The Commissioner of Income-tax, Chennai v. PVP Ventures Ltd
[Citation -2020-LL-0901-22]

Citation 2020-LL-0901-22
Appellant Name The Commissioner of Income-tax, Chennai
Respondent Name PVP Ventures Ltd.
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 01/09/2020
Assessment Year 2014-15
Judgment View Judgment
Keyword Tags substantial question of law • expenditure incurred • dividend income • exempt income • income earned
Bot Summary: The following principles would emerge from s. 14A : the mandate of s. 14A is to prevent claims for deduction of expenditure in relation to income which does not form part of the total income of the assessee; sec. 14A(1) is enacted to ensure that only expenses incurred in respect of earning taxable income are allowed; the principle of apportionment of expenses is widened by s. 14A to include even the apportionment of expenditure between taxable and non-taxable income of an indivisible business; the basic principle of taxation is to tax net income. All expenditure incurred in relation to income which does not form part of the total income under the provisions of the Act has to be disallowed under s. 14A. Income which does not form part of the total income is broadly adverted to as exempt income as an abbreviated appellation. Under sub-s., the AO is required to determine the amount of expenditure incurred by an assessee in relation to such income which does not form part of the total income under the Act in accordance with such method as may be prescribed. 299 of 2019 accordance with the prescribed method, arises if the AO is not satisfied with the correctness of the claim of the assessee in respect of the expenditure which the assessee claims to have incurred in relation to income which does not form part of the total income. Sub-s. does not ipso facto enable the AO to apply the method prescribed by the rules straightaway without considering whether the claim made by the assessee in respect of the expenditure incurred in relation to income which does not form part of the total income is correct. Sub-s. of s. 14A provides for the application of sub-s. also to a situation where the assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under the Act.


T.C.A.No.299 of 2019 IN HIGH COURT OF JUDICATURE AT MADRAS DATED : 01.09.2020 CORAM HONOURABLE MR.JUSTICE T.S.SIVAGNANAM and HONOURABLE MRS.JUSTICE PUSHPA SATHYANARAYANA T.C.A.No.299 of 2019 Commissioner of Income Tax, Chennai. Appellant Versus M/s.PVP Ventures Ltd, KRM Centre, 9th Floor, No.2, Harirngton Road, Chepet, Chennai 600 031 PAN AAACS310IP Respondent Prayer:- Tax Case Appeal filed under Section 260-A of Income Tax Act, 1961, against order of Income Tax Appellate Tribunal, ''B'' Bench, Chennai dated 19.09.2018 in I.T.A.No.593/Chny/2018. For Appellant : Ms.R.Hemalatha Senior Standing counsel For Respondent: Mr.R.Sivaraman 1/9 http://www.judis.nic.in T.C.A.No.299 of 2019 JUDGMENT [Order of Court was made by T.S.SIVAGNANAM, J.] This appeal, filed by Revenue, under Section 260A of Income Tax Act, 1961 ('the Act' for brevity) is directed against order dated 19.09.2018 passed by Income Tax Appellate Tribunal Bench 'B', Chennai ('the Tribunal' for brevity), in I.T.A.No.593/Chny/20185 for assessment year 2014-15. appeal was admitted on 04.06.2019 with following Substantial Question of Law: ''Whether on facts and in circumstances of case, Tribunal was right in restricting amount of disallowance made under Section 14A read with Rule 8D to extent o exempt income earned during assessment year especially when Statute does not provide for any such restriction and assessing officer is bound to apply provision of section 14A read with Rule 8D?'' 2. We have elaborately heard Ms.R.Hemalatha, learned Senior 2/9 http://www.judis.nic.in T.C.A.No.299 of 2019 Standing counsel for appellant / Revenue and Mr.R.Sivaraman, learned counsel for respondent / assessee. Tribunal considered correctness of order passed by Commissioner of Income Tax (Appeals)-3, Chennai, dated 13.11.2017 by which CIT (A) partly allowed assessee's appeal and restricted disallowance to extent of exempt income by taking note of earlier decision of Chennai Bench of Tribunal in Royala Corporation Limited in ITA.No.908/MDS/2015 and Revenue challenging said order before Tribunal, which confirmed order passed by CIT(A), correctness of which has been questioned in this appeal and therefore substantial question of law to be decided in this appeal. 3. We did not go much into issue as same has been considered by Division Bench of this Court, for which one of us (Hon'ble Mr.Justice T.S.SIVAGNANAM) is party in case of Commissioner of Income Tax, Corporate Circle III(1), Chennai-600 034 VS. M/s.Tidel Park Limited, No.4, Rajiv Gandhi Salai, Taramani, Chennai 600 013 (T.C.A.No.732 and 733 of 2018) dated 07.07.2020. 3/9 http://www.judis.nic.in T.C.A.No.299 of 2019 Substantial Question of Law framed for consideration in this appeal is identical to question no.2 framed for consideration in above decision. Appeals were dismissed and Substantial Question of Law was decided against Revenue with following reason: 4. We take up for consideration substantial question of law no.2 referred above. tribunal in paragraph No.8.1, held that Assessing Officer is not justified in making excessive disallowance and that CIT(A) rightly restricted disallowance to extent dividend income declared by assessee. In fact tribunal records that revenue could not controvert findings rendered by High Court of Delhi in case of Joint Investments Private Limited Vs. CIT, reported in (2015) 372 ITR 0694 (Del). 5. It is relevant to point out that in said decision Division Bench of Delhi High Court referred decision in case of Commissioner of Income Tax VI Vs. Taikisha Engineering India Limited [ITA No.115/2014 decided on 25.11.2014] 6. Further, Bombay High Court in case of Godrej & Boyce Manufacturing Company Limited, Mumbai Vs. Deputy Commissioner of Income Tax, reported in (2010) 328 ITR 0081, has elaborated procedure to be followed by 4/9 http://www.judis.nic.in T.C.A.No.299 of 2019 Assessing Officer under Section 14A in following terms. following principles would emerge from s. 14A : (a) mandate of s. 14A is to prevent claims for deduction of expenditure in relation to income which does not form part of total income of assessee; (b) sec. 14A(1) is enacted to ensure that only expenses incurred in respect of earning taxable income are allowed; (c) principle of apportionment of expenses is widened by s. 14A to include even apportionment of expenditure between taxable and non-taxable income of indivisible business; (d) basic principle of taxation is to tax net income. This principle applies even for purposes of s. 14A and expenses towards non-taxable income must be excluded; (e) once proximate cause for disallowance is established which is relationship of expenditure with income which does not form part of total income disallowance has to be effected. All expenditure incurred in relation to income which does not form part of total income under provisions of Act has to be disallowed under s. 14A. Income which does not form part of total income is broadly adverted to as exempt income as abbreviated appellation. Under sub-s. (2), AO is required to determine amount of expenditure incurred by assessee in relation to such income which does not form part of total income under Act in accordance with such method as may be prescribed. method, having regard to meaning of expression 'prescribed' in s. 2(33), must be prescribed by rules made under Act. What merits emphasis is that jurisdiction of AO to determine expenditure incurred in relation to such income which does not form part of total income, in 5/9 http://www.judis.nic.in T.C.A.No.299 of 2019 accordance with prescribed method, arises if AO is not satisfied with correctness of claim of assessee in respect of expenditure which assessee claims to have incurred in relation to income which does not form part of total income. Moreover, satisfaction of AO has to be arrived at, having regard to accounts of assessee. Hence, sub-s. (2) does not ipso facto enable AO to apply method prescribed by rules straightaway without considering whether claim made by assessee in respect of expenditure incurred in relation to income which does not form part of total income is correct. AO must, in first instance, determine whether claim of assessee in that regard is correct and determination must be made having regard to accounts of assessee. satisfaction of AO must be arrived at on objective basis. It is only when AO is not satisfied with claim of assessee, that legislature directs him to follow method that may be prescribed. Sub-s. (3) of s. 14A provides for application of sub-s. (2) also to situation where assessee claims that no expenditure has been incurred by him in relation to income which does not form part of total income under Act. 7. above legal position has been rightly followed by tribunal while deciding assessee's case and therefore, rightly dismissed appeal filed by revenue. Thus, we find that Substantial Question of Law No.2 has to be answered against revenue and in favour of assessee. 6/9 http://www.judis.nic.in T.C.A.No.299 of 2019 4. Thus following above decision, this Appeal filed by Revenue is dismissed and Substantial Question of Law is answered against Revenue. No costs. (T.S.S.,J) (P.S.N.,J) 01.09.2020 sk Index: Yes / No Internet: Yes / No Speaking Order/Non-Speaking Order To Commissioner of Income Tax Chennai. 7/9 http://www.judis.nic.in T.C.A.No.299 of 2019 T.S.SIVAGNANAM, J. AND PUSHPA SATHYANARAYANA, J. sk T.C.A.No.299 of 2019 8/9 http://www.judis.nic.in T.C.A.No.299 of 2019 01.09.2020 9/9 http://www.judis.nic.in Commissioner of Income-tax, Chennai v. PVP Ventures Ltd
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