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

ITSSA 95/PUN/2017

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 5350 (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: 2011-2012
• Appeal Filed On: 04-12-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Search and seizure; Earning of tax free income
• Section: 153A; 14A

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. 95/PUN/2017 नधा रण वष / Assessment Year : 2011-12 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 2011-12. 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 proviso to section 153A and the assessee filed a fresh return of 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. 95/PUN/2017 Sudarshan Chemical Industries Ltd., 2 income. It is pursuant to such a return, that the AO finalised the assessment. 3. 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. 1.1 Without prejudice to the above ground, the assessee submits that the amount of disallowance u/s.14A read with Rule 8D of Income Tax Rules, 1962 should be restricted to the extent of exempt income earned during the previous year. 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.” 4. 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 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 IT(SS)A No. 95/PUN/2017 Sudarshan Chemical Industries Ltd., 3 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. 5. The first issue raised through the ground No.1 and the additional ground No.1 is against the confirmation of the disallowance made by the AO u/s.14A of the Act. The facts for this year are that the assessee earned dividend income of Rs.12,070/-, which was claimed as exempt. No disallowance was offered u/s.14A of the Act. Invoking the provisions of section 14A read with Rule 8D, the AO computed the disallowance at Rs.5,65,248/-, which came to be affirmed in the first appeal. 6. Having heard both the sides through virtual court and gone through the relevant material on record, it is found as an admitted position that the assessee earned exempt dividend income of Rs.12,070/-. The Hon'ble Delhi High Court in Cheminvest Ltd. vs. IT(SS)A No. 95/PUN/2017 Sudarshan Chemical Industries Ltd., 4 CIT (2015) 378 ITR 33 (Del) has held that if there is no exempt income, there can be no question of making any disallowance u/s 14A of the Act. Similar view has been taken by the Hon'ble Delhi High Court in CIT vs. Holcim India P. Ltd. (2014) 90CCH 081- Del-HC. Taking this proposition to a logical conclusion, the Hon’ble jurisdictional High Court in Pr. CIT VS. HSBC Invest Direct (India) Ltd. (2020) 421 ITR 125 (Bom) has held that the disallowance u/s 14A cannot exceed the amount of exempt income. Respectfully following the aforesaid precedent, we order to restrict the disallowance u/s.14A to the amount of exempt income earned by the assessee during the year, at Rs.12,070/-. 7. The second ground raised in this appeal is against not granting the weighted deduction of Rs.43,49,000/- u/s.35(2AB) of the Act on the ground that the DSIR did not approve the entire expenditure. 8. Both the sides are ad idem that the facts and circumstances of this ground are mutatis mutandis similar to those of the preceding year. We have passed a separate order today itself for the A.Y. 2010-11, which appeal was heard along with the extant appeal. Following the view taken for the earlier year, we order to grant the weighted deduction on the amount of expenditure incurred by the IT(SS)A No. 95/PUN/2017 Sudarshan Chemical Industries Ltd., 5 assessee not approved by the DSIR as the assessment year under consideration is also not governed by the amended rules. 9. Ground No.3 about deduction of bonus was not pressed by the ld. AR, which is hereby dismissed as ‘not pressed’. 10. 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. 11. 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 Another Vs. JCIT (2018) 102 CCH 0202 (Raj-HC). We, ergo, direct to allow deduction for such an amount after verification. 12. 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 IT(SS)A No. 95/PUN/2017 Sudarshan Chemical Industries Ltd., 6 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 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. *