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Income Tax Appellate Tribunal, “C’’ BENCH: BANGALORE
Before: SHRI CHANDRA POOJARI & SHRI GEORGE K. GEORGE
PER CHANDRA POOJARI, ACCOUNTANT MEMBER:
These appeals by assessee are directed against different orders of CIT(A) for the assessment years 2014-15 & 2015-16, both orders dated 29.6.2018.
The first common ground in both these appeals is with regard to disallowance u/s 14A read with Rule 8D of the Income-tax Act,1961 ['the Act' for short]. The assessee eared dividend income of Rs.12,000/- in assessment year 2014-15 and Rs.1,42,000/- in assessment year 2015-16, which is exempted income. Assessee has & 2310/Bang/2018 M/s. I.G. Petrochemicals Limited, Bangalore
Page 2 of 8 not shown any expenditure in relation to earning this exempted income. Since the assessee had not shown any expenditure in relation to making this investment, which had yielded exempted income, the A.O. applied the provisions of section 14A read with Rule 8D of the Act. Accordingly, A.O. disallowed an expenditure of Rs.31,602/- for assessment year 2014-15 and a sum of Rs.45,671/- for assessment year 2015-16. Against this, assessee is in appeal before us.
We have heard the rival submissions and perused the materials available on record. In the assessment year 2014-15, the exempted income was Rs.12,000/-. The expenditure disallowed u/s 14A read with Rule 8D was Rs.31,602/-. In the assessment year 2015-16, the exempted income was Rs.1,42,000/-. The disallowance under Rule 8D was Rs.45,671/-. In our opinion, the disallowance u/s 14A read with Rule 8D in assessment year 2014-15 cannot be exceeded the exempted income. As such, the disallowance u/s 14A read with Rule 8D is restricted to Rs.12,000/- i.e. to the extent of exempted income instead of Rs.31,602/-. The assessee will get partial relief in the assessment year 2014-15. With regard to assessment year 2015-16, the exempted income is Rs.1,42,000/- and disallowance made by AO is Rs.45,671/-. The assessee not able to show any material that the assessee has not incurred any expenditure with regard to the investment in yielded exempted income or earning of exempted income. Being so, we are not in a position to uphold the argument of assessee’s counsel that no expenditure is incurred with regard to the exempted income. Accordingly, we confirm the disallowance in assessment year 2015- 16 to the extent of Rs.45,671/- and the order of the lower authorities on this issue for assessment year 2015-16 is confirmed. The ground & 2310/Bang/2018 M/s. I.G. Petrochemicals Limited, Bangalore
Page 3 of 8 with regard to Section 14A of the Act in the assessment year 2014- 15 is partly allowed and in assessment year 2015-16 is dismissed.
Next ground is with regard to the disallowance u/s 40(a)(ia) of the Act. Facts are similar in both the assessment years. In these assessment years, assessee made payments in relation to commission and subscription of online journals and periodicals. According to the A.O., the assessee is required to deduct TDS on this payment as the said payments were in nature of technical service or royalty. However, A.O. disallowed the entire payment by invoking the provisions of section 40(a)(i) of the Act. Before CIT(A), assessee filed additional evidence and prayed for admission of the same. However, Ld. CIT(A) observed that assessee has not filed the formal petition for admission of additional grounds and the admission of additional evidence cannot be claimed as a matter of right and it is the duty of the assessee to explain the circumstances which prevented it from submitting such evidence before the lower authorities. Since the assessee failed to provide sufficient cause to furnish these documents before the A.O., the same was not admitted by the Ld. CIT(A). Now the assessee is in appeal before us against this action of the Ld. CIT(A) in both the assessment years.
Ld. A.R. submitted that though the issue came for earlier years in 2011-12 & 2013-14 and decided against the assessee that ratio laid down in that order cannot be applied for these two assessment years as there were additional evidence furnished by the assessee with regard to the facts that assessee is not liable to deduct TDS and on this regard assessee has filed additional evidence before Ld. CIT(A) and the Ld. CIT(A) failed to admit the same and hence the Ld. A.R. requested that the same may be admitted by this Tribunal and the issue may be remitted to the AO for fresh consideration. & 2310/Bang/2018 M/s. I.G. Petrochemicals Limited, Bangalore
Page 4 of 8 6. We have heard the rival submissions and perused the materials available on record. At the time of hearing, the Ld. D.R. brought to our notice earlier order of the Tribunal in assessee’s own case for assessment year 2011-12 & 2013-14 in to 1957/Bang/2016 and ITA No.207/Bang/2012 vide order dated 18.3.2022 in which it was decided as under:- “6.5 We have heard rival submissions and perused the material on record. The A.O. has held that the said services (Commission payment, legal fees, survey fees, book and periodicals) rendered by commission agents are actually in the nature of technical services. Accordingly, it was held that the assessee ought to have deducted tax at source in respect of these payments. Considering that the assessee has not furnished any specific information to the contrary to substantiate that the services rendered were not in the nature of technical and consulting services, the CIT(A) upheld the order of the A.O. 6.5.1 Even before us, the assessee has not furnished any additional evidence or any explanation to controvert the finding of subordinate authorities with respect to applicability of TDS provisions. The learned AR has reiterated the submissions made before the Income Tax Authorities. The assessee had more than three opportunities to submit detailed explanations on applicability of TDS provisions, the same has not been utilized. Mere reference to the invoices cannot lead to any inference on the actual nature of services rendered / availed. The onus was on the assessee to prove that the amount is not exigible to tax in India and therefore, there is no need to withhold taxes. Since the onus has not been discharged, we are forced to confirm the orders of the Income Tax Authorities. It is ordered accordingly. 6.5.2 In the result, the disallowance u/s 40(a)(i) of the I.T.Act, raised for assessment years 2011-2012 to 2013-2014 is rejected.”
Ld. D.R. requested that this issue was decided against the assessee in aforesaid order as above and the same to be followed.
Admittedly, the same issue came for consideration before this Tribunal in assessee’s own case in assessment year 2011-12 & 2013- 14 cited (supra). However, the assessee has filed the additional & 2310/Bang/2018 M/s. I.G. Petrochemicals Limited, Bangalore
Page 5 of 8 evidence before Ld. CIT(A) explaining the circumstances under which assessee is not liable to deduct TDS. The additional evidence was not considered by the Ld. CIT(A) on the reason that assessee has not filed petition for admission of additional evidence. In our opinion, the additional evidence furnished by assessee is very important to consider so as to render substantial justice. Accordingly, in the interest of justice, we admit the additional evidence and remit all the additional evidence back to the file of Ld. CIT(A) to consider the same and decide the issue afresh in the light of Tribunal order cited (supra) along with the additional evidence. If required, he has to call for remand report from the AO to decide the issue. Accordingly, this issue in both the appeals is remitted back to Ld. CIT(A) for fresh consideration.
Next ground in for assessment year 2015- 16 is with regard to non-exclusion of a sum of Rs.17,16,364/- from the current year’s income claimed by assessee before the A.O. at the time of assessment as the same income was assessed as income in the earlier assessment years on reconciliation of income reported in 26AS and further the Ld. CIT(A) not justified in stating that revised return should have been filed for claiming the same.
We have heard the rival submissions and perused the materials available on record. The Ld. CIT(A) not entertained the claim of the assessee on the reason that the assessee failed to revise its return of income though the assessment order for the assessment year 2014-15, which was passed by AO on 22.12.2016 and the same was served on the assessee on 30.12.2016. The revised return for assessment year 2015-16 should have been filed by the assessee by 31.3.2017. & 2310/Bang/2018 M/s. I.G. Petrochemicals Limited, Bangalore
Page 6 of 8 11. We have heard the rival submissions and perused the materials available on record. In our opinion, the assessee could claim relief on certain issues before the appellate authorities, though there was no revised return filed by the assessee as held by Hon’ble Supreme Court in the case of Goetz India Ltd. (284 ITR 323). Being so, the Ld. CIT(A) has to consider the claim of the assessee in accordance with law and decide it afresh. Accordingly, this issue is remitted to Ld. CIT(A) for fresh consideration.
Next ground in relating to assessment year 2015-16 is with regard to disallowance of compounding charges paid amounting to Rs.2,69,54,863/-. Facts of the issue are that assessee made a claim of expenditure of Rs.2,69,54,863/- vide its letter dated 7.11.2017. The assessee argued that this is a compounding fee paid by assessee to Maharashtra Industrial Development Corporation for unauthorized construction being construction exceeding the sanction built up area. This claim of assessee was not accepted by the AO by placing the reliance on the judgement of Hon’ble Supreme Court in the case of Goetz India Ltd. (supra). Before the Ld. CIT(A) also assessee claimed the same as an allowable business expenditure. However, Ld. CIT(A) observed that this issue was already covered against the assessee by the judgement of Hon’ble Karnataka High Court in the case of Millennia Developers Pvt. Ltd. Vs. Deputy Commissioner of Income-tax (188 Taxman 388) wherein it was held that when the expenditure incurred for any purpose, which is an offence or which is prohibited by law is not entitled for deduction, it is not possible to take the view that compounding of the offence or violation of the provisions of the Act for the purpose of seeking the offender of law from the consequences of the commission of such an offence or violation of law should also be given the benefit of section 37 of the & 2310/Bang/2018 M/s. I.G. Petrochemicals Limited, Bangalore
Page 7 of 8 Act by permitting the assessee to pay the compounding fee as fine. Accordingly, he confirmed the order of the AO. Against this assessee is in appeal before us.
We have heard the rival submissions and perused the materials available on record. Before us Ld. A.R. submitted that the total said expenditure of Rs.2,69,54,863/- contains two items as follows:
1) Development charges @22,76,195x6645x2% = 30,25,063/- 2) Penalty charges 398.83 m2x20000per sq.m.x3 times =2,39,28,800/- Total: = 2,69,54,863/-
Thus, he submitted that the only penalty charges could be disallowed in view of the judgement of Hon’ble Karnataka High Court. However, development charges to be allowed as a business expenditure. The Ld. D.R. relied on the order of the Ld. CIT(A).
We have heard the rival submissions and perused the materials available on record. In our opinion, the assessee has made a new plea that development charges to be allowed, which is not penal in nature. In our opinion, whether development charges collected by the Maharashtra Industrial Development Corporation is of penal in nature or not to be examined with regard to the rules and regulations laid down in the relevant Act. Accordingly, the issue relating to the payment of development charges is remitted to the file of Ld. CIT(A) to examine afresh. However, penalty charges paid by assessee, which is penal in nature in violation of law, which is to be disallowed. Accordingly, we confirm the order of Ld. CIT(A) to the extent of penalty charges paid by the assessee and the same is disallowed. The other part of expenditure is remitted to the file of Ld. & 2310/Bang/2018 M/s. I.G. Petrochemicals Limited, Bangalore
Page 8 of 8 CIT(A) to consider afresh. This ground is partly allowed for statistical purposes.
In the result, both the appeals of the assessee are partly allowed for statistical purposes. Order pronounced in the open court on 25th May, 2022