Siara Engineering Pvt. Ltd., Pune V. Additional Commissioner of Income-tax,

ITA 1102/PUN/2016

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4332 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 2 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 19-07-2018
• Assessment Year: 2010-2011
• Appeal Filed On: 25-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MUKESH JHA
• Keywords: Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

, IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE . , , BEFORE SHRI D.KARUNAKARA RAO, AM AND SHRI VIKAS AWASTHY, JM . / ITA NOS.1101 & 1102/PUN/2016 / ASSESSMENT YEARS : 2009-10 & 2010-11 SIARA ENGINEERING PVT. LTD., 156/1, MAHALUNGE, CHAKAN TALEGAON ROAD, TAL. KHED, PUNE PAN : AAECS6669Q . /APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE-10, PUNE- 411 044 . / RESPONDENT ASSESSEE BY : SHRI SHARAD SHAH REVENUE BY : SHRI MUKESH JHA / DATE OF HEARING : 19.07.2018 / DATE OF PRONOUNCEMENT: 01.08.2018 / ORDER PER D. KARUNAKARA RAO, AM : THERE ARE TWO APPEALS FILED BY THE ASSESSEE UNDER CONSID ERATION INVOLVING ASSESSMENT YEARS 2009-10 AND 2010-11. THEY A RE FILED AGAINST THE SEPARATE ORDERS OF CIT(A)-6, PUNE, DATED 15-02-2016 . ASSESSEE RAISED SIMILAR GROUND IN BOTH THESE APPEALS. WE SHALL TAKE UP THE APPEAL ITA NO.1101/PUN/2016 FOR THE A.Y. 2009-10 AS STANDARD ONE FOR THE SAKE OF FACTS AND ISSUES. 2. GROUNDS RAISED BY THE ASSESSEE ARE EXTRACTED HERE AS UNDER : 1. THE LD. AO HAS ERRED IN DISALLOWING CIT(A) ERRE D IN CONFIRMING) AN ADDITIONAL AMOUNT OF RS.7,15,500/- U/S.14A R.W. RUL E 8D. 2. WITHOUT PREJUDICE TO ABOVE, THE LD. AO HAS ERRED IN NOT INCREASING (CIT(A) ERRED IN CONFIRMING) DEDUCTION U/S.80IB WHE N HE INCREASED THE AMOUNT OF INCOME DERIVED FROM MANUFACTURING ACTIVITIES. ITA NO.1101 & 1102/PUN/2016 SIARA ENGINEERING PVT. LTD., 2 3. THE APPELLANT CRAVES ITS RIGHT TO ADD TO OR ALTE R THE GROUNDS OF APPEAL AT ANY TIME BEFORE OR DURING THE COURSE OF HEARING OF THE CASE. 3. BRIEFLY STATED RELEVANT FACTS INCLUDE THAT THE ASSESSE E IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF AUTO COMPONENTS AND FILED TH E RETURN DECLARING TOTAL INCOME OF RS.2,51,25,440/-. IN THE SCRUTINY A SSESSMENT, AO MADE SOLITARY ADDITION ON ACCOUNT OF DISALLOWANCE U/S.14A R. W. RULE 8D OF THE I.T. RULES, 1962 AMOUNTING TO RS.8,56,372/- AND DENIED THE BENEFIT OF DEDUCTION U/S.80IB OF THE ACT ON THE ENHANCED INCOME. D URING THE ASSESSMENT PROCEEDINGS, THE ABOVE REFERRED ISSUES CAME UP FOR ADJUDICATION BEFORE THE ASSESSING AUTHORITY. ASSESSEE SUBMITTED THAT AN EXEMPT INCOME OF RS.16.25 LAKHS (ROUNDED OFF) WAS EARNED IN THIS YEAR AND IS INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. FURTHER, ASSESSEE SUB MITTED A SUM OF RS.1,40,878/- WAS DISALLOWED SUO MOTO BY THE ASSESSEE AS AN EXPENDITURE RELATABLE TO THE EXEMPT INCOME. FOR ARRIVING AT THE FIGURE , THE AO SEGREGATED CERTAIN ACCOUNTS WHICH ARE LIKELY TO HAVE COMMON EXPEND ITURE RELATING TO THE EXEMPT INCOME AS WELL AS TAXABLE INCOME AND APPLIED FLAT RATE OF 15% ON ADHOC BASIS AND QUANTIFIED THE RELATABLE EXPENDITURE OF RS .1,40,878/-. ASSESSEE IS ENTITLED TO DEDUCTION U/S.80IB(10) OF THE ACT W HICH IS AN UNDISPUTED FACT. IGNORING THE ABOVE CALCULATIONS, THE AO Q UANTIFIED THE DISALLOWANCE AND DID NOT GRANT DEDUCTION U/S.80IB(10) IN RE SPECT OF THE SAID ADDITION. AS PER THE AO, THE SUM OF RS.8,56,378/- INCLUDES THE DISALLOWABLE AMOUNT UNDER CLAUSE (II) OF RULE 8D(2) AMOUNTING TO RS.24,162/ -. THE BALANCE OF RS.8,32,216/- IS RELATABLE TO THE DISALLOWANCE UNDE R CLAUSE (II) OF RULE 8D OF THE I.T. RULES, 1962. CIT(A) CONFIRMED THE SAID MANNER OF MAKING THE ASSESSMENT AND THEREFORE, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL WITH THE GROUNDS MENTIONED ABOVE. 4. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE SUBMITTE D THAT THE DISALLOWANCE MADE BY THE AO DOES NOT HAVE TAX IMPLICATIONS IN VIEW OF THE ALLOWABILITY OF DEDUCTION U/S.80IB(10) OF THE ACT IN RESPECT O F THE TOTAL ITA NO.1101 & 1102/PUN/2016 SIARA ENGINEERING PVT. LTD., 3 INCOME QUANTIFIED BY THE AO. FURTHER, HE ALSO SUBMITTED UN DER CLAUSE (II) OF THE SAID RULES, ASSESSEE QUANTIFIED THE DISALLOWABLE AMOUNT O F RS.39,704/- (PAGE 23 OF THE PAPER BOOK) AGAINST THE AOS DECISION OF RESTRICTING THE DISALLOWANCE TO RS.24,162/-. FURTHER, ANALYZING THE WAY TH E AMOUNTS WERE IDENTIFIED AND SEGREGATED BY THE AO FOR MAKING THE ADHOC DISALLOWANCE @15%, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT OTHER ACCOUNTS DEBITED IN THE PROFIT AND LOSS ACCOUNT (PAGE 27 R.W. PAGE 35 OF TH E PAPER BOOK) ARE COMPLETELY UNRELATED TO EXEMPT INCOME AND THEREFORE, THE ANALYSIS MADE BY THE ASSESSEE IS FLAWLESS. IN SUPPORT OF HIS CLAIM, HE RELIED ON THE FOLLOWING DECISIONS AND GAVE THE RELEVANT PROPOSITIONS IN THE PAPE R BOOK FILED BEFORE US: DECISIONS RELIED ON IN RESPECT OF GROUND NO.1 : 1. CIT VS. CONSOLIDATED PHOTO & FINVEST LTD. (2012) 211 TAXMAN 184 (DEL.) 2. MODERN INFO TECHNONOLOGY PVT. LTD. ITA NO.4294 /DEL/2012 3. INTERGLOBE ENTERPRISES LTD. VS. DCIT 40 CCH 00 22 (DELHI TRIBUNAL) 4. ACIT VS. BHARAT HOTELS LTD. 42 CCH 0074 (DELHI TRIBUNAL) 5. ORIENTAL STRUCTURAL ENGINEERS PVT. LTD. ITA NO .605/DEL/2012 6. JM FINANCIAL LIMITED VS. ACIT ITA NO.4521/MUM/ 2012 7. GARWARE WALL ROPES LTD. VS. ACIT ITA NOS.5408/ MUM/2012 DECISIONS RELIED ON IN RESPECT OF GROUND NO.2 : 1. GODREJ & BOYCE MFG. CO. LTD. VS. DCIT 328 ITR 81 (B OM.) 2. MAXOPP INVESTMENT LTD. VS. CIT (2012) 347 ITR 272 ( DEL.) 3. DEVELOPMENT CREDIT BANK LTD. VS. DCIT (2013) 23 ITR 209 (MUM. TRIB.) HE ALSO RELIED ON THE FOLLOWING DECISIONS : 1. ACIT VS. M/S. UDIT PACKAGING PVT. LTD. ITA NO. 1272/PN/2011, DATED 25-02-2013 2. DCIT VS. M/S. SAIBABA SPAREPARTS & ENGINEERS PVT . LTD. ITA NO.1332/MUM/2009, DATED 04-06-2010 3. DCIT VS. M/S. KRYFS POWER COMPONENTS LTD. ITA NO.9106/MUM/2010 AND CO NO.88/M/2012, DATED 04-11-2015 4. ITO VS. KALBHOR GAWADE BUILDERS ITA NO.386/PN/ 2011, DATED 30-10- 2012. 5. FURTHER, RESPONDING TO THE DRS ARGUMENT ABOUT THE REQUIREMENT OF MANDATORILY FOLLOWING THE RULE 8D(2) OF THE I.T. RULES, 1962 A ND ALSO FOR ENHANCING THE PERCENTAGE OF ADHOC DISALLOWANCE @15% TO 2 0%, LD. COUNSEL MENTIONED THAT IT DOES NOT HAVE ANY TAX IMPLICATIONS AS T HE ASSESSEE IS ENTITLED TO DEDUCTION U/S.80IB(10) OF THE ACT. HE ALSO SUBM ITTED THAT THERE ITA NO.1101 & 1102/PUN/2016 SIARA ENGINEERING PVT. LTD., 4 ARE CATENA OF DECISIONS TO SUPPORT THIS LINE OF ARGUMENT THAT THE ASSESSEE IS ENTITLED TO DEDUCTION U/S.80IB(10) OF THE ACT IN RESPECT OF THE INCREASED AMOUNT IN THE ASSESSMENT. 6. ON HEARING BOTH THE SIDES AND PERUSING THE ORDERS O F THE REVENUE, WE ARE OF THE OPINION THAT ENHANCEMENT MADE BY THE AO IN V IEW OF THE PROVISIONS OF SECTION 14A R.W. RULE 8D(2) OF THE I.T. RULES, 19 62 CONSTITUTES AN INFRUCTUOUS EXERCISE IN VIEW OF THE ALLOWABILITY OF DEDUCT ION U/S.80IB(10) OF THE ACT. THEREFORE, WE ARE OF THE OPINION THAT THE DIS ALLOWANCE MADE BY THE AO APPLYING THE SAID PROVISIONS IS NOT APPROPRIATE AN D MEANINGFUL. AS SUCH, ASSESSEE FOLLOWED THE SYSTEMATIC WAY OF ANALYZING T HE VARIOUS ACCOUNTS OF THE PROFIT AND LOSS ACCOUNT WHICH HAS THE IMP ACT OF DISALLOWANCE AND DISALLOWED A PORTION OF THE SAME APPLYING THE ADHOC P RINCIPLE @15%. IN OUR VIEW, THE APPROACH OF THE ASSESSEE IS FAIR AND REASON ABLE ON GIVEN FACTS OF THE PRESENT CASE, I.E. CLAIM OF DEDUCTION U/S.80IB(10) OF THE ACT. THEREFORE, THE DISALLOWANCE MADE BY THE AO U/S.14A R.W. RU LE 8D OF THE I.T. RULES, 1962 IS UNCALLED FOR AND UNSUSTAINABLE. ACCORDINGLY, T HE GROUND NOS. 1 AND 2 RAISED BY THE ASSESSEE ARE ALLOWED. 7. BEFORE PARTING, WE MAY OBSERVED ON THE COMMON POINT RAISED BY THE COUNSELS ABOUT THE ESTIMATED DISALLOWANCE OF EXPENDITURE O N THE DOUBLE ADDITION TO THE EXTENT OF THE AMOUNT SUO MOTO DISALLOWED BY THE ASSESSEE IN THE BOOKS OF ACCOUNT. IT IS THE CLAIM OF THE ASSESSEE TH AT THE ASSESSEE SUO MOTO DISALLOWED AN AMOUNT OF RS.1,22,541/- WHICH INCLUDES RS .2,723/- UNDER CLAUSE (II) OF RULE 8D. HOWEVER, BRINGING OUR ATTENTION TO THE ASSESSMENT ORDER, LD. COUNSEL SUBMITTED THAT THE AO MAD E ADDITION OF RS.9,08,448/- WHICH IS IN ACCORDANCE WITH THE CALCULATIONS AS PER RULE 8D OF THE I.T. RULES, 1962. IT IS THE CLAIM OF THE REVENUE THAT THE ESTIMATED DISALLOWANCE AT RS.1,22,541/- WAS NOT QUANTIFIED AND DISALLOW ED SUO MOTO IN THE BOOKS OF ACCOUNT WHILE FILING THE RETURN OF INCOME. T HEREFORE, WITHOUT GIVING CREDIT TO THE SAID AMOUNT, AO PROCEEDED TO MAKE A DDITION OF ITA NO.1101 & 1102/PUN/2016 SIARA ENGINEERING PVT. LTD., 5 RS.9,09,448/-. ASSESSEE DESIRES RELIEF IN THIS REGARD TO THE EXTENT OF RS.1,22,541/- BEFORE US. 8. ON HEARING BOTH THE PARTIES ON THIS LIMITED ISSUE, WE AR E OF THE OPINION THAT IT IS A MATTER OF FACT IF THE SAID ESTIMATED DISALLOWANCE OF RS.1,22,541/- WAS CONSIDERED WHILE FILING THE RETURN OF INCOME OR NOT. W E DIRECT THE AO TO EXAMINE THIS ISSUE RAISED BY THE ASSESSEE BEFORE US AND ALLOW THE RELIEF TO THE EXTENT OF RS.1,22,541/- FROM THE SAID ADDITION OF RS.9,09,4 48/- IN CASE THE SAID AMOUNT IS CONSIDERED WHILE FILING THE RETURN OF INC OME DECLARING INCOME OF RS.1,07,71,350/-. WITH THESE DIRECTIONS, AO SHALL GRA NT REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE O N THIS LIMITED ISSUE. ACCORDINGLY, RELEVANT GROUND RAISED BY THE ASSESSEE IS ALLOWED PRO T ANTO. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. ITA NO.1102/PUN/2016 A.Y. 2010-11 10. THE ISSUES RAISED IN THIS APPEAL ARE IDENTICAL BUT FOR TH E FIGURES AND THE CALCULATIONS OF DISALLOWANCE. THEREFORE, IN PRINCIPLE, THE GR OUNDS RAISED BY THE ASSESSEE ARE ALLOWED IN VIEW OF THE DETAILED DISCUS SION GIVEN BY US ON SIMILAR ISSUES RAISED IN THE APPEAL OF THE ASSESSEE FOR A.Y. 2 009-10. ACCORDINGLY, THE GROUNDS RAISED BY THE ASSESSEE ARE ALLO WED IN FAVOUR OF THE ASSESSEE. 11. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED. 12. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED ON 01 ST DAY OF AUGUST, 2018. SD/- SD/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) /JUDICIAL MEMBER / ACCOUNTANT MEMBER PUNE; DATED : 01 ST AUGUST, 2018 ITA NO.1101 & 1102/PUN/2016 SIARA ENGINEERING PVT. LTD., 6 / COPY OF THE ORDER FORWARDED TO : / BY ORDER, //TRUE COPY// SENIOR PRI VATE SECRETARY , / ITAT, PUNE 1. / THE APPELLANT 2. / THE RESPONDENT 3. THE CIT(A)-1, NASHIK 4. THE PR.CIT-1, NASHIK 5. , , B BENCH PUNE; 6. / GUARD FILE.