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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI SAKTIJIT DEY & SHRI MANOJ KUMAR AGGARWAL
This is an appeal by the assessee against order dated 19/01/2017 of ld. Commissioner of Income Tax (Appeals)–3, Mumbai for the A.Y. 2012–13.
M/s. Finquest Securities P. Ltd.,
Ground No.1 to 3 are against disallowance made under section.14A r.w.r. 8D.
Briefly the facts are, the assessee company carries on business as a broker. For the assessment year under dispute assessee filed its return of income on 28/10/2012 declaring income of `.3,76,42,325/–. During the assessment proceedings the Assessing Officer noticing that assessee has voluntarily disallowed an amount of `.12,98,664/– under section.14A of the Act r.w.r. 8D called upon the assessee to justify the claim. 4. After considering the submissions of the assessee, the Assessing Officer was of the view that disallowance of expenditure attributable to earning of exempt income has to be made as per the mode and manner prescribed under rule 8D(2). Though, the assessee stated before the Assessing Officer that no interest bearing fund was utilized for making investment, however the Assessing Officer was of the view that as per Rule 8D(2)(ii), interest disallowance has to be computed on interest expenditure. Accordingly, he proceeded to compute disallowance under Rule 8D(2) which worked out to `.16,35,365/– which included interest expenditure of `.15,15,283/–. The assessee having already disallowed an amount of `.12,98,664/–,the Assessing Officer added back balance amount of `.3,36,901/–. Being aggrieved
M/s. Finquest Securities P. Ltd., of such addition, assessee preferred appeal before the Commissioner of Income Tax (Appeals).
Before the First Appellate Authority, the assessee sought modification of the ground by raising altogether new ground to the effect that, since, it has not earned any dividend income during the year, no disallowance under section 14A can be made. Without prejudice to the said ground, it was also urged before the Commissioner (Appeals) that since assessee had enough interest free funds to make the investment, no disallowance of interest expenditure can be made. Ld. Commissioner (Appeals) after considering the submissions of the assessee refused to entertain the modified grounds raised
by the assessee. However, ultimately he restricted the disallowance under section.14A r.w.r. 8D to the amount already disallowed by the assessee.
6. The ld. Authorized Representative (AR) submitted, in the relevant previous year assessee has not earned any exempt income. Therefore, no disallowance under section.14A can be made. For such proposition, he relied upon the decision of the Hon’ble Delhi Court in case of Cheminvest v/s. CIT (2015) 61 taxmann.com 118. Without prejudice to the aforesaid submission, the learned AR submitted, there was sufficient free fund available with the assessee to make investment; therefore, no disallowance of interest expenditure can be made. In M/s. Finquest Securities P. Ltd., support of such contention he relied upon the decision of Hon'ble jurisdictional high court in case of CIT v/s HDFC Bank ltd. 366 ITR 505.
The ld. AR submitted, though, the assessee under misconception of law voluntarily made disallowance under section.14A, however, as per the settled legal principle no disallowance is to be made in absence of any exempt income. Therefore, even the disallowance made by the assessee has to be deleted.
The ld. Departmental Representative (DR) relying upon of the observations of Commissioner (Appeals) submitted that assessee should have filed revised return of income for rectifying the mistake committed by it.
We have considered rival submissions and perused the material on record. No doubt, assessee has voluntarily disallowed an amount of `.12,98,664/– under section.14A of the Act r.w.r. 8D. However, before ld. Commissioner (Appeals) the assessee has furnished modified grounds in respect of disallowance made under section.14A specifically raising the issue of no disallowance under section.14A r.w.r. 8D in absence of any exempt income earned during the year. Further, the assessee has also urged that the entire investment made was out of interest free funds, hence, no disallowance of interest expenditure under section.14A. r.w.r. 8D(ii) can be made. As could be seen, ld.
M/s. Finquest Securities P. Ltd., CIT(A) has refused to entertain the modified grounds made by the assessee by raising technical objections. Article 265 of the Constitution of India mandates that no tax can be collected without authority of law. Now, it is well settled by a number of judgments of different High Courts as well as the Special Bench of the Tribunal that in absence of any exempt income earned in a particular assessment year, no disallowance under section. 14A r.w.r. 8D can be made. In view of such settled legal principle it becomes imperative to examine assessee’s claim that during the relevant previous assessment year assessee having not earned any exempt income, no disallowance could have been made under section.14A r.w.r. 8D irrespective of the fact that assessee has itself made disallowance under section. 14A. In our view, the reading of the provision of section 14A makes it clear that disallowance to be made under the said provision is with respect to the exempt income earned by the assessee in the particular assessment year. Therefore, what follows is, if there is no exempt income earned during a particular assessment year, no disallowance under section.14A can be made. This view has been expressed by different High Courts including the Hon’ble Delhi High Court in case of Cheminvest v/s. CIT (supra) as well as the Special Bench of the Tribunal in case of ACIT v/s Vireet Investment Pvt. Ltd., [2017] 165 ITD 26 (Del.). Thus as per the settled principle of law as it stands now,
M/s. Finquest Securities P. Ltd., in absence of any exempt income earned in a particular assessment year, no disallowance u/s.14A can be made. Therefore, only because the assessee itself has made some disallowance under section.14A of the Act, it cannot be utilized to his detriment as there is no estoppel against law.
In view of the aforesaid, we direct the Assessing Officer to examine assessee’s claim that in the relevant previous year, it has not earned any exempt income. In case the aforesaid claim of the assessee is found to be correct; no disallowance under section 14A can be made. In view of the aforesaid decision we are not going into the without prejudice claim of the assessee that it had sufficient interest free funds for making investment, hence disallowance of interest expenditure is not required to be made. However, it is open to the assessee to raise this claim before the assessing officer, if warranted. These grounds are allowed for statistical purposes.
In Ground No. 4, assessee has challenged disallowance of `.18,81,790/– u/s.40(a)(ia) of the Act.
Briefly the facts are during the assessment proceeding, Assessing Officer noticing that assessee has made certain payments, including an amount of `.18,81,790/– to Bloomberg Data Services Pvt. Ltd., without deducting tax at source called upon the assessee to explain why such payment should not be disallowed u/s.40(a)(ia) of the Act.
M/s. Finquest Securities P. Ltd., Though, the assessee made submissions justifying non–deduction of the tax at source for the payment made, however, the Assessing Officer rejecting the submissions of the assessee, disallowed an amount `.33,04,084/– under section.40(a)(ia) of the Act. Being aggrieved of such disallowance assessee preferred an appeal before the Commissioner (Appeals). Ld. Commissioner (Appeals) after considering the submissions of the assessee, sustained the disallowance made by the Assessing Officer. Before us, the assessee has challenged the aforesaid decision of the CIT(A) in so far as it relates to disallowance of `.18,81,790/– paid to M/s. Bloomberg Data Services Pvt. Ltd.
The ld AR submitted that the payment made by the assessee was not for availing any technical or managerial services but only for the purpose of accessing the terminal. He submitted, the payment made is in the nature of subscription to e–magazine of the said company which is also available to other persons as well. In this context he invited our attention to the invoice raised at page 24 & 25 of the paper book. He also drew our attention to the letter issue by Bloomberg Data Services Pvt. Ltd that the payment made does not require deduction of tax at source which is placed at page 31 of the Paper book. The ld. AR submitted, the issue is otherwise covered by the decision of the Hon'ble jurisdictional High Court in case of CIT v/s. Indian Capital
M/s. Finquest Securities P. Ltd., Market Pvt. Ltd., in of 2013 dated 19/10/2015 as well as the decision of the ITAT Mumbai bench in case of Kitara capita Pvt. Ltd v/s. ITO in ITA no. 130/Mum/2014.
The ld. DR relied upon the observation of the Departmental authorities.
We have considered rival submissions and perused the material on record. Factual matrix of the issue reveals that the disputed payment was made by the assessee towards terminal charges for accessing online information and data base of Bloomberg Data Services Pvt. Ltd. While the Assessing Officer has not discussed much about the nature of payment and the specific provision that covers such payment, however, ld. Commissioner (Appeals) has observed that the payment made was for professional and technical services, hence, attracts the provisions of Sectin 194J. We are unable to understand on what basis ld. Commissioner (Appeals) has come to such conclusion, as no material has been brought on record by the department to establish that by making such payments, assessee has availed any technical or managerial services. On the contrary, it appears that the payment made by the assessee to M/s. Bloomberg Data Services Pvt. Ltd., is in the nature of subscription fee for accessing the terminal of the company containing the data base. The Hon'ble jurisdictional High Court in case of CIT v/s. Indian Capital
M/s. Finquest Securities P. Ltd., Markets(supra) while considering identical issue relating to payment made to M/s. Bloomberg Data Services Pvt. Ltd has held that the payment made is not for availing any technical or professional services, but is only a subscription to access Bloomberg magazines information. The same view has been expressed by the ITAT, Mumbai bench in case of Kitara Capital Pvt. Ltd. v/s. Income Tax Officer(supra). In view of the aforesaid, we hold that the payment made by the assessee not being in the nature of fee for technical services as per the provision of the 194J of the Act, it does not require deduction of tax at source. Therefore, we delete the disallowance made by the Assessing Officer and sustained by the Commissioner (Appeals).
In addition to the aforesaid grounds, the assessee has raised an additional ground challenging the levy of interest under section.234C of the Act. Since, the issue raised in the additional ground can be decided on the basis of the facts available on record, we admit the additional ground for adjudication.
Learned AR submitted, the Assessing Officer has to compute interest under section 234C of the Act on the basis of income returned by the assessee and not on the basis of income determined by him. He submitted, the Assessing Officer has not provided any basis for the interest charged of `.31,25,407/–under section 234C of the Act
M/s. Finquest Securities P. Ltd., instead of `.3,22,821/– as computed by the assessee. In this context, he drew our attention to the computation of interest under section 234C of the Act made by the assessee in the computation of total income, copy of which is at page 2 of the paper book.
Learned DR submitted, the Assessing Officer may be directed to verify his claim.
We have considered rival submissions and perused the material on record. In principle, we agree with the submission of the learned AR that levy of interest under section 234C of the ACT has to be made on the basis of income returned by the assessee. Moreover, there is no clarity on what basis the Assessing Officer has charged interest under section 234C as there is huge difference between the computation of interest under section 234C of the assessee and the Assessing Officer. Therefore, we are inclined to restore this issue to the Assessing Officer for verifying assessee’s claim after due opportunity of being heard. This ground is allowed for statistical purposes.
In the result, assessee’s appeal is partly allowed. Order pronounced in the open Court on 23.08.2018