Deputy Commissioner Of Income Tax, Corporate Circle-4(1), Chennai v. Lucas Tvs Ltd. ., Income Tax Appellate Tribunal, Judgment, Law, casemine.com

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Case Number

ITA No. 331/Mds/2017

Advocates

Appellant by : Mr. M. Palanichamy, JCIT;
Respondent by : Mr. Saroj Kumar Parida, Adv.

Judges

Abraham P. George, A.M.
George Mathan, J.M.

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Smart Summary

Factual and Procedural Background

ITA No.331/Mds/2017 is an appeal filed by the Revenue against the order of the Commissioner of Income Tax (Appeals)-8, Chennai in ITA No.65/2015-16 dated 21.11.2016 for assessment year 2012-13. The Revenue was represented by Mr. M. Palanichamy, JCIT; the assessee was represented by Mr. Saroj Kumar Parida, Advocate. The dispute concerned the CIT(A)'s direction to the Assessing Officer to re-compute the disallowance under section 14A read with Rule 8D (specifically R.8D(2)(iii)) by taking 0.5% of the average value of the investments the income from which does not form part of total income. The Revenue challenged that direction as erroneous. The assessee relied on a coordinate-bench decision in M/s. Computer Age Management Services (P) Ltd. to support the CIT(A)'s direction. The Tribunal heard rival submissions and, following the coordinate-bench precedent, confirmed the CIT(A)'s findings and dismissed the Revenue's appeal. Order pronounced on October 09, 2017 at Chennai.

Legal Issues Presented

Whether disallowance under section 14A read with Rule 8D(2)(iii) must be computed by taking the percentage of the average value of only those investments which gave rise to income that does not form part of the total income (i.e., exempt income), rather than on all investments.
Whether the CIT(A)'s direction to the Assessing Officer to re-compute the disallowance (taking 0.5% of the average value of such investments) was erroneous and liable to be reversed.

Arguments of the Parties

Revenue's Arguments

The only issue in the Revenue's appeal was against the CIT(A)'s direction to re-compute the disallowance under section 14A read with Rule 8D by considering 0.5% of the average value of investments the income from which does not form part of total income.
The Revenue submitted that the CIT(A)'s direction to re-compute the disallowance under Rule 8D(2)(iii) was erroneous and the CIT(A)'s order should be reversed.

Assessee's Arguments

The assessee's representative submitted that the issue was squarely covered by the coordinate-bench decision in M/s. Computer Age Management Services (P) Ltd., ITA No.1259 to 1261/Mds/2014 dated 28.11.2014, and relied on Paras 11 & 12 of that decision which interpreted Rule 8D(2)(iii).
It was submitted that disallowance under Rule 8D(2)(iii) must be computed by reference to the average value of investments which gave rise to income not forming part of total income (i.e., exempt income), and not by considering all investments.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
M/s.Computer Age Management Services (P) Ltd., in ITA No.1259 to 1261/Mds/2014 dated 28.11.2014	Held that computation of disallowance under Rule 8D(2)(iii) should take percentage of the average value of the investment which has given rise to income that does not form part of the total income.	Followed by the Tribunal; used as basis to confirm CIT(A)'s direction to direct AO to re-compute disallowance under R.8D(2)(iii) accordingly.
REI Agro Ltd. Vs. DCIT	Principle that disallowance under section 14A read with Rule 8D can be made only by taking into consideration the investments which have given rise to such income which does not form part of the total income.	Its reasoning was cited within the Computer Age decision and applied to support the view that not all investments are to be considered when computing disallowance under section 14A read with Rule 8D.

Court's Reasoning and Analysis

The Tribunal considered the rival submissions and observed that the issue was squarely covered by the coordinate-bench decision in M/s. Computer Age Management Services (P) Ltd., which itself relied on the Kolkata Bench's reasoning in REI Agro Ltd. Vs. DCIT. The coordinate-bench interpretation of Rule 8D(2)(iii) (as extracted in the opinion) states that what is disallowable under R.8D(2)(iii) is an amount equal to a percentage of the average value of the investment the income from which does not or shall not form part of the total income—i.e., the numerator B in Rule 8D(2)(ii) limited to investments giving rise to exempt income. The Tribunal accepted that under section 14A read with Rule 8D, disallowance must relate to investments that gave rise to income not includible in total income, and therefore not all investments are relevant for computing the disallowance. For these reasons, the Tribunal respectfully followed the coordinate-bench authority and confirmed the CIT(A)'s direction to the Assessing Officer to re-compute the disallowance under Rule 8D(2)(iii) accordingly.

Holding and Implications

DISMISSED — The Revenue's appeal (ITA No.331/Mds/2017) is dismissed and the findings of the CIT(A) are confirmed.

Implications: The Assessing Officer is directed to re-compute the disallowance under Rule 8D(2)(iii) by taking the percentage of the average value of the investments which gave rise to income that does not form part of the total income. The Tribunal followed existing coordinate-bench precedent; no new legal principle was laid down by this order. Order pronounced on October 09, 2017 at Chennai.

Bench: (ABRAHAM P GEORGE) — Accountant Member; (GEORGE MATHAN) — Judicial Member.

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Deputy Commissioner Of Income Tax, Corporate Circle-4(1), Chennai v. Lucas Tvs Ltd. .

PER GEORGE MATHAN, JUDICIAL MEMBER: ITA No.331/Mds/2017 is an appeal filed by the Revenue against the Order of the Commissioner of Income Tax (Appeals)-8, Chennai, in ITA No.65/2015-16 dated 21.11.2016 for the AY 2012-13.

2. Mr.M.Palanichamy, JCIT, represented on behalf of the Revenue and Mr.Saroj Kumar Parida, Adv. represented on behalf of the assessee. ITA No.331/Mds/2017 :- 2 -:

3. It was submitted by the Ld.DR that the only issue in the Revenues appeal was against the action of the Ld.CIT(A) in directing the AO to re- compute the disallowance u/s.14A r.w.r.8D and to consider 0.5% of the average of the value of the investment, the income from which does not or shall not form part of the total income. It was a submission that Ld.CIT(A)s direction to re-compute the disallowance u/s.14A r.w.r.8D(2)(iii) was erroneous. It was a submission that the order of the Ld.CIT(A) was liable to be reversed.

4. In reply, the Ld.AR submitted that the issue was squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the case of M/s.Computer Age Management Services (P) Ltd., in ITA No.1259 to 1261/Mds/2014 dated 28.11.2014 wherein Para No.11 & 12 which has been held as follows:

11. The Kolkata Bench of this Tribunal in REI Agro Ltd. Vs. DCIT (supra) held that disallowance under section 14A read with Rule 8D can be made only by taking into consideration the investments which has given rise to such income which does not form part of the total income. While holding so, the Tribunal observed as under:-

8. In respect of provisions of Rule 8D(2) (iii) which is the subject matter of the assessees appeal in the assessees hand, a perusal of the said provision shows that what is disallowable under Rule 8D (2) (iii) is the amount equal to percentage of the average value of the investment the income from which does not or shall not form part of the total income. Thus, under sub-clause (iii) what is disallowed is percentage of the numerator B in Rule 8D(2)(ii). Again this is to be calculated in the same line as mentioned earlier in respect of Numerator B in Rule 8D (2) (ii) of the Act. 8.1 Thus, not all investments become the subject matter of consideration when computing disallowance under section 14A read with rule 8D. The disallowance under section 14A read with rule 8D is to be in relation to the income which does not form part of the total income and this can be done only by taking into consideration the investment which has given rise to this income which does not form part of the total income. Under the circumstances, the computation of the disallowance under section 14A read with rule 8D(2) (iii) which is issue in the assessees appeal is restored to the file of the Assessing Officer for re-computation ITA No.331/Mds/2017 :- 3 -: in line with the direction given above. No disallowance under section 14A read with rule 8D(2)(ii) and (ii) can be made in this case.

12. Following the said decision, we direct the Assessing Officer to re-compute the disallowance under Rule 8D(2)(iii) by taking the amount equal to percentage of the average value of the investment which has given rise to the income which does not form part of total income.

5. We have considered the rival submissions. As it is noticed that the issue is squarely covered by the decision of the Co-ordinate Bench of this Tribunal in the case of M/s.Computer Age Management Services (P) Ltd., referred to supra which has been extracted, respectfully following the decision of the Co-ordinate Bench of this Tribunal, the findings of the Ld.CIT(A) on this issue stands confirmed.

6. In the result, the appeal filed by the Revenue stands dismissed. Order pronounced in the Open Court on October 09, 2017, at Chennai. Sd/- Sd/- ( . ) (ABRAHAM P GEORGE,) /ACCOUNTANT MEMBER (" ) (GEORGE MATHAN) % /JUDICIAL MEMBER /Chennai, 2/Dated: October 09, 2017. + )%34 54/Copy to:

1. (/Appellant 4. 6/CIT

2. )*(/Respondent 5. 4 )%%

3. 6 ()/CIT(A) 6. " /GF

Deputy Commissioner Of Income Tax, Corporate Circle-4(1), Chennai v. Lucas Tvs Ltd. .

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Revenue's Arguments

Assessee's Arguments

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Deputy Commissioner Of Income Tax, Corporate Circle-4(1), Chennai v. Lucas Tvs Ltd. .

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