makes loss is not the relevant criteria or factor to determine whether penalty should be imposed u/s 271(1)(c) or not. Of course, lack of or inability to engage a good professional tax consultant is a different matter but there should be proof and basis to hold that the losses incurred prevented an assessee from getting proper tax advice and the issue in question was complicated or required professional advice of a highly expert nature. Further, this is not the correct way of applying Explanation 1. In paragraph 5.5 of the Tribunal order it is recorded that one cannot be oblivious to the explanation and justification given by the assesse. Indeed one has to take into consideration the explanation and the justification given by the assessee but it cannot be accepted as bona fide and true on mere asking. Onus under Explanation 1 is on the assessee to prove the reason as to why a particular claim or deduction was made. The justification and cause shown should be bona fide and acceptable. Penalty cannot be deleted by merely recording the explanation, though not proved and established. It is not for the Revenue to show that the explanation offered is not false or bogus;
++ section 271(1)(c) of the Act as applicable has been considered and interpreted in several judgments of the Supreme Court and the Delhi High Court. The said Section is invoked when an assessee furnishes inaccurate particulars or conceals his income. Explanation 1 can come to the rescue of the assessee in case he had offered an explanation but was unable to substantiate it, provided he is able to establish that the explanation offered was bona fide and the facts relating to furnishing of inaccurate particulars and material for computation of total income were duly disclosed by him. In the present case, the assessee had furnished inaccurate particulars of income and this is established beyond doubt. Assessment order passed u/s 143(3)/147 of the Act dated 28th December, 2007 was accepted by the assessee in which the aforesaid disallowance/additions were made. In fact, submission of the assessee is that the aforesaid errors pointed out in the assessment order were conceded to and accepted by the assessee during the course of the assessment proceedings by filing a revised computation. In these circumstances, the contradictory contention of the assessee that they had not furnished inaccurate particulars of their income is not acceptable. The moot question and issue is whether the assessee has discharged the burden under Explanation 1 to Section 271(1)(c) of the Act or rather more precisely whether the tribunal has correctly applied the said Explanation as mandated and required by the statute;
++ mens rea is not required and necessary to impose penalty for concealment. In Union of India vs. Dharmendra Textile Processors (2008-TIOL-192-SC-CX-LB), the Supreme Court examined Section 271(1)(c) of the Act and other provisions for imposition of penalty in different statutory enactments. It was held that penalty in such cases imposed for tax delinquency is a civil obligation, remedial and coercive in nature and is far different from penalty for crime or a fine or forfeiture as stipulated in criminal or penal laws. It refers to blameworthy conduct for contravention of the Act and it equally applies to tax delinquency cases. Mens rea or willful failure or conduct is not required to be proved and established. Mens rea is essential or sine-qua-non for criminal offences but is not an essential element for imposing penalty for breach of civil obligations or liabilities.
++ thus, penalty u/s 271(1)(c) is imposed when an assessee conceals his income or furnishes incorrect particulars. In terms of explanation I, we have to examine whether the case in question falls within the two limbs viz. clause (A) and (B) i.e. which of the two limbs and effect thereof. Clause (A) applies when an assessee fails to furnish explanation or when an explanation is found to be false. Clause (B) applies to cases where explanation is offered but the assessee is not able to substantiate the explanation. In such cases, we have to examine two conditions: (1) Whether the assessee has been able to show that his explanation was bonafide; (2) whether the assessee had furnished and disclosed facts and material relating to computation of his income. Onus of establishing that the assessee satisfies the two conditions is on the assessee. Both the conditions have to be satisfied. In case the assessee satisfies the twin condition, penalty should not be imposed;
++ on the second aspect, which relates to addition on account of disallowance u/s 43B of the Act, position remains the same. In the audited accounts, there is no mention or reference to the said Section or that in the P&L account expenditure which has to be disallowed u/s 43B has been debited and claimed. The fact that interest due and payable to the financial institution has not been paid but was treated as expenditure in the P&L account was not stated or adverted to. Thus, full facts relating to the assessment of income were not stated;
++ in the present case, additions or disallowance has been made on account of wrong claim of revenue loss, which was in fact capital loss and disallowance u/s 43B. From the reasoning given by the tribunal, it is not possible to decipher and hold that the explanation given by the assessee shows as to why his claims were bona fide and justified. The onus of establishing the reasons for the claim made is on the assessee. Penalty cannot be imposed because an assessee has taken a particular legal stand. However, this does not mean that the assessees can claim wrong deductions or claim without any basis or foundation to justify the claim. False, spurious and mendacious claims do not fall in this class;
++ in the guise of wrong or improper legal opinion, an assessee should not be permitted and allowed to escape penalty when the accounts are audited by a Chartered Accountant, when the provision and position in law is well-known and well-understood. It is not a case of a debatable issue or a legal provision which could have escaped or missed notice or consideration of the Chartered Accountant or the accountant or the directors of the company. We cannot stretch the plea that the issue was debatable or there was wrong advice beyond the point to believe or accept contentions when the claim itself is impossible to accept and is contrary to fundamentals of tax or accountancy. Income tax returns are mostly accepted without scrutiny or regular assessment. Self and due compliance of tax provisions is required. In the present case, the original return filed by the assessee was accepted u/s 143(1) of the Act. Subsequently, noting discrepancies, notice u/s 148 of the Act was issued. Even at that time, the assessee did not accept the fault and in their letter dated 9th August, 2007 stated that the original return may be treated as filed in response to the reassessment notice. Objections to re-opening were raised and the stand and stance of the assessee changed when they were repeatedly confronted. It is not a case where the assessee suo motu on his own or on immediately noticing the wrong claim rectified or corrected the purported errors and understatements. It is only when the assessee was cornered and confronted by the AO that the revised computation was filed. The revised computation was filed after the objections to the re-opening were dismissed by the AO;
++ whether an assessee had offered an explanation and whether the explanation was bona fide when discussed and examined as stipulated in Explanation 1, is a question of fact and depends upon several factors, including whether the assessee is an individual or corporate assessee, literate or illiterate, the nature, character and quantum of the deduction, his past conduct relating to the same claim/deduction, the provision or section applicable etc. (Failure to apply Explanation 1, as per law would make it, mixed question of law and fact) It is not one fact but several factors which have to be taken into consideration to determine whether or not the claim or explanation of an assessee is bona fide;
++ in view of the aforesaid discussion, the question of law in favour of the Revenue and against the assessee and uphold levy of penalty u/s 271(1)(c) of the Act in respect of loss on account of investments, vehicle and disallowance u/s 43B. The claims were ex facie wrong being contrary to fundamental/basic principles of accounts and Act, would not have escaped notice or missed. However, penalty not was justified and proper on the wrong claim for depreciation of plant and machinery as the legal position on the said claim was debatable.
2013-TIOL-796-ITAT-MAD
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'C' CHENNAI
BENCH 'C' CHENNAI
ITA No.1503/Mds/2012
Assessment Year: 2008-09
Assessment Year: 2008-09
EIH ASSOCIATED HOTELS LTD
1/24, GST ROAD, MEENAMBAKKAM,
CHENNAI-600027
PAN NO: AAACE2125M
1/24, GST ROAD, MEENAMBAKKAM,
CHENNAI-600027
PAN NO: AAACE2125M
Vs
DY COMMISSIONER OF INCOME TAX
COMPANY CIRCLE-11 (1),
CHENNAI-600034
COMPANY CIRCLE-11 (1),
CHENNAI-600034
ITA No.1624/Mds/2012
Assessment Year: 2008-09
Assessment Year: 2008-09
DY COMMISSIONER OF INCOME TAX
COMPANY CIRCLE-11 (1),
CHENNAI-600034
COMPANY CIRCLE-11 (1),
CHENNAI-600034
Vs
EIH ASSOCIATED HOTELS LTD
1/24, GST ROAD, MEENAMBAKKAM,
CHENNAI-600027
PAN NO: AAACE2125M
1/24, GST ROAD, MEENAMBAKKAM,
CHENNAI-600027
PAN NO: AAACE2125M
O K Narayanan, VP And Vikas Awasthy, JM
Dated: July 17, 2013
--
Income Tax - Sections 14A, 40(a)(i), 115JB, Rule 8D -
Income Tax - Sections 14A, 40(a)(i), 115JB, Rule 8D -
Whether the CIT(A) is justified in holding that Rs. 34,20,735/- computed by applying the deeming provision specified under Rule 8D, should be added back in computing the book profit under MAT
++ on the issue of addition of dis-allowance made u/s. 14A r.w.r. 8D to be added back in computing book profits under MAT provisions, no interference is called for in the findings of the CIT(A) with regard to inclusion of the amount dis-allowed u/s. 14A r.w.r. 8D while computing book profit u/s. 115JB;
++on the issue of addition made towards FBT paid while computing book profits u/s. 115JB, It is a well settled law that the Revenue authorities cannot deviate from the Circulars/Notifications issued by the CBDT from time to time. They are binding on the Revenue authorities.
The AR controverting the submissions made with regard to FBT submitted that FBT has to be excluded while computing book profits under the provisions of Section 115JB. In order to support his contentions, the AR relied on the order of Delhi Bench of the Tribunal in the case of ITO Vs. Vintage Distillers Ltd. reported as 130 TTJ (Del) 79 and also the order of Mumbai Bench of the Tribunal in the case of ASB International (P) Ltd. Vs. Dy.CIT 54 SOT 140 (URO) = (2012-TIOL-447-ITAT-MUM). The assessee also relied on the CBDT Circular No. 8/2005 dated 29-08-2005.
8. The third issue in the appeal of the assessee relates to addition of dis-allowance made u/s. 14A r.w.r. 8D to be added back in computing book profits under MAT provisions. The issue has been raised by the Revenue as well in its appeal as ground No.3. We find that the order of the CIT(Appeals) is well reasoned and detailed on the issue. We are in consonance with the findings of the CIT(Appeals) on the issue. In view of the judgment of the Hon'ble Supreme Court of India in the case of CIT Vs. K.Y. Pillaiah & Sons reported as 63 ITR 411 (SC) = (2002-TIOL-882-SC-IT), we need not repeat the reason given by CIT(Appeals). No interference is called for in the findings of the CIT(Appeals) with regard to inclusion of the amount dis-allowed u/s. 14A r.w.r. 8D while computing book profit u/s. 115JB. Accordingly, this ground of appeal of the assessee as well as that of the Revenue is dismissed.
Regards,
2013-TIOL-790-ITAT-MUM
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'F' MUMBAI
BENCH 'F' MUMBAI
ITA No.4679/Mum/2012
Assessment Year: 2009-2010
Assessment Year: 2009-2010
M/s DABUR INIDA LTD
(FORMERLY KNOWN AS FEM CARE PHARMA LTD)
43, NAGINDAS MASTER ROAD, BALASARA HOUSE,
FORT, MUMBAI-400001
PAN NO: AAACF0515A
(FORMERLY KNOWN AS FEM CARE PHARMA LTD)
43, NAGINDAS MASTER ROAD, BALASARA HOUSE,
FORT, MUMBAI-400001
PAN NO: AAACF0515A
Vs
THE ASSTT COMMISSIONER OF INCOME TAX
CIRCLE 5(1), MUMBAI
CIRCLE 5(1), MUMBAI
R S Syal, AM And Sanjay Garg, JM
Dated: August 23, 2013
Appellant Rep by: Shri Subhash Shetty
Respondent Rep by: Shri R R Prasad
Respondent Rep by: Shri R R Prasad
Income Tax Act, 1961 - Sections 10(33), 10(38), 14A, 32, 32(1), 115JB & 115JB(2), Rule 8D - tenancy rights - intangible assets - exempt income - relatable to.
Whether tenancy rights can be construed as "intangible" assets falling within the meaning of explanation 3 to section 32(1) - whether the computation of amount disallowable under section 14A is covered under clause (f) of explanation (1) to section 115JB(2)
The assessee had claimed depreciation on tenancy rights and he had also earned certain exempt income.
The AO made an addition on account of tenancy rights and also made an addition to the book profit under section 115JB by computing disallowance under section 14A in regard to the exempt income.
The CIT(A) upheld the AO's order.
On appeal of the assessee, the ITAT held that,
++ considering the definition of the term "intangible" asset as given in Explanation (3) to section 32(1) on which depreciation is available, it makes it vivid that the intangible assets so classified are know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature;
++ following the rule of nosticur a sociis which simply means that the general words associated with the specific words draw their meaning from the company they keep and going by this rule, the expression "any other business or commercial rights" as employed in the definition of "intangible" assets must mean only the intangible assets similar to those which precede it, that is, "know-how, patents, copyrights, trade marks, licences, franchises";
++ the former category of intangible assets includes such assets with which the business is directly carried and which directly facilitate the profit earning activity. On the other hand, the tenancy rights have no significance whatsoever either with a right to manufacture or actual manufacture of the products or their sale carrying brand name or logo etc;
++ Tenancy rights simply provide a place at which manufacturing or administrative activity is persued. A businessman can carry on manufacturing at any place but the business cannot be carried on without licence, or without specific know-how, copy right, or trade mark etc;
++ the legislature has made its intention crystal clear by the use of words "of similar nature" immediately after the words "any other business or commercial rights". This makes the position beyond any pale of doubt that "any other business or commercial rights" would only be such which are of the nature of know-how, patents, copyrights, trade marks, licences, franchises etc;
++ we are of the considered opinion that tenancy rights cannot be construed as "intangible" assets falling within the meaning of Explanation 3 to section 32(1).
++ 'Book-profit' u/s 115JB is computed as per Explanation (1) to sub-section (2) of section 115JB. A bare perusal of clause (f) of Explanation (1) makes it abundantly clear that the amount of expenditure "relatable to" any exempt income, other than section 10(38), is liable to be added back to the amount of net profit as shown in the profit and loss account. Section 14A disallowes any expenditure incurred 'in relation to' income not includible in the total income;
++ the expression "in relation to" used for making disallowance u/s 14A has been employed in Explanation (1) to section 115JB(2) as expenditure "relatable to", in more or less the same form. It is manifest that the amount of dividend is exempt u/s 10(33) [not section 10(38)]. Thus any expenditure 'relatable to' the exempt dividend income would fall under clause (f);
++ the amount disallowable under section 14A is always part of the expenses specifically debited to the profit and loss account. It is axiomatic that unless any expenditure is incurred and claimed as deduction, there can be no question of any hypothetical disallowance under section 14A. It, therefore, follows that the amount disallowable under section 14A is covered under clause (f) of Explanation (1) to section 115JB(2);
++ Our view is fortified by the decisions of the Mumbai bench of the tribunal eciding the issue against the assessee vide its order dated 24.07.2013. As the assessment year under consideration is 2008-2009 in which disallowance u/s 14A is required to be computed as per Rule 8D and further it is in this fashion that the amount has been disallowed and also added to the amount of net profit for computing 'book-profit' u/s 115JB, we see no reason to disturb the impugned order on this issue.
Assessee's appeal dismissed
Cases followed:
M/s.RBK Share Broking Pvt.Ltd. v. ITO in ITA No.6678/Mum/2011
Esquire P. Ltd, Mumbai (ITA No. 5688/Mum/2011)
CIT VS. Venketaswara Hatcheries (1999) 237 ITR 174 (SC)
Stonecraft Enterprises VS. CIT (1999) 237 ITR 131 (SC)
Aravinda Paramilla Works VS. CIT (1999) 237 ITR 284 (SC).
Case Distinguished
Techno Share and Stocks Ltd. & Ors. v. CIT (2010-TIOL-67-SC-IT)
ORDER
Per: R S Syal:
This appeal by the assessee is directed against the order passed by the Commissioner of Income-tax (Appeals) on 18.05.2012 in relation to the assessment year 2009-2010.
2. The first ground is against the denial of depreciation on tenancy rights amounting to Rs. 2,90,948. Briefly stated the facts of this ground are that the assessee claimed depreciation on tenancy rights. The Assessing Officer rejected such claim following the view taken by him for the assessment years 2003-2004 to 2007-2008. The learned CIT(A) upheld the assessment order on this issue.
3. After considering the rival submissions and perusing the relevant material on record, we find that the earlier years came up for consideration before the Tribunal in ITA No.6050/Mum/2007 etc. Vide order dated 09.04.2010, the Tribunal has upheld the view of the authorities below by relying on the judgment of the Hon'ble jurisdictional High Court in the case of CIT v. Techno Shares & Stocks Limited (2010) 323 ITR 69 (Bom.) = (2009-TIOL-495-HC-MUM-IT). The learned Counsel for the assessee contended that the Hon'ble Supreme Court has overruled this judgment in Techno Share and Stocks Ltd. & Ors. v. CIT (2010) 327 ITR 323 (SC) = (2010-TIOL-67-SC-IT) and the effect of such reversal is that the depreciation should now be allowed. In canvassing such a view for the grant of depreciation, he referred to the provisions of section 32(1)(ii) for bringing home the point that the tenancy rights fall within the ambit of the expression "any other business or commercial rights of similar nature" as employed in defining "intangible" assets. Au contraire, the ld. DR relied on the impugned order.
4. We are not convinced with the contention advanced on behalf of the assessee. The manifest reason is the following definition of the term "intangible" asset given in Explanation (3) to section 32(1) :-
"(b) intangible assets, being know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature".
5. A bare perusal of the definition of intangible assets on which depreciation is available u/s 32 makes it vivid that the intangible assets so classified are know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature. We are reminded of the rule of nosticur a sociis which simply means that the general words associated with the specific words draw their meaning from the company they keep. This rule has been quoted with approval by the Hon'ble Supreme Court in several judgments including CIT VS. Venketaswara Hatcheries (1999) 237 ITR 174 (SC), Stonecraft Enterprises VS. CIT (1999) 237 ITR 131 (SC) and Aravinda Paramilla Works VS. CIT (1999) 237 ITR 284 (SC). Going by this rule, the expression "any other business or commercial rights" as employed in the definition of "intangible" assets as per the above Explanation, must mean only the intangible assets similar to those which precede it, that is, "know-how, patents, copyrights, trade marks, licences, franchises". The former category of intangible assets includes such assets with which the business is directly carried on. In other words, these are intangible assets by which either the permission to carry on the business or manufacture is received or are used for the manufacture or the sale of the products manufactured. Such intangible assets directly facilitate the profit earning activity. On the other hand, the tenancy rights have no significance whatsoever either with a right to manufacture or actual manufacture of the products or their sale carrying brand name or logo etc. Tenancy rights simply provide a place at which manufacturing or administrative activity is persued. A businessman can carry on manufacturing at any place but the business cannot be carried on without licence, or without specific know-how, copy right, or trade mark etc. Reverting to the extant case, only an intangible asset of the nature of know-how, patents, copyrights, trademarks, licences, franchises etc. can be brought within the ambit of "any other business or commercial right". The legislature has made its intention crystal clear by the use of words "of similar nature" immediately after the words "any other business or commercial rights". This makes the position beyond any pale of doubt that "any other business or commercial rights" would only be such which are of the nature of know-how, patents, copyrights, trade marks, licences, franchises etc. As noticed supra, there is a vast difference between know-how, patents, copyrights, trade marks, licences, franchises etc. on one hand and tenancy rights on the other, we are of the considered opinion that tenancy rights cannot be construed as "intangible" assets falling within the meaning of Explanation 3 to section 32(1). The reliance of the ld. DR on the judgment of the Hon'ble Supreme Court in Techno Shares (supra) is of no consequence. In that case the question was whether depreciation can be granted on the Bombay Stock Exchange Membership card. As the ownership of such Membership Card is sine qua non to conduct the business on the floor of stock exchange, the Hon'ble Supreme Court held it to be an intangible asset eligible for depreciation. Such Membership card is a permission to do the business as share broker akin to 'licence' and not a place for carrying on such business akin to 'tenancy right'. In our considered opinion, this judgment does not advance the case of the assessee any further. To sum up, we hold that since the tenancy right cannot be treated as an intangible asset, there is no question of allowing depreciation on it. We, therefore, approve the view taken by the authorities below on this issue. This ground fails.
6. Second ground of the appeal is against the confirmation of addition to the book profit u/s 115JB by disallowance u/s 14A amounting to Rs. 4,15,062. The assessee earned exempt income of Rs. 8.78 lakh but did not offer any disallowance u/s 14A. The Assessing Officer computed disallowance u/s 14A by applying rule 8D at Rs. 4.15 lakh. While computing book-profit u/s 115JB, the A.O. added this disallowance of Rs. 4.15 lakh as per clause (f) of Explanation 1 to section 115JB. The learned CIT(A) upheld the assessment order on this point.
7. We have heard the rival submissions and perused the relevant material on record. 'Book-profit' u/s 115JB is computed as per Explanation (1) to sub-section (2) of section 115JB. This Explanation provides that "book profit" means net profit as shown in the profit and loss account for the relevant previous year prepared under subsection (2) as increased by certain amounts specified under clauses (a) to (i) if debited to the profit and loss account and clause (j) if not credited to the profit and loss account. The amount so determined is further adjusted by reducing the amounts specified in clauses (i) to (vii). The amount which eventually results is the amount of 'book profit' on which tax liability is determined u/s 115JB. Clause (f) to the Explanation (1) provides that the net profit shown in the profit and loss account shall be increased by : "(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;". A bare perusal of clause (f) of Explanation (1) makes it abundantly clear that the amount of expenditure "relatable to" any exempt income, other than section 10(38), is liable to be added back to the amount of net profit as shown in the profit and loss account. When we turn to the language of section 14A, it transpires that it talks of disallowing any expenditure incurred 'in relation to' income not includible in the total income. Sub-section (1) of this provision provides that : "For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act." The expression "in relation to" used for making disallowance u/s 14A has been employed in Explanation (1) to section 115JB(2) as expenditure "relatable to", in more or less the same form. It is manifest that the amount of dividend is exempt u/s 10(33) [not section 10(38)] of the Act. Thus any expenditure 'relatable to' the exempt dividend income would fall under clause (f). The ld. AR argued that unless an amount is specifically debited to the Profit and loss account in respect of an exempt income, the same cannot be brought within the purview of clause (f) of the Explanation 1 to section 115JB(2). He stated that since the disallowance u/s 14A is computed as per rule 8D, the origin of the expenses disallowed cannot be traced to the profit and loss account and hence it cannot be covered within the mischief of clause (f) of the Explanation. We fail to find any logic in this submission because of the clear language of the Explanation 1, which provides in unequivocal terms that the amount of expenditure 'relatable to' the exempt income shall be added back. Neither the language of clause (f) expressly refers to the amount specifically debited to the profit and loss account nor there can be an implication in this regard. What has been contemplated by the provision is the amount of the expenditure 'relatable to' the exempt income. Further, the amount disallowable u/s 14A is always part of the expenses specifically debited to the profit and loss account. It is axiomatic that unless any expenditure is incurred and claimed as deduction, there can be no question of any hypothetical disallowance u/s 14A. It, therefore, follows that the amount disallowable u/s 14A is covered under clause (f) of Explanation (1) to section 115JB(2). Our view is fortified by the decision of the Mumbai bench of the tribunal in M/s.RBK Share Broking Pvt.Ltd. v. ITO in ITA No.6678/Mum/2011 and another earlier order dated 29 August, 2012 passed by the Mumbai Bench of the tribunal in the case of Esquire P. Ltd, Mumbai (ITA No. 5688/Mum/2011) deciding the issue against the assessee vide its order dated 24.07.2013. As the assessment year under consideration is 2008-2009 in which disallowance u/s 14A is required to be computed as per Rule 8D and further it is in this fashion that the amount has been disallowed and also added to the amount of net profit for computing 'book-profit' u/s 115JB, we see no reason to disturb the impugned order on this issue. This ground is not allowed.
8. In the result, the appeal is dismissed.
(Order pronounced on 23.8.2013)
--
Regards,
--
Regards,
Pawan Singla
BA (Hon's), LLB
Audit Officer
__._,_.___
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