M/s. Sudarshan Chemical Industries Ltd, Pune V. Deputy Commissioner of Income-tax, Central Circle - 1(1), Pune

ITSSA 94/PUN/2017

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 5349 (ITAT-PUNE)
• Duration Of Justice: 4 year(s) 1 month(s) 12 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 16-01-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Assessment Year: 2010-2011
• Appeal Filed On: 04-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Search and seizure
• Section: 139; 153A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH “A”, PUNE – VIRTUAL COURT BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER IT(SS)A No.94/PUN/2017 नधा रण वष / Assessment Year : 2010-11 Sudarshan Chemical Industries Ltd., 161, Wellesley Road, Pune 411 001 PAN : AABCS4223P Vs. DCIT, Circle-1(1), Pune Appellant Respondent आदेश / ORDER PER R.S.SYAL, VP : This appeal by the assessee emanates from the order dated 11.09.2017 passed by the ld. CIT(Appeals) Pune -11, in relation to the assessment year 2010-11. 2. The relevant facts are that the assessee was subjected to search and seizure proceedings on 23-10-2014. The assessment for the year under consideration was pending on the date of search by means of a notice u/s.143(2) of the Income-tax Act, 1961 (hereinafter also called `the Act’) issued in the month of April 2014. Such pending assessment got abated because of the second Assessee by Shri Nikhil Pathak Revenue by Shri S.P. Walimbe Date of hearing 14-01-2022 Date of pronouncement 17-01-2022 IT(SS)A No.94/PUN/2017 Sudarshan Chemical Industries Ltd., 2 proviso to section 153A and the assessee filed a fresh return of income. It is pursuant to such a return, that the AO finalised the assessment. 3. The first issue is against not allowing deduction of Bonus at Rs.6,28,638/- which was paid before the due date of filing of the return. The facts apropos this issue are that the assessee did not claim such deduction in the original return filed u/s.139 of the Act. However, pursuant to search action and notice u/s.153A, the assessee filed its return claiming, inter alia, deduction for bonus payment of Rs.6,28,638/-. The AO held that the assessee was not entitled to claim any fresh deduction in the return filed pursuant to search inasmuch as these proceedings were for the benefit of the Revenue and not the assessee. He, therefore, disallowed the fresh claim of bonus expenditure. No succor was allowed in the first appeal. 4. We have heard the rival sides and perused the relevant material on record. Section 153A of the Act deals with assessment in case of search or requisition. Sub-section (1), containing a non- obstante clause anent to certain sections, provides that where a search is initiated against a person, the AO shall issue a notice to IT(SS)A No.94/PUN/2017 Sudarshan Chemical Industries Ltd., 3 such person requiring him to furnish the return of income in respect of each assessment year falling within six assessment years and the relevant assessment year. First proviso to this sub-section states that the AO shall assess or re-assess the total income in respect of each assessment year falling within such six assessment years and the relevant assessment year. The second proviso, which is material for our purpose, provides that the assessment or re- assessment relating to any assessment year falling within the period of six assessment years or the relevant assessment year pending on the date of initiation of search u/s.132 etc., shall abate. The effect of such a statutory abatement is that the pending assessment proceedings die automatic death and an altogether fresh assessment is contemplated to be made by the AO. Au contraire, the assessments which stand completed, expressly or impliedly, on the date of search have different connotation and scope. Whereas the fresh assessments u/s 153A of the earlier completed assessments as on the date of search require inclusion of fresh income in the tax-net only on the basis of incriminating material found during the course of search in addition to the income already assessed, the assessment u/s 153A of the earlier pending IT(SS)A No.94/PUN/2017 Sudarshan Chemical Industries Ltd., 4 assessment getting abated is akin to a fresh assessment with all the rights and liabilities intact of both the assessee and the AO. To be more precise, an assessment of the pending assessment getting abated in terms of the second proviso to section 153A(1) entails all consequences which follow when a new assessment is framed pursuant to a return filed u/s.139 of the Act. In other words, the bar on the Department for not including a fresh income in the absence of any incriminating material found in the case of search, as applying to the completed assessments, does not extend to such abated assessments and any income which is liable to be taxed for any reason whatsoever is liable to be included in the assessment u/s.153A. An assessee is also similarly placed in such an assessment. He is also entitled to claim any deduction lawfully available even though the same was not claimed in the return originally filed u/s.139 of the Act. In that view of the matter, we do not find any legal bar on the assessee in raising a fresh claim for the first time in the return filed u/s.153A of the Act which was not made in the original return filed u/s 139 of the Act in the cases of assessments for the years which were pending on the date of search and accordingly got abated. IT(SS)A No.94/PUN/2017 Sudarshan Chemical Industries Ltd., 5 5. Adverting to the facts, we are confronted with a situation in which the assessee claimed deduction of Rs.6,28,638/- towards bonus for the first time in its return filed u/s 153A of the Act that was not claimed in the return filed u/s 139 of the Act. Such a claim was jettisoned by the AO at the threshold on the ground that the assessee could not have made such a claim in the return u/s.153A. We have held supra that such a proposition propounded by the authorities is not in accordance with law. Holding it untenable, we set-aside the impugned order and remit the matter to the file of the AO for examining the claim of bonus deduction as per law on merits with reference to the relevant evidence. 6. The assessee has raised two additional grounds, which read as under: “1. The assessee submits that the investments which did not yield any taxable income should be reduced for the purposes of computing the disallowance u/s.14A r.w.r.8D. 2. The assessee submits that the education cess and secondary and higher education cess paid for the year under consideration may kindly be allowed as a deduction while computing the total income of the assessee.” 7. The Hon’ble Supreme Court in National Thermal Power Company Ltd. Vs. CIT (1998) 229 ITR 383 (SC) has observed that “the purpose of the assessment proceedings before the taxing IT(SS)A No.94/PUN/2017 Sudarshan Chemical Industries Ltd., 6 authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item”. Answering the question posed before it in affirmative, their Lordships held that on the facts found by the authorities below, if a question of law arises (though not raised before the authorities) which has bearing on the tax liability of the assessee, the Tribunal has jurisdiction to examine the same. Having gone through the subject matter of the additional grounds taken by the assessee, it is apparent that the same raise a pure question of law. We, therefore, admit the additional grounds. 8. The next issue raised by the assessee through ground No.1 and additional ground No.1 is against the confirmation of disallowance u/s.14A of the Act. The AO observed that the assessee earned exempt income of Rs.1,09,587/-. The AO computed the disallowance u/s.14A read with Rule 8D at IT(SS)A No.94/PUN/2017 Sudarshan Chemical Industries Ltd., 7 Rs.4,65,249/-, being, one-half per-cent of the average value of investments. Such a disallowance came to be affirmed in the first appeal. Aggrieved thereby, the assessee has come up in appeal before the Tribunal. 9. The ld. AR did not raise any dispute as to the computation of disallowance at 0.5% of the average value of investments. He simply requested that only such investments as yielded the exempt income during the year under consideration should be considered for the purpose of the calculation. 10. The Hon'ble Delhi High Court in ACB India Ltd. vs. CIT (2015) 374 ITR 108 (Del) has held that the average value of investments, for the purposes of Rule 8D(2)(iii), should be confined to those securities in respect of which exempt income is earned and not the total investments. Similar view has been taken by the Special Bench of the Tribunal in the case of ACIT vs. Vireet Investments (P) Ltd. (2017) 165 ITD 27 (Del) (SB). In view of the afore referred precedents, we set aside the impugned order to this extent and remit the matter to the file of Assessing Officer for re- computing the disallowance under Rule 8D(2)(iii) by considering only such investments in calculating the average value of IT(SS)A No.94/PUN/2017 Sudarshan Chemical Industries Ltd., 8 investments, which yielded exempt income during the year. The assessee will be allowed hearing opportunity in such fresh proceedings. 11. The next issue raised by the assessee is against the non- granting of weighted deduction of Rs.75,53,000/- u/s.35(2AB) of the Act. The facts relating to this issue are that the assessee claimed deduction u/s.35(1)(i) at 100% and u/s.35(2AB) at 150% of the Act. The weighted deduction was claimed in respect of Capital expenditure amounting to Rs.15.82 lakh and Revenue expenditure amounting to Rs.327.47 lakh. The AO observed that the expenditure approved by the Department of Scientific and Industrial Research (DSIR) was Rs.10.91 lakh and Rs.256.85 lakh respectively. He, therefore, disallowed the weighted part of the deduction on the excess amount not approved by DSIR, which resulted into disallowance of Rs.75,53,000/-. The ld. CIT(A) echoed the disallowance. 12. Having heard both the sides and gone through the relevant material on record, it is seen that the assessment year under consideration is 2010-11 and the claim of the assessee for weighted deduction has been partly disallowed only on the ground that DSIR IT(SS)A No.94/PUN/2017 Sudarshan Chemical Industries Ltd., 9 gave approval for lower amount. The provisions of Rule 3CL and other connecting rules got amended by the Income-tax (10 th Amendment) Rules w.e.f. 01-07-2016 wherein a separate part has been inserted for restricting the weighted deduction. There was no such provision or methodology restricting the disallowance in the circumstances prior to such amendment carried out in 2016. Thus, the weighted deduction for the full eligible amount incurred by the assessee is to be allowed notwithstanding the granting of approval by DSIR for a lower amount. This ground of the assessee is, thus, allowed. 13. The only other additional ground is towards the grant of deduction towards Education Cess and Secondary and Higher Education Cess paid for the year under consideration. 14. We find that this issue is no more res integra in view of the judgment of Hon’ble jurisdictional High Court in Sesa Goa Lt. Vs. JCIT (2020) 423 ITR 426 (Bom.) in which it has been held that Education Cess is not disallowable expenditure u/s.40(a)(ii) of the Act. Similar view has earlier been taken by the Hon’ble Rajasthan High Court in Chambal Fertilisers and Chemicals Ltd. and IT(SS)A No.94/PUN/2017 Sudarshan Chemical Industries Ltd., 10 Another Vs. JCIT (2018) 102 CCH 0202 (Raj-HC). We, ergo, direct to allow deduction for such an amount after verification. 15. In the result, the appeal is partly allowed. Order pronounced in the Open Court on 17 th January, 2022. Sd/- Sd/- (S.S.VISWANETHRA RAVI) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT प ु णे Pune; दनांक Dated : 17 th January, 2022 Satish आदेश क त ल प अ े षत/Copy of the Order is forwarded to: 1. अपीलाथ / The Appellant; 2. यथ / The Respondent; 3. 4. The CIT(A)-11, Pune The Pr.CIT (Central), Pune 5. िवभागीय ितिनिध, आयकर अपीलीय अिधकरण, पुणे “A” / DR ‘A’, ITAT, Pune 6. गाड फाईल / Guard file आदेशान ु सार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune IT(SS)A No.94/PUN/2017 Sudarshan Chemical Industries Ltd., 11 Date 1. Draft dictated on 14-01-2022 Sr.PS 2. Draft placed before author 17-01-2022 Sr.PS 3. Draft proposed & placed before the second member JM 4. Draft discussed/approved by Second Member. JM 5. Approved Draft comes to the Sr.PS/PS Sr.PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *