COMMISSIONER OF INCOME TAX vs. M/S. ZYLOG SYSTEMS LTD

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TCA/713/2018HC Madras29 September 2020Bench: Hon`ble Mr Justice T. S. SIVAGNANAM6 pages
AI SummaryRemanded

What did the High Court hold?

The High Court allowed the appeal, set aside the impugned order of the Tribunal, and remanded the matter back to the Tribunal for fresh consideration. The Court noted that the assessee company was under liquidation and an Administrator had been appointed. It was brought to the Court's notice that the assessee's counsel did not appear before the Tribunal, although the Tribunal's order suggested otherwise. To ensure effective disposal and to provide an opportunity to the Administrator, represented by counsel, to present their submissions, the High Court deemed it fit to remand the matter. The Tribunal is directed to issue notice to the counsel representing the Administrator and, after hearing both the Revenue and the Administrator, pass fresh orders on merits. The substantial question of law framed by the High Court was left open.

What were the facts?

The Revenue filed an appeal before the High Court against an order of the Income Tax Appellate Tribunal (ITAT) for Assessment Year 2011-12. The Assessing Officer had disallowed Rs.3,64,27,793/- under Rule 8D(2)(ii) and Rs.69,70,172/- under Rule 8D(2)(iii) of the Income Tax Rules, 1962, in relation to dividend income and investments. The assessee, M/s. Zylog Systems Ltd., had reported a total income of Rs.1,50,46,75,014/-. The CIT(A) had partly allowed the assessee's appeal. The ITAT dismissed the Revenue's appeal. The High Court noted that the assessee company was undergoing liquidation and the Official Liquidator had been impleaded as a respondent. The High Court observed that the assessee's counsel did not appear before the Tribunal, though the Tribunal's order indicated rival submissions were heard. The High Court decided to remand the matter for fresh consideration.

What were the issues?

1. Whether the Tribunal was right and justified in holding that the disallowance under Section 14A read with Rule 8D should be restricted to the extent of exempted income, especially when neither Section 14A nor Rule 8D provides for any such restriction? (Question of law turning on Section 14A and Rule 8D). Assessee's contentions: Not recorded in the judgment. Revenue's contentions: The Revenue argued that Section 14A and Rule 8D do not provide for any restriction of disallowance to the extent of exempted income. The Revenue is challenging the Tribunal's decision to restrict the disallowance on this basis.

Which sections of the Income-tax Act were involved?

Section 14A,Section 260A,Section 143(3),Section 92CA

AI-generated summary — verify with the full judgment below

TCA.No.713 of 2018 IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED : 29.9.2020 CORAM THE HONOURABLE MR.JUSTICE T.S.SIVAGNANAM and THE HONOURABLE MRS.JUSTICE V.BHAVANI SUBBAROYAN T.C.A.No.713 of 2018 The Commissioner of Income Tax, Corporate Circle-3, Chennai ...Appellant Vs 1.M/s.Zylog Systems Ltd., Chennai-34. 2.The Official Liquidator, High Court, Madras, Corporate Bhavan, II Floor, No.29, Rajaji Salai, Chennai-1. (R2 was suo motu impleaded vide order of court dated 29.1.2020 by NKKJ & PVJ) ...Respondents

APPEAL under Section 260A of the Income Tax Act, 1961 against the order dated 25.4.2018 passed by the Income Tax Appellate Tribunal, Chennai “B” Bench in I.T.A.No.2048/Chny/2017 for the assessment year 2011-12. For Appellant : Mr.M.Swaminathan, SSC assisted by Mrs.V.Pushpa, SC For Respondents : No appearance 1/6 http://www.judis.nic.in TCA.No.713 of 2018 Judgment was delivered by T.S.SIVAGNANAM,J This appeal, filed by the Revenue under Section 260A of the Income Tax Act, 1961 (‘the Act’ for brevity), is directed against the order dated 25.4.2018 passed by the Income Tax Appellate Tribunal, Bench ‘B’ Chennai (for short, the Tribunal) in I.T.A.No.2048/Chny/ 2017 for the assessment year 2011-12. 2. The above appeal has been admitted on 19.11.2018 on the following substantial question of law:

“Whether the Tribunal was right and justified in holding that the disallowance under Section 14A read with Rule 8D should be restricted to the extent of exempted income especially when neither Section 14A nor Rule 8D provides for any such restriction?” 3. The assessee filed their return of income for the assessment year under consideration namely AY 2011-12 disclosing a total income of Rs.1,50,46,75,014/-. The case was selected for scrutiny, during which, the Assessing Officer found that the assessee was in receipt of dividend income of Rs.13,754/- and that the assessee made an investment of Rs.1,55,24,901/- in shares on 31.3.2012 whereas the total investment as on 01.4.2011 was Rs.1,23,54,78,573/-. 4. Not being satisfied with the claim that no expenditure was 2/6 http://www.judis.nic.in TCA.No.713 of 2018 incurred for investment during the year for earning exempted income, the Assessing Officer disallowed the amount of Rs.3,64,27,793/- as per Rule 8D(2)(ii) of the Income Tax Rules (for brevity, the Rules) and another amount of Rs.69,70,172/- as per Rule 8D(2)(iii) of the Rules and accordingly, the assessment was completed by order dated 30.4.2015 under Section 143(3) read with Section 92CA of the Act. 5. Aggrieved by the said order dated 30.4.2015, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals)-13, Chennai-34, who partly allowed the appeal by order dated 23.6.2017. As against the said order dated 23.6.2017, the Revenue preferred an appeal before the Tribunal and it was dismissed by the impugned order. Challenging the same, the Revenue is before us.

6.

We have elaborately heard Mr.M.Swaminathan, learned Senior Standing Counsel assisted by Mrs.V.Pusha, learned Standing Counsel appearing for the appellant – Revenue. The respondents were served. However, none appears for the respondents. 7. Subsequently, it is brought to our notice by the learned Senior Standing Counsel that the first respondent – assessee is in the process of being liquidated and the Hon'ble Mr.Justice S.Rajeswaran, former Judge of this Court has been appointed as the 3/6 http://www.judis.nic.in TCA.No.713 of 2018 Administrator and one Mr.S.Ulaganathan, advocate is appearing on behalf of the Hon'ble Administrator. In order to give an effective disposal, the learned Official Liquidator was suo motu impleaded as the second respondent by the earlier Division Bench by order dated 29.1.2020, notice has been served and his name has been printed in the cause list. 8. As we have been informed that the Hon'ble Administrator is now looking after the affairs of the assessee company, it is fit and proper that the learned Administrator is heard in the matter. We find that before the Tribunal, none appeared for the assessee. However, the Tribunal recorded that it had heard the rival submissions, which would mean that both parties were heard. However, the preamble portion of the impugned order shows that none represented the assessee. Since the first respondent – assessee is under liquidation and the Hon'ble Administrator has been appointed and he is also represented through a counsel, we are of the considered view that the Tribunal can decide the matter afresh on merits after giving an opportunity to the Hon'ble Administrator represented by his counsel to put forth their submissions. For such a reason alone, we are inclined to interfere with the impugned order. 4/6 http://www.judis.nic.in TCA.No.713 of 2018 9. Accordingly, the above tax case appeal is allowed, the impugned order is set aside and the matter is remanded to the Tribunal. The Tribunal is directed to issue notice to the said Mr.S.Ulaganathan, learned counsel, office of the Official Liquidator, II Floor, Corporate Bhavan, Rajaji Salai, Chennai-1, representing the Hon'ble Administrator for M/s.Zylog Systems Limited and after hearing the Revenue as well as the Hon'ble Administrator, the Tribunal is directed to pass fresh orders on merits and in accordance with law. Consequently, the substantial question of law framed is left open. 29.9.2020 To The Income Tax Appellate Tribunal, Chennai “B” Bench RS

5/6 http://www.judis.nic.in TCA.No.713 of 2018 T.S.SIVAGNANAM,J AND V.BHAVANI SUBBAROYAN,J

TCA.No.713 of 2018

29.9.2020 6/6 http://www.judis.nic.in

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