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Income Tax Appellate Tribunal, DELHI ‘C’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI AMIT SHUKLA
PER N.K. BILLAIYA, ACCOUNTANT MEMBER,
This appeal by the assessee is preferred against the order of the CIT(A)-2, New Delhi dated 31.08.2015 pertaining to A.Y 2012-13.
The only ground taken in the Memorandum of appeal relates to the additions made u/s 14A of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short] read with Rule 8D of the Income tax Rules, 1962 amounting to Rs. 20,06,321/-.
Vide letter dated 21.03.2016, the assessee has also raised the following additional grounds of appeal:
1.1 We beg to refer to the above appeal which is yet to be disposed of by your goodself. In this regard, we would humbly request for inclusion of the enclosed additional ground in the above appeal which does not require any further investigation of facts.
2.0 Claim of Excise Duty Subsidy & Interest Subsidy as Capital receipt
2.1 The assessee has set up one unit in Jammu and Kashmir and by virtue of New Industrial Policy received Interest subsidy and Excise duty subsidy amounting to Rs.18,21,922/- & Rs. 8,57,05,868/-. In computing the total tax liability, the same was claimed as revenue receipt under normal provisions of the Act.
2.2 The interest and excise duty subsidy has been granted with the objective of development of industries and generation of employment and considering die purpose test and spirit, Hon'ble High Court of Jammu & Kashmir in the case of Shree Balaji Alloys - vs. CIT (2011) 333 ITR 335 (J & K) held that Excise Duty subsidy,
Interest Subsidy and Insurance Subsidy received with the object of creating avenues for perpetual employment, to eradicate the social problem of unemployment in the state by accelerated industrial development is capital receipt. Further, your goodself would appreciate that Civil Appeal No. 10061 of 2011 dated 19-04- 2016 filed by department has been dismissed by Hon'ble Apex Court. Since the scheme as applicable in Shree Balaji ahoy is same with the appellant, hence the subsidy is capital in nature.
2.3 Reliance is also placed on the decision of Hon'ble jurisdictional ITAT in the case of Montage Enterprises Pvt Ltd.lITA No 5124/DEI/2011, dated 29-06-20181 wherein it was held that excise duty subsidy to be treated as capital in nature stands upheld from the stage of the Hon'ble Supreme Court. Once receipt itself has been treated as capital in nature it cannot be bought to tax, then same cannot be held to be includable in the book profit.
3.0 Claim of education cess as an allowable expenditure 3.1 The appellant wishes to lodge claim for deduction of education cess in computing total income in view of CBDT Circular No. 91/58/66 - ITJ(19) dated 18-05-1967, wherein it has been clarified that the effect of the omission of the word 'cess' from Sec. 40(a) (ii) of the Act is that only taxes paid are to be disallowed.
3.2 The recent decision of Hon'ble Rajasthan High Court in the case of Chambal Fertilisers and Chemicals Ltd -vs.-JCIT (ITA No. 52/2018, dated 31-07-2018) also confirms the above claim made by the appellant and thus concludes that education cess is an allowable expenditure in computing total tax liability.
Prayer 4.0 In view of the above, the appellant most respectfully prays for admission of the enclosed additional grounds in the appeal pending before your goodself. Your appellant also most respectfully craves leave to add, to amend, modify, rescind, or alter the additional ground either before or at the time of hearing of the appeal.”
The representatives of both the sides were heard at length, the case records carefully perused and with the assistance of the ld. Counsel, we have considered the documentary evidences brought on record in the form of Paper Book in light of Rule 18(6) of ITAT Rules and have also perused the judicial decisions relied upon by both the sides.
The assessee company is engaged in the business of manufacturing of Pesticides, insecticides, herbicides and fertilizers.
Return for the year under consideration was selected for scrutiny assessment through CASS and accordingly, statutory notices were issued and served upon the assessee.
During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has earned dividend income of Rs. 1,44,27,927/- and share of profit from M/s Modern Papers amounting to Rs. 9,72,94,896/- and claimed the same as exempt from tax. Invoking provisions of section 14A vide Questionnaire dated 12.09.2014, the Assessing Officer asked the assessee to give working of disallowance u/s 14A of the Act.
In its reply dated 14.11.2014, the assessee claimed that no expenses are liable to be disallowed contending that the investment in mutual funds and partnership firms were made out of issue of equity, including FDI raised and no borrowed funds were used for the purpose.
It was explained that the investment in mutual funds were temporary in nature just to use the funds, by the time the same can be absorbed in the business of the assessee company.
After considering the submissions made by the assessee, the Assessing Officer was of the firm belief that provisions of section 14A r.w.r 8D squarely apply on the facts of the case and accordingly, computed the disallowance at Rs. 20,06,321/-
The assessee agitated the matter before the ld. CIT(A) but without any success.
Before us, the ld. counsel for the assessee reiterated what has been stated before the lower authorities.
Per contra, the ld. DR strongly supported the findings of the Assessing Officer/ld. CIT(A).
Having considered the rival contentions, we have carefully perused the documentary evidences brought on record. Exhibit 95 is a certificate of Foreign Inward Remittance of Rs. 150 crores. Exhibit 98 and 99 are copies of bank statement of HSBC Bank on which we find that investment in mutual funds have been made out of remittance received as per Exhibit 95.
These facts clearly show that the entire investments have been made out of own funds and no borrowed funds have been used.
However, we are of the considered view that for earning exempt income, some expenditure needs to be disallowed. Considering the facts of the case in totality, we are of the opinion that a disallowance of Rs. 2 lakhs should meet the ends of justice. We, accordingly, direct the Assessing Officer to restore the disallowance u/s 14A to Rs. 2 lakhs. Ground taken in Memorandum of appeal is partly allowed.
Coming to the additional grounds mentioned elsewhere, the ld. DR strongly opposed to the admission of additional grounds stating that this claim was never raised before the lower authorities, therefore, the authorities below had no occasion to examine the same.
Per contra, the ld. counsel for the assessee vehemently stated that the additional grounds are purely legal grounds. It is the say of the ld. counsel for the assessee that similar additional grounds were raised before the Tribunal in A.Y 2011-12 and the Tribunal in has decided the issue in favour of the assessee and against the revenue.
We have carefully gone through the additional grounds raised and have duly considered the order of the co-ordinate bench inn ITA No. 1539/DEL/2016. We are of the considered view that though the claim has been decided by the co-ordinate bench in favour of the assessee, but the documents relating to the claim need to be examined.
Therefore, in the interest of justice and fair play, we restore this issue to the file of the Assessing Officer. The Assessing Officer is directed to examine the claim of the assessee and decide the issue afresh considering the order of the Tribunal in ITA No. 1539/DEL/2016.
Additional grounds are allowed for statistical purposes.
The assessee has also claimed that deduction of education cess in computation of total income should be allowed as an expenditure.
In support of its claim, strong reliance was placed on the decision of the Hon'ble Rajasthan High Court in the case of Chambal Fertilisers and Chemicals dated 31.07.2018. We direct the Assessing Officer to consider this claim of the assessee in light of the said decision of the Hon'ble High Court.
In the result, appeal of the assessee in is allowed in part for statistical purposes.
The order is pronounced in the open court on 28.01.2021.