Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI WASEEM AHMED & SHRI S.S. VISWANETHRA RAVI
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.
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.
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.
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 AO’s 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 assessee’s 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 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.
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.
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 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 Hon’ble 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 Hon’ble 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 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.”
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. Linhares’s 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.
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)
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.
The Pune Bench of the Tribunal in the case of DCIT Vs. Bajaj Allianz General Insurance Company Limited, & 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 Hon’ble 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 Hon’ble High Court at Para 12 of the judgment. The Hon’ble 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 Hon’ble 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.
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 18th February, 2021.