SIARA ENGINEERING PVT. LTD.,PUNE vs. ADDITIONAL COMMISSIONER OF INCOME-TAX,

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.

2 ITA No.1101 & 1102/PUN/2016 Siara Engineering Pvt. Ltd.,

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.

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 :

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 :

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.

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.

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.

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.

ITA No.1102/PUN/2016 A.Y. 2010-11

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.

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