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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE – VIRTUAL COURT
Before: SHRI R.S. SYAL & SHRI S.S.VISWANETHRA RAVI
PER R.S. SYAL, VP : This appeal by the assessee is directed against the order passed by the CIT(A)-6, Pune on 17-10-2017 in relation to the assessment year 2013-14.
The only issue raised in the memorandum of appeal is against the confirmation of disallowance u/s.14A of the Income-tax Act, 1961 (hereinafter called `the Act’) read with Rule 8D of the Income- tax Rules, 1962.
Briefly stated, the facts of the case are that during the year the assessee earned exempt dividend income of Rs.44,23,871/-. A suo motu disallowance u/s.14A of the Act was offered by the assessee at Rs.3,08,964/- - attributing Rs.2,80,269/- to direct expenses and Rs.28,695/- to interest expenses. The Assessing Officer (AO) went through the details of expenses incurred by the assessee claimed to be in relation to the exempt income and observed several infirmities therein. It was seen that some of the investments were clubbed under the head ‘Inventory’ in the balance sheet and were not considered by the assessee in working out the disallowance. He, therefore, rejected the assessee’s calculation and computed the disallowance u/s.14A at Rs.10,20,776/-, consisting of Rs.30,183/- towards interest expenditure and Rs.9,90,593/-, being, half percent of the average investments under rule 8D(2)(iii). No relief was allowed in the first appeal, against which the assessee has come up before the Tribunal.
We have heard both the sides through Virtual Court and gone through the relevant material on record. The issue instantly before us is against the second component of the disallowance made by the AO, namely, half percent of the average investments at Rs.9,90,573/-. We have gone through the assessee’s balance sheet, a copy of which has been placed at page 63 of the paper book.
Figure of Investments herein stands at Rs.20,23,11,517/-. Apart from that, the AO has noted, and rightly so, that the assessee included certain Investments under the head ‘Inventory’ in its balance sheet. We have also gone through the details of ‘Inventory’ given in Schedule-13, which makes a mention of an item with narration “Stock in Equity Instruments (Non Manufacturing)” to the tune of Rs.58,32,444/-. It goes without saying that all the Investments are liable to be considered for the purpose of making disallowance u/s 14A irrespective of the head under which they are placed. The embargo is that only the investments yielding exempt income during the year should be considered for computing average value of investments. 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 investments, which have yielded exempt income during the year.
The assessee will be allowed hearing opportunity in the fresh proceedings. It is further made clear that while computing disallowance u/s.14A, the suo motu disallowance offered by the assessee should be accordingly reduced.
The assessee has taken an additional ground claiming deduction of Education Cess on income-tax for the year under consideration.
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 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 ground taken by the assessee, it is discernible that it raises a pure question of law. We, therefore, admit the same.
On merits, 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.
In the result, the appeal is allowed for statistical purposes.
Order pronounced in the Open Court on 11th March, 2021.