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Income Tax Appellate Tribunal, “C”, BENCH KOLKATA
Before: SHRI A.T. VARKEY, JM &DR. A.L.SAINI, AM
आदेश / O R D E R Per Dr. A. L. Saini:
The captioned appeal filed by the Assessee , pertaining to assessment year 2015-16, is directed against the order passed by the Commissioner of Income Tax (Appeal)-4, Kolkata in appeal no. 49/CIT(A)-4/C-12(1)/17-18, which in turn arises out of an assessment order passed by the Assessing Officer u/s143(3) of the Income Tax Act, 1961 (in short the ‘Act’) dated 29.11.2017.
2.The grounds of appeal raised by the assessee are as follows:
1. That on the facts and circumstances of the case, the learned CIT(Appeals) erred in not holding that provision for leave encashment of Rs.80,65,953/- is neither statutory liability not contingent liability and therefore not to be Hindusthan Gum & Chemicals Ltd. Assessment Year:2015-16 considered for the purpose of computing disallowance u/s.43B(f) of the I.T.Act 1961.
2. That on the facts and without prejudice to Ground No.l above, the learned CIT(Appeals) should have directed the learned DCIT to allow deduction for provision for leave encashment of Rs.80,65,953 if the Hon'ble Supreme Court upholds the decision of Calcutta High Court in the case of Exide Industries Limited.
3. That on the facts and circumstance of the case the learned CIT(Appeals) erred in not holding that expenses of Rs.6,87,156/- only have been incurred to earn the dividend income.
4. That on the facts and circumstances of the case, the learned CIT(Appeals) further erred in not holding that DCIT has computed the expenses in a mechanical manner by applying the provisions of Rule 8D which was at an excessive figure.
5. Without prejudice to the ground no. 3 & 4 above, the learned CIT(A) though followed the decisions of REI Agro Ltd. Vs. DCIT (144 ITD 141) but erred in directing the DCIT to consider the monthly average value of certain specific investments in mutual funds instead of yearly average as prescribed in rule 8D(2)(iii).
That the appellant crave leave to add, alter, amend and / or withdraw all or any of the ground at or before the hearing of the appeal.
Ground nos. 1 and 2 raised by the assessee relates to disallowance of deduction for provision of leave encashment of Rs. 80,65,953/-.
4. At the outset itself, the Ld. Counsel brought to our notice that the similar issue had come up before this Tribunal in M/s. S. R. Batliboi & Co. vs. DCIT, for AY 2007-08 wherein the Tribunal vide para 4 has held as under:
“4. After hearing rival submissions and going through the facts and circumstances of the case and the order of the Tribunal cited supra, we find that the issue is dealt by the Coordinate bench of this Tribunal as under:
“3. At the outset, ld. senior counsel for the assessee submitted that in all these three appeals, the issue relates to allowability of provision for leave encashment in terms of sub-section (f) of section 43B of the Income Tax Act. The assessee had advanced its claim relying on the decision of the Hon’ble Kolkata High Court in the case of M/s. Exide Industries Ltd. reported in 292 Page | 2
Hindusthan Gum & Chemicals Ltd. Assessment Year:2015-16 ITR 470. However, the Assessing Officer did not accept the assessee’s claim observing that Department has preferred a Special Leave Petition before the Hon’ble Supreme Court and stay of the order of the Hon’ble Kolkata High Court was granted by the Hon’ble Apex Court. Ld. senior counsel submitted that under identical circumstances, Tribunal has restored the matter to the file of Assessing Officer to decide the issue in accordance with the decision of the Hon’ble Apex Court in the case of DCIT, Circle-8, Kolkata –vs.- M/s. Ernst & Young Pvt. Ltd. in ITA No. 1787/Kol./2008. He, therefore, submitted that the matter may be restored back to the file of Assessing Officer.
Learned Departmental Representative did not raise any objection.
We have considered the submissions of both the parties and have perused the records of the case. We find that Tribunal on identical issue in ITA No. 1787/Kol./2008 in the case of M/s. Ernst & Young Pvt. Ltd. has observed at para 12 in page 6 as under :- “12. Ground No. 5 of the revenue’s appeal is against the relief allowed by the CIT(A.) in respect of provision for leave encashment which was deleted by the CIT(A.) following the decision of the Hon’ble jurisdictional High Court in the case of M/s. Exide Industries Ltd. (supra). It was pointed out by the ld. DR that the Hon’ble Apex Court in”SLP (Civil) 22889 of 2008 has stayed the operation of the decision of the Hon’ble jurisdictional High Court. In view of the above, we set aside the orders of the authorities below on this point and restore the matter back to the file of the AO with the direction that he will readjudicate this issue as per decision of the Hon’ble Apex Court in the case of M/s. Exide Industries Ltd. (supra)”. Respectfully following the same we set aside the orders of authorities below on this point and restore the matter back to the file of Assessing Officer for adjudication as per the decision of the Hon’ble Apex Court in the case of M/s. Exide Industries Ltd.(supra).
In view of the above and respectfully following the same, we set aside the orders of the authorities below and restore the matter back to the file of Assessing Officer for adjudication as per the decision of Hon’ble Apex Court in the case of M/s. Exide Industries Ltd. (Supra). This ground of appeal of assessee is allowed for statistical purposes.”
5. In view of the aforesaid decision of the coordinate bench on a similar issue, we set aside the order of the Ld. CIT(A) and restore the matter back to the file of the AO for adjudication and AO to wait the final outcome of the Hon’ble Apex Court in SLP (Civil) 22889 of 2008 in M/s. Exide Industries Ltd. case and decide this issue as per the decision of Hon’ble Apex court in M/s. Exide Industries Ltd., (supra). Thus, this ground of appeal of assessee is allowed for statistical purposes.
Hindusthan Gum & Chemicals Ltd. Assessment Year:2015-16
Ground nos. 3 to 5 raised by the assessee relate to disallowance u/s 14A read with Rule 8D of the Income Tax Rules.
Brief facts qua the issue are that during the assessment proceedings, the Assessing Officer noticed that the assessee company had suo-moto disallowed Rs. 6,87,156/- u/s 14A read with Rule 8D of the Income Tax Rules, 1962. The assessee submitted before Assessing Officer that only Rs. 6,87,156/- was incurred as an expense to earn the exempt income of Rs. 6.91 crores. However, Assessing Officer rejected the contention of the assessee and computed the disallowance u/s 14A read with Rule 8D of Rules as follows:
“8D(i) : Direct expenses for exempted Income - NIL 8D(ii): Proportionate interest expense - NIL 8D(iii): One half percentage of average of investment (income from which does not or shall not form part of total income) = 0.5% of Rs.( 22,682.23 lacs +126450.27 lacs)/2 = Rs. 372.83 lacs Total Disallowance u/s Rule 8D = 8D(i) +8D(ii) + 8D(iii) = Rs. 372.83 lacs = Rs. 372.83 lacs less Rs 6,87,156/- (considered by assessee)
Hence, the disallowance u/s 14A read with Rule 8D works out to Rs. 372.83 lacs. However, the assessee company had suo-moto disallowed Rs.6,87,156/- in its computation of total income. Accordingly, the balance amount of expenses amounting to Rs. 365.96 lacs [Rs. 372.83 lacs - Rs. 687156/-] is now being disallowed under the provisions of section 14A of the I.T. Act, 1961 read with Rule 8D of I.T. Rules, 1962, and the same is now added back to the total income of the assessee for the A.Y. 2015-16 in the computation of normal provisions of the Income Tax Act as-well-as computation of Book Profit under MAT provisions u/s 115JB of the Act”
Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the ld. CIT(A) who has partly allowed the appeal of the assessee.
Aggrieved by the order of the ld. CIT(A), the assessee is in appeal before us.
Hindusthan Gum & Chemicals Ltd. Assessment Year:2015-16
The ld. Counsel for the assessee has submitted before us that only dividend bearing securities should be considered for disallowance u/s 14A read with Rule 8D(2)(iii) of the Rules and on the other hand the ld. DR has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity.
We have heard both the parties and carefully gone through the submission put forth on behalf of the assessee along with the documents furnished and the case laws relied upon, and perused the fact of the case including the findings of the ld CIT(A) and other materials available on record. We note that the amendment in Section 14A of the Act was made by the Finance Act, 2016 which is applicable for A.Y. 2017-18. Therefore, the amended provision of section 14A read with Rule 8D does not apply to the assessee’s appeal under consideration. We note that in assessee’s case under consideration, the assessment year involved is 2015-16 therefore, the same should be adjudicated by applying all the provision of section 14A i.e. prior to amendment in section 14A by the Finance Act, 2016. We note that the assessee Company has earned dividend income of Rs. 6,91,26,474/-, which is exempt u/s 10(34)/10(35) of the IT Act. However, the Learned Assessing Officer by applying the provisions of Rule 8D has allocated a sum of Rs.3,72,83,000/- towards expenses attributable to earning Dividend income and disallowed a sum of Rs. 365.96 lacs (Rs. 372.83 lacs less 6,87,156/-) while computing the total income for the year. We note that the issue involved in the assessee’s case is no longer res integra. The Co-ordinate Bench of ITAT Kolkata in the case of REI Agro Ltd. vs. DCIT reported in 144 ITD 141 wherein it was held that only the dividend bearing securities should be considered while computing the disallowance under Rule 8D(2)(iii) of the Rules. We note that ld. CIT(A) has also considered the judgment of the Co-ordinate Bench in the case of REI Agro (supra) and directed the Assessing Officer to compute the disallowance taking into account dividend bearing securities. The findings of the ld. CIT(A) is given below: “Ground nos. 3 & 4 relates to disallowance of Rs. 372.83 lacs computed by Assessing Officer u/s 14A r.w.r 8D. On this issue the assessee has stated that a disallowance of Rs. 6,87,156/- has already been made by the assessee against the Page | 5
Hindusthan Gum & Chemicals Ltd. Hindusthan Gum & Chemicals Ltd. Year: Assessment Year:2015-16 dividend income of Rs. 6.91 crore which is exempt. Assessee has also cited the dividend income of Rs. 6.91 crore which is exempt. Assessee has also cited the dividend income of Rs. 6.91 crore which is exempt. Assessee has also cited the cases of REI Agro Ltd. vs. DCIT (144 ITD 141). A cases of REI Agro Ltd. vs. DCIT (144 ITD 141). As per this decision the average s per this decision the average of the value of the investment from which the income has been earned which is not of the value of the investment from which the income has been earned which is not of the value of the investment from which the income has been earned which is not falling within the part of the total income that is to be considered. falling within the part of the total income that is to be considered. falling within the part of the total income that is to be considered.
Following the above, the Assessing Officer is directed to recomputed t Following the above, the Assessing Officer is directed to recomputed t Following the above, the Assessing Officer is directed to recomputed the disallowance considering the following investment disallowance considering the following investment –
This ground is, therefore, partially allowed. This ground is, therefore, partially allowed.”
Therefore, we direct the Assessing Officer to compute the disallowance under Therefore, we direct the Assessing Officer to compute the disallowance under Therefore, we direct the Assessing Officer to compute the disallowance under Rule 8D(2)(iii) [disallowance @ [disallowance @ 0.5% of average value of investment] 0.5% of average value of investment] by taking into account the dividend bearing securit into account the dividend bearing securities only. Therefore, we confirm the confirm the order of ld. CIT(A) in directing the AO to compute the disallowance by taking into in directing the AO to compute the disallowance by taking into in directing the AO to compute the disallowance by taking into account the dividend bearing securities only.Thus account the dividend bearing securities only.Thus,we allow these grounds raised we allow these grounds raised by the assessee for statistical purposes. by the assessee for statistical purposes.
Hindusthan Gum & Chemicals Ltd. Assessment Year:2015-16
In the result, statistical purposes the appeal of the assessee is treated to be allowed.
Order pronounced in the Court on 26.02.2020