ASSTT COMMISSIONER OF INCOME TAX , CIRCLE -1, Pune V. M/S PERSISTENT SYSTEMS LIMITED, Pune

ITA 498/PUN/2020

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 2907 (ITAT-PUNE)
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-06-2021
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 19-04-2021
• Assessment Year: 2015-2016
• Appeal Filed On: 10-08-2020
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MAHADEVAN A M KRISHNAN; APARVA AGARWAL
• Keywords: Business income; Transfer pricing; Business expenditure; Opportunity of being heard; Principle of natural justice; International transaction; Rule of consistency; Earning of tax free income; Question of law; Revenue expenditure; Capital expenditure; Rule 8D; Set aside
• Section: 14A; 201; 13; 22; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, PUNE (THROUGH VIRTUAL COURT) BEFORE SHRI R.S.SYAL, VP AND SHRI PARTHA SARATHI CHAUDHURY , JM . / I TA NO. 497, 498 & 499 /PUN/20 20 / ASSESSMENT YEARS : 2014 - 15, 2015 - 16 & 2016 - 17 THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 4, PUNE. ....... / APPELLANT / V/S. M/S. PERSISTENT SYSTEMS LIMITED 402, E BHAGEERATH SENAPATHI BAPAT ROAD, SHIVAJINAGAR, PUNE - 411 016 PAN : AABCP1209Q / RESPONDENT REVENUE BY : SHRI MAHADEVAN A M KRISHNAN & SMT. APARVA AGARWAL A SSESSEE BY : SHRI R.D. ONKAR / DATE OF HEARING : 17 .06 .2021 / DATE OF PRONOUNCEMENT : 21 . 0 6 .2021 / ORDER PER BENCH : THESE THREE APPEALS PREFERRED BY THE REVENUE EMANATES FROM THE DIFFERENT ORDERS OF THE LD. CIT(APPEALS) - 13, PUNE DATED 13.03.2020 FOR THE ASSESSMENT YEARS 2014 - 15, 2015 - 16 & 2016 - 17 AS PER THE GROUNDS OF APPEAL ON RECORD. 2 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 2. BOTH THE PARTIES HEREIN SUBMITTED THAT IN THESE CASES FACTS AND CIRCUMSTANCES AND THE ISSUES INVOLVED ARE IDENTICAL. AFTER HEARING THE PARTIES, ALL THESE CASES ARE HEARD TOGETHER AND DISPOSED OF VIDE THIS CONSOLIDATED ORDER. FIRST, WE WOULD TAKE UP ITA NO.497/PUN/2020 FOR THE ASSESSMENT YEAR 2014 - 15 FOR ADJUDICATION AS LEAD CASE. ITA NO.497/PUN/2020 A.Y. 2014 - 15 3. IN ITA NO.497/PUN/2020, THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT( APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE U/S 35(2AB) OF THE IT ACT, 1961 HOLDING THAT BEFORE. TENTH AMENDMENT RULE, 2016, THE DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH (DSIR) WAS HAVING NO SUCH POWER TO QUANTIFY THE EXPENDITURE INCURRED ON IN - H OUSE R & D FACILITY WITHOUT APPRECIATING THE FACT THAT THE DSIR GUIDELINES PROVIDE FOR SUBMISSION OF AUDITOR'S CERTIFICATE EVERY YEAR, WHICH IS SCRUTINIZED AND EVEN BEFORE THE AMENDMENT IT WAS INCUMBENT UPON THE PRESCRIBED AUTHORITY TO GO THROUGH THE DETAI LS SUBMITTED TO IT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE U/S 14A R.W.R.8D OF I T RULES, 1962 WITHOUT APPRECIATING THE FACT THAT THE A.O HAD RECORDED HIS DISSATISFACTION REGARDING THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(APPEALS) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAD SUO - MOTO DISALLOWED ONLY A MEAGER AMOUNT OF EXPENDITURE IN COMPARISON TO DIVIDEND INCOME AND SECTION 14A OF THE ACT LAYS DOWN THE MECHANISM FOR DETERMINING SUCH AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IN ACCORDANCE WITH METHOD AS PRESCRIBED UND ER RULE 8D OF I T. RULES, 1962. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE U/S.10AA(9) R.W.S. 801A(10) OF THE INCOME TAX ACT, 1961 WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE ITSELF IN T HE COMPARABLES FURNISHED IN ITS TRANSFER PRICING REPORT HAD 'SHOWN 'ORDINARY PROFIT' TO BE OF 18.27% AS AGAINST NET PROFIT 'MARGIN OF 35.04% SHOWN BY THE ASSESSEE. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR OMIT ANY OF THE ABOVE GROUNDS OF APP EAL DURING THE COURSE OF APPELLATE PROCEEDINGS. 3 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 4. GROUND NO.1 PERTAINS TO THE DELETION OF DISALLOWANCE U/S.35(2AB) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT). 5. THE BRIEF FACTS ON THIS ISSUE ARE THAT DURING THE COURSE OF ASSE SSMENT PROCEEDINGS, THE ASSESSEE COMPANY WAS REQUESTED TO JUSTIFY ITS CLAIM OF DEDUCTION U/S.35(2AB) OF THE ACT. THE ASSESSEE IN REPLY HAD FILED WRITTEN SUBMISSIONS BEFORE THE ASSESSING OFFICER. IN THE SAID WRITTEN SUBMISSIONS, IT HAS BEEN STATED THAT IN T HE COMPUTATION OF TAXABLE INCOME FOR ASSESSMENT YEAR 2015 - 16, THE COMPANY HAD CLAIMED DEDUCTION OF RS.419.49 LAKHS U/S.35(2AB) OF THE ACT IN RESPECT OF EXPENDITURE INCURRED ON IN - HOUSE RESEARCH AND DEVELOPMENT CARRIED OUT AT IN - HOUSE R & D UNIT AS APPROVED BY DSIR U/S.35(2AB) OF THE ACT AND THE DETAILS OF DEDUCTION CLAIMED ARE AS FOLLOWS : THE SAID EXPENDITURE WAS CLAIMED ON THE BASIS OF ANNUAL COMPLIANCE REPORT FILED BY THE COMPANY IN THE SPECIFIED FORMAT OF ANNEXURE IV WITH DEPARTMENT OF SCIENCE AND INDUSTRIAL RESEARCH (DSIR) AND CERTIFICATE ISSUED BY THE AUDITORS. THOSE DOCUMENTS WERE F ILED WITH THE DEPARTMENT. IN ITS SUBMISSIONS, THE ASSESSEE FURTHER SUBMITTED THAT SINCE THE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF RESEARCH AND DEVELOPMENT ACTIVITIES OF THE AMOUNT IN LAKHS DEDUCTION U/S.35(2AB) OF THE ACT EXPENDITURE ELIGIBLE DEDUCTION AMOUNT DEBITED TO P & L ACCOUNT ADDITIONAL DEDUCTION CLAIMED IN ITR REVENUE EXPENDITURE 370.95 741.95 370.95 370.95 CAPITAL EXPENDITURE 24.27 48.54 0 48.54 395.22 790.44 370.95 419.49 4 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 COMPANY, THE SAME HAS, THEREFORE, BEEN INCURRED WHOLLY AND EXCLUSIVELY F OR THE PURPOSE OF BUSINESS AND THEREFORE, ENTIRE EXPENDITURE SHOULD BE ALLOWED AS BUSINESS EXPENDITURE U/S.37 OF THE ACT. THEREAFTER, THE ASSESSEE COMPANY SUO - MOTO SUBMITTED FOR CONSIDERATION OF DISALLOWANCE OF RS.36.87 LAKHS U/S.35(2AB) OF THE ACT ON ACCO UNT OF DISALLOWANCE OF EXPENDITURE MADE BY DSIR AND AT THE SAME TIME, THE ASSESSEE SUBMITTED THAT THE SAME EXPENDITURE ( RS.36.87 LAKHS) SHOULD BE ALLOWED AS BUSINESS EXPENDITURE U/S.37 OF THE ACT. THE ASSESSING OFFICER GAVE HIS FINDINGS FROM PARA 7.3 ONW ARDS OF HIS ORDER. THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE COMPANY HAS CLAIMED DEDUCTION U/S.35(2AB) OF THE ACT AT RS.419.49 LAKHS , HOWEVER, ITS CLAIM HAS BEEN APPROVED BY THE DSIR TO THE EXTENT OF RS.358.35 LAKHS. THEREFORE, THE ASSESSEE COMPANY S CLAIM OF DEDUCTION W AS RESTRICTED TO RS.358.35 LAKHS AND EXCESS DEDUCTION CLAIMED BY THE ASSESSEE COMPANY TO THE EXTENT OF RS.36,87,000/ - WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 6. THE LD. CIT(APPEALS) HAS DISCUSSED THIS ISSUE AT PARA 3.5 OF HIS ORDER WHICH READS AS FOLLOWS : 3.5. I HAVE CAREFULLY CONSIDERED THE SUBMISSION OF THE APPELLANT IN LIGHT OF THE FACTS OF THE CASE. IT IS SEEN THAT IDENTICAL ISSUE OF THE ROLE OF PRESCRIBED AUTHORITY (DSIR) FOR THE PURPOSE OF SECTION 35(2AB) AND THE CURT AILMENT OF THE WEIGHTED DEDUCTION HAS BEEN DECIDED IN THE APPELLANTS FAVOUR BY THE JURISDICTIONAL ITAT, PUNES DECISION IN THE CUMMINS INDIA LIMITED CASE REFERRED ABOVE. IN VIEW OF THE ABOVE, APPEAL ON THIS ISSUE IS ALLOWED. T HE LD. CIT(APPEALS) PROVID ED RELIEF TO THE ASSESSEE RELYING ON THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF CUMMINS INDIA LIMITED VS. DCIT, ITA NO.309/PUN/2014 FOR THE ASSESSMENT YEAR 2009 - 10 . THE PUNE BENCH OF THE TRIBUNAL ON THIS ISSUE HA D HELD AS FOLLOWS: 45. THE ISSUE WHICH IS RAISED IN THE PRESENT APPEAL IS THAT WHETHER WHERE THE FACILITY HAS BEEN RECOGNIZED AND NECESSARY CERTIFICATION IS ISSUED BY THE PRESCRIBED AUTHORITY, THE ASSESSEE CAN AVAIL THE DEDUCTION 5 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 IN RESPECT OF EXPENDITURE INCURRED ON IN - HOUSE R &D FACILITY, FOR WHICH THE ADJUDICATING AUTHORITY IS THE ASSESSING OFFICER AND WHETHER THE PRESCRIBED AUTHORITY IS TO APPROVE EXPENDITURE IN FORM NO.3CL FROM YEAR TO YEAR. LOOKING INTO THE PROVISIONS OF RULES, IT STIPULATES THE FILING OF AUDIT REPORT BEFOR E THE PRESCRIBED AUTHORITY BY THE PERSONS AVAILING THE DEDUCTION UNDER SECTION 35(2AB) OF THE ACT BUT THE PROVISIONS OF THE ACT DO NOT PRESCRIBE ANY METHODOLOGY OF APPROVAL TO BE GRANTED BY THE PRESCRIBED AUTHORITY VIS - - VIS EXPENDITURE FROM YEAR TO YEAR. THE AMENDMENT BROUGHT IN BY THE IT (TENTH AMENDMENT) RULES W.E.F. 01.07.2016, WHEREIN SEPARATE PART HAS BEEN INSERTED FOR CERTIFYING THE AMOUNT OF EXPENDITURE FROM YEAR TO YEAR AND THE AMENDED FORM NO.3CL THUS, LAYS DOWN THE PROCEDURE TO BE FOLLOWED BY THE PRESCRIBED AUTHORITY. PRIOR TO THE AFORESAID AMENDMENT IN 2016, NO SUCH PROCEDURE / M ETHODOLOGY WAS PRESCRIBED. IN THE ABSENCE OF THE SAME, THERE IS NO MERIT IN THE ORDER OF ASSESSING OFFICER IN CURTAILING THE EXPENDITURE AND CONSEQUENT WEIGHTED DEDUCTION CLAIM UNDER SECTION 35(2AB) OF T HE ACT ON THE SURMISE THAT PRESCRIBED AUTHORITY HAS ONLY APPROVED PART OF EXPENDITURE IN FORM NO.3CL. WE FIND NO MERIT IN THE SAID ORDER OF AUTHORITIES BELOW. 46. THE COURTS HAVE HELD THAT FOR DEDUCTION UNDER SECTION 35(2AB) OF THE ACT, FIRST STEP WAS THE RECOGNITION OF FACILITY BY THE PRESCRIBED AUTHORITY AND ENTERING AN AGREEMENT BETWEEN THE FACILITY AND THE PRESCRIBED AUTHORITY. ONCE SUCH AN AGREEMENT HAS BE EN EXECUTED, UNDER WHICH RECOGNITION HAS BEEN GIVEN TO THE FACILITY, THEN THEREAFTER THE ROLE OF ASSESSING OFFICER IS TO LOOK INTO AND ALLOW THE EXPENDITURE INCURRED ON IN - HOUSE R&D FACILITY AS WEIGHTED DEDUCTION UNDER SECTION 35(2AB) OF THE ACT. ACCORDINGLY, WE HOLD SO. THUS, WE REVERSE THE ORDER OF ASSESSING OFFICER IN CURTAILING THE DEDUCTION CLAIMED UNDER SECTION 35(2AB) OF THE ACT BY 6,75,000/ - . THUS, GROUNDS OF APPEAL NO.10.1, 10.2 AND 10.3 ARE ALLOWED. 7. THE LD. DR FAIRLY CONCEDED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE BY THE SAID DECISION OF THE PUNE BENCH OF THE TRIBUNAL (SUPRA.). IN VIEW THEREOF, MAINTAINING THE PRINCIPLE OF CONSISTENCY WITH THE SAME PARITY OF REASONING ON THE SAME SET OF FACTS AND CIRCUMSTANCES, WE RESPECTFULLY FOLLOW THE ORDER OF THE CO - ORDINATE BENCH IN ITA NO.309/PUN/2014 ( SUPRA.) AND S INCE THE LD. CIT(APPEALS) HAS RELIED ON THIS DECISION AND PROVIDED RELIEF TO THE ASSESSEE, T HEREFORE, WE DO NOT FIND ANY REASON TO INTERFERE WITH THE FINDINGS OF THE LD. CIT(APPEALS) WHICH IS HEREBY UPHELD AND RELIEF PROVIDED TO THE ASSESSEE IS SUSTAINED. GROUND NO.1 RAISED IN APPEAL BY THE REVENUE IS DISMISSED. 6 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 8. GR OUND NOS. 2 AND 3 PERTAINS TO THE GRIEVANCE OF THE REVENUE IN RESPECT OF THE DELETION OF DISALLOWANCE U/S.14A R.W.R.8D OF THE INCOME TAX RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES). 9. THE BRIEF FACTS ON THIS ISSUE ARE THAT ON VERIFICATION OF THE BALANCE SHEET FOR THE YEAR UNDER CONSIDERATION, THE ASSESSING OFFICER FOUND THAT THE ASSESSEE COMPANY HAS MADE INVESTMENT IN MUTUAL FUNDS AND BONDS TO THE EXTENT OF RS.484,71,19,658/ - . THAT AS PER PROVISION OF SECTION 14A OF THE ACT FOR THE PURPOSE OF COMP UTING THE TOTAL INCOME UNDER THIS CHAPTER I.E. CHAPTER - IV, COMPUTATION OF TOTAL INCOME, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. ON V ERIFICATION OF THE DETAILS OF DISALLOWANCES IT WAS SEEN THAT THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE ON THIS ACCOUNT. THE ASSESSING OFFICER ON EXAMINATION OF FACTS OF THE CASE OBSERVED THAT INVESTMENT MADE AND EXPENDITURE INCURRED, HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. THE LD. AR OF THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHETHER OR NOT THE ASSESSEE IS MAINTAINING SEPARATE DETAIL OF EXPENDITURES RELATED TAX FREE INCOME EARNED BY THE ASSESSEE COMPANY. IN REPLY, THE ASSESS EE SUBMITTED THAT IT IS NOT MAINTAINING SEPARATE DETAILS, THOUGH DURING THE YEAR UNDER CONSIDERATION ASSESSEE COMPANY HAS EARNED DIVIDEND INCOME EXEMPT U/S.10(34) OF THE ACT AND INTEREST ON TAX FREE BONDS TO THE TUNE OF RS.14,95,13,959/ - AND RS.2,32,17,334 / - RESPECTIVELY. THEREAFTER, THE ASSESSEE WA S ASKED TO EXPLAIN AS TO WHY RULE 8D SHOULD NOT BE APPLIED FOR CALCULATING THE DISALLOWANCE U/S.14A OF THE ACT. THEREAFTER, THE ASSESSING OFFICER HAS GREATLY IN DEPTH ANALYZED THE PROVISIONS OF SECTION 14A R.W.R. 8D VIS - - VIS FACTS OF THE ASSESSEES CASE. THE SANCTITY AND JUSTIFICATION FOR INCORPORATING SECTION 14A 7 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 IN THE INCOME TAX ACT HAS BEEN WELL EXPLAINED BY THE ASSESSING OFFICER VIDE PARA 8.4 ONWARDS OF HIS ORDER. 10. THE ASSESSING OFFICER VIDE PARA 8.9 OBS ERVED THAT THE ASSESSEE HAS DEBITED INTEREST EXPENDITURE FOR WHICH THE ASSESSEE WAS NOT MAINTAINING SEPARATE FUND FLOW FOR TAX FREE INVESTMENT MADE AND REGULAR BUSINESS ACTIVITY. FURTHER THE ASSESSEE HAS INCURRED VARIOUS KINDS OF EXPENSES IN ITS PROFIT AND LOSS ACCOUNT. IT IS NOT POSSIBLE THAT THE ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IN CONNECTION WITH SUCH INVESTMENTS AND EARNING OF SUCH EXEMPT INCOME. FURTHER THE ASSESSEE HAS NOT DISALLOWED ANY EXPENSES HOWEVER, THE PROVISIONS OF SECTION 14A APPLIES TO DIRECT AS WELL AS INDIRECT EXPENSES. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE CLAIM OF THE ASSESSEE THAT IT HAD NOT BORROWED ANY FUNDS FOR THE PURPOSE OF INVESTMENT IN SECURITIES TO EARN EXEMPT INCOME, WAS ALSO N OT TENABLE SINCE ENTIRE MONEY IN T HE BUSINESS COMES IN A COMMON KITTY. THE MONIES RECEIVED AS SHARE CAPITAL, AS TERM LOAN, AS WORKING CAPITAL, AS SALES PROCEEDS ETC. DO NOT HAVE ANY DIFFERENT COLOUR. WHATEVER ARE THE RECEIPTS IN THE BUSINESS THEY HAVE THE COLOUR OF BUSINESS RECEIPTS AND NO SEPARATE IDENTIFICATION SOURCES HAVE NO CONCERN WHATSOEVER. THEREAFTER, THE ASSESSING OFFICER MADE DISALLOWANCE AT THE RATE OF ONE HALF PERCENT OF THE AVERAGE VALUE OF INVESTMENT I.E. 0.50% OF RS.406,47,45,829/ - I.E. RS.2,03,23,729/ - AS PER PROVISIONS OF SECTION 14A R.W.R.8D OF THE RULES. 11. THE LD. CIT(APPEALS) AT PARA 4.4 OF HIS ORDER HAS GIVEN HIS FINDINGS AND THEREIN, HE HAS STATED THAT THE ASSESSEE MADE SUO - MOTO DISALLOWANCE OF RS.16.8 LAKHS. HE HAS FURTHER STATED THAT THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE IN ITS OWN CASE BY HIS PREDECESSORS ORDER FOR THE ASSESSMENT YEAR 2013 - 14 WHICH HAS BEEN RECENTLY UPHELD BY THE PUNE BENCH OF THE TRIBUNAL IN ITA NO.1232/PUN/2017 DATED 28.02.2020 AND FOLLOWING THE SAID ORDER, 8 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 THE LD. CIT(APPEALS) H AS PROVIDED RELIEF TO THE ASSESSEE DELETING THE DISALLOWANCE U/S.14A R.W.R.8D OF THE RULES MADE BY THE ASSESSING OFFICER. 12. FIRST OF ALL, WE OBSERVE THAT NOWHERE IN THE ASSESSMENT ORDER IT HAS BEEN STATED THAT THE ASSESSEE HAD MADE SUO - MOTO DISALLOWANCE OF RS.16.8 LAKHS. THE LD. CIT(APPEALS) HAS MADE THIS FINDINGS BUT THE BASIS OF SUCH FINDINGS IS NOT THERE IN HIS ORDER. SECONDLY, THE CASE LAW RELIED ON BY THE LD. CIT(APPEALS) FOR PROVIDING RELIEF TO THE ASSESSEE , THE RATIONALE THEREIN WAS THAT WHILE MAK ING DISALLOWANCE U/S.14A R.W.R.8D OF THE RULES, THE ASSESSING OFFICER MUST BE SATISFIED AS TO WHY SUCH DISALLOWANCE HAS BEEN MADE AND VIS - - VIS FACTS OF THE ASSESSEES CASE. HOWEVER, AS NOTED BY US, THE ASSESSING OFFICER IN THE CASE BEFORE US HAS MADE DETA ILED ANALYSIS IN THE ASSESSMENT ORDER REGARDING THE APPLICABILITY OF SECTION 14A R.W.R.8D OF THE RULES WITH THE FACTS OF THE ASSESSEES CASE AND FURTHER THAT WHY SUCH DISALLOWANCE WA S REQUIRED THAT HAS ALSO BEEN EXPLAINED BY THE ASSESSING OFFICER. THIS FIN DINGS SANS SATISFACTION IS NOT THE CASE HERE. THAT FURTHER, HE HAS MADE DISALLOWANCE ONLY ONE HALF PERCENT OF T HE AVERAGE VALUE OF INVESTMENT I.E. 0.50% OF RS.406,47,45,829/ - I.E. RS.2,03,23,729/ - . THEREFORE, IT BECOMES ESSENTIAL TO VERIFY WHETHER THE ASSE SSEE HAD ACTUALLY MADE SUO - MOTO DISALLOWANCE OF RS.16.8 LAKHS AND WHETHER THE SAME HAD BEEN ANALYZED BY THE ASSESSING OFFICER WHILE MAKING DISALLOWANCE OF 0.50% AT THE TIME OF ASSESSMENT. FOR THIS EXERCISE, IN THE INTEREST OF JUSTICE, THE ISSUE NEEDS TO BE REMANDED BACK TO THE FILE OF ASSESSING OFFICER FOR ADJUDICATION AFTER DETAILED VERIFICATION AS INDICATED HEREINABOVE WHILE COMPLYING WITH THE PRINCIPLES OF NATURAL JUSTICE AND AS PER LAW. THUS, GROUND NOS. 2 & 3 RAISED IN APPEAL BY THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. 9 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 13. GROUND NO.4 PERTAINS TO THE DELETION OF DISALLOWANCE U/S.10AA(9) R.W.S.80IA(10) OF THE ACT. 14. BRIEF FACTS ON THIS ISSUE ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE INTERNATIONAL TRANSACTION PERTAINING TO THE SOFTWARE DEVELOPMENT SERVICES WITH ITS ASSOCIATED ENTERPRISES DURING THE FINANCIAL YEAR 2013 - 14 RELEVANT TO ASSESSMENT YEAR 2014 - 15. RECEI PT OF FEES TOWARDS SOFTWARE DEVELOPMENT SERVICES RENDERED TO PERSISTENT SYSTEMS INC. THAT FOR THE YEAR UNDER CONSIDERATION, THE TOTAL INTERNATIONAL TRANSACTION PERTAINING TO THE SOFTWARE DEVELOPMENT SERVICES BY PUNE SEZ UNIT AND HYDERABAD SEZ UNIT OF ASSES SEE COMPANY WITH AE AMOUNTS TO RS.39,12,23,042/ - . THE ASSESSEE HAS CLAIMED DEDUCTION U/S.10AA OF THE ACT AGAINST THE PROFIT EARNED BY PUNE SEZ UNIT THE PROFIT MARGIN (OP/SALES) OF THE ASSESSEE FROM ITS AE TRANSACTION FOR THESE TRANSACTION HAS BEEN DERIVED AT 35.04% WHEREAS THE PROFIT MARGIN OF THE COMPARABLE COMPANIES AS PER THE TP REPORT OF THE ASSESSEE IS 18.52% ( AS PER SINGLE YEAR COMPARABLE MARGIN). THE ASSESSEE COMPANY WAS SHOW CAUSE D WHY THE EXCESS PROFIT SHOWN BECAUSE OF CLOSE BUSINESS CONNECTION BE TWEEN THE GROUP COMPANIES SHOULD NOT BE EXCLUDED FROM THE ELIGIBLE PROFIT FOR THE PURPOSE OF DETERM IN ING THE DEDUCTION ALLOWABILITY U/S.10AA OF THE ACT AND WHY DISALLOWANCE U/S.10AA(9) R.W.S. 80IA(10) OF THE ACT SHOULD NOT BE MADE FOR THE YEAR UNDER THE CO NSIDERATION I.E. 2014 - 15. THEREAFTER, THE ASSESSEE SUBMITTED DETAILED WRITTEN SUBMISSIONS WHICH ARE ON RECORD AND HAS BEEN MADE PART OF THE ASSESSMENT ORDER. THEREAFTER, THE ASSESSING OFFICER ANALYZED THE PROVISION OF SECTION 10AA(9) R.W.S.80IA(10) OF THE ACT AND OBSERVED THAT WHERE IT APPEARS TO THE ASSESSING OFFICER THAT OWING TO THE CLOSE CONNECTION BETWEEN THE ASSESSEE CARRYING ON THE ELIGIBLE BUSINESS AND ANY OTHER PERSON OR FOR ANY OTHER REASON, THE COURSE OF BUSINESS BETWEEN THEM IS SO ARRANGED THAT THE BUSINESS TRANSACTED BETWEEN THE ELIGIBLE PERSON AND OTHER PERSON 10 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 PRODUCES TO THE ASSESSEE MORE THAN THE ORDINARY PROFITS, THEN THE ASSESSING OFFICER WHILE COMPUTING THE PROFITS AND GAINS OF THE ELIGIBLE BUSINESS FOR THE PURPOSE OF GRANTING DEDUCTION U/S.10AA CAN READJUST THE AMOUNT OF PROFIT AS WOULD REASONABLY BE DERIVED FROM SUCH ELIGIBLE BUSINESS. THE ASSESSING OFFICER POINTED OUT KEY WORDS CLOSE CONNECTION AND ARRANGEMENT BETWEEN THE ASSESSEE AND OTHER PERSONS AND SUCH ARRANGEMENT PRODUCES MO RE THAN ORDINARY PROFITS IN THE ELIGIBLE BUSINESS. THE ASSESSING OFFICER FURTHER OBSERVED THAT THE ASSESSEE HAS BEEN TRANSACTING WITH ITS GROUP COMPANIES SINCE PAST SO MANY YEARS AND ACCORDINGLY, IT CAN BE DEEMED THAT THERE EXIST CLOSE CONNECTION BETWE EN THE ASSESSEE AND ITS GROUP COMPANIES. THE ASSESSING OFFICER ALSO OBSERVED THAT IN THE PRESENT CASE, THE FACTS AND CIRCUMSTANCES AND HIGHER PROFITS IN THE CASE OF PUNE SEZ UNIT AND HYDERABAD SEZ UNIT DO PROVIDE CLEAR INDICATIONS OF AN EXISTENCE OF AN AR RANGEMENT BETWEEN THE ASSESSEE AND ITS AES. FINALLY, THE ASSESSING OFFICER VIDE PARA 9.5 OF HIS ORDER EXCLUDED AN AMOUNT OF RS.6,59,44,850/ - FROM ELIGIBLE PROFITS FOR THE PURPOSES OF COMPUTATION OF DEDUCTION U/S.10AA(9) OF THE ACT. 15. THE LD. CIT( APPEALS) VIDE PARA 5.5 HAS RECORDED HIS FINDINGS ON THE ISSUE AND THEREIN, HE OBSERVED THAT THE TPO HAS NOT DRAWN ANY ADVERSE INFERENCE IN VIEW OF HEALTHY MARGINS OF 35.04%. THE ASSESSING OFFICER ON THE OTHER HAND HAD PROCEEDED TO DISALLOW A PART OF DEDUCT ION U/S.10AA OF THE ACT ON THE TOTAL SALES OF RS.44,08,91,258/ - FROM PUNE SEZ AND HYDERABAD SEZ TO THE AES. THIS WAS DONE WITHOUT ANY COGENT BASIS AND THAT FURTHER, THE LD. CIT(APPEALS) ALSO RELIED ON THE DECISION OF HIS PREDECESSOR DELETING T HIS ADDITION WHICH WAS FURTHER UPHELD BY THE PUNE BENCH OF THE TRIBUNAL IN ITA NO.1232/PUN/2017, CO NO.40/PUN/2019 DATED 28.02.2020 FOR THE 11 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 ASSESSMENT YEAR 2013 - 14. THE PUNE BENCH OF THE TRIBUNAL ON THIS ISSUE HAS HELD AS FOLLOWS: 5. DURING THE FIRST APPELLATE PROC EEDINGS, THE LD.CIT(APPEALS) HAS DELETED THE DISALLOWANCE AND PROVIDED RELIEF TO THE ASSESSEE BY OBSERVING AS FOLLOWS: 2.2.2. I DO NOT REPRODUCE THE LEARNED AOS ARGUMENTS AND THE APPELLANT'S ARGUMENTS ADVANCED BEFORE THE LEARNED AO AND BEFORE ME IN THIS ORDER AS I HAVE DEALT WITH THESE ARGUMENTS IN MY DECISION ON IDENTICAL DISALLOWANCE [SECTION 10A(7) R.W.S 80 - IA(10)] IN THE APPELLANT' APPEAL FOR THE AY 2002 - 03, AY 2006 - 07, AY 2007 - 08, AY 2008 - 09, AY 2009 - 10, AY 2010 - 11 AND AY 2011 - 12. FURTHER, THE HONOURABLE ITAT, PUNE IN THE APPELLANT'S OWN CASE, VIDE ITS ORDER ITA NO 946 TO 948/PN/2013 ELATED 23.12.2016 HAS DECIDED THE APPEAL IN THE FAVOUR OF THE PERSISTENT SYSTEMS PRIVATE LIMITED WHEREIN IT WAS HELD THAT A MERE EXISTENCE OF THE CLOSE CONNECTION AND 'MORE THAN ORDINARY PROFITS' ARE NOT ENOUGH TO ASSUME AN ARRANGEMENT AS CONTEMPLATED U/S. 80 - IA(10) OF THE ACT. THE ASSESS ING OFFICER IS ALSO REQUIRED TO PROVE ANY SUCH ARRANGEMENT EXISTING WHICH RESULTED IN MORE THAN ORDINARY PROFITS. THE LEARNED AO HAS NOT PROVED ANY ARRANGEMENT BETWEEN THE PARTIES IN THE FACTS OF THE CASE. THEREFORE, THE APPELLANT PRAYED THAT IN VIEW OF TH E FAVOURABLE ORDERS OF THE HONOURABLE ITAT AND OF THE CIT(A) IN THE EARLIER YEARS ON THIS GROUND, THE DISALLOWANCE MADE BY THE LEARNED AO U/S.10AA(9) R.W.S.80 - IA(10) BE DELETED. 2.2.3 AS STATED ABOVE, IN MY APPELLATE ORDER IN THE APPELLANT'S OWN CASE FOR THE AY 2002 - 03, AY 2006 - 07, AY 2007 - 08, AY 2008 - 09, AY 2009 - 10, AY 2010 - 11 AND AY 2011 - 12 AND ALSO IN THE HONOURABLE ITAT, PUNE'S ORDER ITA NO 946 TO 948/PN/2013 DATED 23.12.2016 FOR THE AY 2006 - 07 TO 2008 - 09, SIMILAR DISALLOWANCE MADE BY THE LEARNED AO U /S 10A(7) IS DELETED. I DO NOT FIND ANY DIFFERENCE IN THE FACTS OF THIS YEAR REQUIRING RECONSIDERATION OF MY EARLIER .DECISION. THEREFORE, ON SIMILAR GROUNDS, BY FOLLOWING THE ABOVE MENTIONED ITAT PUNE'S DECISION AND ALSO MY OWN DECISION IN THE APPELLANT'S CASE FOR THE EARLIER YEARS, I DELETE THE DISALLOWANCE OF RS.2,33,23,142/ - MADE U/S.10AA(9) R.W.S.80 - IA(10). 6. WE HAVE PERUSED THE CASE RECORD AND HEARD THE RIVAL CONTENTIONS. WE HAVE ALSO GIVEN CONSIDERABLE THOUGHT TO THE FINDINGS OF THE LD. CIT(APPEAL S). IT IS EVIDENT FROM THE FINDINGS OF THE LD. CIT(APPEALS) THAT IDENTICAL DISALLOWANCE MADE IN EARLIER ASSESSMENT YEARS 2009 - 10, 2010 - 11 & 2011 - 12 IN ASSESSEES OWN CASE AND THE LD. CIT(APPEALS) HAS PLACED RELIANCE ON THE DECISION OF THE PUNE BENCH OF TH E TRIBUNAL IN ASSESSEES OWN CASE IN ITA NOS.946 TO 948/PN/2013 DATED 23.12.2016 WHICH WAS DECIDED IN FAVOUR OF THE ASSESSEE. THE CRUX OF THE DECISION OF THE TRIBUNAL HELD IN FAVOUR OF THE ASSESSEE WAS THAT MERE EXISTENCE OF THE CLOSE CONNECTION AND 'MORE THAN ORDINARY PROFITS' ARE NOT ENOUGH TO ASSUME AN ARRANGEMENT AS CONTEMPLATED U/S. 80 - IA(10) OF THE ACT. THE ASSESSING OFFICER IS ALSO REQUIRED TO PROVE ANY SUCH ARRANGEMENT EXISTING WHICH RESULTED IN MORE THAN ORDINARY PROFITS. THE LEARNED AO HAS NOT PROVED ANY ARRANGEMENT BETWEEN THE PARTIES IN THE FACTS OF THE CASE. THEREFORE, FOLLOWING THE DECISION OF THE PUNE BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE (SUPRA.), WE ARE OF THE OPINION THAT THE ORDER OF THE LD. CIT(APPEALS) IS FAIR AND REASONABLE AND IT DOES NOT CALL FOR ANY 12 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 INTERFERENCE. HENCE, RELIEF PROVIDED TO THE ASSESSEE BY THE LD.CIT(APPEALS) IS HEREBY SUSTAINED. THUS, GROUND NO.1 RAISED IN APPEAL BY THE REVENUE IS DISMISSED. 16. THE LD. DR FAIRL Y CONCEDED THAT IN THE GIVEN SET OF FACTS AND CIRCUMSTANCES, THE ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND THE ADDITION HAS BEEN RIGHTLY DELETED BY THE LD. CIT(APPEALS). 17. THE PUNE BENCH OF THE TRIBUNAL ON THIS ISSUE OBSERVED THAT MERE EX ISTENCE OF THE CLOSE CONNECTION AND EARNING MORE THAN ORDINARY PROFITS ARE NOT ENOUGH TO ASSUME AN ARRANGEMENT AS CONTEMPLATED U/S.80IA(10) OF THE ACT. THE ASSESSING OFFICER IS ALSO REQUIRED TO PROVE ANY SUCH ARRANGEMENT EXISTING WHICH RESULTED IN MORE THA N ORDINARY PROFITS. IN THE ENTIRE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOT SPECIFICALLY SPELLED OUT WHAT EXACT ARRANGEMENT EXISTED BETWEEN THE PARTIES IN THE PRESENT CASE WHICH RESULTED IN MORE THAN ORDINARY PROFITS. THEREFORE, WE DO NOT FIND ANY IN FIRMITY WITH THE FINDINGS OF THE LD. CIT(APPEALS) AND RELIEF PROVIDED TO THE ASSESSEE IS HEREBY SUSTAINED. THUS, GROUND NO.4 RAISED IN APPEAL BY THE REVENUE IS DISMISSED. ADJUD I CATION OF THE ADDITIONAL GROUND : 18. THE REVENUE HAS ALSO RAISED ADDITIONAL GROUNDS OF APPEAL WHICH READS AS FOLLOWS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) HAS ERRED IN ADMITTING ADDITIONAL GROUND OF APPEAL ON EDUCATION CESS AND SECONDARY & HIGHER EDUCATION CESS OF RS.2,82,39,55 6/ - WITHOUT GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSING OFFICER. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS), PUNE HAS FAILED TO APPRECIATE THE PRINCIPLE OF NATURAL JUSTICE WHILE ALLOWING RELIEF TO THE ASSESSEE . 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, IT IS PRAYED THAT THE ADDITIONAL GROUNDS OF APPEAL MAY NOT BE ADMITTED. 13 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 4. THE APPELLANT PRAYS TO BE ALLOWED TO ADD, AMEND, MODIFY, RECTIFY, DELETE OR RAISE ANY GROUNDS OF APPEAL DURING THE COUR SE OF THE APPELLATE PROCEEDING. THAT THESE GROUNDS PERTAINS ONLY TO THE ISSUE OF EDUCATION CESS AND SECONDARY AND HIGHER EDUCATION CESS PAID BY THE ASSESSEE AND WHETHER ALLOWABLE AS DEDUCTION. AT THE TIME OF ADMISSION OF THESE GROUNDS, THE LD. AR DID NO T RAISE ANY OBJECTION ON THEIR ADMISSIBILITY. THEN THE SAME ARE ADMITTED FOR ADJUDICATION. THE ISSUE IS COVERED IN FAVOUR OF THE ASSESSEE VIDE SECTION 40(A)(II) OF THE ACT , ON PAYMENT, CESS IS AN ALLO W ABLE EXPENDITURE. 19. THE PUNE BENCH OF THE TRIBUNAL I N ASSESSEES OWN CASE IN ITA NO.1232/PUN/2017, CO NO.40/PUN/2019 FOR ASSESSMENT YEAR 2013 - 14 DATED 28.02.2020 ON THE ISSUE OF EDUCATION CESS HAS HELD AND OBSERVED AS FOLLOWS: 19. HAVING HEARD THE SUBMISSIONS OF THE PARTIES HEREIN, WE FIND THIS ISSUE HAS ALREADY BEEN ADJUDICATED BY THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. BAJAJ ALLIANZ GENERAL INSURANCE COMPANY LIMITED (SUPRA.), IN FAVOUR OF THE ASSESSEE WHEREIN THE TR IBUNAL ON THE ISSUE HAS HELD AS FOLLOWS: 12. REFERRING TO GROUND NO.4 , THE LD. COUNSEL SUBMITTED THAT THIS GROUND RELATES TO THE ALLOWABILITY OF DEDUCTION IN RESPECT OF THE EDUCATIONAL CESS PAID BY THE ASSESSEE. THE LD. COUNSEL FURTHER SUBMITTED THAT TH IS ISSUE IS COVERED IN NATURE BY VIRTUE OF THE DECISION OF THE HONBLE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR IN THE CASE OF CHAMBAL FERTILISERS AND CHEMICALS LTD. VS. JCIT, RANGE - 2, KOTA. 13. ON HEARING BOTH THE PARTIES ON THIS ISSUE, WE FIND THAT THIS ISSUE IS COVERED ONE BY THE DECISION OF THE HONBLE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR IN THE CASE OF CHAMBAL FERTILISERS AND CHEMICALS LTD. VS. JCIT, RANGE - 2, KOTA WHEREIN S UBSTANTIAL QUESTION OF LAW NO.3 IS RELEVANT IN THIS REGARD (PARA 3) AND THE SAME WAS ADJUDICATED BY THE HONBLE HIGH COURT AT PARA 12 OF THE JUDGMENT. THE HONBLE HIGH COURT ON THIS ISSUE HELD THE SAID QUESTION NO.3 IS ANSWERED IN FAVOUR OF THE ASSESSEE. F OR THE SAKE OF COMPLETENESS, THE SAID PARAGRAPH IS EXTRACTED AS UNDER: 12. WE HAVE HEARD CO U NSEL FOR THE PARTIES. ON THE THIRD ISSUE IN APPEAL NO.52/2018, IN VIEW OF THE CIRCULAR OF CBDT WHERE WORD CESS IS DELETED, IN OUR CONSIDERED OPINION, THE TRIBUNAL HAS COMMITTED AN ERROR IN NOT ACCEPTING THE CONTENTION 14 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 OF THE ASSESSEE. APART FROM THE SUPREME COURT DECISION REFERRED THAT ASSESSMENT YEAR IS INDEPENDENT AND WORD CESS HAS BEEN RIGHTLY INTERPRETED BY T HE SUPREME COURT THAT THE CESS IS NOT TAX IN THAT VIEW OF THE MATTER, WE ARE OF THE CONSIDERED OPINION THAT THE VIEW TAKEN BY THE TRIBUNAL ON ISSUE NO.3 IS REQUIRED TO BE REVERSED AND THE SAID ISSUE IS ANSWERED IN FAVOUR OF THE ASSESSEE. FROM THE ABOVE, I T IS EVIDENT THAT EDUCATION CESS, WHICH IS NOT DISALLOWABLE ITEM, ON ITS PAYMENT, THE CESS IS AN ALLOWABLE EXPENDITURE AS PER PROVISION OF SECTION 40(A)(II) OF THE ACT. CONSIDERING THE SETTLED NATURE OF THE ISSUE AS PER THE RATIO LAID DOWN IN THE ABOVE REF ERRED CASE BY THE HONBLE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR, GROUND OF CROSS OBJECTION NO.4 IS ALLOWED . RESPECTFULLY, FOLLOWING THE DECISION OF THE CO - ORDINATE BENCH OF THE TRIBUNAL, PUNE IN THE ABOVE REFERRED CASE, WE ALLOW THIS GROU ND IN FAVOUR OF THE ASSESSEE. THUS, GROUND RAISED IN CROSS OBJECTION BY THE ASSESSEE IS ALLOW ED. 20 . T HE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THE AMOUNT INVOLVED IN EDUCATION CESS NEEDS TO BE VERIFIED AND THEREFORE, PRAYED FOR REMANDING THIS ISSUE TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION OF THE AMOUNT. THE LD. DR DID NOT RAISE ANY OBJECTION ON THIS PROPOSITION. 21 . WE OBSERVE THAT THE LD. CIT(APPEALS) VIDE PARA 7.3 OF HIS ORDER RELYING ON THE DECISION IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2013 - 14 (SUPRA.) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. WE AGREE ON PRINCIPLE THAT THE AMOUNT INVOLVED IN EDUCATION CESS IS AN ALLOWABLE EXPENDITURE AND IT IS IN FAVOUR OF THE ASSESSEE. HOWEVER, THE LD. COUNSEL FOR THE A SSESSEE SUBMITTED THAT THE AMOUNT INVOLVED IN EDUCATION CESS NEEDS TO BE VERIFIED BY THE ASSESSING OFFICER. THEREFORE, AS PER AFORESAID OBSERVATION, WE SET ASIDE THE ORDER OF THE LD. CIT(APPEALS) ON THIS ISSUE AND REMAND THE SAME TO THE FILE OF THE ASSES SING OFFICER FOR VERIFICATION OF THE AMOUNT OF EXPENDITURE ON EDUCATION CESS AND RE - ADJUDICAT E WHILE COMPLYING WITH THE PRINCIPLES OF NATURAL JUSTICE AND AS PER LAW. THUS, ADDITIONAL GROUNDS RAISED BY THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. 15 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 22 . IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO.497/PUN/2020 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 498/PUN/2020 A.Y.2015 - 16 23 . IN ITA NO.498/PUN/2020, THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 1.ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE U/S 35(2AB) OF THE IT ACT, 1961 HOLDING THAT BEFORE. TENTH AMENDMENT RULE, 2016, THE DEPARTMENT OF SCIENTIFIC & INDUSTRIAL RESEARCH (DSIR) WAS HAVING NO SUCH POWER TO QUANTIFY THE EXPENDITURE INCURRED ON IN - HOUSE R & D FACILITY WITHOUT APPRECIATING THE FACT THAT THE DSIR GUIDELINES PROVIDE FOR SUBMISSION OF AUDITOR'S CERTIFICATE EVERY YEAR, WHICH IS SCRUTINIZED AND EVEN BEFORE THE AMENDMENT IT WAS INCUM BENT UPON THE PRESCRIBED AUTHORITY TO GO THROUGH THE DETAILS SUBMITTED TO IT. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE U/S 14A R.W.R.8D OF I T RULES, 1962 WITHOUT APPRECIATING THE FACT T HAT THE A.O HAD RECORDED HIS DISSATISFACTION REGARDING THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(APPEALS) HAS ERRED IN NOT APPRECIATING THE FACT THAT THE ASSE SSEE HAD SUO - MOTO DISALLOWED ONLY A MEAGER AMOUNT OF EXPENDITURE IN COMPARISON TO DIVIDEND INCOME AND SECTION 14A OF THE ACT LAYS DOWN THE MECHANISM FOR DETERMINING SUCH AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME IN ACCORDANCE WITH METHOD AS PRESCRIBED UNDER RULE 8D OF I T. RULES, 1962. 4. ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE U/S.10AA(9) R.W.S . 801A(10) OF THE INCOME TAX ACT, 1961 WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE ITSELF IN THE COMPARABLES FURNISHED IN ITS TRANSFER PRICING REPORT HAD 'SHOWN 'ORDINARY PROFIT' TO BE OF 12.79 % AS AGA INST NET PROFIT 'MARGIN OF 30.50 % SHOWN BY THE ASSE SSEE. 5. THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR OMIT ANY OF THE ABOVE GROUNDS OF APPEAL DURING THE COURSE OF APPELLATE PROCEEDINGS. 2 4 . SINCE PARTIES HEREIN HAVE AGREED THAT GROUND NO.1 RAISED IN ITA NO.498/PUN/2020 FOR ASSESSMENT YEAR 201 5 - 16 IS SIMILAR AND IDENTICAL TO GROUND NO.1 RAISED IN ITA NO.497/PUN/2020 FOR ASSESSMENT YEAR 2014 - 15. T HEREFORE, OUR DECISION RENDERED IN ITA NO. 497/PUN/2020 FOR ASSESSMENT 16 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 YEAR 2014 - 15 WHILE ADJUDICATING THE GROUND NO.1 SHALL APPLY MUTATIS - MUTANDIS TO I TA NO. 498/PUN/2020 FOR GROUND NO.1 ALSO FOR THE ASSESSMENT YEAR 2015 - 16 . THUS, GROUND NO.1 RAISED BY REVENUE IN THIS APPEAL IS DISMISSED. 25 . BOTH THE PARTIES UNANIMOUSLY SUBMITTED THAT GROUND NOS. 2 AND 3 RAISED IN ITA NO.498/PUN/2020 FOR ASSESSMENT YEAR 2015 - 16 ARE SIMILAR AND IDENTICAL TO GROUND NOS. 2 & 3 RAISED IN ITA NO.497/PUN/2020 FOR ASSESSMENT YEAR 2014 - 15. BOTH THE PARTIES HEREIN ALSO SUBMITTED THAT THE FACTS AND CIRCUMSTANCES OF THE CASE ARE IDENTICAL EXCEPT THE AMOUNTS. IN THIS CASE, THE LD. CIT(APPEALS) OBSERVED THAT THE ASSESSEE HAS MADE SUO - MOTO DISALLOWANCE OF RS.19.34 LAKHS WHEREAS, THE ASSESSING OFFICER HAD MADE DISALLOWANCE U/S.14A R.W.R.8D OF ONE HALF PERCENT OF THE AVERAGE VALUE OF INVESTMENT 0.50% OF RS.576,37,38,695/ - I.E. RS.2,88,18,694/ - . THEREFORE, OUR DECISION RENDERED IN ITA NO.497/PUN/2020 FOR ASSESSMENT YEAR 2014 - 15 WHILE ADJUDICATING THE GROUND NOS. 2 & 3 SHALL APPLY MUTATIS - MUTANDIS TO ITA NO.498/PUN/2020 FOR GROUND NOS.2 & 3 ALSO F OR THE ASSESSMENT YEAR 2015 - 16. THUS, GROUND NO S . 2 & 3 RAISED BY REVENUE IN THIS APPEAL ARE ALLOWED FOR STATISTICAL PURPOSES. 2 6 . BOTH PARTIES HEREIN HAVE AGREED THAT GROUND NO.4 RAISED IN ITA NO.498/PUN/2020 FOR ASSESSMENT YEAR 2015 - 16 IS SIMILAR AND IDENTICAL TO GROUND NO.4 RAISED IN ITA NO.497/PUN/2020 FOR ASSESSMENT YEAR 2014 - 15. THEREFORE, OUR DECISION RENDERED IN ITA NO.497/PUN/2020 FOR ASSESSMENT YEAR 2014 - 15 WHILE ADJUDICATING TH E GROUND NO.4 SHALL APPLY MUTATIS - MUTANDIS TO ITA NO.498/PUN/2020 FOR GROUND NO.4 ALSO FOR THE ASSESSMENT YEAR 2015 - 16. THUS, GROUND NO .4 RAISED BY REVENUE IN THIS APPEAL IS DISMISSED. 17 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 ADJUDICATION OF THE ADDITIONAL GROUND : 2 7 . THE REVENUE HAS ALSO RAISED ADDITIONAL GROUNDS OF APPEAL WHICH READS AS FOLLOWS: 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) HAS ERRED IN ADMITTING ADDITIONAL GROUND OF APPEAL ON EDUCATION CESS AND SECONDARY & HIGHER EDUCATION CESS OF RS.2, 4 3,35,761 / - WITHOUT GIVING AN OPPORTUNITY OF BEING HEARD TO THE ASSESSING OFFICER. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS), PUNE HAS FAILED TO APPRECIATE THE PRINCIPLE OF NATURAL JUSTICE WHILE ALLOWING RELIEF TO THE A SSESSEE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, IT IS PRAYED THAT THE ADDITIONAL GROUNDS OF APPEAL MAY NOT BE ADMITTED. 4. THE APPELLANT PRAYS TO BE ALLOWED TO ADD, AMEND, MODIFY, RECTIFY, DELETE OR RAISE ANY GROUNDS OF APPEAL DURING T HE COURSE OF THE APPELLATE PROCEEDING. 28 . WE FIND SIMILAR AND IDENTICAL ADDITIONAL GROUNDS ON EDUCATION CESS HAVE BEEN RAISED IN ITA NO.497/PUN/2020 FOR THE ASSESSMENT YEAR 2014 - 15. SINCE ALL OTHER FACTS, ARGUMENTS OF THE PARTIES ARE SAME AND SIMILAR, THEREFORE, OUR DECISION RENDERED IN ITA NO.497/PUN/2020 FOR ASSESSMENT YEAR 2014 - 15 WHILE ADJUDICATING THE ADDITIONAL GROUNDS SHALL APPLY MUTATIS - MUTANDIS TO ITA NO.498/PUN/2020 FOR THE ADDITIONAL GROUNDS ALSO FOR THE ASSESSMENT YEAR 2015 - 16. THUS, ADDITIONAL GROUNDS RAISED BY THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. 29 . IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO.498/PUN/2020 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ITA NO. 49 9 /PUN/2020 A.Y. 20 16 - 17 30 . IN ITA NO.499/PUN/2020, THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APPEAL: 18 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 1 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE U/S 14A R.W.R.8D OF I T RULES, 1962 WITHOUT APPRECIATING THE FACT THAT THE A.O HAD RECORDED HIS DISSATISFACTION REGARDING THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE DURING THE ASSESSMENT PROCEEDINGS. 2 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(APPEALS) HAS E RRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE HAD SUO - MOTO DISALLOWED ONLY A MEAGER AMOUNT OF EXPENDITURE IN COMPARISON TO DIVIDEND INCOME AND SECTION 14A OF THE ACT LAYS DOWN THE MECHANISM FOR DETERMINING SUCH AMOUNT OF EXPENDITURE INCURRED IN RELAT ION TO EXEMPT INCOME IN ACCORDANCE WITH METHOD AS PRESCRIBED UNDER RULE 8D OF I T. RULES, 1962. 3 . ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. CIT(APPEALS) HAS ERRED IN DELETING THE DISALLOWANCE U/S.10AA(9) R.W.S . 801A(10) OF THE INCOME TAX ACT, 1961 WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE ITSELF IN THE COMPARABLES FURNISHED IN ITS TRANSFER PRICING REPORT HAD 'SHOWN 'ORDINARY PROFIT' TO BE OF 12. 44 % AS AGA INST NET PROFIT 'MARGIN OF 21.01 % SHOWN BY THE ASSE SSEE. 4 . THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR OMIT ANY OF THE ABOVE GROUNDS OF APPEAL DURING THE COURSE OF APPELLATE PROCEEDINGS. 31 . THE BRIEF FACTS IN RESPECT OF GROUND NOS. 1 & 2 ARE THAT THE ASSESSING OFFICER WAS NOT SATISFIED THAT T HE INVESTMENT MADE AND EXPENDITURE INCURRED AND CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IN THIS CASE, IT WAS NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS MADE SUO - MOTO DISALLOWANCE OF RS.16,74,677/ - ON ESTIMATED BASIS. THEREAFTER, THE ASSESSING OFFICER AS PER REASONS RECORDED IN HIS ORDER WHICH IS ON RECORD HAD DISALLOWED AN AMOUNT OF RS.5,61,06,106/ - U/S.14A R.W.R.8D OF THE RULES. THE ASSESSEE HAD MADE SUO - MOTO DISALLOWANCE OF RS.16,74,677/ - AND THEREFORE, THE DIFFERENCE AMOUNT OF RS.5,44,31,4 39/ - HAD BEEN DISALLOWED BY THE ASSESSING OFFICER AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE U/S.14A OF THE ACT. 3 2 . THE LD. CIT(APPEALS) VIDE PARA 3.5 OF HIS ORDER HAS PROVIDED RELIEF TO THE ASSESSEE RELYING ON THE DECISION OF THE PUNE BENCH OF THE T RIBUNAL IN ITA NO.1232/PUN/2017 (SUPRA.) WHEREIN THE RELIEF ON THIS ISSUE WAS PROVIDED TO THE ASSESSEE ON THE GROUND THAT NO SATISFACTION WAS RECORDED BY THE ASSESSING OFFICER WHILE MAKING SUCH ADDITION. WE HAVE OBSERVED IN ITA NO.497/PUN/2020 , THE ASSESSI NG OFFICER HAD MADE DETAILED ANA LYSIS OF THE 19 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 SAID PROVISIONS AND REQUIRED SATISFACTION HAS ALSO BEEN RECORDED IN HIS ORDER. THE SAME OBSERVATION HOLDS GOOD FOR THIS YEAR ALSO. WE FURTHER OBSERVE THAT THIS ISSUE IN EARLIER YEARS HAVE BEEN REMANDED TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION AS PER OUR OBSERVATION THEREIN AND ACCORDINGLY , FOR THIS YEAR ALSO, THE ISSUE NEEDS TO BE VERIFIED THAT ONCE THE ASSESSEE HAD MADE SUO - MOTO DISALLOWANCE OF RS.16.74 LAKHS AND IN THE GIVEN CIRCU MSTANCES WHEN THE ASSESSING OFFICER HAD MADE DISALLOWANCE DEDUCTING SUCH SUO - MOTO DISALLOWANCE MADE BY THE ASSESSEE THEN WHETHER SUCH DISALLOWANCE MADE FOR THIS YEAR IS MADE AT THE SAME PERCENTAGE OR MORE THAN 0.50% MADE IN RESPECT OF EARLIER TWO YEARS. IN VIEW THEREOF, WE SET ASIDE THE ORDER OF THE LD. CIT(APPEALS) ON THIS ISSUE AND REMAND THE MATTER BACK TO THE FILE OF THE ASSESSING OFFICER FOR VERIFICATION AND RE - ADJUDICATION AFTER COMPLYING WITH THE PRINCIPLES OF NATURAL JUSTICE AND AS PER LAW. THUS, GROUND NOS. 1 AND 2 RAISED IN APPEAL BY THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSES. 3 3 . BOTH PARTIES HEREIN HAVE AGREED THAT GROUND NO.3 RAISED IN ITA NO.499/PUN/2020 FOR THE ASSESSMENT YEAR 2016 - 17 IS SIMILAR AND IDENTICAL TO GROUND NO.4 RAISED IN ITA NO. 497/PUN/2020 FOR ASSESSMENT YEAR 2014 - 15. THEREFORE, OUR DECISION RENDERED IN ITA NO.497/PUN/2020 FOR ASSESSMENT YEAR 2014 - 15 WHILE ADJUDICATING THE GROUND NO.4 SHALL APPLY MUTATIS - MUTANDIS TO ITA NO.499/PUN/2020 FOR GROUND NO.3 ALSO FOR THE ASSESSMENT YEA R 2016 - 17. THUS, GROUND NO .4 RAISED BY REVENUE IN THIS APPEAL IS DISMISSED. ADJUDICATION OF THE ADDITIONAL GROUND : 3 4 . THE REVENUE HAS ALSO RAISED ADDITIONAL GROUNDS OF APPEAL WHICH READS AS FOLLOWS: 20 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 1. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS) HAS ERRED IN ADMITTING ADDITIONAL GROUND OF APPEAL ON EDUCATION CESS AND SECONDARY & HIGHER EDUCATION CESS OF RS. 2,79,72,487 / - WITHOUT GIVING AN OPPORTUNITY OF BEING HEARD TO T HE ASSESSING OFFICER. 2. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(APPEALS), PUNE HAS FAILED TO APPRECIATE THE PRINCIPLE OF NATURAL JUSTICE WHILE ALLOWING RELIEF TO THE ASSESSEE. 3. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, IT IS PRAYED THAT THE ADDITIONAL GROUNDS OF APPEAL MAY NOT BE ADMITTED. 4. THE APPELLANT PRAYS TO BE ALLOWED TO ADD, AMEND, MODIFY, RECTIFY, DELETE OR RAISE ANY GROUNDS OF APPEAL DURING THE COURSE OF THE APPELLATE PROCEEDING. 35 . WE FIND SIMILAR AND IDENTICAL ADDITIONAL GROUNDS ON EDUCATION CESS HAVE BEEN RAISED IN ITA NO.497/PUN/2020 FOR THE ASSESSMENT YEAR 2014 - 15. SINCE ALL OTHER FACTS, ARGUMENTS OF THE PARTIES ARE SAME AND SIMILAR, THEREFORE, OUR DECISION RENDERED IN ITA NO.4 97/PUN/2020 FOR ASSESSMENT YEAR 2014 - 15 WHILE ADJUDICATING THE ADDITIONAL GROUNDS SHALL APPLY MUTATIS - MUTANDIS TO ITA NO.499/PUN/2020 FOR THE ADDITIONAL GROUNDS ALSO FOR THE ASSESSMENT YEAR 2016 - 17. THUS, ADDITIONAL GROUNDS RAISED BY THE REVENUE ARE ALLOWE D FOR STATISTICAL PURPOSES. 36 . IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO.49 9 /PUN/2020 IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 37 . IN THE COMBINED RESULT, ALL THE APPEALS OF THE REVENUE ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRO NOUNCED ON 21 ST DAY OF JUNE , 20 2 1 . SD/ - SD/ - R.S.SYAL PARTHA SARATHI CHAUDHURY VICE PRESIDENT JUDICIAL MEMBER / PUNE; / DATED : 21 ST JUNE , 202 1 . SB 21 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(APPEALS) - 13, PUNE. 4. THE PR. CIT - 2, PUNE. 5. , , , / DR, ITAT, C BENCH, PUNE. 6 . / GUARD FILE. / BY ORDER, // TRUE COPY // / PRIVATE SECRETARY , / ITAT, PUNE . 22 ITA NOS.497, 498 & 499/PUN/2020 A.Y S . 2014 - 15, 2015 - 16 & 2016 - 17 DATE 1 DRAFT DICTATED ON 17 .0 6 .2021 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 1 8.06 .202 1 SR.PS/PS 3 DRAFT PROPOSED AND PLACED BEFORE THE SECOND MEMBER JM/AM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER AM/JM 5 APPROVED DRAFT COMES TO THE SR. PS/PS SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON SR.PS/PS 7 DATE OF UPLOADING OF ORDER SR.PS/PS 8 FILE SENT TO BENCH CLERK SR.PS/PS 9 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 10 DATE ON WHICH FILE GOES TO THE A.R 11 DATE OF DISPATCH OF ORDER