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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
Before: SHRI D.KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश आदेश / ORDER आदेश आदेश
PER D. KARUNAKARA RAO, AM :
There are two appeals filed by the assessee under consideration involving Assessment Years 2009-10 and 2010-11. They are filed against the separate orders of CIT(A)-6, Pune, dated 15-02-2016. Assessee raised similar ground in both these appeals.
We shall take up the appeal ITA No.1101/PUN/2016 for the A.Y. 2009-10 as standard one for the sake of facts and issues.
Grounds raised by the assessee are extracted here as under : “1. The Ld. AO has erred in disallowing CIT(A) erred in confirming) an additional amount of Rs.7,15,500/- u/s.14A r.w. Rule 8D. 2. Without prejudice to above, the Ld. AO has erred in not increasing (CIT(A) erred in confirming) deduction u/s.80IB when he increased the amount of income derived from manufacturing activities.
2 ITA No.1101 & 1102/PUN/2016 Siara Engineering Pvt. Ltd.,
The appellant craves its right to add to or alter the Grounds of Appeal at any time before or during the course of hearing of the case.”
Briefly stated relevant facts include that the assessee is engaged in the
business of manufacturing of Auto components and filed the return
declaring total income of Rs.2,51,25,440/-. In the scrutiny assessment, AO
made solitary addition on account of disallowance u/s.14A r.w. Rule 8D of
the I.T. Rules, 1962 amounting to Rs.8,56,372/- and denied the benefit of
deduction u/s.80IB of the Act on the enhanced income. During the
assessment proceedings, the above referred issues came up for adjudication
before the assessing authority. Assessee submitted that an exempt income
of Rs.16.25 lakhs (rounded off) was earned in this year and is included in
the total income of the assessee. Further, assessee submitted a sum of
Rs.1,40,878/- was disallowed suo moto by the assessee as an expenditure
relatable to the exempt income. For arriving at the figure, the AO segregated
certain accounts which are likely to have common expenditure relating to
the exempt income as well as taxable income and applied flat rate of 15% on
adhoc basis and quantified the relatable expenditure of Rs.1,40,878/-.
Assessee is entitled to deduction u/s.80IB(10) of the Act which is an
undisputed fact. Ignoring the above calculations, the AO quantified the
disallowance and did not grant deduction u/s.80IB(10) in respect of the said
addition. As per the AO, the sum of Rs.8,56,378/- includes the disallowable
amount under clause (ii) of Rule 8D(2) amounting to Rs.24,162/-. The
balance of Rs.8,32,216/- is relatable to the disallowance under clause (ii) of
Rule 8D of the I.T. Rules, 1962. CIT(A) confirmed the said manner of making
the assessment and therefore, the assessee is in appeal before the Tribunal
with the grounds mentioned above.
At the outset, Ld. Counsel for the assessee submitted that the
disallowance made by the AO does not have tax implications in view of the
allowability of deduction u/s.80IB(10) of the Act in respect of the total
3 ITA No.1101 & 1102/PUN/2016 Siara Engineering Pvt. Ltd.,
income quantified by the AO. Further, he also submitted under clause (ii) of
the said rules, assessee quantified the disallowable amount of Rs.39,704/-
(page 23 of the paper book) against the AO’s decision of restricting the
disallowance to Rs.24,162/-. Further, analyzing the way the amounts were
identified and segregated by the AO for making the adhoc disallowance
@15%, Ld. Counsel for the assessee submitted that other accounts debited
in the profit and loss account (page 27 r.w. page 35 of the paper book) are
completely unrelated to exempt income and therefore, the analysis made by
the assessee is flawless. In support of his claim, he relied on the following
decisions and gave the relevant propositions in the paper book filed before
us:
Decisions relied on in respect of Ground No.1 :
CIT Vs. Consolidated Photo & Finvest Ltd. (2012) 211 taxman 184 (Del.) 2. Modern Info Technonology Pvt. Ltd. – ITA No.4294/Del/2012 3. Interglobe Enterprises Ltd. Vs. DCIT – 40 CCH 0022 (Delhi Tribunal) 4. ACIT Vs. Bharat Hotels Ltd. – 42 CCH 0074 (Delhi Tribunal) 5. Oriental Structural Engineers Pvt. Ltd. – ITA No.605/Del/2012 6. JM Financial Limited Vs. ACIT – ITA No.4521/Mum/2012 7. Garware Wall Ropes Ltd. Vs. ACIT – ITA Nos.5408/Mum/2012
Decisions relied on in respect of Ground No.2 : 1. Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT 328 ITR 81 (Bom.) 2. Maxopp Investment Ltd. Vs. CIT (2012) 347 ITR 272 (Del.) 3. Development Credit Bank Ltd. Vs. DCIT (2013) 23 ITR 209 (Mum. Trib.)
He also relied on the following decisions :
ACIT Vs. M/s. Udit Packaging Pvt. Ltd. – ITA No.1272/PN/2011, dated 25-02-2013 2. DCIT Vs. M/s. Saibaba Spareparts & Engineers Pvt. Ltd. – ITA No.1332/Mum/2009, dated 04-06-2010 3. DCIT Vs. M/s. Kryfs Power Components Ltd. – ITA No.9106/Mum/2010 and CO No.88/M/2012, dated 04-11-2015 4. ITO Vs. Kalbhor Gawade Builders – ITA No.386/PN/2011, dated 30-10- 2012.
Further, responding to the DR’s argument about the requirement of
mandatorily following the Rule 8D(2) of the I.T. Rules, 1962 and also for
enhancing the percentage of adhoc disallowance @15% to 20%, Ld. Counsel
mentioned that it does not have any tax implications as the assessee is
entitled to deduction u/s.80IB(10) of the Act. He also submitted that there
4 ITA No.1101 & 1102/PUN/2016 Siara Engineering Pvt. Ltd.,
are catena of decisions to support this line of argument that the assessee is
entitled to deduction u/s.80IB(10) of the Act in respect of the increased
amount in the assessment.
On hearing both the sides and perusing the orders of the Revenue, we
are of the opinion that enhancement made by the AO in view of the
provisions of section 14A r.w. Rule 8D(2) of the I.T. Rules, 1962 constitutes
an infructuous exercise in view of the allowability of deduction u/s.80IB(10)
of the Act. Therefore, we are of the opinion that the disallowance made by
the AO applying the said provisions is not appropriate and meaningful. As
such, assessee followed the systematic way of analyzing the various
accounts of the profit and loss account which has the impact of disallowance
and disallowed a portion of the same applying the adhoc principle @15%. In
our view, the approach of the assessee is fair and reasonable on given facts
of the present case, i.e. claim of deduction u/s.80IB(10) of the Act.
Therefore, the disallowance made by the AO u/s.14A r.w. Rule 8D of the I.T.
Rules, 1962 is uncalled for and unsustainable. Accordingly, the Ground
Nos. 1 and 2 raised by the assessee are allowed.
Before parting, we may observed on the common point raised by the
counsels about the estimated disallowance of expenditure on the double
addition to the extent of the amount suo moto disallowed by the assessee in
the books of account. It is the claim of the assessee that the assessee suo
moto disallowed an amount of Rs.1,22,541/- which includes Rs.2,723/-
under clause (ii) of Rule 8D. However, bringing our attention to the
assessment order, Ld. Counsel submitted that the AO made addition of
Rs.9,08,448/- which is in accordance with the calculations as per Rule 8D of
the I.T. Rules, 1962. It is the claim of the Revenue that the estimated
disallowance at Rs.1,22,541/- was not quantified and disallowed suo moto
in the books of account while filing the return of income. Therefore, without
giving credit to the said amount, AO proceeded to make addition of
5 ITA No.1101 & 1102/PUN/2016 Siara Engineering Pvt. Ltd.,
Rs.9,09,448/-. Assessee desires relief in this regard to the extent of
Rs.1,22,541/- before us.
On hearing both the parties on this limited issue, we are of the opinion
that it is a matter of fact if the said estimated disallowance of Rs.1,22,541/-
was considered while filing the return of income or not. We direct the AO to
examine this issue raised by the assessee before us and allow the relief to
the extent of Rs.1,22,541/- from the said addition of Rs.9,09,448/- in case
the said amount is considered while filing the return of income declaring
income of Rs.1,07,71,350/-. With these directions, AO shall grant
reasonable opportunity of being heard to the assessee on this limited issue.
Accordingly, relevant ground raised by the assessee is allowed pro tanto.
In the result, the appeal of the assessee is allowed.
ITA No.1102/PUN/2016 A.Y. 2010-11
The issues raised in this appeal are identical but for the figures and
the calculations of disallowance. Therefore, in principle, the grounds raised
by the assessee are allowed in view of the detailed discussion given by us on
similar issues raised in the appeal of the assessee for A.Y. 2009-10.
Accordingly, the grounds raised by the assessee are allowed in favour of the
assessee.
In the result, the appeal of the assessee is allowed.
In the result, both the appeals of the assessee are allowed.
Order pronounced on 01st day of August, 2018.
Sd/- Sd/- (VIKAS AWASTHY) (D. KARUNAKARA RAO) �याियक �याियक सद�य �याियक �याियक सद�य सद�य /JUDICIAL MEMBER लेखा सद�य लेखा लेखा सद�य लेखा सद�य सद�य / ACCOUNTANT MEMBER सद�य
पुणे Pune; �दनांक Dated : 01st August, 2018 सतीश
6 ITA No.1101 & 1102/PUN/2016 Siara Engineering Pvt. Ltd.,
आदेश आदेश क� आदेश आदेश क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order forwarded to : अ�ेिषत
अपीलाथ� / The Appellant 1. ��यथ� / The Respondent 2. 3. The CIT(A)-1, Nashik 4. The Pr.CIT-1, Nashik िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, “B Bench” Pune; 5. गाड� फाईल / Guard file. 6.
आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER,स आदेशानुसार
स�यािपत �ित //True Copy// Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune