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Income Tax Appellate Tribunal, ‘B’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI A. MOHAN ALANKAMONY
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
Both the appeals of the Revenue are directed against the common order passed by the Commissioner of Income Tax (Appeals)-V, Chennai, dated 29.09.2014 and pertains to assessment year 2009-10 and 2010-11. Since common issues arise for consideration, we heard both the appeals together and disposing of the same by this common order.
Sh. A.B. Koli, the Ld. Departmental Representative, submitted that in both the appeals, the first issue arises for consideration is with regard to disallowance made by the Assessing Officer under Section 14A of the Income-tax Act, 1961 (in short 'the Act'). The Assessing Officer found that the assessee has declared a sum of `1,63,93,520/- as dividend income for the assessment year 2009-10 and claimed exemption under Section 10(35) of the Income-tax Act, 1961 (in short 'the Act'). Similarly, for the assessment year 2010-11, the assessee declared a sum of `1,22,01,254/- as dividend income and claimed exemption under Section 10(35) / 10(34) of the Act. The Assessing Officer further found that for the assessment year 2009-10, the assessee itself claimed an expenditure of `3,99,684/- and for the assessment year 2010-11, the expenditure claimed was `6,39,196/-. According to the Ld. D.R., the Assessing Officer found that the expenditure was not computed under Rule 8D of the Income-tax Rules, 1962. Referring to the provisions of Rule 8D, the Ld. D.R. submitted that after introduction of Rule 8D which provides for computation of expenditure for earning the exempted income, the expenditure has to be calculated as per the procedure provided therein. In this case, according to the Ld. D.R., for the both the assessment years, an ad hoc expenditure was disallowed by the assessee itself. Therefore, the Assessing Officer was not satisfied about the manner in which the expenditure was computed. Accordingly, the Assessing Officer recomputed the expenditure by applying the third limb of Rule 8D computed the disallowance. However, the CIT(Appeals) allowed the appeal of the assessee on the ground that the Assessing Officer has not recorded his satisfaction. Referring to the order of the Assessing Officer, the Ld. D.R. submitted that after referring to statement of income, the Assessing Officer found that the expenditure was not computed as per the provisions of Rule 8D. Therefore, he computed the disallowance / expenditure by applying third limb of Rule 8D. Hence, the CIT(Appeals) is not correct in saying that the Assessing Officer has not recorded his satisfaction.
On the contrary, Shri J. Parthasarathy, the Ld. representative for the assessee, submitted that in the appeal of the Revenue for the assessment year 2010-11, the tax effect is less than `10,00,000/-, therefore, in view of the circular issued by CBDT in Circular No. 21/2015 dated 10.12.2015, the appeal filed by the Revenue is not maintainable.
Now coming to assessment year 2009-10, the Ld. representative for the assessee submitted that the Assessing Officer has not recorded any satisfaction with regard to claim made by the assessee for earning the exempted income. Placing reliance on the decision of this Bench of this Tribunal in Shriram Properties (P.) Ltd. v. ACIT (2013) 36 taxmann.com 398, the Ld. representative submitted that if the Assessing Officer has not recorded any satisfaction, no disallowance could be made under Rule 8D for earning the exempted income.
We have considered the rival submissions on either side and perused the relevant material available on record. As rightly submitted by the Ld. representative for the assessee, the tax effect in the appeal of the Revenue for the assessment year 2010-11 is less than `10,00,000/-. However, in this case, the CIT(Appeals) has passed a common order for both the assessment years. Therefore, the circular of the CBDT cannot be applied for one assessment year alone. In other words, the finding of the CIT(Appeals) cannot be confirmed for one assessment year, when the CIT(Appeals) passed common order for two assessment years. Therefore, we find no force in the contention of the Ld. representative for the assessee.
Coming to the merits of the appeals, we have carefully gone through the provisions of Rule 8D of the Income-tax Rules, 1962. Rule 8D provides for method of computation of expenditure for earning the exempted income in case the Assessing Officer was not satisfied with the correctness of the claim of expenditure made by the assessee. We have also carefully gone through the order of the Assessing Officer for both the assessment years. The Assessing Officer, after going through the statement of income, found that the assessee declared income from dividend and claimed the same as exemption under Section 10(35) / 10(34) of the Act. The Assessing Officer, after referring to the provisions of Rule 8D, found that the disallowance made by the assessee on ad hoc basis is not in tune with the method prescribed under Rule 8D. This is apparent from the orders of the Assessing Officer. Therefore, it is obvious that the Assessing Officer is not satisfied with the expenditure claimed by the assessee for earning the expenditure income. Income-tax Act does not provide any prescribed method for recording satisfaction of the Assessing Officer. Satisfaction has to be gathered from the observation made by the Assessing Officer in the assessment order. The Assessing Officer by applying his mind to the material available on record, including the statement of income and expenditure claimed, found that the expenditure claimed in the statement of computation of income to the extent indicated therein is far less than the expenditure which is otherwise to be allowed under Rule 8D. Therefore, this Tribunal is of the considered opinion that the Assessing Officer has clearly indicated his mind in the assessment orders that he is not satisfied about the expenditure claimed by the assessee on ad hoc basis. Therefore, the Assessing Officer by applying the third limb of Rule 8D(2) of Income-tax Rules, 1962 computed the expenditure equal to 0.5% of the average value of the investment, income from which does not or shall not form part of total income as appearing in the balance sheet of the assessee on the first day and the last day of the previous year. Therefore, this Tribunal is of the considered opinion that the CIT(Appeals) is not correct in saying that the Assessing Officer has not recorded any satisfaction. As observed earlier, the satisfaction of the Assessing Officer has to be gathered from the order of the assessment. Therefore, we are unable to uphold the order of the lower authority. Accordingly, the order of the CIT(Appeals) is set aside and those of the Assessing Officer are restored.
6. The next ground of appeal is with regard to exclusion of communication expenses from total turnover.
Sh. A.B. Koli, the Ld. Departmental Representative, submitted that the assessee incurred an expenditure of `18,14,537/- towards communication and internet charges for assessment year 2010-11. Similarly, the assessee claimed `32,60,000/- for the assessment year 2009-10. The Assessing Officer reduced the communication expenses from the export turnover, however, the same was not reduced from the total turnover. According to the Ld. D.R., communication charges form part of total turnover, therefore, the CIT(Appeals) is not justified in directing the Assessing Officer to reduce the same from the total turnover.
On the contrary, Shri J. Parthasarathy, the Ld. representative for the assessee, submitted that both denominator and numerator shall be of same figure for deduction under Section 10A and 10B of the Act. If the communication charges are reduced from the export turnover, the same shall also need to be reduced from the total turnover. An item of expenditure which does not form part of export turnover cannot also equally form part of total turnover, otherwise the resultant profit shall be disastrous figure.
We have considered the rival submissions on either side and perused the relevant material available on record. As rightly submitted by the Ld. representative for the assessee, an item of expenditure, which does not form part of export turnover, cannot equally form part of total turnover as well. The total turnover is nothing but a part of export turnover. When an item of expenditure, which does not form part of export turnover, this Tribunal is of the considered opinion that the same cannot be equally included in the total turnover. Therefore, this Tribunal is of the considered opinion that that the CIT(Appeals) has rightly directed the Assessing Officer to reduce the communication charges from total turnover also. Therefore, this Tribunal find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed.
In the result, the appeal of the Revenue for assessment year 2010-11 in is allowed, whereas, the appeal for the assessment year 2009-10 in I.T.A. No.137/Mds/2015 is partly allowed.
Order pronounced on 1st April, 2016 at Chennai.