M/S RAPTAKOS BRETT AND CO. LTD, MUMBAI V. DY CIT 5 (3)(1), MUMBAI

ITA 260/MUM/2020

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 0572 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-01-2022
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 08-01-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 142(1); 14A; 115JB; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “D” BENCH, MUMBAI BEFORE SHRI RAJESH KUMAR, AM AND SHRI AMARJIT SINGH, JM आयकर अपील सं/ I.T.A. No.260/Mum/2020 (निर्धारण वर्ा / Assessment Year: 2013-14) M/s. Raptakos Brett and Co. Ltd. 21A, Mittal Tower, Nariman Point, Mumbai-400021. बिधम/ Vs. DCIT, Range-5(3)(1) Aaykar Bhavan, Mumbai- 400020. स्थायी लेखा सं./जीआइआर सं./PAN/GIR No. : AAACR1772R (अपीलाथी /Appellant) .. (प्रत्यथी / Respondent) सुनवाई की तारीख / Date of Hearing: 18/11/2021 घोषणा की तारीख /Date of Pronouncement: 05/01/2022 आदेश / O R D E R PER AMARJIT SINGH, JM: The assessee has filed the present appeal against the order dated 11.11.2019 passed by the Commissioner of Income Tax (Appeals)-10, Mumbai (hereinafter referred to as the “CIT(A)”) relevant to the A.Y.2013- 14. 2. The assessee has raised the following grounds: - “GROUND NO. I: DISALLOWANCE UNDER SECTION 14A OF THE ACT R.W.R. 8D(2)(III) OF THE INCOME TAX RULES. 1962 ('The rules’) I. On the facts and circumstances of the case and in law, the CIT(A) erred in upholding the action of the Assessing Officer ("AO") to Assessee by: Shri Ronak Doshi Revenue by: Shri Raghuveer Madana ITA No. 260/Mum/2020 A.Y.2013-14 2 disallow expenses incurred towards earning exempt income under section 14A of the Act r.w.r. 8D(2)(iii) the Rules. 2. The Appellant prays that disallowance made under section 14A of the Act r.w.r. 8D(2)(iii) of the Rules be deleted and the disallowance u/s. 14A should be restricted to Rs. 26,62,427/- towards expenses incurred for the purpose of earning exempt income as worked out by the Appellant. Alternatively, disallowance u/s 14A be appropriately reduced. 3. Without Prejudice to I & 2 above, if Rule 8D(2)(iii) were to apply, "average investments" for the purpose of calculation under should include only those investments from which exempt income has been carried during the year. GROUND NO. II: DISALLOWANCE OF EDUCATION CESS: On the facts and the circumstances of the ease and in law, the AO erred in treating Education Cess and Secondary and Higher Education Cess (collectively called as "Education Cess") as disallowable expenditure under Section 40(a)(ii) of the Act. 2. The Appellant prays that the AO be directed to allow deduction of Education Cess while computing the total income of the Appellant.” 3. The brief facts of the case are that the assessee filed its return of income on 28.11.2013 declaring total income to the tune of Rs.144,02,96,460/-. The case of the assessee was reopened. Necessary notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee company established in India in 1930 and is engaged in the business of Manufacturing and sale/trading of pharmaceutical ITA No. 260/Mum/2020 A.Y.2013-14 3 formulations, dietetic specialties and animal husbandry. It manufactures Bulk Drugs inclusive of Biological extract, Oxy-haemoglobin, Aluminium Hydroxide Gel & Fince chemcials and the manufacture of Pharmaceutical formulation inclusive of Injections, Liquids, Solids, Tablets, Capsules, Cream/Ointment, Controlled Released Pallets & Capsules and the food products. The assessee company earned the exempt income in sum of Rs.9,54,42,509/- which was claimed as exempt u/s 10(34). The assessee company worked out the expenses to earn the exempt income in sum of Rs.26,62,427/-. In support of the claim, the assessee company furnished the report of M/s. N. M. Nissim & Co. dated 26.11.2013. The AO assessed the expenditure to earn the exempt income to the tune of Rs.2,49,25,738/- in view of the Rule 8D(2)(ii) and 8D(2)(iii) of the Rule. The total income of the assessee was assessed to the tune of Rs.43,35,67,728 and Rs.144,34,76,666/- u/s 115JB of the Act. The assessee was not satisfied and filed an appeal before the CIT(A) and the CIT(A) partly allowed the claim of the assessee but the assessee was not satisfied on the grounds mentioned above, therefore, assessee has filed the present appeal before us. ISSUE Nos. 1 & 2 4. Under these issues and the assessee has challenged the addition raised in view of the provisions u/s 14A r.w. Rule 8D(ii)(iii) of the Rules. The assessee has worked out the expenditure to earn the exempt income of Rs.26,62,427/- and requested to restrict the same to that extent. At the very outset, the Ld. Representative of the assessee has argued that the own fund of the assessee is more than the investment, therefore, there should be no disallowance in view of the provisions u/s 14A r.w. Rule 8D. The Ld. ITA No. 260/Mum/2020 A.Y.2013-14 4 Representative of the assessee has also argued that the issue has squarely been covered by the decision of the Hon’ble ITAT in the assessee’s own case for the A.Y.2010-11 & 2011-12, therefore, in the said circumstances, there should be no disallowance in the interest of justice. Before going further, we deem it necessary to advert the finding of the Hon’ble ITAT in the assessee’s own case 7490/Mum/2013 dated 10.11.2016 for the A.Y.2010-11 which is hereby reproduced as under: - “6. We have heard rival contentions and gone through the fact and circumstances of the case. From the above it is clear that no disallowance u/s Rule 8D can be made for the reason that the above facts clearly demonstrated that the assessee is having non-interest bearing funds available in the shape of share capital and reserves and surpluses with him amounting to Rs. 285.27 crore which is more than the amount of investment made in interest earning instruments amounting to Rs. 18.19 crores and once availability of amount from interest free fund of the assessee is more than the investment, then a presumption arises that assessee might have invest out of interest free fund available with him. This view of ours is supported by the decisions of Hon’ble Bombay High Court in the case of HDFC Bank Ltd. (supra). As regards to direct expenditure under Rule 8D (1), there is no dispute. As regards to working of disallowance under Rule 8D (3), the assessee has computed the disallowance and the Assessing Officer could not point out any discrepancy or unreasonableness or could not find any fault in the same. Accordingly, in view of the given facts and circumstances, we delete the addition and allow the appeal of the assessee retaining the same to the extent of the assessee suo- ITA No. 260/Mum/2020 A.Y.2013-14 5 moto disallowance of sum of Rs.11,78,104/-. We direct the AO accordingly.” 5. In the instant case, the assessee raised the investment to the tune of Rs.3,68,02,95,216/- and the assessee own fund on account of share capital was of Rs.12.500,000 and reserve and surplus was of Rs.53,83,148,000/- and the total available funds were to the tune of Rs.55,95,648,000/-. No doubt, the assessee own fund is more than investment. The case of the assessee is squarely covered by the decision of Hon’ble ITAT in the assessees’ own case(supra), therefore, taking into account of all the facts and circumstances, we restrict the addition to the extent of Rs.26,62,428/- and delete the remaining addition. Accordingly, this issue is decided in favour of the assessee against the revenue. ISSUE NO.3 6. Under this issue the assessee has challenged the disallowance of education cess. At the very outset, the Ld. Representative of the assessee has argued that the issue is squarely covered in favour of the assessee by the decision of the Hon’ble Bombay High Court in the case of Sesa Goa Ltd. Vs. ACIT (ITA. No.2754/Mum/2014). However, on the other hand, the Ld. Representative of the Department has refuted the said contention. The issue is squarely covered by the decision of the Hon’ble Bombay High Court in the case of Sesa Goa Ltd (supra), therefore, we restore the issue before the CIT(A) to decide the matter of controversy afresh in view of the decision mentioned above. Needless to say that an opportunity of being heard is liable to be given to the assessee in accordance with law. ITA No. 260/Mum/2020 A.Y.2013-14 6 Accordingly, this issue is decided in favour of the assessee against the revenue. ISSUE NO.4 7. Since the issue no. 1 & 2 has been decided in favour of the assessee, therefore, there is no need to decide this issue being academic in nature. 6. In the result, the appeal filed by the assessee is hereby allowed for statistical purposes. Order pronounced in the open court on 05/01/2022 Sd/- Sd/- (RAJESH KUMAR) (AMARJIT SINGH) लेखध सदस्य / ACCOUNTANT MEMBER न्यधनिक सदस्य/JUDICIAL MEMBER मुंबई Mumbai; दिनांक Dated : 05/01/2022 Vijay Pal Singh (Sr. PS) आदेश की प्रनिनलनि अग्रेनर्ि/Copy of the Order forwarded to : 1. अपीलाथी / The Appellant 2. प्रत्यथी / The Respondent. 3. आयकर आयुक्त(अपील) / The CIT(A)- 4. आयकर आयुक्त / CIT 5. दवभागीय प्रदतदनदि, आयकर अपीलीय अदिकरण, मुंबई / DR, ITAT, Mumbai 6. गार्ड फाईल / Guard file. आदेशधिुसधर/ BY ORDER, सत्यादपत प्रदत //True Copy// उि/सहधिक िंजीकधर /(Dy./Asstt. Registrar) आिकर अिीलीि अनर्करण, मुंबई / ITAT, Mumbai