Income Tax Appellate Tribunal - Hyderabad
Yashoda Health Care Services P Ltd ... vs Dcit, Circle-3(3), Hyd, Hyderabad on 6 January, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL
HYDERABAD BENCH "B", HYDERABAD
BEFORE SMT P. MADHAVI DEVI, JUDICIAL MEMBER
AND SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER
ITA Nos. 1202 & 1203/Hyd/2016
Assessment Years: 2009-10 and 2012-13
Yashoda Health Care Services vs. Dy. Commissioner of Income-
P. Ltd., (Formerly known as tax, Circle - 3(3), Hyderabad.
Datta Chandra Hospitals P.
Ltd., ), Hyderabad.
PAN - AABCD6598G
(Appellant) (Respondent)
Assessee by : Shri K.C. Devdas
Revenue by : Shri K.J. Rao
Date of hearing : 29-12-2016
Date of pronouncement : 06-01-2017
O RDE R
PER S. RIFAUR RAHMAN, A.M.:
Both these appeals filed by the assessee are directed against separate orders of CIT(A)- 5, Hyderabad, both, dated 30/06/2016 for AYs 2009-10 and 2012-13 wherein the assessee has raised the following grounds of appeal, which are common in both the appeals, except the quantum of disallowance:
"1. The order of the Hon'ble CIT(A) is erroneous in law as well on facts.
2. The Hon'ble CIT(A) ought to have observed that the assessing officer ought not to have disallowed any amount by invoking the provisions of section 14A of the IT Act.
3. The Hon'ble CIT(A) ought to have observed that the assessing officer erred in working out the amount at Rs. 4,06,620/- in AY 2009-10 and at Rs. 33,12,740/- in AY 2012-13 by invoking rule 8D of the IT Rules and the same are liable to be deleted.2
ITA Nos. 1202 & 1203/H/2016 Yashoda Health Care Services P. Ltd.
4. The Hon'ble CIT(A) ought to have observed that the procedure adopted by the assessing officer is inconsistent with the procedure laid down under rule 8D of the IT Rules and hence the same ought to have been deleted."
2. The facts as taken from AY 2009-10 are that the assessee company is running two multi specialty hospitals. For the asst, year 2009-10 the assessee filed return of income declaring total income of Rs.52,28,49,107/ -, Subsequently, the assessee filed revised return of income on 01.10.2009 declaring total income of Rs.52,21,31,535/-. After scrutiny the assessing officer finalized the assessment computing the total income at Rs.52,25,38,160/-. While computing, the assessing officer disallowed u/s.14A an amount of Rs 4,06,620/- and observed that the assessee received dividend on units of mutual funds of Rs. 4,14,740/- and claimed the same as exempt income. The AO observed that no expenditure relating to this income was claimed or any disallowance was made by the assessee. The AO further observed that the efforts made by the staff and management and also the borrowings for business, contribute to this exempt income. Overruling the contention of the assessee that the investments were made from the surplus funds, the AO observed that disallowance under rule 8D was called for in respect of the expenditure on exempt income. Such disallowance u/s 14A as per rule 8D(iii) i.e. 0.5% of the average value of investments worked out to Rs. 4,06,620/- by the AO.
3. Before the CIT(A), the assessee filed explanation highlighting the fact that there was no nexus between investment in funds yielding exempted income with any expenditure. It also submitted that the reserves and surpluses and regular income of the business were much more than the investments in such funds. Further it was submitted that the Assessing Officer, while accepting the explanation of the appellant with regard to first two components of computation under the Rule, invoked rule 8D(2)(iii) and disallowed half percentage of the average value of investment in such funds as appearing in the balance sheet as prescribed. The assessee relied on various case 3 ITA Nos. 1202 & 1203/H/2016 Yashoda Health Care Services P. Ltd.
laws in support of its claim, which were extracted by the CIT(A) in his order at pages 4 to 6.
4. After considering the submissions of the assessee, the CIT(A) examined the issue referring to the provisions of section 14A and Rule 8D as well as the decision in the case of Maxopp Investment Ltd., [2011] 247 CTR 162 and confirmed the action of the AO in disallowance u/s 14A by holding that the AO had restricted the disallowance only 0.5% of the average value of investments as per rule 8D(iii).
5. Aggrieved, the assessee is in appeal before us.
6. Considered the rival submissions and perused the material facts on record. We find that similar issue came up for consideration before the coordinate bench of this Tribunal in the case of Transport Corporation of India Ltd. in ITA No. 117/Hyd/2016 vide order dated 21 st September, 2016 wherein the coordinate bench has held as under:
"11.1 While carefully reading the rule 8D(2)(ii), the formula given are:
A X B/C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year:
B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year;
C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year;
In particular, the notes for 'B' clearly states that the average value of investment, income from which does not or shall not form part of the total income. It is clear that we have to include 4 ITA Nos. 1202 & 1203/H/2016 Yashoda Health Care Services P. Ltd.
those investments which has generated income and exclude those investments, which have not generated income. In the present case, AO had taken the total investment instead of those investments, which have generated income. Accordingly, we direct the AO to calculate the disallowance of interest as below ( as per rule 8D):
Interest X Investment( which generated income) Average total assets The main reason is that as per section 14A, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income, which is exempt from tax. The relevance is the expenditure in relation to income. The quantification has to be undertaken in relation to the exempt income. The investment which has not generated exempt income should be excluded from the calculation of ratio to determine the disallowance.
11.2 Similarly, for the administrative expenses, 0.5% of average investments from which the exempt income is received should be considered instead of average of the total investments.
11.3 considering the above discussion, we direct the AO to recalculate the disallowance as per rule 8D as per the above guidance. Accordingly, ground raised by assessee is allowed."
As the issue under consideration is materially identical to that of the said case, following the conclusions drawn therein we direct the AO to recalculate the disallowance as per rule 8D as per the guidelines given as above in the case of Transport Corporation of India and calculate the disallowance of expenditure under rule 8D(2)(iii) taking the average investment from which the exempt income is received.
7. In the result, both the appeals under consideration are allowed.
Pronounced in the open court on 6 th January, 2017.
Sd/- Sd/-
(P. MADHAVI DEVI) (S. RIFAUR RAHMAN)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Hyderabad, Dated: 6 th January 2017
kv
5
ITA Nos. 1202 & 1203/H/2016
Yashoda Health Care Services P. Ltd.
Copy to:-
1) Yashoda Health Care Services P. Ltd., C/o B. Narsing Rao & Co., CAs., Plot No. 554, Road No. 92, Jubilee Hills, Hyd - 96.
2) DCIT, Circle - 3(3), Hyderabad.
3) CIT(A) - 5, Hyderabad 4 Pr. CIT - 5, Hyderabad
5) The Departmental Representative, I.T.A.T., Hyderabad.
6) Guard File
D es c ri p t i o n Date Intls
S . N o.
ds 1. D r af t di c t at ed on S r. P . S . / P . S
2. D r af t pl ac e d be f or e a ut h or S r. P . S / P S
D r af t p ro p os ed & pl ac e d b ef o re t h e s e c on d J M/ A M
Mem b er
3
4 D r af t di s c us s e d/ a pp r ov e d b y s e c o n d Mem b er J M/ A M
5 A p pr ov e d D r af t c om es t o t he S r . P . S . / P S S r. P . S . / P . S
6. K e pt f or p r o no u nc em e nt on S r. P . S . / P . S .
7. Fi l e s en t t o t h e B e nc h C l erk S r. P . S . / P . S
8 D a t e o n w hi c h f i l e g o es t o t h e H e ad C l e rk
9 D a t e o f D i s p at c h o f o rd e r