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Income Tax Appellate Tribunal, “B” BENCH, CHENNAI
Before: HON’BLE SHRI V. DURGA RAO, JM & HON’BLE SHRI MANOJ KUMAR AGGARWAL, AM
आयकरअपील सं./ (िनधा1रण वष1 / Assessment Year: 2010-11) M/s. BNY Mellon Technology Private Ltd. DCIT बनाम (Formerly iNautix Technologies India Pvt.Ltd) Corporate Circle-2(2), 10th floor, Tidel Park, 4,Canal Bank Road, Chennai-34. / Vs. Taramani,Chennai-600 113. थायीलेखासं./जीआइआरसं./PAN/GIR No. AAACI-6177-K (अपीलाथ-/Appellant) : (./थ- / Respondent) अपीलाथ-कीओरसे/ Appellant by : Shri N.V. Balaji (Advocate)-Ld. AR ./थ-कीओरसे/Respondent by : Ms. Ann Mary Baby – Ld. CIT-DR सुनवाईकीतारीख/ : 27-10-2022 Date of Hearing घोषणाकीतारीख / : 27-10-2022 Date of Pronouncement आदेश / O R D E R Manoj Kumar Aggarwal (Accountant Member) 1. Aforesaid appeal by assessee for Assessment Year (AY) 2010-11 arises out of directions of Ld. Dispute Resolution Panel-2, Bengaluru dated 27.12.2017. The sole issue that arises in the appeal is disallowance u/s 14A under normal provisions as well as while computing Book Profits u/s 115JB. The assessee has raised an additional ground that without recording any objective satisfaction, no such disallowance could have been made by Ld. AO. The assessee being resident corporate assessee is stated to be engaged in rendering information technology enabled services and software development.
The Ld. DRP has issued directions pursuant to the directions of Tribunal in dated 24.08.2016 which read as under: 11. We have heard both the parties and perused the material on record. Admittedly, the assessee filed documents before the DRP regarding the computation of disallowance u/s.14A r.w.r 8D. However, there is no discussion by the DRP in their order. He observed that there is no segregation of expenses attributable to investment which will exempt income. In our opinion, the documents furnished by the assessee to be looked into and thereafter the DRP has to give direction to the TPO. We direct the assessee to furnish the same documents what is furnished before the DRP on earlier occasion for their consideration and the DRP shall decide the issue in accordance with law after considering the same.”
In the set aside proceedings, the assessee estimated the cost incurred by it to carry out investment activities which are extracted on Page-5 of Ld. DRP directions. The assessee carried out 17 investment transactions and 54 redemption transactions. The cost per transaction has been estimated to be Rs.12,150/- per transactions and considering the time spent on investment activities, the assessee has computed disallowance for Rs.8,62,650/- as against Rs.144.57 Lacs as computed by Ld. AO u/r 8D(2)(iii) by applying 0.5% of average investments. However, not convinced Ld. DRP, rejected the working of the assessee and chose to rely on the findings given by Ld. DRP in first round. The directions of Ld. DRP read as under: - The additional evidence submitted by the assessee as above is carefully examined. DRP vide order dated 16.12.2014 discussed the issue elaborately at Paras 3.2, 3.2.1, 3.2.2, 3.2.3, 3.2.4, 3.2.5, 3.2.6, 3.2.7, 3.2.8, 3.2.9 and 3.2.10. All the aspects of the issue are adjudicated there in. It is the claim of the assessee that as per the "investment process documentation policy’ of the company the company surplus funds get invested in mutual funds. This issue is discussed in the order dated: 16.12.2014 in para 3.2.3 which is reproduced as under;
"3.2.3 The assessee is not maintaining any separate books of account for the investment in the shares/funds. Nor there was a separate establishment to look after the investments in shares/funds. The assessee may be having substantial interest free own funds (in the form of capital/reserves and surpluses etc.). But this does not mean that the investments are made only from these own interest free funds, especially if the books are not maintained separately. Further, all the funds, i.e. the interest free own funds and the interest bearing borrowed funds are put into a common pool of funds. From this common kitty all the outgoings (i.e. investments in shares, regular business expenses etc) are met with. In other words, once the funds, i.e. whether the interest-free own funds or the interest bearing borrowed funds, are put into a common pool of funds, they will loose their distinction and all types of funds will be treated alike. In such a situation, the only way to ascertain the investments made from the borrowed funds, if any, is on a proportionate basis. Therefore, the interest expenses, which could not be directly linked to any activity, are to be treated as common interest expenses and considered in the step-2 of the formula given in Rule-8D for the purpose of attributing the indirect interest burden on the investments made, on a proportionate basis. Even Bombay High Court, in the case of Godrej Boyce Mfg Co Ltd v. CIT, decided on 12.08.2010, held that Sec 14A (2) & (3) of the Act, is constitutionally valid and is applicable from assessment year 2008-09 onwards. in this case, the High Court has clearly and categorically held that "the provisions of Rule 8D of the Income Tax Rules which have notified with effect from 24 March 2008 shall apply with effect from Assessment Year 2008-09." Considering the above, the Panel is of the considered opinion that mere policy of the assessee does not prove whether the interest free funds are actually invested in tax- free income. Once the common books are maintained and funds are put into common pool there is no way assessee can prove that only particular type of funds are invested in mutual funds. This Panel reconfirms the decision of the previous DRP Panel on the issue. Accordingly, there is no merit in assessee’s contentions and the same are fit to be rejected. Ground rejected.
Aggrieved as aforesaid, the assessee is in further appeal before us. Our findings and adjudication 4. It could be seen that Ld. AO has merely estimated indirect expenditure u/r 8D(2)(iii) @0.5% of average investments and has not made any interest disallowance u/r 8D(2)(ii). Clearly, Ld. DRP has gone on wrong presumption of facts. Further, it could also be seen that the assessee has not offered any suo-moto disallowance and therefore, the plea of non-recording of objective satisfaction would lose relevance on the facts of the case.
Proceeding further, we find that the assessee has made an estimate on a scientific basis and computed disallowance of Rs.8,62,650/- which has remained undisturbed. The application of Rule 8D is not mechanical. Therefore, in our considered opinion, the working of the assessee is to be accepted and the disallowance is to be restricted to the extent of Rs.8,62,650/- while computing income under normal provisions. We order so.
So far as the adjustment of disallowance u/s 115JB is concerned, we find that this issue is covered in assessee’s favor by the decision of this Tribunal in assessee’s own case for AY 2009-10 in & ors., order dated 08.02.2017. The bench, in para- 16, relied on the decision of Beach Minerals Ltd. (64 Taxmann.com 218) and held that no such disallowance could be made while computing Book Profits u/s 115JB. Taking consistent view in the matter, we direct Ld. AO not to make such disallowance u/s 115JB. No other ground has been urged in the appeal. 7. The appeal stand partly allowed in terms of our above order. Order pronounced on 27th October, 2022.