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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA & SHRI LALIET KUMAR
O R D E R
Per Shri A.K. Garodia, Accountant Member
This appeal is filed by the revenue and the CO is filed by the assessee and these are directed against the order of CIT(A)-5, Bangalore dated 13.10.2015 for Assessment Year 2011-12.
The grounds raised
by the revenue in its appeal are as under:-
1. The order of the Commissioner of Income Tax(Appeals)-5, Bangalore, is opposed to the law and not on the facts and circumstances of the case.
C.O. No. 72/Bang/2017 Page 2 of 7
2. On the facts and in the circumstances of the case, the CIT(A) erred in law in holding that the STPI unit established by the assessee for which 10A deduction is claimed was not formed by splitting up or reconstruction or transfer of used assets of an existing unit, without appreciating the fact that the STPI unit is not a new undertaking, but formed by splitting up of the existing unit and reconstruction of the business already in existence. Hence, the same is in contravention to the conditions for allowing deduction u/s 10A.
On the facts and in the circumstances of the case, the CIT(A) erred in law in directly admitting the additional evidence submitted by the assessee w.r.t software expenses without giving opportunity to the AO to examine the evidence produced by the assessee before the CIT(A) as per the provision of Rule 46A. 4. For these and other grounds that may be urged upon, the order of the CIT(A) may be reversed and that assessment order be restored. 5. The appellant craves leave to add, alter, amend or delete any other grounds on or before hearing of the appeal.” 3. The ld. DR of revenue supported the assessment order and ld. AR of assessee supported the order of CIT(A). He also submitted that this issue is covered by the judgment of Hon'ble Karnataka High Court in assessee’s own case for Assessment Years 2007-08 to 2009-10 in to 190/2014 dated 05.01.2015, copy available on pages 69 to 75 of paper book. In particular, our attention was drawn to Para no. 3 of this judgment and it was submitted that in this Para, the facts are available. After reading this para of judgment of Hon'ble Karnataka High Court, it was observed by the bench that in those years, a categorical finding has been given by the Hon'ble Karnataka High Court that the assessee also continued to carry out its business from non-STPI unit also and separate books of accounts were maintained by the assessee for the STPI unit and non-STPI unit. The bench wanted to know the facts in the present year to see as to whether in the present year also, the assessee has continued to carry out its business from non-STPI unit also and whether separate books of accounts were maintained by the assessee in the present year also for STPI and non-STPI unit. In reply, it was submitted by ld. AR of assessee that the claim in the present year is in respect of the same unit and therefore, it should be held that the assessee is eligible for deduction u/s. 10A of the IT Act.
C.O. No. 72/Bang/2017 Page 3 of 7 4. We have considered the rival submissions. First of all we reproduce Para no. 3 of the judgment of Hon'ble Karnataka High Court in assessee’s own case from pages 73 and 74 of paper book. The same reads as under:- “3. The assessee is an Indian Company engaged in the business of computer software development and business processing out source. During the financial year 2005-2006 the assessee was running its business from a non-STPI unit under a rental premises. In this period the party has applied for permission to set up the STPI unit at ground floor of the said premises. The STPI authorities granted approval for setting up of the STPI unit for development of computer service / IT Enabled Services (ITES) 31.02.2006. The assessee started the business in the newly set up unit during the financial year 2006-2007. The assessee also continued to carryout its business from non-STPI unit also. Separate books of accounts were maintained by the assessee for the STPI unit and non-STPI unit. In respect of STPI unit the claim for reduction under Section 10A made by the assessee was rejected on the ground that STPI unit is found by splitting of the existing unit. In appeal, on appreciation of the material on record, the said order was set aside and the benefit under Section 10A was extended to the STPI Unit and the Revenue preferred an appeal before the Tribunal which has confirmed the same.”
From the above para reproduced from the judgment of Hon'ble Karnataka High Court rendered in assessee’s own case for Assessment Years 2007-08 to 2009-10, it is seen that the main basis of this judgment is this that the assessee continued to carry out its business from Non STPI unit also and separate books of accounts were maintained by the assessee for STPI and Non STPI unit. These facts for the present year are not made available before us and therefore, we feel it proper to restore this matter back to the file of CIT(A) for fresh decision after examining these factual aspects. The ld. CIT(A) should examine the facts of the present year in the light of this judgment of Hon'ble Karnataka High Court rendered in assessee’s own case and thereafter, he should pass necessary order as per law after providing reasonable opportunity of being heard to both sides.
In the result, the appeal filed by the revenue stands allowed for statistical purposes.
Now we take up the CO filed by the assessee. The grounds raised
by the assessee in its CO are as under.
1. The learned CIT(A) has erred in confirming the disallowance under section 14A read with rule 8D(2)(iii) amounting to Rs.
C.O. No. 72/Bang/2017 Page 4 of 7 7,40,992. On facts and circumstances of the case and law applicable, the impugned disallowance should be deleted fully.
2. In any case and without prejudice, computation of disallowance under section 14A read with rule 8D(2)(iii) is incorrect.”
Although this is one of the grounds that there should be no disallowance u/s. 14A of IT Act read with rule 8D(2)(iii) and this is an alternative contention that the computation of disallowance at Rs. 7,40,992/- by the AO is incorrect. The ld. AR of assessee did not make any argument regarding the first aspect that no disallowance should be made u/s. 14A and his only argument was regarding second aspect that the computation of disallowance should be corrected. In this regard, he submitted that as per the balance sheet of the assessee available on page no. 6 of the paper book, investments as on 31.03.2011 is Rs. 5,08,13,789/- and as on 31.03.2010, the investment was Rs. 4,79,85,253/-. He submitted that as per the provisions of Rule 8D(2)(iii), half percent disallowance has to be made on average investment and the same cannot be Rs. 7,40,992/-. The ld. DR of revenue supported the order of CIT(A).
We have considered the rival submissions. We find that although not much argument was made by ld. AR of assessee on this aspect that there should be no disallowance u/s. 14A but still we decide this aspect also. As per schedule 13 of the P & L account available on pages 18 and 19 of paper book, the assessee has incurred an amount of Rs. 14368715/- under the head administrative and other expenses and this includes Annual Maintenance Charges of Rs. 79,269/- and Professional & Consultancy charges of Rs. 38,83,244/-. This is to be noted that for having investment in shares, demat account has to be maintained and for that, annual maintenance charges are generally required to be paid. Payment of commission to the extent of Rs. 1,60,418/- is also there. Part of Professional & Consultancy charges and commission may be on account of investment in shares and the details of these expenses has not been made available before us and therefore, this cannot be examined and concluded that these expenses debited in P & L Account do not include any expenses incurred in respect of investment in shares and therefore, we find no infirmity in the order of authorities below on this aspect. Accordingly ground no. 1 of the CO is rejected.
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Regarding ground no. 2 of the assessee’s CO, we find force in the arguments of ld. AR of assessee that the amount of disallowance computed by the AO seems to be incorrect because 0.5% of average investment cannot be Rs. 7,40,992/- because as per the AO also, amount of investment as on 31.03.2011 is Rs. 5,08,13,789/- and Rs. 4,79,85,253/-as on 31.03.2010 as noted by the AO in para no. 8 of the assessment order and as per these figures, the average investment will be 493.99 lakhs and 0.5% of this amount will be about 2.50 lakhs. Even if disallowance on account of interest expenditure is there, then also, it cannot be Rs. 7,40,992/- because the total financial expenses debited to P & L Account is only Rs. 195,812/-. Hence on this aspect, we set aside the order of CIT(A) and restore the matter back to the file of AO for fresh decision by computing the correct amount of disallowance to be made u/s. 14A after allowing adequate opportunity of being heard to the assessee. Accordingly ground no. 2 of the CO is allowed for statistical purposes.
One more argument was made by ld. AR of assessee that even if some disallowance u/s. 14A is confirmed then also, the same should be considered as income for the purpose of computing deduction allowable to assessee u/s. 10A of the IT Act. The bench observed that no such ground is there in the CO filed by the assessee. In reply, it was submitted by ld. AR of assessee that the assessee is raising this issue under Rule 27 of Appellate Tribunal Rules, 1963. The bench observed that as per Rule 27 of Appellate Tribunal Rules, 1963, the assessee can raise that aspect of an issue if that aspect of the issue has been raised before the CIT(A) and was decided against the assessee although the issue was decided in favour of the assessee but on some other aspect of that issue and in this manner, he can support the order of CIT(A). The bench wanted to know as to whether this aspect of the issue was raised before CIT(A) and was decided by CIT(A) against the assessee and the issue was decided in favour of the assessee but on some other aspect. In reply, he submitted that this aspect of the issue was not raised before CIT(A) regarding consideration of this disallowance u/s. 14A for the purpose of deduction u/s. 10A of IT Act. The ld. DR of revenue submitted that this issue is not required to be decided because the same is never raised by the assessee before the CIT(A) and there
C.O. No. 72/Bang/2017 Page 6 of 7 is no ground before the tribunal also in this regard and therefore, this issue cannot be raised as per Rule 27 of the Appellate Tribunal Rules, 1963.
We have considered the rival submissions. First of all we reproduce Rule 27 of Appellate Tribunal Rules, 1963. The same reads as under:- “27. The respondent, though he may not have appealed, may support the order appealed against on any of the grounds decided against him.”
As per the above rule, in our considered opinion, if the assessee has raised an issue before the CIT(A) which is decided by CIT(A) in favour of the assessee on one aspect and although arguments were made before the CIT(A) on some other aspect but decided by him against the assessee on that other aspect then under this rule, the assessee can support the final decision of CIT(A) by making argument on that other aspect decided against him by the CIT (A). In the present case, it is admitted position of fact that the aspect regarding considering of disallowance u/s. 14A for the purpose of computing the deduction allowable u/s. 10A of the IT Act was never raised before the CIT(A) and there is no decision of CIT(A) on this aspect. Hence, in our considered opinion, this issue cannot be raised before the tribunal by taking shelter of Rule 27 of Appellate Tribunal Rules, 1963. We do not admit and decide this issue.
In the result, the appeal filed by the revenue is allowed for statistical purposes and the CO filed by the assessee is partly allowed for statistical purposes.
Order pronounced in the open court on the date mentioned on the caption page.