ACIT CORPORATE CIRCLE 2, MADURAI vs. TVS LOGISTICS SERVICES LTD., MADURAI

PER G.MANJUNATHA, AM: These cross appeals filed by the assessee as well as

Revenue are directed against order of the learned CIT(A)-1,

Madurai dated 28.03.2018 and pertains to assessment year

2013-14. Since, facts are identical and issues are common, for

the sake of convenience, appeals filed by the assessee as well

2 ITA No.2906/Chny/2018& ITA No.1927/Chny/2018

as Revenue were heard together and are being disposed off

by this consolidated order.

appeal:-

“1.The order of the Hon’ble Commissioner of Income Tax (Appeal) is against facts and circumstances of the case.

Both the Learned Assessing Officer and the CIT (A) has failed to appreciate the various submissions made in the current perspective.

submitted that there is a delay of 135 days in filing appeal for

which necessary petition for condonation of delay along with

affidavit has been filed explaining the reasons for the delay in

filing appeal. The delay in filing the appeal is due to mistake of

the Accountant, who was handling papers, but there is no willful

3 ITA No.2906/Chny/2018& ITA No.1927/Chny/2018

negligence or intention on the part of the assessee not to file

appeal within the time allowed under the Act. Therefore,

considering the fact delay may be condoned in the interest of

advancement of substantial justice.

condonation of delay petition filed by the assessee submitted

that the reasons given by the assessee do not come within the

ambit of reasonable and bonafide reasons, which can be

considered for condonation of delay and hence, appeal filed

by the assessee may be dismissed as not maintainable.

by the assessee for condonation of delay, we are of the

considered view that reasons given by the assessee for not

filing the appeal within the time allowed under the Act comes

under reasonable cause as provided under the Act for

condonation of delay and hence, delay in filing of appeal is

condoned and appeal filed by the assessee is admitted for

adjudication.

4 ITA No.2906/Chny/2018& ITA No.1927/Chny/2018

engaged in providing logistic service filed its return of income

for the assessment year 2013-14 on 29.11.2013 declaring total

income of Rs. 1,75,71,40,470/-. The case was taken up for

scrutiny and during the course of assessment proceedings, the

Assessing Officer noticed that the assessee has earned huge

exempt income, however, did not make suo-moto disallowance

of any expenditure in relation to said exempt income and

hence, called upon the assessee to explain as to why

disallowances contemplated under section 14A of the Act shall

not be computed by invoking Rule 8D of the Income Tax Rules,

1962. In response, the assessee vide letter dated 22.03.2016

has submitted that it has not incurred any expenses directly

relatable to exempt income and further, during the year the

company has made investments only in foreign subsidiaries,

the income from which is taxable under income-tax law and

hence, question of disallowance of exempt income does not

arise. The Assessing Officer, after considering relevant

submissions of the assessee and also taken note of provisions

of section 14A observed that claim of the assessee that it has

5 ITA No.2906/Chny/2018& ITA No.1927/Chny/2018

not incurred any expenditure in relation to exempt income is

not supported by documentary evidence as mandated under

the provisions of section 14A(2)/( 3) of the Act, and hence,

there is no merit in the arguments of the assessee that it has

not incurred any expenditure, Therefore he has computed

disallowance contemplated under provisions u/s.14A by

invoking Rule 8D and determined total disallowance of

Rs.194,67,563/-.

preferred an appeal before learned CIT(A). Before the learned

CIT(A), the assessee has reiterated its arguments made before

the Assessing Officer and submitted that the Assessing Officer

has erred in computing disallowance of expenditure including

interest u/s.14A of the Act, by taking into account, interest on

loans which has been paid for specific purposes contrary to

settled principles of law that only interest paid on loans which

has been used for acquiring tax free income can be considered

for disallowance u/s.14A of the Act.

6 ITA No.2906/Chny/2018& ITA No.1927/Chny/2018

submissions of the assessee and also by following decision of

the Hon'ble Jurisdictional High Court of Madras in TCA No.2520

of 2016 dated 23.12.2016 in the case of M/s. Redington India

Ltd. Vs. Addl.CIT (2016) 97 CCH 219 (Mad) has restricted

disallowance computed by the Assessing Officer u/s.14A r.w.

Rule 8D to the extent of exempt income of Rs.1,39,49,985/-.

Being aggrieved by the learned CIT(A) order, the assessee as

well as Revenue are in appeal before us.

submitted that appeal filed by the Revenue does not

maintainable, because tax effect involved in said appeal is

below the prescribed monetary limit fixed for filing appeal before

the Tribunal, therefore, the same may be dismissed as not

maintainable. As regards assessee’s appeal, the AR for the

assessee submitted that the learned CIT(A) has erred in

restricting disallowance computed by the Assessing Officer to

the extent of exempt income, without appreciating fact that out

of total dividend income earned for the year, dividend income

from foreign subsidiaries also included which is taxable under

7 ITA No.2906/Chny/2018& ITA No.1927/Chny/2018

Indian Income-tax law and hence, while computing

disallowance, investments made on overseas subsidiaries

needs to be excluded. The AR submitted that the Assessing

Officer while computing disallowance of interest expenses

under Rule 8D(2)(ii) has considered interest debited into profit &

loss account which is not related to exempt income and hence,

interest paid on TDS, interest on term loans and interest on

other indirect tax payment and processing fee need to be

excluded. In this regard, he has filed working of computation of

disallowance of expenses u/s.14A of the Act .

effect involved in appeal filed the Revenue is below threshold

limit of filing appeal before the Tribunal and hence, same

maybe dismissed as not maintainable. As regards assessee

appeal, the learned DR submitted that the learned CIT(A) has

rightly restricted disallowances computed u/s.14A of the Act

to the extent of exempt income by following decision of the

Hon'ble Jurisdictional High Court of Madras in TCA No.520 of

2016 dated 23.12.2016 in the case of M/s. Redington India

Ltd. Vs. Addl. CIT, therefore, there is no merit in the arguments

8 ITA No.2906/Chny/2018& ITA No.1927/Chny/2018

of the assessee that Assessing Officer has wrongly computed

interest expenses and other expenses by including

investments in overseas subsidiaries. However, he fairly

agreed that issue may be set aside to the file of Assessing

Officer to re-verify claim of the assessee in light of computation

filed by the assessee.

available on record and gone through orders of the authorities

below. It is stated before us that the tax effect in ITA

No.1927/Chny/2018 filed by Revenue is less than Rs. 50 lakhs

and therefore, the Circular No. 17 of 2019 dated 08.08.2019

issued by the Central Board of Direct Taxes (CBDT) in exercise

of its power vested under section 268A(1) of the Income Tax

Act, 1961 comes into play wherein, the monetary limit for filing

the appeal by the Revenue before the ITAT and various High

Courts as well as Apex Court are revised with an object of the

reducing the tax litigation. In the said circular, it is stated that

in cases where the tax effect in the appeal to be filed before the

Appellate Tribunal does not exceed Rs. 50 lakhs appeals

should not be filed. Thus, taking note of CBDT Circular No. 17

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of 2019 dated 08.08.2019 and considering the fact that the tax

effect in the instant appeal is less than Rs. 50 lakhs, the present

appeal deserves to be dismissed as not pressed / not

maintainable. However, we make it clear that the issues raised

in the instant appeal is left open to be examined in the

appropriate proceedings, if arises, in future. At the same time,

we also make it clear that if the appeal fall in any of the

exceptions referred to in the above said CBDT Circular, the

Revenue is at liberty to move an application for recalling the

order, if so advised. Accordingly, in the light of CBDT circular

No. 17 of 2019 dated 08.08.2019, the appeal stands

dismissed.

has earned exempt income, consequently provisions of section

14A of the Act is applicable. In fact, it is not a case of the

assessee that provisions of section 14A of the Act has no

application. The grievance of the assessee is that disallowance

computed by the Assessing Officer under section 14A of the

Act is excessive, when it compared to dividend income earned

10 ITA No.2906/Chny/2018& ITA No.1927/Chny/2018

for the year. The assessee has submitted that while computing

disallowance the Assessing Officer has considered interest

expenses, which is not relatable to exempt income on the

ground that those interest expenses are paid on loans which

are borrowed for specific purposes. The assessee further

claimed that while computing other expenses, the Assessing

Officer has considered investments in overseas subsidiaries,

income from which is taxable under the Act. The assessee

further claimed that it is well principles of law that only those

investments which yielded exempt income during the relevant

assessment year needs to be considered for disallowance of

expenses u/s.14A of the Act.

light of working of disallowances u/s.14A and find that the

assessee has paid interest on certain loans which are borrowed

for specific purposes. Therefore, if the assessee is able to

prove utilization of loans for specific purposes, then interest

relatable to said loans cannot be included for computation of

disallowances under Rule 8D(2)(ii) of Income Tax Rules, 1962.

Similarly, the assessee claimed that while computing

11 ITA No.2906/Chny/2018& ITA No.1927/Chny/2018

disallowance under Rule 8D(2)(iii), the Assessing Officer has

included investments made in overseas subsidiaries and

income from which is taxable under Indian laws. We find that it

is a well settled principles of law that dividend earned from

overseas investments is taxable in Indian law, therefore, for the

purpose of computing other expenses under Rule 8D(2)(iii),

those investments need to be excluded. Similarly, it is well

settled principles of law by the decision of ITAT Special Bench

in the case of ACIT Vs. Vireet Investments Pvt .Ltd. (165 ITD

27) (SB) that only those investments which yielded exempt

income for the year needs to be considered for computation of

disallowance of other expenses. The assessee has filed

working explaining computation of disallowance u/s.14A r.w.

Rule 8D of the Income Tax Rules, 1962. The said computation

was not available to the Assessing Officer at the time of

assessment proceedings. Therefore, we are of the considered

view that the issue needs to go back to the file of the Assessing

Officer for re-consideration in light of revised working filed by

the assessee. Hence, we set aside the appeal to the file of

Assessing Officer and direct him to recompute disallowance of

12 ITA No.2906/Chny/2018& ITA No.1927/Chny/2018

expenses relatable to exempt income u/s.14A of the Act in

accordance with our directions given herein above.

allowed for statistical purposes and appeal filed by the Revenue

is dismissed as not maintainable.

Order pronounced in the open court on 9th August, 2021

Sd/- Sd/- (महावीर �संह) (जी. मंजुनाथ) (Mahavir Singh) (G. Manjunatha ) उपा�य�/ Vice-President लेखा सद%य / Accountant Member चे'नई/Chennai, (दनांक/Dated 9th August, 2021 DS

आदेश क� ��त*ल+प अ,े+षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु-त (अपील)/CIT(A) 4. आयकर आयु-त/CIT 5. +वभागीय ��त�न1ध/DR 6. गाड� फाईल/GF.