Prima Private Limited, Pune V. Deputy Commissioner of Income-tax, Circle - 10, Pune

ITA 65/PUN/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 3830 (ITAT-PUNE)
• Duration Of Justice: 3 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-02-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2012-2013
• Appeal Filed On: 08-01-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: VITTHAL BHOSALE
• Assessee Lawyers: SHARAD A SHAH
• Keywords: Question of law; Rule 8D; Set aside
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, PUNE BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER . / ITA NO.65/PUN/2018 / ASSESSMENT YEAR : 2012-13 PRIMA PRIVATE LTD., T-73, MIDC BHOSARI, PUNE 411026 PAN : AABCP1938J ....... / APPELLANT / V/S. DY. COMMISSIONER OF INCOME TAX, CIRCLE 10, PUNE / RESPONDENT ASSESSEE BY : SHRI SHARAD A. SHAH REVENUE BY : SHRI VITTHAL BHOSALE / DATE OF HEARING : 11-02-2021 / DATE OF PRONOUNCEMENT : 18-02-2021 / ORDER PER S.S. VISWANETHRA RAVI, JM : THIS APPEAL BY THE ASSESSEE AGAINST THE ORDER DATED 11-10-2017 PASSED BY THE COMMISSIONER OF INCOME TAX (APPEALS)-6, PUNE [CIT(A)] FOR ASSESSMENT YEAR 2012-13. 2. THE ASSESSEE RAISED GROUND NOS. 1 TO 4 QUESTIONING THE ACTION OF CIT(A) IN CONFIRMING THE DISALLOWANCE OF RS.18,67,577/- MADE U/S. 14A R.W. RULE 8D(2) OF THE I.T. RULES IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 2 ITA NO. 65/PUN/2018, A.Y. 2012-13 3. THE BRIEF FACTS ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF ENGINEERING AND AUTOMOBILES PARTS AND ALSO HAS WIND MILLS IN MAHARASHTRA AND TAMILNADU. THE ASSESSEE FILED RETURN OF INCOME DECLARING A TOTAL INCOME OF RS.5,72,00,590/- AND UNDER SCRUTINY THE AO DETERMINED THE SAME AT RS.5,73,01,284/- INTER ALIA MAKING ADDITION U/S. 14A AND DISALLOWING INTEREST EXPENSES VIDE ITS ORDER DATED 31-12-2014 U/S. 143(3) OF THE ACT. THE CIT(A) DELETED THE ADDITION MADE ON ACCOUNT OF INTEREST EXPENSES OF RS.68,84,106/- AND CONFIRMED THE ADDITION MADE U/S. 14A R.W. RULE 8D. 4. AFTER HEARING BOTH THE PARTIES, WE NOTE THAT THE ASSESSEE MADE INVESTMENTS TO THE TUNE OF RS.15.18 CRORES AND DISALLOWED ON ITS OWN OF RS.18,67,577/- UNDER RULE 8D(2)(II) OF RS.12,20,304/- AND BEING 0.5% OF AVERAGE INVESTMENTS OF RS.6,47,273/- BUT HOWEVER, THE AO MADE FURTHER ENHANCEMENT OF DISALLOWANCE UNDER RULE 8D(2)(II) TO AN EXTENT OF RS.3,31,763/- AND MADE TOTAL DISALLOWANCE OF RS.21,99,340/- U/S 14A OF THE ACT. THE ASSESSEE RAISED ADDITIONAL GROUND BEFORE THE CIT(A) TO DELETE THE INTEREST EXPENSES DISALLOWED BY THE ASSESSEE ON ITS OWN TO AN EXTENT OF RS.12,20,303/- AND ALSO ENHANCED DISALLOWANCE OF RS.3,31,763/- ON THE GROUND THAT THE ASSESSEE HAS SHARE CAPITAL, RESERVES AND SURPLUS MORE THAN THE INVESTMENTS MADE. THE CIT(A) DID NOT ACCEPT THE CONTENTIONS MADE BY THE ASSESSEE AND REJECTED ADDITIONAL GROUND UPHOLDING THE AOS VIEW THAT THE SOURCE OF SOME OF THESE INVESTMENTS ARE OUT OF BORROWED FUNDS. THE ASSESSEE IS BEFORE US TO DELETE ENTIRE DISALLOWANCE OFFERED BY THE ASSESSEE SUO-MOTO STATING THAT THE INVESTMENTS MADE DURING THE YEAR UNDER CONSIDERATION ARE LESS THAN ASSESSEES OWN FUNDS, NO DISALLOWANCE IS REQUIRED AND REFERRED TO PAGE NO. 1 OF THE PAPER BOOK. WE NOTE THAT AT PAGE NO. 1 OF THE PAPER BOOK THE BALANCE SHEET OF THE ASSESSEE REFLECTS THE 3 ITA NO. 65/PUN/2018, A.Y. 2012-13 SHARE CAPITAL, RESERVES AND SURPLUS TO AN EXTENT OF RS.32,38,52,976/- WHICH IS ADMITTEDLY MORE THAN THE INVESTMENTS MADE. FURTHER, WE NOTE THAT NOTE NO. 9 IN ASSETS CLEARLY DISCLOSES THE NON-CURRENT ASSETS TO AN EXTENT OF RS.16,18,55,626/- SHOWING THAT THE ASSESSEE MADE INVESTMENTS DURING THE YEAR UNDER CONSIDERATION OUT OF WHICH RS.1,00,00,000/- INVESTED IN GOVERNMENT BONDS. IT IS NEEDLESS TO SAY THAT THE INVESTMENTS MADE IN GOVERNMENT BONDS YIELD NO DIVIDEND BUT ONLY INTEREST. 5. IT IS A SETTLED PROPOSITION THAT IF THE OWN FUNDS ARE MORE THAN THE INVESTMENTS MADE SHOULD BE PRESUMED THAT THE ASSESSEE MADE INVESTMENTS FROM ITS OWN FUNDS. AS DISCUSSED ABOVE, THE ASSESSEE MADE INVESTMENTS TO THE TUNE OF RS.15.18 CRORES IN THE YEAR UNDER CONSIDERATION, TO WHICH THE BALANCE SHEET AS ON 31-03-2012 CLEARLY SHOWS AS NON-CURRENT INVESTMENTS, AND ALSO SHOWS OWN FUNDS AT RS.32,38,52,976/- WHICH IS MORE THAN THE INVESTMENTS MADE. THEREFORE, THE INTEREST EXPENSES DISALLOWED UNDER RULE 8D(2)(II) IS NOT MAINTAINABLE. THE DISALLOWANCE RELATING TO 0.5% OF INVESTMENTS TO THE TUNE OF RS.6,47,273/- IS CONFIRMED. THUS, SUO-MOTO DISALLOWANCE MADE BY THE ASSESSEE UNDER RULE 8D(2)(II) OF RS.12,20,303/- AND THE ENHANCED DISALLOWANCE MADE BY THE ASSESSING OFFICER OF RS.3,31,763/- TOTALING TO RS.15,52,067/- REQUIRES TO BE DELETED FOR THE REASONS INDICATED ABOVE AND THE DISALLOWANCE UNDER RULE 8D(2)(III) IS CONFIRMED. THUS, THE ORDER OF CIT(A) IS SET ASIDE AND THE GROUND NOS. 1 TO 4 RAISED BY THE ASSESSEE ARE PARTLY ALLOWED. 6. THE ASSESSEE RAISED ADDITIONAL GROUNDS OF APPEAL SEEKING DEDUCTION OF RS.5,25,000/- PAID TOWARDS EDUCATION CESS UNDER FINANCE ACT WHILE COMPUTING THE TAXABLE INCOME. THE LD. AR SUBMITS THAT THE ABOVE GROUND RAISED BY THE ASSESSEE IS PURELY LEGAL GROUND AND RAISED FOR THE FIRST TIME 4 ITA NO. 65/PUN/2018, A.Y. 2012-13 BEFORE THIS TRIBUNAL. SINCE, THE EDUCATION CESS PAID BY THE ASSESSEE AVAILABLE WITH THE RESPONDENT REVENUE WHICH DOES NOT REQUIRE ANY FURTHER EXAMINATION OF FACTS AND PRAYED TO ALLOW THE ADDITIONAL GROUND. FURTHER, HE REFERRED TO PAGE NO. 45 OF THE PAPER BOOK AND SUBMITTED THAT THIS TRIBUNAL TAKING SUPPORT FROM THE DECISION OF HONBLE HIGH COURT OF BOMBAY IN THE CASE OF SESA GOA LIMITED VS. THE JOINT COMMISSIONER OF INCOME TAX, TAX APPEAL NO. 17 OF 2013 DIRECTED THE AO TO ALLOW DEDUCTION PAID TOWARDS EDUCATION CESS. 7. AFTER HEARING BOTH THE PARTIES, WE NOTE THAT THE ASSESSEE PAID EDUCATION CESS WHILE COMPUTING THE TAXABLE INCOME UNDER NORMAL PROVISION OF THE I.T. ACT. THE HONBLE HIGH COURT OF BOMBAY IN THE CASE OF SESA GOA LIMITED (SUPRA) WAS PLEASED TO HOLD THAT THE EDUCATION CESS IS AN ALLOWABLE EXPENDITURE AS PER THE PROVISION OF THE I.T. ACT. THE RELEVANT PORTION OF THE ORDER OF TRIBUNAL IN ITA NO. 1578/PUN/2017 FOR A.Y. 2011- 12 IN THE CASE OF M/S. ADVIK HI-TECH PVT. LTD. IS REPRODUCED HERE-IN-BELOW FOR READY REFERENCE : 12. THE ASSESSEE HAS ALSO PREFERRED ADDITIONAL GROUND WHICH READS AS FOLLOWS: THE LD. AO BE DIRECTED TO ALLOW DEDUCTION OF RS.12,91,464/- PAID TOWARDS EDUCATION CESS UNDER FINANCE ACT WHILE COMPUTING THE TAXABLE INCOME UNDER NORMAL PROVISION OF THE IT ACT. 13. WE FIND THAT THIS ISSUE IS SQUARELY COVERED BY THE DECISION OF THE HON BLE BOMBAY HIGH COURT IN THE CASE OF SESA GOA LIMITED VS. THE JOINT COMMISSIONER OF INCOME TAX, TAX APPEAL NO.17 OF 2013 WHEREIN IT HAS BEEN OBSERVED AND OPINED BY THE HON BLE BOMBAY HIGH COURT AS FOLLOWS: 22. APPLYING TO THE AFORESAID PRINCIPLES, WE FIND THAT THE LEGISLATURE, IN SECTION 40(A)(II) 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'. OBVIOUSLY THEREFORE, THERE IS NO SCOPE TO ACCEPT MS. LINHARESS 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 AN ASSESSEE TOWARDS SAY, EDUCATION CESS OR ANY OTHER CESS, THEN THE LEGISLATURE COULD HAVE EASILY INCLUDED REFERENCE TO CESS IN CLAUSE (II) 5 ITA NO. 65/PUN/2018, A.Y. 2012-13 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 THE ASSESSEE TOWARDS THE CESS, WHEN IT COMES TO COMPUTING INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION. THE HON BLE BOMBAY HIGH COURT OBSERVING ON THE IMPUGNED ORDER OF THE ITAT HAS REASONED AT PARA 33 OF THE SAID ORDER THAT THE TRIBUNAL HAS OBSERVED THAT SINCE CESS IS COLLECTED AS A PART OF THE INCOME TAX AND FRINGE BENEFIT TAX, THEREFORE, SUCH CESS IS TO BE CONSTRUED AS TAX. HOWEVER, THE HON BLE BOMBAY HIGH COURT HELD THAT 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 ACT. THE MODE OF COLLECTION IS REALLY NOT DETERMINATIVE IN SUCH MATTER. THEREFORE, IT WAS HELD THAT AMOUNT CESS PAID IS DEDUCTABLE FROM TOTAL INCOME OF THE ASSESSEE. 14. THE PUNE BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. BAJAJ ALLIANZ GENERAL INSURANCE COMPANY LIMITED, ITA NOS.1111 & 1112/PUN/2017 FOR THE ASSESSMENT YEARS 2013-14 & 2014-15 DATED 25.07.2019 ON THE ISSUE HAS HELD AND OBSERVED AS FOLLOWS: 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 SUBSTANTIAL 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. FOR THE SAKE OF COMPLETENESS, THE SAID PARAGRAPH IS EXTRACTED AS UNDER: 12. WE HAVE HEARD CONSEL 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 OF THE ASSESSEE. APART FROM THE SUPREME COURT DECISION REFERRED THAT ASSESSMENT YEAR IS INDEPENDENT AND WORD CESS HAS BEEN RIGHTLY INTERPRETED BY THE 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, IT 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 REFERRED CASE BY THE HONBLE HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR, GROUND OF CROSS OBJECTION NO.4 IS ALLOWED. THAT THEREFORE, FROM THE LEGAL PERSPECTIVE, THE ISSUE OF EDUCATION CESS IS AN ALLOWABLE EXPENDITURE AS PER PROVISIONS OF SECTION 40(A)(II) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) AND PLACING RELIANCE ON THE DECISION OF THE HON BLE BOMBAY HIGH COURT (SUPRA.), WE ALLOW THE ADDITIONAL GROUND OF APPEAL RAISED BY THE ASSESSEE. 8. THE LD. DR DID NOT BRING ON RECORD ANY ORDER IN SUPPORT OF HIS CONTENTIONS. 6 ITA NO. 65/PUN/2018, A.Y. 2012-13 9. THEREFORE, IN VIEW OF THE ABOVE DECISION, WE DIRECT THE AO TO ALLOW DEDUCTION IN RESPECT OF EDUCATION CESS PAID BY THE ASSESSEE. ACCORDINGLY, THE ADDITIONAL GROUND RAISED BY THE ASSESSEE IS ALLOWED. 10. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 18 TH FEBRUARY, 2021. SD/- SD/- (WASEEM AHMED) (S.S. VISWANETHRA RAVI) ACCOUNTANT MEMBER JUDICIAL MEMBER / PUNE; / DATED : 18 TH FEBRUARY, 2021. RK/SUJEET / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT. 2. / THE RESPONDENT. 3. THE CIT(A)-6, PUNE 4. THE PR. CIT-5, PUNE 5. , , , / DR, ITAT, A BENCH, PUNE. 6. / GUARD FILE. // // TRUE COPY// / BY ORDER, //TRUE COPY// / PRIVATE SECRETARY, , / ITAT, PUNE