Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, Hyderabad ‘ A ‘ Bench, Hyderabad
Before: Before Shri Rama Kanta Panda & Shri Laliet Kumar
IN THE INCOME TAX APPELLATE TRIBUNAL Hyderabad ‘ A ‘ Bench, Hyderabad Before Before Shri Rama Kanta Panda, Accountant Member AND Shri Laliet Kumar, Judicial Member ITA No.179/Hyd/2018 Assessment Year: 2013-14 Vibha Agrotech Limited, Vs. The Dy.Commissioner of Hyderabad. Income Tax, Circle – 17(2), PAN : AAACV8157A Hyderabad. (Appellant) (Respondent) Assessee by: Sri CA P. Murali Mohan Rao Revenue by: Dr. Rajendra Kumar, CIT Date of hearing: 23.06.2022 Date of pronouncement: 28.06.2022 O R D E R Per Laliet Kumar, J.M. This appeal is filed by the assessee feeling aggrieved by the order of learned Commissioner of Income Tax (Appeals) – 5, Hyderabad dt.21.07.2017 for the assessment year 2013-14 on the following grounds :
“1. The order of the Commissioner of Income Tax (Appeal)-5, Hyderabad, is erroneous both on facts and in law. 2. The Ld.CIT (A) erred in upholding the disallowance made of Rs. 8,70,97,978/- which had been claimed u/s 35(2AB) of the Act. 3. The Ld.CIT (A) ought to have appreciated that the assessee is eligible for weighted deduction u/s 35(2AB) of the Act as the scientific research unit of the assessee has been approved by the DSIR and that such approval is valid up to 31.03.2016. 4. The Ld.CIT (A) erred in conforming the disallowance made of Rs.58, 35,164/on estimation basis.
ITA No.179/Hyd/2018
The Ld.CIT (A) ought to have appreciated that the impugned expenditure of Rs. 58,35,164/ - has been incurred wholly and exclusively for the purpose of assessee's business which is allowable u/s 37(1) of the Act. 6. The Ld.CIT (A) ought to have appreciated that the books of account were regularly maintained and were got audited as per the provisions of section 44AB of the Act and that there were no adverse findings in the Tax Audit Report with regard to the disallowability of the expenditure for Rs. 58,35,164/ -. 7. The Ld.CIT (A) had erred upholding the disallowance made u/s 14A for Rs. 9,410/ -. 8. The appellant may add or alter or modify or substitute or delete and / or rescind all or any of the grounds of appeal at any time before or at the time of hearing of the appeal.”
In respect of ground Nos. 2 and 3, ld.AR for the assessee has drawn our attention to Paras 4.5 and 4.6 of ld.CIT(A)’s order and thereafter, the ld.CIT(A) has submitted that in the case of the assessee for A.Y. 2012-13, the Tribunal has remanded back the matter to the file of ld.CIT(A). The finding of the Tribunal at Para 4 is mentioned hereinbelow :
“4. We have given our thoughtful consideration to rival contentions against and in support of impugned sec.10(1) and sec35(2AB) weighted deduction disallowances. Coming to the AYs 2010-11 and 2011-12, learned DR fails to dispute that although the CIT(A) had sought for remand report from the Assessing Officer, his findings under challenge in para 81 page 18 have simply brushed aside the assessee’s detailed evidences in support of its twin claim(s). The factual position is almost similar in the other AYs 2009-10 and 2012-13. And more so in view of the prima facie clinching fact that this has not been the first and foremost year for the assessee having raised the impugned deduction claim(s). Learned counsel further stated that the assessee company had also seen corporate disputes in the intervening period. Faced with this situation, we deem it proper to restore the instant twin issues back to the Assessing officer once again for his second round of fresh factual verification in tune with tribunal’s directions for AY 2009-10. Learned counsel at this stage has undertaken to file all the necessary details before the Assessing officer at assessee’s risk and responsibility in consequential proceedings. We therefore restore the instant twin issues back to the file of Assessing officer by reiterating our directions in AY
ITA No.179/Hyd/2018
2009-10 for his afresh adjudication as per law within three effective opportunities of hearing at assessee’s risk and responsibility only.”
Ld.AR had also submitted that in the present case, the requirement of submission of Form 3CM was came into force from 01.07.2016 as held by the Tribunal in the case of M/s.RCC Laboratories India Private Limited, Hyderabad vide order dt.18.08.2021.
On the other hand, ld.DR had submitted that identical direction be issued in the present case also as done by the Tribunal for the A.Y. 2012-13.
We have heard the rival submissions and perused the material on record. As the co-ordinate Bench of the Tribunal in the case of the assessee for A.Y. 2012-13 had remanded back the matter to the file of ld.CIT(A) for afresh adjudication, therefore, we deem it appropriate to remand this issue to the file of ld.CIT(A) with a direction to pass the order as indicated hereinabove and also consider the effect of decision of Tribunal in the case of M/s.RCC Laboratories India Private Limited (supra) after granting sufficient opportunities of hearing to the assessee. Thus, grounds 2 and 3 are allowed for statistical purposes.
With respect to grounds 4 and 5 raised by the assessee, ld.AR has drawn our attention to Para 5.4 and 5.5 of the order passed by the ld.CIT(A). Ld.AR had submitted that the assessee has not agreed for disallowance of 10% of the expenditure made by the Assessing Officer. However, the ld.CIT(A) has wrongly upheld the disallowance of 10%. The assessee has prayed that disallowance of 10% of the alleged expenses may be restricted to 6%.
ITA No.179/Hyd/2018
Per contra, the ld.DR has opposed the submission of the assessee and he relied upon the order passed by the ld.CIT(A) and further ld.DR has drawn our attention to Paras 5 to 8 of the order passed by the jurisdictional High Court in the case of Kermex Micro Systems (India) Ltd. Vs. DCIT reported in (2014) 47 taxmann.com 375 (Andhra Pradesh) which is to the following effect :
“2. At the first instance, from a reading of the aforesaid suggested questions of law, we are of the view that questions are not questions of law rather argument in the form of question. Therefore, we do not want to look into those questions. However, when the matter has come up for hearing, it is the duty of the court to formulate the substantial question of law, if the court decided to admit the appeal for hearing. The relevant are as follows : The Assessing Officer has made an assessment order on the basis of the voluntary statement made by the managing director of the appellant disclosing of income of Rs. 20 lakhs. The said statement, which was reproduced by the learned Tribunal in its judgment, is reproduced hereunder : "I admit that the above defects persist in maintenance of expense vouchers. The payments are not properly recorded. Taking into account the above deficiencies, which are not deliberate and to cover up any other omissions and commissions, I voluntarily offer Rs. 20 lakhs as additional income in respect of training and development divisions of the company and EOU division of the company. The lapses being common to both the divisions, i.e ., training and development and EOU, I offer Rs. 10 lakhs for each of the division. This offer has been made voluntarily to close the matter. This does not cover any disallowance on any legal issue. I would request the Department not to initiate any penalty proceedings. I undertake that the company pay the taxes after it receives the assessment order." 3. The fact shows that at the time of assessment the assessee did not retract the aforesaid admission making voluntary disclosure. Even the assessee on the basis of the assessment has paid the tax and after that an appeal was prepared before the Commissioner of Income Tax (Appeals). In the said appeal we do not find that the appellant has made out any case that the aforesaid admission was not made voluntarily and it was made by mistake or anything else. 4.It appears from the record that only the learned lawyer appearing before the Commissioner of Income-tax (Appeals) took up the factual point, which was not stated in the grounds of appeal, that the aforesaid
ITA No.179/Hyd/2018
admission was recorded under mistaken belief of fact and law. Taking note of this argument, perhaps and without verifying whether such ground has been made out or not, the Commissioner of Income-tax (Appeals) observed as follows :
"Before going into the legal intricacy whether income offered during the course of survey can be agitated before the appeal proceedings or not, I want to state that an addition made by the Assessing Officer should stand on its own legs irrespective of the fact whether it is accepted or had not accepted by the assessee. I agree that in this case, the managing director of the appellant company had offered a sum of Rs.20 lakhs at the time of survey. It is also a fact that he has not disputed the same during the course of assessment proceedings. It is also a crucial fact that the appellant had even paid taxes on the income offered. But can he sustain an addition only on the basis of admission and acquiescence’s, particularly, when the appellant has gone back on the admission. The answer is an emphatic ‘no’ as, if an addition can be made on the basis of admission, the same has to be deleted on the basis of retraction. 5. We fail to understand from where the case of retraction has been discovered by the Commissioner of Income-tax (Appeals) when the appellant has not stated in the grounds of appeal before it that it has retracted. Notwithstanding the above, the learned counsel before us very strenuously argues that there has been retraction of admission before the Commissioner of Income-tax (Appeals) and the Commissioner of Income tax (Appeals) has taken into consideration the same. Therefore, the learned Tribunal should not have set aside the order of the Commissioner but at the most it should have remanded the matter. According to him, the Commissioner of Income-tax (Appeals) has extensive power and he has rightly exercised the same. 6. We are of the view that the argument of the learned counsel is absolutely misplaced on fact as before the Commissioner of Income-tax (Appeals) there was no case of retraction. Factually, he perhaps noted oral arguments of the lawyer. According to us, it is not permissible under law as retraction of admission is purely a matter of fact, which must be made available before the court of law or Tribunal, which then can consider the same. It is settled position of law that admission is a very important piece of evidence, unless it is explained or retracted. Here the assessee has not made any attempt to explain before the Commissioner of Income-tax (Appeals) suggesting not to accept the same. Here instead of retracting the assessee called upon to act upon the same to pass assessment order and accordingly it was done and the tax was duly paid. We fail to understand why challenge should be made at a later stage.
ITA No.179/Hyd/2018
The learned counsel thereafter argues that the admission cannot be looked into under the law, as it is a material collected during the period of survey and this is not a valid piece of evidence. We think there must be a distinction between the admission and the evidence collected during the course of survey. This is a voluntary act of the assessee and if the assessee accepts the liability, there is no point or scope to collect further evidence or making any enquiry. Here exercising of power by the Commissioner was not called for. Exercise of power evaluating legal implication of admission was not called for because no case was made out factually. Therefore, the decisions cited by the learned counsel for the appellant before us are absolutely inappropriate. Hence, we ignore all these decisions. 8. The learned Tribunal has taken a correct decision and we are constrained to comment on the decision taken by the Commissioner of Income-tax (Appeals), even basing on his own recording that the same is without any factual basis and further unsupported by law. When a case is not made out before the Commissioner, he should not have made out so to say his own case basing on a lawyer’s argument. A lawyer cannot improve the case of the litigant on fact unlike in case of law. Such an act is without jurisdiction. 9. The appeal is accordingly dismissed.”
It was submitted by the ld.AR that he being the ld.AR of the assessee accepted the disallowance at 10% before the Assessing Officer then the assessee and himself permitted the Assessing Officer to make further enquiries into the affairs of the assessee.
We have heard the rival submissions and perused the material on record. In the present case, undoubtedly, the assessee has agreed for admission before the Assessing Officer and the ld.CIT(A) has even reproduced order sheet entry which was duly singed by ld.AR of the assessee in token of admitting disallowance @ 10%. We have gone through the record and also the grounds of appeal raised by the ld.AR. It was the case of the assessee that the admission recorded by the Assessing Officer was not made by the ld.AR or he was not authorized to make an admission on behalf of assessee. The assessment proceedings are quasi judicial proceedings which are akin to judicial proceedings and
ITA No.179/Hyd/2018
admission was made by the assessee during said proceedings cannot be lightly interfered or rejected unless assessee proves otherwise. We respectfully, following the decision of jurisdictional High Court in the case of Kermex Micro Systems (India) Ltd. Vs. DCIT (supra), wherein the hon’ble jurisdictional High Court held that the admission is very important piece of evidence unless it is retracted, uphold the order of ld.CIT(A). Further, in the present case, the assessee has neither retracted before the ld.CIT(A) nor before us. Hence, in view of the above and respectfully following the decision in the case of Kermex Micro Systems cited (supra), we are left with no other option but to confirm the additions made by the lower authority. Thus, ground nos.4 and 5 are dismissed.
The ground No.7 of the assessee pertains to disallowance u/s 14A of the Act.
10.1 In this regard, the ld.AR has drawn our attention to the order passed by ld.CIT(A) more particularly, Para 6.1 of the order. In this regard, assessee has submitted that it had not incurred any expenditure relatable to earning exempt income and that the investments are not intended for earning exempt income. In this regard, ld.AR relied on the decisions of Hon’ble Supreme Court in the case of Godrej & Boyce Manufacturing Company wherein it was held that no addition can be made in the hands of assessee. 11. On the other hand, the ld.DR relied on the orders of lower authorities.
We have heard the rival submissions and perused the material on record. In the present case, the Assessing Officer has made disallowance u/s 14A r.w.r 8D(2)(iii) of I.T. Rules, 1962. However, the 7
ITA No.179/Hyd/2018
assessee has made huge investments and the said investment was made for the purpose of earning the debit income.
Per contra, the ld.DR had drawn our attention to the order of the Assessing Officer wherein his finding was given at Para 4 on disallowance of expenditure u/s 14A which reads as under :
“4. It is seen from the balance sheet that the assessee had investments, the dividend income wherefrom is exempt from tax. As per the provisions of Sec.14A of the Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. Hence, it is proposed to invoke Rule8D(2)(iii) of IT Rules, 1962. Though the assessee had not directly or indirectly incurred any interest or finance charges on account of investment in shares held by the company, it cannot be accepted that it had not incurred any expenditure relatable to earning exempt income. The assessee could not satisfactorily establish that the investments are not intended for earning exempt income and that no administrative expenditure was incurred in managing these huge amounts or investment. In view of the decision of the Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg Company the Ltd (234 CTR 1) which dealt with various issues viz, the purport, the interpretation, the applicability and the constitutional validity of section 14A of the I.T. Act, 1961 and Rule 8D of the IT investments Rules 1962 and considering the facts of the case, 0.50 per cent of the average value of the investments (as against indirect expenses that would have been incurred for managing the investment), is considered for disallowance and added to the total incme of the assessee, in terms of Rule 8D(2)(iii) of I.T. Rules 1962. The disallowance is thus determined as under :
8D(2)(iii) Amount (qua) to 0.5% of the average value of investment, income in respect of which is exempt from tax Average value of The average value of investments Rs.18,82,156 investments income from which does not or shall not form part of the total income as appearing in the balance sheet as on the first day and the last day of the previous year. Amount equal to Rs.9,410/- 0.5% of the average value of
ITA No.179/Hyd/2018
investments
We have heard the rival contentions of the parties and perused the material available on record. The ld.CIT(A) in para 6 at pages 14 and 15 of his order had discussed the issue and thereby decided the issue which reads as under :
“61 The Assessing Officer has made an addition for a sum of s. 9,410/towards disallowance of expenditure u/s. 14A of the Income Tax Act, 1961. The assessing officer argued in paragraph 4 of the assessment order as under:- "It is seen from the balance sheet that the assessee had investments, the dividend income wherefrom is exempt from tax. As per the provisions of sec. 14A of the Act, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. hence, it is proposed to invoke Rule 8D(2)(iii) of IT rules, 1962. Though the assessee had not directly or indirectly incurred any interest or finance charges on account of investment in shares held by the company, it cannot be accepted that it had not incurred any expenditure relatable to earning exempt income. The assessee could not satisfactorily establish that the investments are not intended for earning exempt income and that no administrative expenditure was incurred in managing these huge amounts of investment.
6.2 The authorized representative argued that: "this was done on the presumption that the assessee had made investments in share capital. The Assessing Officer has deemed and concluded that the part of interest would have been incurred towards investments made in the assets, the income there from which is exempt".
But the AO had invoked the provisions of rule 8D(iii) and only disallowed overhead expenses i.e. 0.5% of the investment. The AO did not disallow any interest component as argued by the AR. Hence, ground nos.12 to 14 are dismissed.”
We have gone through the record and undoubtedly, during the year under consideration as mentioned by the Assessing Officer, the assessee has not earned any exempt income and that the above said
ITA No.179/Hyd/2018
fact has not been disputed by the ld.DR for the Revenue. We hold in these factual circumstances that the impugned disallowance is attracted only in case an assessee derives exempt income during the year under consideration and not otherwise following the decisions of hon’ble High Courts in the cases of Chemnivest Ltd. Vs. CIT (2015) 378 ITR 33 (Del), CIT Vs. Corrtech Energy Pvt. Ltd. 223 Taxmann.com 130 (Guj) and CIT Vs. CIT Vs. Chettinad Logistics Pvt. Limited (2017) 80 taxmann.com 221 (Madras) wherein their lordships held that no disallowance u/s 14A can be made in a year in which no exempt income has been earned or received by the assessee. Accordingly, we delete the impugned disallowance. Thus, ground No.7 is allowed.
In the result, the appeal of the assessee is partly allowed.
Order pronounced in the Open Court on 28th June, 2022.
Sd/- Sd/- (RAMA KANTA PANDA) (LALIET KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER
Hyderabad, dated 28th June, 2022. TYNM/sps Copy to: S.No Addresses 1 Vibha Agrotech Limited, Hyderabad, C/o. P. Murali & Co., Chartered Accountants, 6-3-655/2/3, I floor, Somajiguda, Hyderabad – 82. 2 The Deputy Commissioner of Income Tax, Central Circle – 17(2), Hyderabad. 3 CIT(Appeals) – 5, Hyderabad 4 PCIT – 5, Hyderabad. 5 DR, ITAT Hyderabad Benches 6 Guard File