ASHOK KIRTANLAL SHAH, MUMBAI V. ADD. CIT CC-22 (1), MUMBAI

ITA 5842/MUM/2019

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 7831 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 11 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 01-09-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 11-09-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: BRAJENDRA KUMAR
• Keywords: Business income; Search and seizure; Earning of tax free income; Question of law; Revised return; Rule 8D
• Section: 143(3); 14A; 143(1); 143(2); 13; 90

Judgement Text

ITA NO.5842/MUM/2019 A.Y. 2010 - 11 ASHOK KIRTANLAL SHAH VS. ADDL.CIT, RANGE - 19(1) 1 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH A MUMBAI BEFORE SHRI M.BALALGANESH (ACCOUNTANT MEMBER) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) ITA NO.5842/MUM/2019 (ASSESSMENT YEAR: 2010 - 11) ASHOK KIRTANLAL SHAH 401, 4 TH FLOOR, ANAND HOUSE, 13 TH ROAD, OFF. LINKING ROAD, KHAR WEST, MUMBAI 400 052 VS. ADDL. CIT - RANGE 19(1) (PRESENTLY, ADDL, CIRCLE 22(1) PIRAMAL CHAMBERS, LAL BAUG, MUMBAI 400 012 PAN NO. AAHPS3203L (ASSESSEE) (REVENUE) ASSESSEE BY : SHRI DHARMESH SHAH , A.R REVENUE BY : SHRI BRAJENDRA KUMAR , D.R DATE OF HEARING : 23 /08/2021 DATE OF PR ONOUNCEMENT : 01 /0 9 /2021 ORDER PER RAVISH SOOD, J.M: THE PRESENT APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER PASSED BY THE CIT(A) - 32, MUMBAI, DATED 19.08 .2019, WHICH IN TURN ARISES FROM THE ORDER PASSED BY THE A.O U/S 143(3) OF THE INCOME TAX ACT, 1961 (FOR SHORT ACT) DATED 29.01.2013 F OR A. Y. 2010 - 11 . THE ASSESSEE HAS ASSAILED THE IMPUGNED ORDER ON THE FOLLOWING GROUNDS BEFORE US: 1. THE LD. CIT(A) HAD ERRED IN LAW AND IN FACTS N CONFIRMING THE ACTION OF THE LD. ASSESSING OFFICER IN MAKING DISALLOWANCE U/S 14A OF THE ACT OF RS.11,13,567/ - . 2. THE APPELLANT CRAVES LEAVE TO ADD TO, ALTER, AMEND AND/OR DELETE IN ALL THE FOREGOING GROUNDS OF APPEAL. FURTHER, THE ASSESSEE HAS RAISED THE FOLLOWING ADDITIONAL GROUND OF APPEAL BEFORE US : ITA NO.5842/MUM/2019 A.Y. 2010 - 11 ASHOK KIRTANLAL SHAH VS. ADDL.CIT, RANGE - 19(1) 2 ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LD. ASSES SING OFFICER AND LD. CIT(A) OUGHT TO HAVE APPRECIATED THAT EDUCATION CESS ON TAX PAYABLE BY THE APPELLANT SHOULD HAVE BEEN ALLOWED AS DEDUCTION WHILE COMPUTING INCOME OF THE APPELLANT. 2. BRIEFLY STATED, THE ASSESSEE WHO IS ENGAGED IN THE BUSIN ESS OF PROVIDING SERVICES TO LARGE STEEL MILLS AND LEADING STEEL TRADING HOUSES LOCATED WORLDWIDE , HAD FILED HIS RETURN OF INCOME FOR A.Y. 2010 - 11 ON 27.09.2010, DECLARING A TOTAL INCOME OF RS.5,80,37,190/ - . RETURN OF INCOME FILED BY THE ASSESSEE WAS INITIALLY PR OCESSED AS SUCH U/S 143(1) OF THE ACT. SUBSEQUENTLY, THE CASE OF THE ASSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT U/S 143(2) OF THE ACT. 3. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, IT WAS , INTER ALIA , OBSERVED BY THE A.O THAT THOUGH THE ASSESSEE HAD RECEIVED EXEMPT DIVIDEND INCOME OF RS.1,12,52,736/ - , VIZ. (I) DIVIDEND O N SHARES: RS.2,10,715/ - ;(II) DIVIDEND O N UTI AND ARS BONDS: RS.3,25,668/ - ; AND (III) DIVIDEND O N MUTUAL FUNDS: RS.1,07,16,353/ - , HOWEVER, NO EXPENDITURE WAS ATTRIBUTED AND THEREIN DISALLOWED IN RELATION TO EARNING OF THE SAID EXEMPT INCOME. ON BEING QUERIED THAT AS TO WHY THE DISALLOWANCE QUA THE AFORESAID EXEMPT INCOME MAY NOT BE WORKED OUT U/S 14A R.W. RULE 8D, THE ASSESSEE VIDE HIS REPLY DATED 19.12.2012 SUBMITTED THAT AS HE HAD MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR HIS PROPRIETARY CONCERN, VIZ. M/S KIRTANLAL AND COMPANY ; AND THE INVESTMENT S IN SHARES AND MUTUAL FUNDS FROM WHICH EXEMPT DIVIDEND INCOME WAS RECEIVED BY HIM PERTAINED TO HIS PERSONAL BALANCE SHEET IN WHICH NO EX PENDITURE WAS CLAIMED, THEREFORE, NO DISALLOWANCE U/S 14A OF THE ACT WAS WARRANTED. HOWEVER, THE A.O WAS NOT INCLINED TO ACCEPT THE AFORESAID EXPLANATION OF THE ASSESSEE AND WORKED OUT THE DISALLOWANCE UNDER SEC. 14A R.W RULE 8D OF RS.11,73,567/ - , AS UNDER : COMPUTATION OF 14A DISALLOWANCE AS PER NOTIFICATION NO.46/2008 DATED 24.03.2008 A. DIRECTLY ATTRIBUTED EXPENSES AMOUNT DIRECT EXPENSES TOTAL DIRECT EXPENSES B. INTEREST EXPENSES INTEREST WHICH CANNOT BE DIRECTLY ATTRIBUTED ITA NO.5842/MUM/2019 A.Y. 2010 - 11 ASHOK KIRTANLAL SHAH VS. ADDL.CIT, RANGE - 19(1) 3 AVERAGE VALUE OF INVESTMENT RELATED TO TAX FREE INCOME OPENING INVESTMENT 182,436,727.00 CLOSING INVESTMENT 262,991,244.00 222,713,485.50 AVERAGE TOTAL ASSETS IN BS OPENING TOTAL ASSETS 339,968,383.00 CLOSING TOTAL ASSETS 387,807,074.00 363,887,728.50 INTERE ST EXPENSES C. DEEMED EXPENSES AVERAGE VALUE OF INVESTMENT RELATED TO TAX FEE INCOME OPENING INVESTMENT 182,435,727.00 CLOSING INVESTMENT 262,991,244.00 222,713,485.50 0.5% OF AVERAGE INVESTMENTS 1,113,567.00 D. TOTAL 14A DISALLOWANCE 1 1 ,1 3,567.00 AFTER INTER ALIA MAKING THE AFORESAID DISALLOWANCE , THE A.O , VIDE HIS ORDER PASSED U/S 143(3) OF THE ACT, DATED 29.01.2013 ASSESSED THE INCOME OF THE ASSESSEE AT RS.5,91, 50, 760/ - . 4. AGGRIEVED, THE ASSESSEE ASSAILED THE ASSESSMENT ORDER BEFORE THE CIT(A). IT WAS , INTER ALIA , SUBMITTED BY THE ASSESSEE BEFORE THE FIRST APPELLATE AUTHORITY THAT THE A.O HAD WORKED OUT THE DISALLOWANCE U/S 14A WITHOUT RECORDING HIS SATISFACTION THAT AS TO W HY THE CLAIM OF THE ASSESSEE THAT NO DISALLOWANCE U/S 14A CO U LD BE ATTRIBUTED FOR EARNING OF THE EXEMPT DIVIDEND INCOME WAS NOT TO BE ACCEPTED . IT WAS THE CLAIM OF THE ASSESSEE THAT AS HE HAD MAINTAINED SEPARATE BOOKS FOR HIS PERSONAL AND BUSINESS PURPOSE AND NO NEXUS WAS SHOWN BY THE A.O BETWEEN THE EARNING OF THE DIVIDEND INCOME AND THE EXPENDITURE CLAIMED IN RESPECT OF HIS REGULAR BUSINESS , THEREFORE, THE DISALLOWANCE U/S 14A WAS NOT WARRANTED AND WAS LIABLE TO BE STRUCK DOWN. ALTERNATIVELY, IT WAS SUBMI TTED BY THE ASSESSEE THAT SALARY OF ONE OF HIS EMPLOYEE VIZ. MR. HENRY D S OUZA WHO USE D TO SPENT 20% OF HIS WORKING H OURS MAY BE ATTRIBUTED TO THE EARNING OF THE EXEMPT DIVIDEND INCOME, AND THUS, DISALLOWANCE AT BEST OF RS.1,38,820/ - BE MADE . ITA NO.5842/MUM/2019 A.Y. 2010 - 11 ASHOK KIRTANLAL SHAH VS. ADDL.CIT, RANGE - 19(1) 4 HOWEVER, THE CIT(A) WAS NOT INCLINED TO ACCEPT THE AFORESAID CONTENTIONS OF THE ASSESSEE. OBSERVING, THAT THE ASSESSEE HAD A SIZ E ABLE ACTIVITY OF MAKING INVESTMENTS IN SHARES AND MUTUAL FUNDS ON WHICH A SUBSTANTIAL AMOUNT OF EXEMPT INCOME HAD BEEN EARNED BY HIM, THE CI T(A) , THUS, WAS OF THE VIEW THAT THE USE OF THE SERVICES OF STAFF , OFFICE AND ESTABLISHMENT EXPENSES PERTAINING TO THE ASSESSEES PROPRIETARY BUSINESS FOR THE PURPOSE OF EARNING OF EXEMPT INCOME BY HIM COULD NOT BE RULED OUT. BACKED BY HIS AFORESAID OBSER VATION, THE CIT(A) WAS OF THE VIEW THAT THE A.O HAD RIGHTLY OBSERVED THAT THE CLAIM OF THE ASESSEE THAT NO EXPENDITURE WAS INCURRED IN RELATION TO THE EARNING OF THE EXEMPT INCOME COULD NOT BE ACCEPTED MERELY ON THE GROUND THAT HE HAD MAINTAINED SEPARATE B OOKS OF ACCOUNTS FOR THE AFORESAID STREAMS OF INCOME. ALSO, THE CIT(A) DID NOT FIND ANY MERIT IN THE ALTERNATIVE CLAIM OF THE ASSESSEE THAT THE DISALLOWANCE U/S 14A BE RESTRICTED TO THE EXTENT OF THE AD HOC DISALLOWANCE OF RS.1,38,820/ - PERTAINING TO SALA RY OF ONE OF HIS EMPLOYEE. BACKED BY HIS AFORESAID OBSERVATIONS THE CIT(A) WAS OF THE VIEW THAT NO INFIRMITY DID EMERGE FROM THE ORDER OF THE A.O WHO HAD RIGHTLY WORKED OUT THE DISALLOWANCE U/S 14A R.W. RULE 8D(2)(III) AT RS.11,13,567/ - . 5. THE ASSESSEE BE ING AGGRIEVED WITH THE ORDER PASSED BY THE CIT(A) HAS CARRIED THE MATTER IN APPEAL BEFORE US. THE LD. AUTHORIZED REPRESENTATIVE (FOR SHORT A.R) FOR THE ASSESSEE AT THE VERY OUTSET OF THE HEARING OF THE APPEAL SUBMITTED , THAT , THE A.O WITHOUT RECORDING HI S SATISFACTION AS TO WHY THE ASSESSEES CLAIM THAT NO EXPENSE S COULD BE ATTRIBUTED TO THE EARNING OF THE EXEMPT DIVIDEND INCOME , HAD HOWEVER, IN A MECHANICAL MANNER WORKED OUT THE DISALLOWANCE U/S 14A R.W RULE 8D(2)(III) OF RS.11,13,567/ - . IT WAS SUBMITTED B Y THE LD. A.R THAT AS PER THE SETTLED POSITION OF LAW IT WAS OBLIGATORY ON THE PART OF THE A.O TO RECORD HIS SATISFACTION THAT AS TO WHY THE CLAIM OF THE ASSESSEE QUA THE EXPENSES INCURRED, IF ANY , FOR EARNING OF THE EXEMPT DIVIDEND INCOME WAS NOT TO BE ACCEPTED. IN SUPPORT OF HIS AFORESAID CONTENTION THE LD. A.R HAD DRAWN ITA NO.5842/MUM/2019 A.Y. 2010 - 11 ASHOK KIRTANLAL SHAH VS. ADDL.CIT, RANGE - 19(1) 5 SUPPORT FROM THE JUDGMENT S OF THE HONBLE SUPREME COURT IN THE CASE OF GODREJ & BOYS MANUFACTURING COMPANY LTD. VS. PCIT AND ANR. (2017) 394 ITR 449 (SC) AND THAT IN THE CASE OF MAXOPP INVESTMENTS LTD. VS. CIT (2018) 402 ITR 640 (SC). IT WAS, THUS, SUBMITTED BY THE LD. A.R THAT IN THE BACKDROP OF THE AFORESAID INVALID ASSUMPTION OF JURISDICTION BY THE A.O THE DISALLOWANCE WORKED OUT BY HIM U/S 14A R.W.RULE 8D COULD NOT BE SUSTAINED AND W AS LIABLE TO BE VACATED. 6. PER CONTRA, THE LD. DEPARTMENTAL REPRESENTATIVE (FOR SHORT D.R) RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. IT WAS SUBMITTED BY THE LD. D.R THAT THE A.O HAD DULY RECORDED HIS SATISFACTION AS PER THE MANDATE OF LAW BEFORE W ORKING OUT THE DISALLOWANCE U/S 14A R.W.RULE 8D(2)(III). 7. WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD, AS WELL AS CONSIDERED THE JUDICIAL PRONOUN CEMENTS THAT HAVE BEEN PRESSED INTO SERVICE BY THE LD. A.R TO DRIVE HOME HIS AFORESAID CONTENTION. ADMITTEDLY, IT IS A MATTER OF FACT BORNE FROM THE RECORD THAT THOUGH THE ASSESSEE DURING THE YEAR IN QUESTION WAS IN RECEIPT OF EXEMPT DIVIDEND INCOME OF RS. 1,12,54,736/ - , HOWEVER , HE HAD NOT ATTRIBUTED AND THEREIN DISALLOWED ANY PART OF THE EXPENDITURE QUA EARNING OF THE SAID EXEMPT INCOME. AS IS DISCERNIBLE FROM THE RECORDS, IT WAS THE CLAIM OF THE ASSESSEE THAT HE HAD MAINTAINED SEPARATE BOOKS OF ACCOUNTS Q UA HIS REGULAR BUSINESS AND THE ACTIVITY OF MAKING INVESTMENTS IN SHARES AND MUTUAL FUNDS. I T WAS , THUS, THE CLAIM OF THE ASSESSEE THAT AS NO EXPENDITURE WAS CLAIMED BY HIM WITH RESPECT TO THE ACTIVITY OF MAKING INVESTMENT S IN SHARES AND MUTUAL FUNDS, THER EFORE, NO DISALLOWANCE WAS WARRANTED U/S 14A OF THE ACT. ON THE OTHER HAND, WE FIND THAT THE A.O AFTER EXHAUSTIVELY DISCUSSING SEC. 14A OF THE ACT A/W THE MECHANISM FOR WORKING OUT THE DISALLOWANCE AS CONTEMPLATED IN RULE 8D OF THE INCOME TAX ACT, RULES 19 63, AND THE LAW PERTAINING TO THE SAID STATUTORY PROVISION AS HAD DEVELOPED OVER THE TIME, THEREIN , WITHOUT RECORDING HIS SATISFACTION AS TO WHY THE ASSESSEES CLAIM THAT NO EXPENDITURE COULD BE ITA NO.5842/MUM/2019 A.Y. 2010 - 11 ASHOK KIRTANLAL SHAH VS. ADDL.CIT, RANGE - 19(1) 6 ATTRIBUTED FOR EARNING OF THE EXEMPT DIVIDEND INCOME HAD IN A MECHANICAL MANNER WORKED OUT THE DISALLOWANCE AS PER THE MECHANISM CONTEMPLATED IN RULE 8D OF THE INCOME TAX RULES , 1963. ON APPEAL, WE FIND THAT THE CIT(A) TAKING COGNIZANCE OF THE AFORESAID OBJECTION OF THE ASSESSEE HAD MERELY RECORDED A GENERAL OBSERVA TION THAT THE POSSIBILITY OF USE OF THE SERVICES OF STAFF, OFFICE AND ESTABLISHMENT RELATING TO THE ASSESSEES PROPRIETARY BUSINESS COULD NOT BE RULED OUT FOR EARNING OF THE EXEMPT DIVIDEND INCOME BY THE ASSESSEE. IN OUR CONSIDERED VIEW, NEITHER OF THE LO WER AUTHORITIES HAD RECORDED THEIR SATISFACTION AS TO WHY THE ASSESSEES CLAIM THAT NO PART OF THE EXPENDITURE PERTAINING TO HIS PROPRIETARY BUSINESS COULD BE ATTRIBUTED TO EARNING OF THE EXEMPT DIVIDEND IN COME BY THE ASSESSEE. IN OUR CONSIDERED VIEW THE I SSUE AS TO WHETHER IT IS OBLIGATORY ON THE PART OF THE A.O TO RECORD HIS SATISFACTION AS TO WHY THE CLAIM OF THE ASSESSEE IN RESPECT OF THE EXPENSES INCURRED FOR EARNING OF THE EXEMPT DIVIDEND INCOME , IF ANY, WAS NOT TO BE ACCEPTED IS NO MORE RES INTEGRA AND HAS BEEN SETTLED BY THE HONBLE SUPREME COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT & ANR. (2017) 394 ITR 449 (SC). THE HON BLE APEX COURT IN ITS AFORESAID ORDER HAD OBSERVED THAT IT IS OBLIGATORY ON THE PART OF THE A.O TO RECORD HIS SATISFACTION THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE , AS PLACED BEFORE HIM, IT WAS NOT POSSIBLE TO GENERATE THE REASONABLE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT WAS OBSERVED BY THE HON BLE APEX C OURT THAT IT WAS ONLY AFTER THE A.O HAD RECORDED HIS DISSATISFACTION AS REGARDS THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THAT THE PROVISIONS OF SEC.14A(2) AND (3) R.W RULE 8D COULD BE INVOKED. IT WAS OBSERVED BY THE HON BLE APEX COURT, AS UNDER: 37. WE DO NOT SEE HOW IN THE AFORESAID FACT SITUATION A DIFFERENT VIEW COULD HAVE BEEN TAKEN FOR THE ASSESSMENT YEAR 2002 - 2003. SUB - SECTIONS (2) AND (3) OF SECTION 14A OF THE ACT READ WITH RULE SD OF THE RULES MERELY PRESCRIBE A FORMULA FOR DETERMINATION OF E XPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IN A SITUATION WHERE THE ASSESSING OFFICER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE. WHETHER SUCH DETERMINATION IS TO BE MADE ON APPLICATION OF THE FORMULA PRESCRIBED UNDER RULE 8D OR IN THE BEST JUDGMENT OF THE ASSESSING OFFICER, WHAT THE LAW ITA NO.5842/MUM/2019 A.Y. 2010 - 11 ASHOK KIRTANLAL SHAH VS. ADDL.CIT, RANGE - 19(1) 7 POSTULATES IS THE REQUIREMENT OF A SATISFACTION IN THE ASSESSING OFFICER THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE HIM, IT IS NOT POS SIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. IT IS ONLY THEREAFTER THAT THE PROVISIONS OF SECTION 14A(2) AND (3) READ WITH RULE 8D OF THE RULES OR A BEST JUDGMENT DETERMINATION, AS EARLIER PREVAI LING, WOULD BECOME APPLICABLE. ALSO, A SIMILAR VIEW HAVE BEEN TAKEN BY THE HONBLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS CIT (2018) 402 ITR 640 (SC). IN THE CASE BEFORE US , IT IS A MATTER OF FACT BORNE FROM THE RECORD THAT THOUGH THE A.O HAD DISCUSSED AT LENGTH THE RATIONALE BEHIND INTRODUCTION OF SEC.14A AND ALSO RULE 8D THAT CONTEMPLAT ES THE MECHANISM FOR COMPUTING THE DISALLOWANCE UNDER THE AFOREMENTIONED STATUTORY PROVISION, AS WELL AS HAD EXHAUSTIVELY DEAL T WITH THE ASPECT AS TO HOW THE LAW INSOFAR THE AFOREMENTIONED STATUTORY PROVISION HAD DEVELOPED OVER THE TIME, BUT THEN, WE ARE AFRAID THAT THERE IS NO WHISPER OF ANY DISSATISFACTION ON HIS PART THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE , AS WERE PLACED BEFORE HIM, IT WAS NO T POSSIBLE ON HIS PART TO GENERATE THE REQUISITE SATISFACTION WITH REGARD TO THE CORRECTNESS OF THE ASSESSEES CLAIM THAT NO PART OF EXPENDITURE PERTAINING TO HIS PROPRIETARY BUSINESS COULD BE ATTRIBUTED TO EARNING OF EXEMPT DIVIDEND INCOME BY HIM. AS OBSE RVED BY US HEREINABOVE, THE STATE OF AFFAIRS QUA DISSATISFACTION AS REGARDS THE CLAIM OF THE ASSESSE E THAT NO PART OF THE EXPENSES INCURRED BY HIM WITH RESPECT TO HIS REGULAR BUSINESS COULD BE ATTRIBUTED TO HIS ACTIVITY OF MAKING INVESTMENT S IN SHARES AND MUTUAL FUNDS REMAIN ED MORE OR LESS THE SAME BEFORE THE CIT(A). ALTHOUGH, THE CIT(A) HAD OBSERVED THAT THE POSSIBILITY OF USE OF SERVICES OF STAFF, OFFICE AND ESTABLISHMENT RELATING TO THE PROPRIETARY BUSINESS OF THE ASSESSEE FOR MAKING INVESTMENTS IN SHARE S AND MUTUAL FUNDS COULD NOT BE RULED OUT, HOWEVER, WE FIND, THAT HE TOO HAD FAILED TO RECORD HIS SATISFACTION THAT HAVING REGARDS TO THE ACCOUNTS OF THE ASSESSEE, IT WAS NOT POSSIBLE TO ACCEPT THE CORRECTNESS OF THE ASSESSEES CLAIM THAT NO DISALLOWANCE OF ANY EXPENDITURE WAS CALLED FOR U/S 14A OF THE ACT. OUR AFORESAID VIEW IS ALL THE MORE FORTIF IED BY THE FACT THAT THE ASSESSEE HAD MAINTAINED SEPARATE BOOKS OF ACCOUNTS FOR HIS ACTIVITY OF MAKING INVESTMENTS IN SHARES AND ITA NO.5842/MUM/2019 A.Y. 2010 - 11 ASHOK KIRTANLAL SHAH VS. ADDL.CIT, RANGE - 19(1) 8 MUTU AL FUNDS. ACCORDINGLY, IN CASE THE A . O ; OR THE CIT(A) IN EXERCISE OF HIS POWERS WHICH ARE COTERMIN O US WITH THAT OF AN A.O , SOUGHT TO DISALLOW THE CLAIM OF THE ASSESSEE THAT NO EXPENSES COULD BE ATTRIBUTED TO EARNING OF THE EXEMPT DIVIDEND INCOME BY HIM, TH EN, THE RE WAS AN INNATE OBLIGATION CAST UPON THEM TO HAVE RECORDED THE REQUISITE SATISFACTION THAT HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE, AS PLACED BEFORE THEM, IT WAS NOT POSSIBLE TO GENERATE THE REQUISITE SATISFACTION WITH REGARDS TO THE CORRECTN ESS OF THE AFORESAID CLAIM OF THE ASSESSEE. WE ARE AFRAID THAT AS THERE IS A CLEAR LAPSE ON THE PART OF THE LOWER AUTHORITIES IN VALIDLY ASSUMING JURISDICTION FOR DISLODGING THE ASSESSEES CLAIM THAT NO DISALLOWANCE U/S 14A WAS CALLED FOR IN HIS HANDS, THE REFORE, THE DISALLOWANCE WORKED OUT BY THE A.O U/S 14A R.W. RULE 8D(2)(III) OF RS.11,13,567/ - WHICH THEREAFTER HAD BEEN SUSTAINED BY THE CIT(A) CANNOT BE UPHELD AND IS LIABLE TO BE VACATED. THE G ROUND OF APPEAL NO.1 IS ALLOWED IN TERMS OF OUR AFORESAID OBS ERVATIONS. 8. THE G ROUND OF APPEAL NO. 2 BEING GENERAL IS DISMISSED AS NOT PRESSED. 9. WE SHALL NOW DEAL WITH ADDITIONAL GROUND OF THE ASSESSEE, WHEREIN HE HAD CLAIMED THAT THE EDUCATION CESS ON THE TAX PAYABLE BY HIM SHOULD HAVE BEEN ALLOWED WHILE COMPUTING HIS INCOME FOR THE YEAR UNDER CONSIDERATION. IT WAS SUBMITTED BY THE LD. A.R THAT THE AFORESAID ADDITIONAL GROUND OF APPEAL WAS BEING RAISED ON THE BASIS OF THE RECENT JUDGMENT OF THE HON BLE HIGH COURT OF BOMBAY IN THE CASE OF SESA GOA LIMITED VS. JOINT COMMISSIONER OF INCOME - TAX (2020) 107 CCH 375 (BOM). THE LD. A.R SUBMITTED THAT THE HONBLE HIGH COURT IN ITS SAID JUDGMENT , HAD OBSERVED, THAT IF THE LEGISLATURE INTENDED TO PROHIBIT THE D EDUCTION OF AMOUNTS PAID BY AN ASSESSEE TOWARDS EDUCATION CESS OR ANY OTHER CESS AND HIGHER AND SECONDARY EDUCATION CESS, THEN, THE LEGISLATURE COULD HAVE EASILY INCLUDED REFERENCE TO CESS IN CLAUSE (II) OF SEC. 40(A). IT WAS FURTHER SUBMITTED BY THE LD. A.R THAT THE HIGH COURT HAD OBSERVED, THAT AS THE LEGISLATURE HAD NOT INCLUDED EDUCATION CESS OR ANY OTHER CESS IN CLAUSE (II) OF ITA NO.5842/MUM/2019 A.Y. 2010 - 11 ASHOK KIRTANLAL SHAH VS. ADDL.CIT, RANGE - 19(1) 9 SEC. 40(A), THEREFORE, IT WOULD MEAN THAT THERE WAS NO PROHIBITION IN CLAIMING DEDUCTION OF THE SAID AMOUNTS WHILE CO MPUTING THE INCOME OF THE ASSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. AS REGARDS ADMISSIBILITY OF THE SAID ISSUE BY WAY OF AN ADDITIONAL GROUND OF APPEAL, IT WAS SUBMITTED BY THE LD. A.R THAT THE HON BLE HIGH COURT IN ITS AFORESA ID ORDER, HAD OBSERVED, THAT WHERE THE ASSESSEE HAD RAISED A CLAIM FOR DEDUCTION OF THE AMOUNT PAID TOWARDS CESS, SUCH CLAIM FOR DEDUCTION WAS BOUND TO BE CONSIDERED BY THE CIT(APPEALS) OR THE ITAT BEFORE WHOM SUCH CLAIM WAS SPECIFICALLY RAISED. PER CONT RA, THE LD. D.R DID NOT OBJECT TO THE ADMISSION OF THE AFORESAID ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSE BEFORE US. 10. AS OBSERVED BY US HEREINABOVE, THE ASSESSEE HAS SOUGHT OUR INDULGENCE FOR ADJUDICATION ON AN ISSUE I.E AS TO WHETHER OR NOT T HE AMOUNT PAID TOWARDS EDUCATION CESS OR ANY OTHER CESS VIZ. THE SECONDARY AND HIGHER EDUCATION CESS IS DISALLOWABLE AS AN EXPENDITURE U/S 40(A)(II) OF THE INCOME - TAX ACT, 1961 , WHICH BEING A PURELY LEGAL ISSUE THAT WOULD NOT REQUIRE ANY VERIFICATION O F FACTS, THEREFORE, WE HAVE NO HESITATION IN ADMITTING THE SAME. 11 . WE HAVE HEARD THE LD. AUTHORIZED REPRESENTATIVES FOR BOTH THE PARTIES, PERUSED THE ORDERS OF THE LOWER AUTHORITIES AND THE MATERIAL AVAILABLE ON RECORD, AND ALSO CONSIDERED THE JUDICIAL PRONOUNCEMENTS RELIED UPON BY LD. A.R IN CONTEXT OF ADDITIONAL GROUND OF APPEAL RAISED BEFORE US. INSOFAR THE CLAIM OF THE LD. A.R THAT UNLIKE RATES AND TAXES THE AMOUNT PAID BY AN ASSESSEE TOWARDS EDUCATION CESS OR ANY OTHER CESS VIZ. THE SECONDAR Y AND HIGHER EDUCATION CESS IS NOT A DISALLOWABLE EXPENDITURE U/S 40(A)(II) OF THE INCOME - TAX ACT, 1961, WE FIND THAT THE SAID ISSUE IS SQUARELY COVERED BY THE RECENT ORDER OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF SESA GOA LIMITED VS. JOINT COMMI SSIONER OF INCOME - TAX (2020) 107 CCH 375 (BOM). IN THE CASE BEFORE THE HON BLE HIGH COURT THE FOLLOWING SUBSTANTIAL QUESTION OF LAW WAS , INTER ALIA , RAISED : ITA NO.5842/MUM/2019 A.Y. 2010 - 11 ASHOK KIRTANLAL SHAH VS. ADDL.CIT, RANGE - 19(1) 10 III. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE EDUCATION CESS AND HIGHER AND SECONDARY EDUCATION CESS IS ALLOWABLE AS A DED UCTION IN THE YEAR OF PAYMENT. AFTER EXHAUSTIVE DELIBERATIONS, THE HONBLE HIGH COURT HAD OBSERVED THAT THE LEGISLATURE IN SEC. 40(A)(II) HAD THOUGH PROVIDED THAT ANY RATE OR TAX LEVIED ON PROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, BUT THEN , THERE WAS NO REFERENCE TO ANY CESS. ALSO, THE HIGH COURT HELD OBSERVED THAT THER E WAS NO SCOPE TO ACCEPT THAT CESS BEING IN THE NATURE OF A TAX WAS EQUALLY NOT DEDUCTIBLE IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. IT WAS FURTHER OBSERVED THAT IF THE LEGISLATURE WOULD HAD INTEND ED TO PROHIBIT THE DEDUCTION OF AMOUNTS PAID BY AN ASSESSEE TOWARDS SAY, EDUCATION CESS OR ANY OTHER CESS, THEN, IT COULD HAVE EASILY INCLUDED A REFERENCE TO CESS IN CLAUSE (II) OF SECTION 40(A). ON THE BASIS OF ITS AFORESAID OBSERVATIONS, THE HONBLE HIGH COURT HAD CONCLUDED THAT NOW WHEN THE LEGISLATURE HAD NOT PROVIDED FOR ANY PROHIBITION ON THE DEDUCTION OF ANY AMOUNT PAID TOWARDS CESS IN CLAUSE (II) OF SEC. 40(A), THEREFORE, HOLDING TO THE CONTRARY WOULD AMOUNT TO READING SOMETHING WHICH IS NOT TO BE FOUND IN THE TEXT OF THE PROVISION OF SEC. 40(A)(II). ACCORDINGLY, THE HONBLE HIGH COURT HAD CONCLUDED THAT THERE WAS NO PROHIBITION ON THE DEDUCTION OF ANY AMOUNT PAID TOWARDS CESS IN SEC. 40(A)(II) WHILE COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, OBSERVING AS UNDER : 16. THE AFORESAID QUESTION ARISES IN THE CONTEXT OF PROVISIONS OF SECTION 40(A)(II) WHICH ACT, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, (A) IN THE CASE OF ANY ASSESSEE (IA)........................... (IB)................................ (IC) ............................ (II) ANY SUM PAID ON ACCOUNT OF ANY RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION OR ASSESSED AT A PROPORTION OF, OR OTHERWISE ON THE BASIS OF, ANY SUCH PROFITS OR GAINS. ITA NO.5842/MUM/2019 A.Y. 2010 - 11 ASHOK KIRTANLAL SHAH VS. ADDL.CIT, RANGE - 19(1) 11 [EXPLANATION 1. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT FOR THE PURPOSES OF THIS SUB - CLAUSE, ANY SUM PAID ON ACCOUNT OF ANY RATE OR TAX LEVIED INCLUDES AND SHALL BE DEEMED ALWAYS TO HAVE INCLUDED ANY SUM ELIGIBLE FOR RELIEF OF TAX UNDER SECTION 90 OR, AS THE CASE MAY BE, DEDUCTION FROM THE INDIAN INCOME - TAX PAYABLE UNDER SECTION 91.] [EXPLANATION 2. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT FOR THE PURPOSES OF THIS SUB - CLAUSE, ANY 9 TXA17&18 - 13 DT.28.02.2020 SUM PAID ON ACCOUNT OF ANY RATE OR TAX LEVIED INCLUDES ANY SUM ELIGIBLE FOR RELIEF OF TAX UNDER SECTION 90A;] 17. THEREFORE, THE QUESTION WHICH ARISES FOR DETERMINATION IS WHETHER THE EXPRESSION ANY RATE OR TAX LEVIED AS IT APPEARS IN SECTION 40(A)(II) OF THE IT ACT INCLUDES CESS. THE APPELLANT ASSESSEE CONTENDS THAT THE EXPRESSION DOES NOT INCLUDE CESS AND THEREFORE, THE AM OUNTS PAID TOWARDS CESS ARE LIABLE TO BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. HOWEVER, THE RESPONDENT REVENUE CONTENDS THAT CESS IS ALSO INCLUDED IN THE SCOPE AND IMPORT OF THE EX PRESSION ANY RATE OR TAX LEVIED AND CONSEQUENTLY, THE AMOUNTS PAID TOWARDS THE CESS ARE NOT LIABLE FOR DEDUCTION IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 18. IN RELATION TO TAXING STATUTE, CERTA IN PRINCIPLES OF INTERPRETATION ARE QUITE WELL SETTLED. IN NEW SHORROCK SPINNING AND MANUFACTURING CO. LTD. VS RAVAL, 37 ITR 41 (BOM.), IT IS HELD THAT ONE SAFE AND INFALLIBLE PRINCIPLE, WHICH IS OF GUIDANCE IN THESE MATTERS, IS TO READ THE WORDS THROUGH A ND SEE IF THE RULE IS CLEARLY STATED. IF THE LANGUAGE EMPLOYED GIVES THE RULE IN WORDS OF SUFFICIENT CLARITY AND PRECISION, NOTHING MORE REQUIRES TO BE DONE. INDEED, IN SUCH A CASE THE TASK OF INTERPRETATION CAN HARDLY BE SAID TO ARISE : ABSOLUTA SENTENTIA EXPOSITORE NON INDIGET. THE LANGUAGE USED BY THE LEGISLATURE BEST DECLARES ITS INTENTION AND MUST BE ACCEPTED AS DECISIVE OF IT. 19. BESIDES, WHEN IT COMES TO INTERPRETATION OF THE IT ACT, IT IS WELL ESTABLISHED THAT NO TAX CAN BE IMPOSED ON THE SUBJECT WITHOUT WORDS IN THE ACT CLEARLY SHOWING AN INTENTION TO LAY A BURDEN ON HIM. THE SUBJECT CANNOT BE TAXED UNLESS HE COMES WITHIN THE LETTER OF THE LAW AND THE ARGUMENT THAT HE FALLS WITHIN THE SPIRIT OF THE LAW CANNOT BE AVAILED OF BY THE DEPARTMENT. [SEE CIT VS MOTORS & GENERAL STORES 66 ITR 692 (SC)]. 20. IN A TAXING ACT ONE HAS TO LOOK MERELY AT WHAT IS CLEARLY SAID. THERE IS NO ROOM FOR ANY INTENDMENT. THERE IS NO EQUITY ABOUT A TAX. THERE IS NO PRESUMPTION AS TO A TAX. NOTHING IS TO BE READ IN, NOTHING IS TO BE IMPLIED, INTO THE PROVISIONS WHICH HAS NOT BEEN PROVIDED BY THE LEGISLATURE [SEE CIT VS RADHE DEVELOPERS 34 1 ITR 403 ]. ONE CAN ONLY LOOK FAIRLY AT THE LANGUAGE USED. NO TAX CAN BE IMPOSED BY INFERENCE OR ANALOGY. IT IS ALSO NOT PERMISSIBLE TO CONSTRUE A TAXING STATUTE BY MAKING ASSUMPTIONS AND PRESUMPTIONS [SEE GOODYEAR VS STATE OF HARYANA 188 ITR 402(SC)]. 2 1. THERE ARE SEVERAL DECISIONS WHICH LAY DOWN RULE THAT THE PROVISION FOR DEDUCTION, EXEMPTION OR RELIEF SHOULD BE INTERPRETED LIBERALLY, REASONABLY AND IN FAVOUR OF THE ASSESSEE AND IT SHOULD BE SO CONSTRUED AS TO EFFECTUATE THE OBJECT OF THE LEGISLATURE AND NOT TO DEFEAT IT. FURTHER, THE INTERPRETATION CANNOT GO TO THE EXTENT OF READING SOMETHING THAT IS NOT STATED IN THE PROVISION [SEE AGS TIBER VS CIT 233 ITR 207]. 22. APPLYING THE AFORESAID PRINCIPLES, WE FIND THAT THE LEGISLATURE, IN SECTION 40(A)(I I) HAS PROVIDED THAT ANY RATE OR TAX LEVIED ON PROFITS AND GAINS OF BUSINESS OR PROFESSION SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THERE IS NO REFERENCE TO ANY CESS. OBVIO USLY ITA NO.5842/MUM/2019 A.Y. 2010 - 11 ASHOK KIRTANLAL SHAH VS. ADDL.CIT, RANGE - 19(1) 12 THEREFORE, THERE IS NO SCOPE TO ACCEPT MS. LINHARES'S CONTENTION THAT CESS BEING IN THE NATURE OF A TAX IS EQUALLY NOT DEDUCTABLE IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. ACCEPTANCE OF SUCH A CONTENTION WILL AMOUNT TO READING SOMETHING IN THE TEXT OF THE PROVISION WHICH IS NOT TO BE FOUND IN THE TEXT OF THE PROVISION IN SECTION 40(A)(II) OF THE IT ACT. 23. IF THE LEGISLATURE INTENDED TO PROHIBIT THE DEDUCTION OF AMOUNTS PAID BY A ASSESSEE TO WARDS SAY, EDUCATION CESS OR ANY OTHER CESS, THEN, THE LEGISLATURE COULD HAVE EASILY INCLUDED REFERENCE TO CESS IN CLAUSE (II) OF SECTION 40(A) OF THE IT ACT. THE FACT THAT THE LEGISLATURE HAS NOT DONE SO MEANS THAT THE LEGISLATURE DID NOT INTEND TO PREVENT THE DEDUCTION OF AMOUNTS PAID BY A ASSESSEE TOWARDS THE CESS, WHEN IT COMES TO COMPUTING INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. 24. THE LEGISLATIVE HISTORY BEARS OUT THAT THE INCOME TAX BILL, 1961, AS IN TRODUCED IN THE PARLIAMENT, HAD SECTION 40(A)(II) WHICH READ AS FOLLOWS : (II) ANY SUM PAID ON ACCOUNT OF ANY CESS, RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION OR ASSESSED AT A PROPORTION OF, OR OTHERWISE ON THE BASIS OF, AN Y SUCH PROFITS OR GAINS 25. HOWEVER, WHEN THE MATTER CAME UP BEFORE THE SELECT COMMITTEE OF THE PARLIAMENT, IT WAS DECIDED TO OMIT THE WORD CESS FROM THE AFORESAID CLAUSE FROM THE INCOME TAX BILL, 1961. THE EFFECT OF THE OMISSION OF THE WORD CESS IS THAT ONLY ANY RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION ARE TO BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. SINCE THE DELETION OF EXPRESSION CESS FROM THE IN COME TAX BILL, 1961, WAS DELIBERATE, THERE IS NO QUESTION OF REINTRODUCING THIS EXPRESSION IN SECTION 40(A)(II) OF IT ACT AND THAT TOO, UNDER THE GUISE OF INTERPRETATION OF TAXING STATUTE. 26. IN FACT, IN THE AFORESAID PRECISE REGARD, REFERENCE CAN USEFU LLY BE MADE TO THE CIRCULAR NO. F. NO.91/58/66 - ITJ(19), DATED 18TH MAY, 1967 ISSUED BY THE CBDT WHICH READS AS FOLLOWS : - INTERPRETATION OF PROVISION OF SECTION 40(A)(II) OF IT ACT, 1961 CLARIFICATION REGARDING. RECENTLY A CASE HAS COME TO THE NOTICE OF THE BOARD WHERE THE INCOME TAX OFFICER HAS DISALLOWED THE CESS' PAID BY THE ASSESSEE ON THE GROUND THAT THERE HAS BEEN NO MATERIAL CHANGE IN THE PROVISIONS OF SECTION 10(4) OF THE OLD ACT AND SECTION 40(A)(II) OF THE NEW ACT. 2. THE VIEW OF THE INCOM E TAX OFFICER IS NOT CORRECT. CLAUSE 40(A)(II) OF THE INCOME TAX BILL, 1961 AS INTRODUCED IN THE PARLIAMENT STOOD AS UNDER: - '(II) ANY SUM PAID ON ACCOUNT OF ANY CESS, RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION OR ASSESSED AT A PROPORTION OF, OR OTHERWISE ON THE BASIS OF, ANY SUCH PROFITS OR GAINS'. WHEN THE MATTER CAME UP BEFORE THE SELECT COMMITTEE, IT WAS DECIDED TO OMIT THE WORD CESS' FROM THE CLAUSE. THE EFFECT OF THE OMISSION OF THE WORD CESS' IS THAT ONLY TAXES PAID ARE TO BE DISALLOWED IN THE ASSESSMENTS FOR THE YEARS 1962 - 63 AND ONWARDS. 3. THE BOARD DESIRE THAT THE CHANGED POSITION MAY PLEASE BE BROUGHT TO THE NOTICE OF ALL THE INCOME TAX OFFICERS SO THAT FURTHER LITIGATION ON THIS ACCOUNT MAY BE AVOIDED.[BOARD' S F. NO.91/58/66 - ITJ(19), DATED 18 - 5 - 1967.] ITA NO.5842/MUM/2019 A.Y. 2010 - 11 ASHOK KIRTANLAL SHAH VS. ADDL.CIT, RANGE - 19(1) 13 27. THE CBDT CIRCULAR, IS BINDING UPON THE AUTHORITIES UNDER THE IT ACT LIKE ASSESSING OFFICER AND THE APPELLATE AUTHORITY. THE CBDT CIRCULAR IS QUITE CONSISTENT WITH THE PRINCIPLES OF INTERPRETATION OF TAXING STATUTE. THIS, ACCORDING TO US, IS AN ADDITIONAL REASON AS TO WHY THE EXPRESSION CESS OUGHT NOT TO BE READ OR INCLUDED IN THE EXPRESSION ANY RATE OR TAX LEVIED AS APPEARING IN SECTION 40(A)(II) OF THE IT ACT. 28. IN THE INCOME TAX ACT, 1922, SECTION 10(4) HAD BANNED ALLOWANCE OF ANY SUM PAID ON ACCOUNT OF 'ANY CESS, RATE OR TAX LEVIED ON THE PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION'. IN THE CORRESPONDING SECTION 40(A)(II) OF THE IT ACT, 1961 THE EXPRESSION CESS IS QUITE CONSPICUOUS BY ITS ABS ENCE. IN FACT, LEGISLATIVE HISTORY BEARS OUT THAT THIS EXPRESSION WAS IN FACT TO BE FOUND IN THE INCOME TAX BILL, 1961 WHICH WAS INTRODUCED IN THE PARLIAMENT. HOWEVER, THE SELECT COMMITTEE RECOMMENDED THE OMISSION OF EXPRESSION CESS AND CONSEQUENTLY, THI S EXPRESSION FINDS NO PLACE IN THE FINAL TEXT OF THE PROVISION IN SECTION 40(A)(II) OF THE IT ACT, 1961. THE EFFECT OF SUCH OMISSION IS THAT THE PROVISION IN SECTION 40(A)(II) DOES NOT INCLUDE, CESS AND CONSEQUENTLY, CESS WHENEVER PAID IN RELATION TO B USINESS, IS ALLOWABLE AS DEDUCTABLE EXPENDITURE. 29. IN KANGA AND PALKHIVALA'S THE LAW AND PRACTICE OF INCOME TAX (TENTH EDITION), SEVERAL DECISIONS HAVE BEEN ANALYZED IN THE CONTEXT OF PROVISIONS OF SECTION 40(A)(II) OF THE IT ACT, 1961. THERE IS REFE RENCE TO THE DECISION OF PRIVY COUNCIL IN CIT VS GURUPADA DUTTA 14 ITR 100, WHERE A UNION RATE WAS IMPOSED UNDER A VILLAGE SELF GOVERNMENT 15 TXA17&18 - 13 DT.28.02.2020 ACT UPON THE ASSESSEE AS THE OWNER OR OCCUPIER OF BUSINESS PREMISES, AND THE QUANTUM OF THE RATE WAS FIXED AFTER CONSIDERATION OF THE 'CIRCUMSTANCES' OF THE ASSESSEE, INCLUDING HIS BUSINESS INCOME. THE PRIVY COUNCIL HELD THAT THE RATE WAS NOT 'ASSESSED ON THE BASIS OF PROFITS' AND WAS ALLOWABLE AS A BUSINESS EXPENSE. FOLLOWING THIS DECISION, THE SUPREME COURT HELD IN JAIPURIA SAMLA AMALGAMATED COLLIERIES LTD VS CIT [82 ITR 580] THAT THE EXPRESSION 'PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION' HAS REFERENCE ONLY TO PROFITS AND GAINS AS DETERMINED IN ACCORDANCE WITH SECTION 29 OF THIS ACT AND THAT ANY RATE OR TAX LEVIED UPON PROFITS CALCULATED IN A MANNER OTHER THAN THAT PROVIDED BY THAT SECTION COULD NOT BE DISALLOWED UNDER THIS SUB - CLAUSE. SIMILARLY, THIS SUB - CLAUSE IS INAPPLICABLE, AND A DEDUCTION SHOULD BE ALLOWED, WHERE A TAX IS IMPOSED B Y A DISTRICT BOARD ON BUSINESS WITH REFERENCE TO 'ESTIMATED INCOME' OR BY A MUNICIPALITY WITH REFERENCE TO 'GROSS INCOME'. BESIDES, UNLIKE SECTION 10(4) OF THE 1922 ACT, THIS SUB - CLAUSE DOES NOT REFER TO 'CESS' AND THEREFORE, A 'CESS' EVEN IF LEVIED UPON O R CALCULATED ON THE BASIS OF BUSINESS PROFITS MAY BE ALLOWED IN COMPUTING SUCH PROFITS UNDER THIS ACT. 30. THE DIVISION BENCH OF THE RAJASTHAN HIGH COURT (JAIPUR BENCH) IN INCOME TAX APPEAL NO.52/2018 DECIDED ON 31ST JULY, 2018 (CHAMBAL FERTILISERS AND C HEMICALS LTD. VS CIT RANGE - 2, KOTA ), BY REFERENCE TO THE AFORESAID CBDT CIRCULAR DATED 18TH MAY, 1967 HAS HELD 16 TXA17&18 - 13 DT. 28.02.2020 THAT THE ITAT ERRED IN HOLDING THAT THE EDUCATION CESS IS A DISALLOWABLE EXPENDITURE UNDER SECTION 40(A)(II) OF THE IT ACT. MS. LINHARES WAS UNABLE TO STATE WHETHER THE REVENUE HAS APPEALED THIS DECISION. MR. RAMANI, LEARNED SENIOR ADVOCATE SUBMITTED THAT HIS RESEARCH DID NOT SUGGEST THAT ANY APPEAL WAS INSTITUTED BY THE REVENUE AGAINST THIS DECISION, WHICH IS DIREC TLY ON THE POINT AND FAVOURS THE ASSESSEE. 31. MR. RAMANI, IN FACT POINTED OUT THREE DECISIONS OF ITAT, IN WHICH, THE DECISION OF THE RAJASTHAN HIGH COURT IN CHAMBAL FERTILISERS AND CHEMICALS LTD.(SUPRA) WAS FOLLOWED AND IT WAS HELD THAT THE AMOUNTS PAID BY THE ASSESSEE TOWARDS THE 'EDUCATION CESS' WERE LIABLE FOR DEDUCTION IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD OF PROFITS AND GAINS OF BUSINESS OR PROFESSION. THEY ARE AS FOLLOWS : - (I) DCIT VS PEERLESS ITA NO.5842/MUM/2019 A.Y. 2010 - 11 ASHOK KIRTANLAL SHAH VS. ADDL.CIT, RANGE - 19(1) 14 GENERAL FINANCE AND INVESTMENT AND CO. L TD. (ITA NO.1469 AND 1470/KOL/2019 DECIDED ON 5TH DECEMBER, 2019 BY THE ITAT, CALCUTTA; (II) DCIT VS GRAPHITE INDIA LTD. (ITA NO.472 AND 474 CO. NO.64 AND 66/KOL/2018 DECIDED ON 22ND NOVEMBER, 2019 )BY THE ITAT, CALCUTTA; (III) DCIT VS BAJAJ ALLIANZ GENERA L INSURANCE (ITA NO.1111 AND 1112/PUN/2017 DECIDED ON 25TH JULY, 2019) BY THE ITAT, PUNE. 32. AGAIN, MS. LINHARES, LEARNED STANDING COUNSEL FOR THE REVENUE WAS UNABLE TO SAY WHETHER THE REVENUE HAD INSTITUTED THE APPEALS IN THE AFORESAID MATTERS. MR. RAM ANI, LEARNED SENIOR ADVOCATE FOR THE APPELLANT SUBMITTED THAT TO THE BEST OF HIS RESEARCH, NO APPEALS WERE INSTITUTED BY THE REVENUE AGAINST THE AFORESAID DECISIONS OF THE ITAT. 33. THE ITAT, IN THE IMPUGNED JUDGMENT AND ORDER, HAS REASONED THAT SINCE C ESS IS COLLECTED AS A PART OF THE INCOME TAX AND FRINGE BENEFIT TAX, THEREFORE, SUCH CESS IS TO BE CONSTRUED AS TAX. ACCORDING TO US, THERE IS NO SCOPE FOR SUCH IMPLICATIONS, WHEN CONSTRUING A TAXING STATUTE. EVEN, THOUGH, CESS MAY BE COLLECTED AS A PART OF INCOME TAX, THAT DOES NOT RENDER SUCH CESS, EITHER RATE OR TAX, WHICH CANNOT BE DEDUCTED IN TERMS OF THE PROVISIONS IN SECTION 40(A)(II) OF THE IT ACT. THE MODE OF COLLECTION, IS REALLY NOT DETERMINATIVE IN SUCH MATTERS. 34. MS. LINHARES, HAS RELIED UPON M/S UNICORN INDUSTRIES VS UNION OF INDIA AND OTHERS, 2019 SCC ONLINE SC 1567 IN SUPPORT OF HER CONTENTION THAT CESS IS NOTHING BUT TAX AND THEREFORE, THERE IS NO QUESTION OF DEDUCTION OF AMOUNTS PAID TOWARDS CESS WHEN IT COMES TO COMPUTAT ION OF INCOME CHARGEABLE UNDER THE HEAD PROFITS OR GAINS OF ANY BUSINESS OR PROFESSION. 35. THE ISSUE INVOLVED IN UNICORN INDUSTRIES ( SUPRA ) WAS NOT IN THE CONTEXT OF PROVISIONS IN SECTION 40(A)(II) OF THE IT ACT. RATHER, THE ISSUE INVOLVED WAS WHETHER THE 'EDUCATION CESS, HIGHER EDUCATION CESS AND NATIONAL CALAMITY CONTINGENT DUTY (NCCD)' ON IT COULD BE CONSTRUED AS DUTY OF EXCISE WHICH WAS EXEMPTED IN TERMS OF NOTIFICATION DATED 9TH SEPTEMBER, 2003 IN RESPECT OF GOODS SPECIFIED IN THE NOTIFICATION A ND CLEARED FROM A UNIT LOCATED IN THE INDUSTRIAL GROWTH CENTRE OR OTHER SPECIFIED AREAS WITH THE STATE OF SIKKIM. THE HIGH COURT HAD HELD THAT THE LEVY OF EDUCATION CESS, HIGHER EDUCATION CESS AND NCCD COULD NOT BE INCLUDED IN THE EXPRESSION DUTY OF EXCIS E AND CONSEQUENTLY, THE AMOUNTS PAID TOWARDS SUCH CESS OR NCCD DID NOT QUALIFY FOR EXEMPTION UNDER THE EXEMPTION NOTIFICATION. THIS VIEW OF THE HIGH COURT WAS UPHELD BY THE APEX COU RT IN UNICORN INDUSTRIES (SUPRA ). 36. THE AFORESAID MEANS THAT THE SUPRE ME COURT REFUSED TO REGARD THE LEVY OF EDUCATION CESS, HIGHER EDUCATION CESS AND NCCD AS DUTY OF EXCISE WHEN IT CAME TO CONSTRUING EXEMPTION NOTIFICATION. BASED UPON THIS, MR. RAMANI CONTENDS THAT SIMILARLY AMOUNTS PAID BY THE APPELLANT ASSESSEE TOWARD S THE CESS CAN NEVER BE REGARDED AS THE AMOUNTS PAID TOWARDS THE TAX SO AS TO ATTRACT PROVISIONS OF SECTION 40(A)(II) OF THE IT ACT. ALL THAT WE MAY OBSERVE IS THAT THE ISSUE INVOLVED IN UNICORN INDUSTRIES (SUPRA ) WAS NOT AT ALL THE ISSUE INVOLVED IN THE PRESENT MATTERS AND THEREFORE, THE DECISION IN UNICORN INDUSTRIES ( SUPRA ) CAN BE OF NO ASSISTANCE TO THE RESPONDENT REVENUE IN THE PRESENT MATTERS. 37. MS. LINHARES, LEARNED STANDING COUNSEL FOR THE REVENUE HOWEVER SUBMITTED THAT THE APPELLANT ASSESSEE, IN ITS ORIGINAL RETURN, HAD NEVER CLAIMED DEDUCTION TOWARDS THE AMOUNTS PAID BY IT AS CESS. SHE SUBMITS THAT NEITHER WAS ANY SUCH CLAIM MADE BY FILING ANY REVISED RETURN BEFORE THE ASSESSING OFFICER. SHE THEREFORE RELIED UPON THE DECISION OF TH E SUPREME COURT IN GOETZE (INDIA) LTD. VS COMMISSIONER OF INCOME TAX (2006) 284 ITR 323 (SC) TO SUBMIT THAT THE ASSESSING OFFICER, WAS NOT ONLY QUITE RIGHT IN DENYING ITA NO.5842/MUM/2019 A.Y. 2010 - 11 ASHOK KIRTANLAL SHAH VS. ADDL.CIT, RANGE - 19(1) 15 SUCH A DEDUCTION, BUT FURTHER THE ASSESSING OFFICER HAD NO POWER OR JURISDICTION TO GRANT SUCH A DEDUCTION TO THE APPELLANT ASSESSEE. SHE SUBMITS THAT THIS IS WHAT PRECISELY HELD BY THE ITAT IN ITS IMPUGNED JUDGMENTS AND ORDERS AND THEREFORE, THE SAME, WARRANTS NO INTERFERENCE. 38. ALTHOUGH, IT IS TRUE THAT THE APPELLANT ASSESSEE DID NOT CLAIM ANY DEDUCTION IN RESPECT OF AMOUNTS PAID BY IT TOWARDS CESS IN THEIR ORIGINAL RETURN OF INCOME NOR DID THE APPELLANT ASSESSEE FILE ANY REVISED RETURN OF INCOME, ACCORDING TO US, THIS WAS NO BAR TO THE COMMISSIONER (APPEALS) OR THE ITAT TO CONSID ER AND ALLOW SUCH DEDUCTIONS TO THE APPELLANT ASSESSEE IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE. THE RECORD BEARS OUT THAT SUCH DEDUCTION WAS CLEARLY CLAIMED BY THE APPELLANT ASSESSEE, BOTH BEFORE THE COMMISSIONER (APPEALS) AS WELL AS THE ITA T. 39. IN CIT VS PRUTHVI BROKERS & SHAREHOLDERS PVT. LTD. 349 ITR 336, ONE OF THE QUESTIONS OF LAW WHICH CAME TO BE FRAMED WAS WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ITAT, IN LAW, WAS RIGHT IN HOLDING THAT THE CLAIM OF DEDUCTION NOT MADE IN THE ORIGINAL RETURNS AND NOT SUPPORTED BY REVISED RETURN, WAS ADMISSIBLE. THE REVENUE HAD RELIED UPON GOETZE (SUPRA ) AND URGED THAT THE ITAT HAD NO POWER TO ALLOW THE CLAIM FOR DEDUCTION. HOWEVER, THE DIVISION BENCH, WHILST PROCEEDING ON THE ASSUMPTIO N THAT THE ASSESSING OFFICER IN TERMS OF LAW LAID DOWN IN GOETZE (SUPRA) HAD NO POWER, PROCEEDED TO HOLD THAT THE APPELLATE AUTHORITY UNDER THE IT ACT HAD SUFFICIENT POWERS TO PERMIT SUCH A DEDUCTION. IN TAKING THIS VIEW, THE DIVISION BENCH RELIED UPON THE FULL BENCH DECISION OF THIS COURT IN AHMEDABAD ELECTRICITY CO. LTD VS CIT (199 ITR 351) TO HOLD THAT THE APPELLATE AUTHORITIES UNDER THE IT ACT HAVE VERY WIDE POWERS WHILE CONSIDERING AN APPEAL WHICH MAY BE FILED BY THE ASSESSEE. THE APPELLATE AUTHORITIES MAY CONFIRM, REDUCE, ENHANCE OR ANNUL THE ASSESSMENT OR REMAND THE CASE TO THE ASSESSING OFFICER. THIS IS BECAUSE, UNLIKE AN ORDINARY APPEAL, THE BASIC PURPOSE OF A TAX APPEAL IS TO ASCERTAIN THE CORRECT TAX LIABILITY OF THE ASSESSEE IN ACCORDANCE WITH LA W. 40. THE DECISION IN GOETZE (SUPRA) UPON WHICH RELIANCE IS PLACED BY THE ITAT ALSO MAKES IT CLEAR THAT THE ISSUE INVOLVED IN THE SAID CASE WAS LIMITED TO THE POWER OF THE ASSESSING AUTHORITY AND DOES NOT IMPINGE ON THE POWERS OF THE ITAT UNDER SECTION 254 OF THE SAID ACT. THIS MEANS THAT IN GOETZE (SUPRA), THE HON'BLE APEX COURT WAS NOT DEALING WITH THE EXTENT OF THE POWERS OF THE APPELLATE AUTHORITIES BUT THE OBSERVATIONS WERE IN RELATION TO THE POWERS OF THE ASSESSING AUTHORITY. THIS IS THE DISTINCTIO N DRAWN BY THE DIVISION BENCH IN PRUTHVI BROKERS (SUPRA) AS WELL AND THIS IS THE DISTINCTION WHICH THE ITAT FAILED TO NOTE IN THE IMPUGNED ORDER. 41. BESIDES, WE NOTE THAT IN THE PRESENT CASE, THOUGH THE CLAIM FOR DEDUCTION WAS NOT RAISED IN THE ORIGINAL RETURN OR BY FILING REVISED RETURN, THE APPELLANT ASSESSEE HAD INDEED ADDRESSED A LETTER CLAIMING SUCH DEDUCTION BEFORE THE ASSESSMENT COULD BE C OMPLETED. HOWEVER, EVEN IF WE PROCEED ON THE BASIS THAT THERE WAS NO OBLIGATION ON THE ASSESSING OFFICER TO CONSIDER THE CLAIM FOR DEDUCTION IN SUCH LETTER, THE COMMISSIONER ( APPEALS ) OR THE ITAT, BEFORE WHOM SUCH DEDUCTION WAS SPECIFICALLY CLAIMED WAS D UTY BOUND TO CONSIDER SUCH CLAIM. ACCORDINGLY, WE ARE UNABLE TO AGREE WITH MS. LINHARE'S CONTENTION BASED UPON THE DECISION IN GOETZE (SUPRA ). 42. FOR ALL THE AFORESAID REASONS, WE HOLD THAT THE SUBSTANTIAL QUESTION OF LAW NO.(III) IN TAX APPEAL NO.17 O F 2013 AND THE SOLE SUBSTANTIAL QUESTION OF LAW IN TAX APPEAL NO.18 OF 2013 IS ALSO REQUIRED TO BE ANSWERED IN FAVOUR OF THE APPELLANT ASSESSEE AND AGAINST THE RESPONDENTREVENUE. TO THAT EXTENT THEREFORE, THE IMPUGNED JUDGMENTS AND ORDERS MADE BY THE ITA T WARRANT INTERFERENCE AND MODIFICATION. ITA NO.5842/MUM/2019 A.Y. 2010 - 11 ASHOK KIRTANLAL SHAH VS. ADDL.CIT, RANGE - 19(1) 16 43. THUS, WE ANSWER ALL THE THREE SUBSTANTIAL QUESTIONS OF LAW FRAMED IN TAX APPEAL NO.17 OF 2013 IN FAVOUR OF THE APPELLANT ASSESSEE AND AGAINST THE RESPONDENT - REVENUE. SIMILARLY, WE ANSWER THE SOLE SUBSTANTIA L QUESTION OF LAW FRAMED IN TAX APPEAL NO.18 OF 2013, IN FAVOUR OF THE APPELLANT ASSESSEE AND AGAINST THE RESPONDENT REVENUE. WE, THUS, RESPECTFULLY FOLLOW THE AFORESAID JUDGMENT OF THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF SESA GOLD LIMITED (SUPRA), AND THEREIN CONCLUDE THAT EDUCATION CESS AND THE SECONDARY AND HIGHER EDUCATION CESS IS NOT DISALLOWABLE AS A DEDUCTION U/S 40(A)(II) OF THE ACT. ACCORDINGLY, WE HEREIN RESTORE THE ISSUE TO THE FILE OF THE A.O WITH A DIRECTION TO G IVE CONSEQUENTIAL EFFECT TO OUR AFORESAID OBSERVATIONS. THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE IS ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS . 1 2 . RESULTANTLY, THE APPEAL OF THE ASSESSEE IS ALLOWED IN TERMS OF OUR AFORESAID OBSERVATIONS. ORDER PR ONOUNCED IN THE OPEN COURT ON 01 .0 9 .2021 SD/ - SD/ - ( M. BALAGANESH ) (RAVISH SOOD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI ; DATED: 01 .0 9 .2021 PS: ROHIT COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) - 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (SR. PRIVATE SECRETARY) ITAT, MUMBAI