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Income Tax Appellate Tribunal, “B” BENCH, AHMEDABAD
Before: SHRI PRADIP KUMAR KEDIA
आदेश/O R D E R
PER PRADIP KUMAR KEDIA - AM:
The captioned appeal has been filed by the Revenue concerning AY 2012-13 against the order of the Commissioner of Income Tax (Appeals)- 1, Ahmedabad (‘CIT(A)’ in short), dated 27.04.2017 arising from the with CO No. 51/Ahd/2018 [Adani Wilmar Ltd.] A.Y. 2012-13 - 2 - assessment order dated 30.03.2016 passed by the AO under s.143(3) of the Income Tax Act, 1961 (the Act).
The assessee has also filed cross objection in the appeal of the Revenue.
We shall first take up Revenue’s appeal in AY 2012-13.
The grounds of appeal raised by the Revenue read as under:
“(a) That the ld. CIT(A) erred in law and on facts in deleting the disallowance of Rs.3,69,76,400/- u/s 14A r.w.s. 8D to the extent of exempt income i.e. Rs.7,38,000/-.
(b) That the ld. CIT(A) erred in law and on facts in considering the amount of Rs.39,71,468/- revenue expenditure on account of professional and legal fees.”
As per Ground No.1, the Revenue has challenged the action of the CIT(A) for granting relief out of disallowance of expenses under s.14A read with Rule 8D of the Income Tax Rules.
We have heard the rival submission on the issue. It was pointed out on behalf of the assessee that the assessee has earned exempt income only to the extent of Rs.7,38,000/- during the year under review. It is the case of the assessee that disallowance under s.14A of the Act has been thus rightly restricted to the extent of exempt income. We find merit in the aforesaid plea of the assessee. Various Courts have held that Section 14A of the Act disallowance cannot be kicked when there was no exempt income earned by the assessee as is the case in the present appeals. Hon’ble Delhi High Court in PCIT vs IL&FS Energy Development Company Ltd. (2017) 84 Taxman.com 186(Delhi) and the Hon’ble Madras High Court in CIT v. Chettinad Logistics (P.) Limited (2017) 80 taxmann.com 221(Madras) have expressed a clear disagreement with CBDT Circular and held that where there is no exempt income in relevant year there cannot be a disallowance of expenditure under s.14A of the Act. Similar proposition has been laid with CO No. 51/Ahd/2018 [Adani Wilmar Ltd.] A.Y. 2012-13 - 3 - down by the Hon’ble Gujarat High Court in the case of Corrtech Energy (P.) Ltd (2014) 45 taxmann.com. 116 (Guj) and Pr.CIT vs. India Gelatine and Chemicals Ltd. (2016) 66 taxmann.com 356 (Guj). The aforesaid judicial fiat was reiterated by the Hon’ble Delhi High Court in the case of Joint Investments Pvt. Ltd. vs. CIT reported in 372 ITR 692 (Delhi) wherein Hon’ble Delhi High Court has categorically ruled that disallowance under s.14A of the Act cannot exceed the amount of tax exempt income. Notably, the SLP filed against the decision of Hon’ble Madras High Court in Chettinad Logistics (supra) has been dismissed by Hon’ble Supreme Court in CIT vs. Chettinad Logistics (P.) Ltd. (2018) 95 taxmann.com 250 (SC). Hence, in conformity with the judicial precedents, we find substantial merit in the conclusion drawn by the CIT(A) for limiting the disallowance to the extent of exempt income. Hence, we decline to interfere.
In the result, Ground No.1 of the Revenue is dismissed.
As per Ground No.2, the Revenue has challenged the action of the CIT(A) for considering the amount of Rs.39,71,468/- revenue expenditure on account of professional and legal fees.
The CIT(A) has granted relief to the assessee by observing as under:
“4.3. I have carefully considered the Assessment Order and submission filed by the Appellant. The Assessing Officer has contended that the Appellant has made payment for getting ROCP Report to note the market share of the Company in ROCP Product which can help Appellant to make future business strategy hence same is capital expenditure. On such basis, the Assessing Officer has treated such the expenditure as capital expenditure. On other hand the appellant has argued that during the course of assessment proceedings, it had already submitted detailed reply explaining that the expenditure in question was revenue in nature, the Assessing Officer has gone ahead with making the disallowance after assuming that no matter that the expenditure had not resulted into the appellant acquiring any capital asset or any benefit of an enduring nature, it was capital expenditure in nature. On careful consideration of observation of Assessing Officer and contention of Appellant, it can be seen that the fact of the case is similar to the earlier assessment year i.e A.Y. 2011-12 wherein undersigned vide with CO No. 51/Ahd/2018 [Adani Wilmar Ltd.] A.Y. 2012-13 - 4 - order dated 26/04/2016 in appeal No. CIT(A)-1/72/DCIT,Cir- 1(1)(1)/2015-16 has held as under:-
"6.3. I have carefully considered the Assessment Order and the submission filed by the Appellant, the Assessing Officer has observed that the Appellant has made payment for getting ROCP Report to note the market share of the Company in ROCP Product which can help Appellant to make future business strategy hence same is capital expenditure. It was also argued that amount of Rs. 77,43,374/- has been paid for AC Nielsen Org Marg Pvt. Limited for subscription cost of two years hence same proves that Appellant has benefit over the period. On this basis, Assessing Officer treated the expenditure as capital expenditure. On the other hand, Appellant has argued that professional fees paid by Appellant helps it in obtaining information regarding market share of Company in ROCP Product and same will help Appellant to get update for existing market situation of existing products hence such expenditure does not give any enduring benefit hence same cannot be treated as capital expenditure. The Appellant has relied upon decision of Majestic Auto Limited (supra), KJS India Pvt. Limited (supra) and argued that such expenditure is revenue expenditure. In alternate argument, Appellant has stated that even though Assessing Officer has treated such expenditure as capital expenditure and observed that depreciation is allowable @25%, same was not allowed in computation of total income.
On careful consideration of entire facts it is observed that professional fees paid by Appellant are for existing business and not incurred for analyzing the market for new line of business or is not for diversification of its business. By incurring such expenditure, Appellant is constantly getting updates regardling market survey carried out for existing product line and same does not give any enduring benefit or is not in nature of capital expenditure. The expenses are not incurred for exploring the market for a new product and rather expenses is incurred for exploring the circumstances as to how Assessee should manage its existing business more effectively hence relying upon the decision of Hon'ble Delhi ITAT in the case of KJS India Pvt. Limited 45 SOT 17 expenditure incurred by Appellant is business expenditure allowable under Section 37 of the Act. The Hon'ble Punjab and Haryana High Court in the case of Majestic Auto Limited 178 taxman 148 has on similar circumstances held that expenditure incurred for obtaining report on reorganization of its core business and for improving market share and profitability is allowable as revenue expenditure. Considering these facts, expenditure incurred by Appellant is allowable as revenue expenditure. As entire expenditure is allowed as revenue expenditure, alternate claim of Appellant regarding allowability of depreciation on such expenditure does not survive. The ground of the appellant is allowed."
Following the above order the disallowance made by AO treating professional and legal fees as capital expenditure is deleted and appellant gets relief of Rs.39,71,468/-. Thus this ground of appeal is allowed.” with CO No. 51/Ahd/2018 [Adani Wilmar Ltd.] A.Y. 2012-13 - 5 -
10. The CIT(A), in our view, has adjudicated the issue in right perspective. The expenditure claimed by the assessee bears the revenue character. We thus find no error in the order of the CIT(A). Hence, the Ground No.2 of the Revenue is dismissed.
In the result, appeal filed by the Revenue is dismissed.
CROSS OBJECTION No. 51/Ahd/2018
The grounds of appeal raised by the assessee read as under:
“1. On the facts and in the circumstances of the case, the CIT(A) erred in confirming disallowance of expenditure of Rs.1,33,528/- being employees’ contribution to P.F. and ESIC u/s.36(1)(va) of the I.T. Act on the ground that the same was not paid within the time limit prescribed under the relevant Acts even though the payment was made within the time limit prescribed for filing return of income u/s.139(1) of the I.T. Act.
2. On the facts and in the circumstances of the case, the CIT(A) erred in upholding disallowance u/s.14A of the I.T. Act to the extent of exempt income of Rs.7,38,000.”
The Ground No.1 of the Cross Objection concerns disallowance of Rs.1,33,528/- towards belated employees’ contribution to PF and ESIC under s.36(1)(va). We observe that CIT(A) has rightly concluded the issue against the assessee in the light of the decision of the Hon’ble Gujarat High Court in the case of Gujarat State Road Transport Corporation 366 ITR 170 (Guj). We thus see no merit in Ground No.1 of the Cross Objection raised on behalf of the assessee.
Ground No.1 of the Cross Objection is dismissed.
Ground No.2 concerns disallowance under s.14A of the Act to the extent of exempt income of Rs.7,38,000/-. with CO No. 51/Ahd/2018 [Adani Wilmar Ltd.] A.Y. 2012-13 - 6 -
At the time of hearing, learned counsel for the assessee fairly submitted that he does not want to press the issue. Thus, Ground No.2 is dismissed as not pressed.
In the result, cross objection filed by assessee in CO No. 51/Ahd/2018 is dismissed.
In the combined result, appeal of the Revenue and cross objection of the assessee both are dismissed.
This Order pronounced in Open Court on 15/11/2019
Sd/- Sd/- (MADHUMITA ROY) (PRADIP KUMAR KEDIA) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad: Dated 15/11/2019 True Copy S. K. SINHA आदेश क� ��त�ल�प अ�े�षत / Copy of Order Forwarded to:- 1. राज�व / Revenue 2. आवेदक / Assessee 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त- अपील / CIT (A) 5. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड� फाइल / Guard file. By order/आदेश से,
उप/सहायक पंजीकार आयकर अपील�य अ�धकरण, अहमदाबाद ।