Dy.CIT,Cir.-4, Pune V. M/s. Praj Industries Ltd, Pune

ITA 638/PUN/2011

• Counselvise Citation: [2012] 120 COUNSELVISE.COM (IT) 0022 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 4 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2012
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 27-09-2012
• Assessment Year: 2007-2008
• Appeal Filed On: 16-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K SINGH
• Keywords: Non-deduction of tax
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI R.K. PANDA, AM ITA NO. 638/PN/2011 (ASSESSMENT YEAR: 2007-08) DY. CIT CIR. 4, PUNE .. APPELLANT VS. M/S. PRAJ INDUSTRIES LTD., PRAJ HOUSE MUMBAI BANGALORE HIGHWAY OPP. HEMRI, BAVDHAN, PUNE-411 021 PAN AAACP 6090 Q RESPONDENT APPELLANT BY: SHRI S.K. SINGH RESPONDENT BY: SHRI C.H. NANIWADEKAR DATE OF HEARING: 27-9-2012 DATE OF PRONOUNCEMENT: 3-10-2012 ORDER PER SHAILENDRA KUMAR YADAV, JM THIS APPEAL BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)- II PUNE DATED 28-2-2011 FOR A.Y. 2007-08 ON THE FOLLOWING GROUNDS: 1. THE ORDER OF THE LEARNED CIT(A) IS CONTRARY TO L AW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED CIT(A) THAT THE CIT(A) ERRED IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S 10A OF THE ACT IN RESPECT OF THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE U/S 40(A)(IA) OF THE ACT. 3. THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION U/S 10A OF THE ACT IN RESPECT OF THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE U/S 40(A)(IA). 4. THE LEARNED CIT(A) ERRED IN FAILING TO APPRECIAT E THAT THE SAID ADDITION OF DISALLOWANCE U/S 2 ITA NO 638/PN/11 PRAJ I NDUSTRIES A.Y. 2007-08 40(A)(IA) MADE ON ACCOUNT OF NON-DEDUCTION OF TDS WAS NOT INCOME DERIVED FROM THE EXPORT OF SOFTWARE AND, THEREFORE, ADDITION U/S 10A WAS NOT ADMISSIBLE TO THE ASSESSEE IN RESPECT OF THE SAID AMOUNT. 5. THE LEARNED CIT(A) ERRED IN FAILING TO APPRECIAT E THAT THE REASON BEHIND INSERTING SEC. 40(A) AND THEREBY DISALLOWING THE DEDUCTION OF EXPENDITURE WHICH HAS BEEN INCURRED FOR THE BUSINESS PURPOSE IS TO FORBID THE ASSESSEE FROM NON-PAYMENT OR NON-DEDUCTION OF TAX PAYABLE TO THE GOVT. UNDER CHAPTER XVII-B THAT OUGHT TO BE PAID. 6. THE LEARNED CIT(A) ERRED IN RESTRICTING THE DISALLOWANCE U/S 14A TO RS. 18,47,459/- ONLY AS AGAINST RS. 64,87,346/- MADE IN THE ASSESSMENT WITHOUT APPRECIATING THAT AS PER THE DECISION OF THE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. 234 CTR 1, DISALLOWANCE U/S 14A FOR THE A.YS PRIOR TO A.Y. 2008-09 WILL HAVE TO BE MADE ON A REASONABLE BASIS; AND, CONSIDERING THAT THE GENERAL ADMINISTRATIVE EXPENSES CLAIMED BY THE ASSESSEE WERE A HUGE SUM OF RS. 36.14 CRORES, THE MEAGER DISALLOWANCE OF RS. 10,00,000/- ONLY WITH REFERENCE TO THE SAID EXPENSES COULD BY NO MEANS BE CONSIDERED AS REASONABLE. THE LEARNED CIT(A) ERRED IN SUSTAINING ONLY A PART OF THE DISALLOWANCE ON AN ADHOC BASIS AND WITHOUT ADOPTING ANY METHOD OR RATIO. 7. FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF HEARING, THE ORDER OF THE LEARNED CIT(A) MAY BE VACATED AND THAT OF THE AO BE RESTORED. 2. THE ASSESSEE HAS RAISED THE ISSUE OF DISALLOWANC E U/S 40(A)(IA) OF THE ACT. THE ASSESSING OFFICER HE LD THAT THE ENHANCED PROFIT DUE TO THE DISALLOWANCE CO ULD NOT BE ELIGIBLE FOR CLAIM U/S 10A/10B OF THE ACT. T HE A.O HAS FURTHER HELD THAT SINCE ONLY THE PROFIT DER IVED BY THE UNDERTAKING FROM EXPORT OF ARTICLE OR THINGS AND COMPUTER SOFTWARE WERE TO BE ALLOWED AS DEDUCTION FROM THE TOTAL INCOME OF THE ASSESSEE, THE DISALLOW ANCE U/S 40(A)(IA) WHICH WAS ONLY NOTIONALLY INCREASING THE 3 ITA NO 638/PN/11 PRAJ I NDUSTRIES A.Y. 2007-08 INCOME, CANNOT BE TREATED AS PROFIT DERIVED BY THE UNDERTAKING. ON APPEAL, FOLLOWING THE JUDGMENT OF THE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GEM PLUS JEWELLERY INDIA LTD. IN ITA NO. 2426 OF 2009 VIDE O RDER DATED 23-6-2010 (330 ITR 175), AND THE DECISION OF BOMBAY BENCH OF THE TRIBUNAL IN THE CASE OF SABA SOFTWARE PVT. LTD. VS. ITO IN ITA NO. 1454/MUM/2009 DT. 27-1-2010, ALLOWED THE CLAIM OF THE ASSESSEE. 3. AFTER HEARING BOTH THE PARTIES AND PERUSING THE MATERIAL ON RECORD, WE FIND THAT THE CIT(A) WAS JUSTIFIED IN ALLOWING THE CLAIM OF THE ASSESSEE SIN CE THE CONCLUSION IS BASED ON JUDGMENT OF HONBLE JURISDICTIONAL BOMBAY HIGH COURT IN THE CASE OF GEM PLUS JEWELLERY INDIA LTD (SUPRA). WE THEREFORE, DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE ICIT(A) ON T HIS ISSUE. 4. THE NEXT GROUND IS WITH REGARDS TO DISALLOWANCE OF RS. 64,87,346/- U/S 14A R.W.R. 8D OF THE INCOME- TAX RULES, 1962. THE A.O NOTICED THAT THE ASSESSEE HAS SHOWN THE EXEMPTED INCOME TO THE TUNE OF RS. 4.53 CRORES EARNED DURING THE YEAR FROM DIVIDENDS A ND GAINS ARISING FROM REDEMPTION OF MUTUAL FUNDS BUT N O DISALLOWANCE U/S 14A WAS MADE. THE ASSESSEE CONTENDED THAT THE COMPANY HAD SEPARATE TREASURY DEPARTMENT WITH TWO EMPLOYEES AND THE GROSS SALARY OF THE TWO EMPLOYEES AND A SALARY OF ASSOCIATE V.P WAS CONSIDERED AS DISALLOWABLE U/S 14A WHICH WAS WORKED OUT TO RS. 8,47,459/-. FURTHER, GENERAL ADMINISTRA TIVE EXPENSES TO THE TUNE OF RS. 1 LAKH WAS ALSO ESTIMAT ED FOR THIS PURPOSE AND IT WAS STATED THAT THE TOTAL DISALLOWABLE DIRECT EXPENSES U/S 14A WOULD WORK OUT TO RS. 9,47,459/-. THE ASSESSEE CONTENDED THAT SIN CE 4 ITA NO 638/PN/11 PRAJ I NDUSTRIES A.Y. 2007-08 THE ASSESSEE WAS READY FOR DISALLOWANCE OF THE SALA RY OF TREASURY DEPARTMENT, NO FURTHER DISALLOWANCE WAS CALLED FOR. HOWEVER, THE ASSESSING OFFICER APPLIED THIS RULE FOLLOWING THE SPECIAL BENCH OF ITAT BOMBAY DECISION IN THE CASE OF DAGA CAPITAL MANAGEMENT PVT . LTD. 15 DTR 69 WHICH HELD RULE 8D AS WELL AS SEC. 14A(2) AND (3) AS RETROSPECTIVE IN NATURE. ACCORDI NGLY APPLYING RULE 8D THE A.O WORKED OUT THE DISALLOWANC E AT RS. 64,87,346/-. 5. ON APPEAL, THE CIT(A) GAVE PARTIAL RELIEF TO THE ASSESSEE BY OBSERVING AS UNDER: I HAVE CONSIDERED THE SUBMISSIONS OF THE APPELLANT AND MATERIAL AVAILABLE ON RECORD. CONSIDERING THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ AND BOYCE MFG. CO. LTD. VS. CIT (2010) 234 CTR 1 (BOM), THE DISALLOWANCE U/S 14A R.W.R. 8D FOR THIS ASSESSMENT YEAR MADE BY THE A.O CANNOT BE HELD. HOWEVER, THE HONBLE HIGH COURT HAD ALSO HELD THAT FOR THE YEARS PRIOR TO THE A.Y. 2008-09, THE A.O HAD TO MAKE THE DISALLOWANCE U/S 14A ON SOME REASONABLE BASIS. THE APPELLANTS EXPLANATION GIVEN BEFORE THE A.O THAT SALARY OF EMPLOYEES IN TREASURY DEPARTMENT COULD BE DISALLOWED FOR THIS PURPOSE WHICH WORK OUT TO RS. 8,47,459/- IS ACCEPTABLE. HOWEVER, THE CONTENTION BEFORE ME THAT THE APPELLANT HAD ITSELF MADE THIS DISALLOWANCE IS NOT CORRECT. IT WAS ONLY AT ASSESSMENT STAGE THAT SUCH DISALLOWANCE WAS OFFERED. MOREOVER, THE DISALLOWANCE OF ONLY RS. 1 LAKHS OUT OF GENERAL ADMINISTRATIVE EXPENSES WHICH ARE TO THE TUNE OF RS. 34.14 CRORES IN THE P & L A/C IS TOO LOW. THESE EXPENSES COMPRISED OF THE ESTABLISHMENT AND RUNNING EXPENSES OF THE OFFICE LIKE RENT AND LEASE RENT, ELECTRICITY, REPAI RS AND MAINTENANCE, INSURANCE, PROFESSIONAL SERVICES, TRAVELLING AND CONVEYANCE, COMMUNICATION, ADVERTISEMENT, MISCELLANEOUS EXPENSES, BANK CHARGES ETC. IN FACT EVEN THE MISCELLANEOUS EXPENSES WERE TO THE TUNE OF RS. 6.89 CRORES. ON THE OTHER HAND, THE DISALLOWANCE OUT OF SALARY WAS OFFERED WHICH IS DEBITED UNDER A SEPARATE HEAD PERSONAL EXPENSES. CONSIDERING THE TOTALITY OF THE EXPENSES AND EXPLANATION GIVEN 5 ITA NO 638/PN/11 PRAJ I NDUSTRIES A.Y. 2007-08 BY THE APPELLANT, THE DISALLOWANCE ON THIS ACCOUNT OUT OF GENERAL ADMINISTRATIVE EXPENSES IS TO BE MADE AT RS. 10 LAKHS INSTEAD OF RS. 1 LAKH AS OFFERED BY THE APPELLANT IN THE ASSESSMENT PROCEEDINGS. ACCORDINGLY, IT IS HELD THAT THE TOTA L DISALLOWABLE EXPENSES U/S 14A FOR THIS YEAR WOULD WORK OUT BY THE A.O UNDER RULE 8D. THE APPELLANT ACCORDINGLY GETS A PARTIAL RELIEF AND THIS GROUND WILL BE TREATED AS PARTLY ALLOWED. 6. HAVING HEARD THE PARTIES AND PERUSED THE MATERIAL ON RECORD, WE FIND NO INFIRMITY IN THE OR DER OF THE CIT(A) WHICH IS BASED ON THE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GO DREJ AND BOYCE MFG. CO. LTD. (SUPRA). IN THIS VIEW OF T HE MATTER, THE GROUND RAISED BY THE REVENUE IS LIABLE TO BE DISMISSED. 7. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. DECISION PRONOUNCED IN THE OPEN COURT ON 3 RD OCTOBER 2012. SD/- SD/- (R.K. PANDA) (SHAILENDRA KUMAR YADAV) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE, DATED:3 RD OCTOBER 2012 ANKAM COPY TO:- ASSESSEE DEPARTMENT THE CIT (A) II PUNE THE CIT II PUNE THE D.R. B BENCH, I.T.A.T., PUNE. BY ORDER //TRUE COPY// SR. P.S. I.T.A.T., PUNE