THE PRINCIPAL COMMISSIONER OF INCOME TAX-1 vs. ADANI WILMAR LTD.

This tax appeal under Section 260A of the Income Tax Act, 1961 (for short “the Act, 1961”) is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal' 'B' Bench, Ahmedabad dated 15.11.2019 in the ITA 1696/Ahd/2017 for the A.Y.2012-13. 2. The Revenue has proposed the following questions for the consideration of this Court; “(A) Whether the Appellate Tribunal has erred in law and on facts in confirming the decision of CIT (A) restricting the disallowance of Rs.3,77,14,400/- made u/s.14A r.w. Rule 8D to the extent of exempt income, i.e. Rs.7,38,000/- (B) Whether the Appellate Tribunal has erred in law and on facts in directing the Assessing Officer to allow the expenditure of Rs.29,78,601/- (39,71,468 less 9,92,867) C/TAXAP/247/2020                                                                                                 ORDER incurred on account of professional and legal fees by holding the same as revenue in character?”

We have heard Ms. Mauna Bhatt, the learned senior standing counsel appearing for the Revenue and Mr. S.N. Soparkar, the learned senior counsel assisted by Mr. B.S. Soparkar, the learned counsel appearing for the respondent-assessee.

The Tribunal, while dismissing the appeal of the Revenue on the question of disallowance under Section 14A of the Act, has observed thus; “6. 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 b y the assessee as is the case in the present appeals. Hon'ble Delhi High Court in PC IT 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 down by the Hon'ble Gujarat High Court in the case of Corrtech Energ y (P.) Ltd (2014) 45 taxmann.com. 116 (Guj) and Pr.C IT vs. India Gelatine and Chemicals Ltd. (2016) 66 taxmann.com 356 (Guj). The aforesaid judicial fiat was reiterated b y the Hon'ble Delhi High Court in the case of Joint Investments 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 C/TAXAP/247/2020                                                                                                 ORDER Logistics (supra) has been dismissed b y Hon'ble Supreme interfere. “

On the second question as proposed by the Revenue in the present appeal, the findings recorded by the Tribunal are as under; “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 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. Limit ed (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. C/TAXAP/247/2020                                                                                                 ORDER 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 regarding 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 incur red for exploring the market for a new product and rather expenses is incurred for exploring the circumstances as to how Assessee should manage it s 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 incur red 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 profit ability is allowable as revenue expenditure. Considering these fact s, 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."

We are of the view that none of the questions as proposed by the Revenue could be termed as the substantial questions of law as those are squarely covered by the following four precedents; “1) A decision of this Court in the case of Commissioner of Income Tax, Vadodara- II vs. Vision Finstock Limited, Tax Appeal No.486 of 2017; 2) A decision of the Supreme Court in the case of Commissioner of Income Tax-II vs. Vision Finstock Limited, S.L.P (Civil) Diary No.13152 of 2018 (SC); C/TAXAP/247/2020                                                                                                 ORDER 3) A decision of the Punjab & Haryana High Court in the case of Commissioner of Income Tax-I vs. Majestic Auto Limited, 178 Taxman 148; 4) A decision of this Court in the case of Pr. Commissioner of Income Tax, Vadodara-I vs. Gujarat Fluorochemicals Limited, Tax Appeal No.11 of 2019. 7. In the result, this appeal fails and is hereby dismissed. (VIKRAM NATH, CJ) (J. B. PARDIWALA, J) Vahid