M/s. Advik Hi-Tech Pvt.Ltd, Pune V. Deputy Commissioner of Income-tax, Circle - 8, Pune

ITA 3094/PUN/2017

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 3946 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 2 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-03-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 23-04-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 29-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: IS DIRECTED AGAINS T PASSED
• Keywords: Earning of tax free income; Question of law; Rule 8D; Set aside
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE VIRTUAL COURT BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S.VISWANETHRA RAVI, JUDICIAL MEMBER . / ITA NO.3094/PUN/2017 / ASSESSMENT YEAR 2013-14 M/S. ADVIK HI-TECH PVT. LTD., GAT NO.357/99, CHAKAN TALEGAON ROAD, VILL-KHARABWADI, TAL. KHED, CHAKAN, PUNE 410 501 PAN : AACCA3106E VS. DCIT, CIRCLE-8, PUNE APPELLANT RESPONDENT / ORDER PER R.S. SYAL, VP : THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PA SSED BY THE CIT(A)-6, PUNE ON 17-10-2017 IN RELATION TO THE ASS ESSMENT YEAR 2013-14. 2. THE ONLY ISSUE RAISED IN THE MEMORANDUM OF APPEAL IS AG AINST THE CONFIRMATION OF DISALLOWANCE U/S.14A OF THE INCOME-TAX AC T, 1961 (HEREINAFTER CALLED `THE ACT) READ WITH RULE 8D OF THE INCOME- TAX RULES, 1962. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT DURING THE YEAR THE ASSESSEE EARNED EXEMPT DIVIDEND INCOME OF RS.44,23,871 /-. A S UO MOTU DISALLOWANCE U/S.14A OF THE ACT WAS OFFERED BY THE ASSES SEE AT ASSESSEE BY SHRI SHARAD SHAH REVENUE BY SHRI S.P. WALIMBE DATE OF HEARING 11-03-2021 DATE OF PRONOUNCEMENT 11-03-2021 ITA NO.3094/PUN/2017 M/S. ADVIK HI-TECH PVT. LTD., 2 RS.3,08,964/- - ATTRIBUTING RS.2,80,269/- TO DIRECT EXPENSE S AND RS.28,695/- TO INTEREST EXPENSES. THE ASSESSING OFFICER (AO) WENT THROUGH THE DETAILS OF EXPENSES INCURRED BY THE ASSESSEE C LAIMED TO BE IN RELATION TO THE EXEMPT INCOME AND OBSERVED SEVERAL INFIR MITIES THEREIN. IT WAS SEEN THAT SOME OF THE INVESTMENTS WERE CLUB BED UNDER THE HEAD INVENTORY IN THE BALANCE SHEET AND WERE NOT CONSIDERED BY THE ASSESSEE IN WORKING OUT THE DISALLOWANCE. HE, THEREFORE, REJECTED THE ASSESSEES CALCULATION AND COMPUTED THE DISALLOWANCE U/S.14A AT RS.10,20,776/-, CONSISTING OF RS.30 ,183/- TOWARDS INTEREST EXPENDITURE AND RS.9,90,593/-, BEING, HALF PERCENT OF THE AVERAGE INVESTMENTS UNDER RULE 8D(2)(III). NO RELIE F WAS ALLOWED IN THE FIRST APPEAL, AGAINST WHICH THE ASSESSEE HAS C OME UP BEFORE THE TRIBUNAL. 4. WE HAVE HEARD BOTH THE SIDES THROUGH VIRTUAL COURT AND G ONE THROUGH THE RELEVANT MATERIAL ON RECORD. THE ISSUE INSTANTLY BEFORE US IS AGAINST THE SECOND COMPONENT OF THE DISALLOWANCE MADE BY THE AO, NAMELY, HALF PERCENT OF THE AVERAGE INVESTMENTS AT RS.9,90,573/-. WE HAVE GONE THROUGH THE ASSESSEES B ALANCE SHEET, A COPY OF WHICH HAS BEEN PLACED AT PAGE 63 OF THE PAPE R BOOK. FIGURE OF INVESTMENTS HEREIN STANDS AT RS.20,23,11,517/- . APART FROM THAT, THE AO HAS NOTED, AND RIGHTLY SO, THAT THE ASSESSE E ITA NO.3094/PUN/2017 M/S. ADVIK HI-TECH PVT. LTD., 3 INCLUDED CERTAIN INVESTMENTS UNDER THE HEAD INVENTORY IN ITS BALANCE SHEET. WE HAVE ALSO GONE THROUGH THE DETAILS OF INVENTORY GIVEN IN SCHEDULE-13, WHICH MAKES A MENTION OF AN ITEM WITH NARRATION STOCK IN EQUITY INSTRUMENTS (NON MANUFACTURING) TO THE TUNE OF RS.58,32,444/-. IT GOES WITHOUT SAYING THAT ALL THE INVESTMENTS ARE LIABLE TO BE CONSIDERED FOR THE PURPOSE OF MAKING DISALLOWANCE U/S 14A IRRESPECTIVE OF THE HEAD UNDER WHICH THE Y ARE PLACED. THE EMBARGO IS THAT ONLY THE INVESTMENTS YIELDING EXE MPT INCOME DURING THE YEAR SHOULD BE CONSIDERED FOR COMPUTING AVERAGE VALUE OF INVESTMENTS. THE HON'BLE DELHI HIGH COURT IN ACB INDIA LTD. VS. CIT (2015) 374 ITR 108 (DEL) HAS HELD THAT THE AVERAGE VALUE OF INVESTMENTS, FOR THE PURPOSES OF RULE 8D(2)(III), SHOULD BE CONFINED TO THOSE SECURITIES IN RESPECT OF WHICH EXEMPT INCOME IS EARNED AND NOT THE TOTAL INVESTMENTS. SIMILAR VIEW HAS BEEN TAKEN BY THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. VIREET INVESTMENTS (P) LTD. (2017) 165 ITD 27 (DEL) (SB) . IN VIEW OF THE AFORE REFERRED PRECEDENTS, WE SET ASIDE THE IMPUGNED OR DER TO THIS EXTENT AND REMIT THE MATTER TO THE FILE OF ASSESSING OFFICER F OR RE- COMPUTING THE DISALLOWANCE UNDER RULE 8D(2)(III) BY CONSIDERING ONLY SUCH INVESTMENTS IN CALCULATING THE AVERAGE VALUE OF INVESTMENTS, WHICH HAVE YIELDED EXEMPT INCOME DURING THE YE AR. ITA NO.3094/PUN/2017 M/S. ADVIK HI-TECH PVT. LTD., 4 THE ASSESSEE WILL BE ALLOWED HEARING OPPORTUNITY IN THE FRES H PROCEEDINGS. IT IS FURTHER MADE CLEAR THAT WHILE COMPUTING DISALLOWANCE U/S.14A, THE SUO MOTU DISALLOWANCE OFFERED BY THE ASSESSEE SHOULD BE ACCORDINGLY REDUCED. 5. THE ASSESSEE HAS TAKEN AN ADDITIONAL GROUND CLAIMING DEDUCTION OF EDUCATION CESS ON INCOME-TAX FOR THE YEAR UN DER CONSIDERATION. 6. THE HONBLE SUPREME COURT IN NATIONAL THERMAL POWER COMPANY LTD. VS. CIT (1998) 229 ITR 383 (SC) HAS OBSERVED THAT THE PURPOSE OF THE ASSESSMENT PROCEEDINGS BEFORE THE TA XING AUTHORITIES IS TO ASSESS CORRECTLY THE TAX LIABILITY OF AN ASSESSE E IN ACCORDANCE WITH LAW. IF, FOR EXAMPLE, AS A RESULT OF A JU DICIAL DECISION GIVEN WHILE THE APPEAL IS PENDING BEFORE THE TRIBUN AL, IT IS FOUND THAT A NON-TAXABLE ITEM IS TAXED OR A PERMISSIBLE DEDUC TION IS DENIED, WE DO NOT SEE ANY REASON WHY THE ASSESSEE SHOU LD BE PREVENTED FROM RAISING THAT QUESTION BEFORE THE TRIBUNAL FOR THE FIRST TIME, SO LONG AS THE RELEVANT FACTS ARE ON RECORD IN RESP ECT OF THAT ITEM. ANSWERING THE QUESTION POSED BEFORE IT IN AFFIRMATIVE , THEIR LORDSHIPS HELD THAT ON THE FACTS FOUND BY THE AUTHORITIES BELOW , IF A QUESTION OF LAW ARISES (THOUGH NOT RAISED BEFORE THE AUTHOR ITIES) ITA NO.3094/PUN/2017 M/S. ADVIK HI-TECH PVT. LTD., 5 WHICH HAS BEARING ON THE TAX LIABILITY OF THE ASSESSEE, THE TR IBUNAL HAS JURISDICTION TO EXAMINE THE SAME. 7. HAVING GONE THROUGH THE SUBJECT MATTER OF THE ADDITIONAL GROUND TAKEN BY THE ASSESSEE, IT IS DISCERNIBLE THAT IT RAISES A PURE QUESTION OF LAW. WE, THEREFORE, ADMIT THE SAME. 8. ON MERITS, WE FIND THAT THIS ISSUE IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN SESA GOA LT. VS. JCIT (2020) 423 ITR 426 (BOM.) IN WHICH IT HAS BEEN HELD THAT EDUCATION CESS IS NOT DISALLOWABLE EXPENDITURE U/S.40(A)(II) OF THE ACT. SIMILAR VIEW HAS EARLIER BEEN TAKEN BY THE HONBLE RAJASTHAN HIGH COURT IN CHAMBAL FERTILISERS AND CHEMICALS LTD. AND ANOTHER VS. JCIT (2018) 102 CCH 0202 ( RAJ- HC). WE, ERGO, DIRECT TO ALLOW DEDUCTION FOR SUCH AN AMOUNT AFTE R VERIFICATION. 9. IN THE RESULT, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES . ORDER PRONOUNCED IN THE OPEN COURT ON 11 TH MARCH, 2021. SD/- SD/- ( S.S.VISWANETHRA RAVI ) (R.S.SYAL) JUDICIAL MEMBER VIC E PRESIDENT PUNE; DATED : 11 TH MARCH, 2021 ITA NO.3094/PUN/2017 M/S. ADVIK HI-TECH PVT. LTD., 6 / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT; 2. / THE RESPONDENT; 3. 4. THE CIT(A)-6, PUNE THE PR. CIT-5, PUNE 5. 6. , , B / DR B, ITAT, PUNE; / GUARD FILE. / BY ORDER, // TRUE COPY // SENIOR P RIVATE SECRETARY , / ITAT, PUNE DATE 1. DRAFT DICTATED ON 11-03-2021 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 11-03-2021 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. *