M/s. KPIT Technologies Ltd, Pune V. Deputy Commissioner of Income-tax, Circle - 14, Pune

ITA 1272/PUN/2018

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 7583 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 2 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-10-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 09-09-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 01-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: THIS CONSOLIDATED
• Assessee Lawyers: RELATE TO ASSESSMENT YEARS
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH C, PUNE BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER . / ITA NOS. 1271 & 1272/PUN/2018 / ASSESSMENT YEARS: 2013-14 & 2014-15 M/S. KPIT TECHNOLOGIES LIMITED, RAJIV GANDHI INFO TECH PARK, PHASE-I, MIDC, HINJEWADI, PUNE 411 057 PAN : AAACK7308N VS. DCIT, CIRCLE-14, PUNE (APPELLANT) (RESPONDENT) / ORDER PER BENCH : THESE TWO APPEALS BY THE ASSESSEE RELATE TO THE ASSESSME NT YEARS 2013-14 & 2014-15. SINCE COMMON ISSUES ARE RAISE D IN THESE APPEALS, WE ARE, THEREFORE, PROCEEDINGS TO DISPOSE THEM OFF BY THIS CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. A.Y. 2013-14 : 2. THE FIRST GROUND RAISED IN THIS APPEAL IS AGAINST THE CONFIRMATION OF ADDITION OF RS.49,95,140/- MADE BY THE AS SESSING APPELLANT BY SHRI KISHOR PHADKE RESPONDENT BY SHRI JEEVAN BACHHAV, DCIT DATE OF HEARING 17-10-2019 DATE OF PRONOUNCEMENT 18-10-2019 ITA NOS.1271 & 1272/PUN/2018 M/S. KPIT TECHNOLOGIES LIMITED 2 OFFICER (AO) UNDER SECTION 14A OF THE INCOME-TAX ACT, 1 961 READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962. 3. SUCCINCTLY, THE FACTS OF THE CASE ARE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURE AND DEVELOPMENT OF SOFTWARE. EXEMPT INCOME OF ODD RS.5.42 CRORE WAS DEC LARED ON ACCOUNT OF DIVIDEND. THE ASSESSEE, IN ITS COMPUTATION OF TO TAL INCOME, ATTRIBUTED EXPENDITURE OF RS.10.00 LAKH TO THE EXEMPT INCOME AND OFFERED DISALLOWANCE. THE AO, NOT SATISFIED, CO MPUTED THE DISALLOWANCE U/S 14A OF THE ACT IN TWO PARTS VIZ., UNDER R ULE 8D(2)(II) AT RS.85,45,330/- AND UNDER RULE 8D(2)(III) AT RS.59,95,150.-. AFTER REDUCING THE SUO MOTO DISALLOWANCE OFFERED BY THE ASSESSEE, THE AO MADE AN ADDITION OF RS.1,35,40, 471/-. THE LD. CIT(A) DELETED THE DISALLOWANCE UNDER RULE 8D(2)(II) PERTA INING TO INTEREST COMPONENT. HOWEVER, THE REMAINING AMOUNT OF DISALLOWANCE UNDER RULE 8D(2)(III), BEING, 0.5% OF THE AVER AGE VALUE OF INVESTMENTS, WAS SUSTAINED. THE ASSESSEE IS AGG RIEVED BY THE CONFIRMATION OF THE PRO TANTO ADDITION. 4. HAVING HEARD BOTH THE SIDES AND GONE THROUGH THE RELEV ANT MATERIAL ON RECORD, IT IS OBSERVED THAT THE ASSESSEE ITSELF OFF ERED DISALLOWANCE U/S.14A AT RS.10.00 LAKH. THE AO HAS RECORD ED THAT: ITA NOS.1271 & 1272/PUN/2018 M/S. KPIT TECHNOLOGIES LIMITED 3 THE ASSESSEE WAS REQUESTED TO EXPLAIN AS TO WHY THE PROV ISIONS OF SECTION 14A OF THE I.T. ACT, 1961 SHOULD NOT BE INVOKED ALONG WITH WORKING OF AMOUNT OF DISALLOWANCE UNDER THE SAID SECTION R .W. RULE 8D OF I.T.RULES, 1962 . THEREAFTER, THE AO RECORDED THAT: THE CONTENTION OF THE ASSESSEE HAS BEEN CONSIDERED. THE SAME ARE HOWEVER NOT ACCEPTABLE. IT IS SEEN THAT THE ASSESSEE HAS B EEN MAKING INVESTMENTS. WHERE THE EXPENDITURE IS CLEARLY INCURRE D FOR EARNING OF EXEMPT INCOME, THE SAME IS COVERED BY THE PROV ISIONS OF RULE 8D(2).. HOWEVER, WHERE IT IS NOT POSSIBLE TO FIGURE O UT SUCH EXPENDITURE BUT AT THE SAME TIME SUCH EXPENDITURE IS BEING INC URRED, PROVISIONS OF RULE 8D . ARE APPLICABLE . THEREAFTER, HE STRAIGHTWAY PROCEEDED TO COMPUTE THE DISALLOWANCE UNDER RULE 8D(2). IT IS APTLY BORNE OUT FROM THE ABOVE EXTRACTED PORTIO NS OF THE ASSESSMENT ORDER THAT THE AO DID NOT RECORD ANY SATISFACTION AS TO HOW THE DISALLOWANCE OF RS.10.00 LAKH OFFERED BY THE ASSE SSEE WAS INCORRECT. HE SIMPLY NOTED THAT THE ASSESSEE OFFERED DISALLO WANCE AND THEN CAME TO THE CONCLUSION THAT FURTHER DISALLOWANCE WAS CALLED FOR UNDER RULE 8D. THE HONBLE SUPREME COURT IN MAXOPP INVESTMENTS LTD. VS. CIT (2018) 402 ITR 640 (SC) HAS HELD IN PARA 41 THAT: BEFORE APPLYING THE THEORY OF APPORTIONMENT, THE AO NEEDS TO RECORD SATISFACTION THAT HAVING REGARD TO THE KIND OF THE AS SESSEE, ITA NOS.1271 & 1272/PUN/2018 M/S. KPIT TECHNOLOGIES LIMITED 4 SUO MOTO DISALLOWANCE U/S.14A WAS NOT CORRECT. IT WILL BE IN TH OSE CASES WHERE THE ASSESSEE IN HIS RETURN HAS HIMSELF APPORTION ED BUT THE AO WAS NOT ACCEPTING THE SAID APPORTIONMENT. IN THAT EVENTUALITY, IT WILL HAVE TO RECORD ITS SATISFACTION TO THIS EFFECT . IN VIEW OF THE ABOVE PROPOSITION LAID DOWN BY THE HONBLE SUPRE ME COURT, IT IS EVIDENT THAT WHERE THE ASSESSEE HAS ITSELF OFFERED SOME DISALLOWANCE WITH WHICH THE AO IS NOT SATISFIED, IT BECOMES INCUMBENT UPON HIM TO RECORD SATISFACTION, BEFORE EMBARKING UPON THE DISALLOWANCE AS PER RULE 8D OF THE I.T. RULES, AS TO H OW THE APPORTIONMENT MADE BY THE ASSESSEE WAS NOT CORRECT. WE A RE CONFRONTED WITH A SITUATION IN WHICH THE ASSESSEE SUO MOTO OFFERED A DISALLOWANCE OF RS.10.00 LAKH. THE AO WITHOUT RECORDING AN Y SUCH SATISFACTION ABOUT THE INCORRECTNESS OF THE APPORTIONMENT MADE BY THE AO, SIMPLY PROCEEDED TO COMPUTE THE DISALLOWANCE UNDER RULE 8D(2). WHEN WE CONSIDER THE FACTUAL PANORAMA PREVAILING IN THE INSTANT CASE IN JUXTAPOSITION TO THE MANDATE OF SECTION 14A(2), IT BECOMES MANIFEST THAT THE AO FAILED TO RECORD THE MANDATORY SATISFACTION BEFORE PROCEEDING TO MAKE DISALLOWANCE U/S.14A OF THE ACT, WHICH HAS RESULTED IN VITIATING THE ADDITION. RESPECTFULLY FOLLOWING THE PRECEDENT, WE ORDER TO DELETE THE DISALLOWANCE SUSTAINED IN THE FIRST APPEAL. ITA NOS.1271 & 1272/PUN/2018 M/S. KPIT TECHNOLOGIES LIMITED 5 5. IT IS SEEN THAT THE AO EVENTUALLY COMPUTED THE INCOME OF THE ASSESSEE IN ACCORDANCE WITH SECTION 115JB OF THE ACT. NOTWITHSTANDING OUR DELETION OF DISALLOWANCE SUSTAINED IN THE FIRS T APPEAL, WE FIND THAT, EVEN OTHERWISE ALSO, NO ADDITION CAN B E MADE U/S 14A IN COMPUTATION OF BOOK PROFIT U/S 115JB OF THE ACT. THE HONBLE DELHI HIGH COURT IN PR. CIT VS. M/S. BHUSHAN STEEL LIMITED AND OTHERS (2015) 94 CCH 0335 DEL-HC HAS HELD THAT NO DISALLOWANCE CAN BE MADE U/S.14A IN COMPUTATION OF INCOME U/S.115JB OF THE ACT. SIMILAR VIEW HAS BEEN REITERATED BY THE SPECIAL BENCH OF THE TRIBUNAL IN ACIT VS. VIREET INVESTMENTS (P) LTD. (2017) 165 ITD 27 (DEL) (SB) . WE, THEREFORE, HOLD THAT NEITHER THE DISALLOWANCE CAN BE MADE U/S.14A NOR ANY ADDITION ON TH IS SCORE CAN BE MADE IN THE COMPUTATION OF INCOME U/S.115JB OF THE ACT. THESE GROUNDS ARE, THEREFORE, ALLOWED. 6. THE ONLY OTHER ISSUE WHICH SURVIVES IN THIS APPEAL IS AGAIN ST THE CONFIRMATION OF DISALLOWANCE OF WEIGHTED DEDUCTION OF RS.71,35,914/- U/S.35(2AB) OF THE ACT. 7. SIMPLY PUT, THE FACTS OF THE GROUND ARE THAT THE ASSESS EE CLAIMED WEIGHTED DEDUCTION U/S.35(2AB) OF THE ACT AMOUNTING TO RS.3,67,88,233/-. THE AO OBSERVED THAT THE DSIR (DEPART MENT OF ITA NOS.1271 & 1272/PUN/2018 M/S. KPIT TECHNOLOGIES LIMITED 6 SCIENTIFIC AND INDUSTRIAL RESEARCH), NEW DELHI, WHICH IS AN APPROVING AUTHORITY APPROVING WEIGHTED DEDUCTION, REDUCED S UCH CLAIM TO RS.3,32,20,276/-. THE AO, THEREFORE, DISALLOWE D THE DEDUCTION OF SUCH R&D EXPENSES OF RS.35,67,957/-. TH IS RESULTED INTO DISALLOWANCE OF WEIGHTED DEDUCTION AT RS.71,35,914/-, BE ING, 200% OF THE AMOUNT OF EXPENDITURE INCURRED. THE LD. CIT( A) SUSTAINED THE DISALLOWANCE. 8. HAVING HEARD BOTH THE SIDES AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD, IT IS NOTED THAT SECTION 35(2AB), AT THE MA TERIAL TIME, PROVIDED FOR WEIGHTED DEDUCTION ON THE BASIS OF REPO RT TO BE SUBMITTED IN FORM 3CL READ WITH RULE 6 OF THE INCOME-TAX RULE S. CLAUSE (B) OF RULE 6(7A), AT THE RELEVANT TIME PROVIDED THAT: THE PRESCRIBED AUTHORITY SHALL SUBMIT ITS REPORT IN RELATION TO THE APPROVAL OF IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY IN FORM 3CL TO THE DIRECTOR GENERAL (INCOME TAX EXEMPTIONS) WITHIN SIXTY DAYS OF ITS GRANTING APPROVAL . AN AMENDMENT WAS CARRIED OUT TO CLAUSE (B) OF RULE 6(7A) W.E.F. 01-07-2016 PROVIDING THAT THE PRESCRIBED AUTHORITY SHALL FURNISH ELECTRONICALLY ITS REPORT,- ( I) IN RELATION TO THE APPROVAL OF IN-HOUSE RESEARCH AND DEVELOPMEN T FACILITY IN PART A OF FORM NO. 3CL; (II) QUANTIFYING THE EXPEND ITURE ITA NOS.1271 & 1272/PUN/2018 M/S. KPIT TECHNOLOGIES LIMITED 7 INCURRED ON IN-HOUSE RESEARCH AND DEVELOPMENT FACILITY BY THE COMPANY DURING THE PREVIOUS YEAR AND ELIGIBLE FOR WEIGHTED DEDUCTION UNDER SUB-SECTION (2AB) OF SECTION 35 OF THE ACT IN PART B OF FORM NO. 3CL . SIMULTANEOUS WITH THE AMENDMENT IN RULE 6(7B), AN AMENDMENT WAS ALSO MADE TO FORM 3CL. WHEREAS THE EARLIER FORM, BEING, THE REPORT TO BE SUBMITTED BY THE PRESC RIBED AUTHORITY TO THE DIRECTOR GENERAL (IT EXEMPTIONS) U/S.35(2AB), TALKED OF RECOGNITION GRANTED BY DSIR TO THE IN-HOUSE RESEAR CH AND DEVELOPMENT CENTRE OF THE COMPANY, THE AMENDED FORM 3CL, PURSUANT TO AMENDMENT IN RULE 6(7A)(B), BIFURCATED THE REP ORT INTO TWO PARTS, NAMELY, PART-A CONTAINING ONE-TIME RECOGNITION BY THE DSIR AND PART-B CONTAINING YEAR-WISE DETAILS OF THE EXPENDITURE INCURRED AND APPROVAL. WHEN WE CONSIDER THE POSITION PREV AILING AS PER RULE 6(7A) AND FORM 3CL BEFORE AND AFTER THE AMENDM ENT W.E.F. 01-07-2016, IT BECOMES MANIFEST THAT IN THE PRE-AMEN DMENT PERIOD, THE REQUIREMENT WAS ONLY FOR REGISTRATION WITH DSIR AND NOT TO THE GRANT OF THE YEAR-TO-YEAR APPROVAL OF THE AMOUNT SPE NT ON RESEARCH AND DEVELOPMENT BY A COMPANY QUALIFYING FOR WEIG HTED DEDUCTION. SUCH AN AMENDMENT CAME INTO FORCE ONLY FROM 0 1-07- 2016, BY VIRTUE OF WHICH THE CLAIM OF THE ASSESSEE FOR WE IGHTED DEDUCTION BECAME SUBJECT MATTER OF EXAMINATION BY THE DSIR AN D ITA NOS.1271 & 1272/PUN/2018 M/S. KPIT TECHNOLOGIES LIMITED 8 RESULTANTLY THE AO, ON YEAR TO YEAR BASIS. SINCE IT IS THE POSITIO N PREVAILING IN THE PRE-AMENDMENT ERA WHICH GOVERNS THE YEARS UNDER CONSIDERATION, ONCE THE ASSESSEE HAS BEEN REGISTERED AND OTHER NECESSARY REQUIREMENTS HAVE BEEN SATISFIED, THE ENTIRE AMOU NT SPENT ON RESEARCH AND DEVELOPMENT QUALIFIES FOR WEIGHTED DEDUCTION U/S.35(2AB) IRRESPECTIVE OF THE FACT THAT SOME AMOUNT WAS NO T APPROVED BY THE DSIR. ACTUAL AMOUNT SPENT ON RESEARCH A ND DEVELOPMENT VIS--VIS THE APPROVAL BY THE DSIR ON YEAR-TO-YEAR BASIS, ENTITLING THE ASSESSEE TO THE WEIGHTED DEDUCTION, HAS BEC OME RELEVANT ONLY AFTER THE AMENDMENT CARRIED OUT FROM 01-07-20 16. SINCE IT IS NOT THE CASE OF THE AO THAT THE ASSESSEE DID NOT FU LFILL ALL OTHER RELEVANT CONDITIONS, WE HOLD THAT IT IS ENTITLED TO WEIGHTED DEDUCTION FOR THE FULL AMOUNT OF THE EXPENDITURE INCURRED ON RESEARCH AND DEVELOPMENT IRRESPECTIVE OF THE FACT THAT A P ART OF THE AMOUNT SO INCURRED WAS NOT APPROVED BY THE DSIR. A.Y. 2014-15 : 9. WE HAVE HEARD BOTH THE SIDES AND GONE THROUGH THE RELE VANT MATERIAL ON RECORD. IT IS A COMMON SUBMISSION BY BOTH THE S IDES THAT THE FACTS AND CIRCUMSTANCES OF THE INSTANT YEAR ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF THE IMMEDIATELY PRECEDING YEAR. IN ITA NOS.1271 & 1272/PUN/2018 M/S. KPIT TECHNOLOGIES LIMITED 9 FACT, BOTH THE SIDES ADOPTED THEIR ARGUMENTS ADVANCED FOR THE A.Y. 2013-14 AND NO SEPARATE ARGUMENTS WERE PUT FORTH FOR THE A.Y. 2014-15, EXCEPT FOR POINTING OUT THE AMOUNTS IN QUESTION. 10. THE FIRST GROUND IS AGAINST THE CONFIRMATION OF DISALLOWANC E OF RS.74,40,373/- U/S.14A OF THE ACT. FOR THIS YEAR, AGAIN THE AO RECORDED SATISFACTION IN THE SAME MANNER DESPITE THE ASSESS EES SUO MOTO DISALLOWANCE OF RS.20.00 LAKH AS IN HIS ORDER FOR THE IMMEDIATELY PRECEDING YEAR. FOLLOWING THE VIEW TAKEN HEREINABOVE, WE ORDER TO DELETE THE DISALLOWANCE MADE U/S.14 A OF THE ACT. 11. IN SO FAR AS THE ADDITION OF THE AMOUNT DISALLOWED U/S.14 A TO THE AMOUNT OF BOOK-PROFIT AS PER COMPUTATION U/S.115JB OF TH E ACT IS CONCERNED, WE HOLD THAT, PRIMARILY, THERE CANNOT BE AN Y ADDITION BECAUSE THE DISALLOWANCE ITSELF HAS BEEN DELETED AND SECONDLY , EVEN OTHERWISE THE DISALLOWANCE U/S.14A CANNOT BE MADE IN THE COMPUTATION OF INCOME U/S.115JB OF THE ACT. 12. THE THIRD GROUND IS AGAINST THE DISALLOWANCE OF WEIGHTED DEDUCTION U/S.35(2AB). HERE AGAIN THE FACTS AND CIRCUMSTAN CES ARE SIMILAR. FOLLOWING THE VIEW TAKEN HEREINABOVE FOR THE IMMEDIATE LY PRECEDING ASSESSMENT YEAR, WE ALLOW THIS GROUND. ITA NOS.1271 & 1272/PUN/2018 M/S. KPIT TECHNOLOGIES LIMITED 10 13. IN THE RESULT, BOTH THE APPEALS ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH OCTOBER, 2019. SD/- SD/- (S.S. VISWANETHRA RAVI) (R.S.SY AL) JUDICIAL MEMBER VICE P RESIDENT PUNE; DATED : 18 TH OCTOBER, 2019 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. THE CIT(A)-7, PUNE 4. 5. 6. THE PR. CIT-6, PUNE , , C / DR C, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE ITA NOS.1271 & 1272/PUN/2018 M/S. KPIT TECHNOLOGIES LIMITED 11 DATE 1. DRAFT DICTATED ON 17-10-2019 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 17-10-2019 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. JM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. KEPT FOR PRONOUNCEMENT ON SR.PS 7. DATE OF UPLOADING ORDER SR.PS 8. FILE SENT TO THE BENCH CLERK SR.PS 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK 10. DATE ON WHICH FILE GOES TO THE A.R. 11. DATE OF DISPATCH OF ORDER. *