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Income Tax Appellate Tribunal, “C”, BENCH KOLKATA
Before: SHRI S. S. GODARA, JM &DR. A.L.SAINI, AM
आदेश / O R D E R Per Dr. A. L. Saini: The captioned two appeals filed by the Assessee and Revenue, pertaining to Assessment Year 2013-14, is directed against an order passed by the Ld. Commissioner of Income Tax (Appeals)- 22, Kolkata, dated 29.06.2017,which in turn arises out of fair assessment order passed by the Assessing Officer under section 143(3) read with section 92CA(4) and 144C (3)of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’).
M/s. M. K. Shah Exports Ltd. & 1974/Kol/2017 Assessment Years: 2013-14 2. Since, these two appeals relate to the same assessee, same assessment year, and issues involved are identical, therefore, these have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity. 3. First, we shall take assessee’s appeal in ITA No. 1903/K/2017, for A.Y. 2013- 14, wherein the assessee has raised the following substantial ground of appeal: “
That the learned Commissioner of Income Tax (Appeals) – 22, Kolkata erred in holding donation of Rs. 25,00,000/- made to Gobind Ram Goel Charitable Trust to be bogus and thereby denying claim of deduction of Rs. 12,50,000/- under section 80G of the Act.”
4. The brief facts qua the issue are that during the assessment year under consideration, the assessee-company made an aggregate donation of Rs. 1,52,39,000/- out of which Rs. 14,000/- comprised petty donations not eligible for deduction under section 80G of the Act. The assessee company relied upon the decision of the Hon’ble Calcutta High Court in the case of CIT vs Bata India Ltd. (1993) 201 ITR 884 in respect of claim of deduction under section 37 of the Act, in respect of such petty donations. The Investigation Wing of the Income Tax Department prepared a report on the basis of survey conducted on 04.12.2015 at the office of the assessee company. This report primarily focused on donations given to unscrupulous trusts namely Batanagar Education & Research Trust and Gobind Ram Goel Charitable Trust. The assessee company was given an opportunity to explain the purpose and modus operandi of the donation. The assessee company however denied to have made any bogus donation. But going through the report of the Investigation Wing, the AO noted that one Gobind Ram Goel Charitable Trust was involved in such clandestine dealings. The assessee company has made a donation of Rs.25,00,000/- to Gobind Ram Goel Charitable Trust. Relying upon the report prepared by the Investigation Wing, the donation of this quantum was treated as bogus by the ld AO. Therefore, deduction claimed in respect of amount of donation of Rs. 25,00,000/- made to Gobind Ram Goel Charitable Trust was denied by the assessing officer.
M/s. M. K. Shah Exports Ltd. & 1974/Kol/2017 Assessment Years: 2013-14 5. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A), who has confirmed the addition made by the Assessing Officer. Aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.
6. The learned counsel for the assessee submitted before us that during the previous year ended 31.03.2013, the assessee company had made donation of Rs.25,00,000 to Gobind Ram Goel Charitable Trust, which was eligible for deduction under section 80G of the Act. Based on the report prepared by the Investigation Wing of the Income tax department, the learned AO issued show cause notice to the assessee to explain why the said donation be treated as bogus. It was submitted to the AO vide letter dated 21.11.2016 that the assessee never admitted before any authority that the assessee made bogus donations to any unscrupulous trust. Besides, no evidences were produced before the assessee by the investigation wing of the Income tax Department to show that any consideration has been received in form of cash or otherwise. Also no opportunity was afforded to cross-examine the departmental witnesses, the statements of whom were relied upon by the officials of the investigation wing of the Income Tax Department in alleging that bogus donations were made by the assessee to various unscrupulous trusts especially Gobind Ram Goel Charitable Trust to whom the assessee donated an aggregate sum of Rs. 25,00,000/- during the financial year 2012-13. Further no copiesof documents were provided to the assessee, which were relied upon by the Income Tax Authorities alleging that the assessee made bogus donations to unscrupulous trusts. Besides, copies of statements under oath of the Mr. Himanshu M. Shah, director of the assessee company, recorded under section 131 of the Income Tax Act, 1961 were not made available. Non-availability of such statements and other materials and not affording the opportunity of cross examining the departmental witnesses would vitiate the additions made on account of this issue and would also be against the principles of natural justice. The assessee company categorically denies having made any bogus donation to any unscrupulous trusts.
M/s. M. K. Shah Exports Ltd. & 1974/Kol/2017 Assessment Years: 2013-14 7. On the other hand, the learned DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and are not being repeated for the sake of brevity.
We have given a carefully consideration to the rival submissions and perused the material available on record, we note that the assessee company made an aggregate donation to the tune of Rs. 1,52,39,000/- out of which Rs. 14,000/- comprised petty donation not eligible for deduction u/s 80G of the Act. We note that the investigation wing of the Income Tax Department prepared a report on the basis of survey conducted on 4th December, 2015 at the office of the assessee company. This report primarily focused on donations given to Batanagar Education & Research Trust and Gobind Ram Goel Charitable Trust. The assessee company has made a donation of Rs. 25 lacs to Gobind Ram Goel Charitable Trust and relying upon the report prepared by the investigation wing the donation of this quantum was treated as bogus. We note that when the assessee made the donation to M/s. Gobind Ram Goel Charitable Trust, the said trust was enjoying the benefit of section 80G of the Act, that is, the certificate under section 80G of the Act of M/s. Gobind Ram Goel Charitable Trust was effective and in force. Therefore, the assessee is eligible for deduction u/s 80G of the Act. Just because the trust was engaged in some unauthorized activity does not mean that the assessee is not entitled to claim the benefit u/s 80G of the Act. Besides, the Income Tax Department has failed to prove that the consideration has been received in form of cash or otherwise. Also no opportunity was afforded to the assessee to cross- examine the departmental witness, that is, the statements of whom were relied upon by the officer of investigation wing of the Income Tax Department. Further, no any copies of documents were provided to the assessee which were relied upon by the income tax authority.
We note that explanation 2 to section 80G of the Act states that the assessee is entitled for deduction u/s 80G of the Act,even if, subsequent to the donation any part of the income of the institution has become chargeable to tax due to non- compliance with any of the provisions of section 11, 12 and 12A of the Act. At Page | 4 Page | Page | Page | M/s. M. K. Shah Exports Ltd. & 1974/Kol/2017 Assessment Years: 2013-14 this juncture, it is relevant to quote the explanation 2 to section 80-G of the Act, which states as follows: “Explanation – 2: For the removal of doubts, it is hereby declared that a deduction to which the assessee is entitled in respect of any donation made to an institution or fund to which sub-section (5) applies shall not be denied merely on either or both of the following grounds namely- (i) that subsequent to the donation, any part of the income of the institution or fund has become chargeable to tax due to non- compliance with any of the provisions of section 11, section 12 or section 12A. (ii) that under clause (c) of sub-section (1) of section 13, the exemption under section 11 or section 12 is denied to the institution or fund in relation to any income arising to it from any investment referred to in clause (h) of sub-section (2) of section 13 where the aggregate of the funds invested by it in a concern referred to in the said clause (h) does not exceed five per cent of the capital of that concern.” We note that the Ld. AO nowhere stated in his impugned assessment order that the any part of income of theGobind Ram Goel Charitable Trust ( institution) has become taxable for any technical reason and also the Ld. AO did not mention that the certificate issued under section 80G(5)(v) has been cancelled by the Income Tax Department. Under these circumstances the deduction under section 80G of the Act cannot be denied to the assessee company.We also note that subsequent to the donation, the withdrawal of benefit or cancellation of certificate of section 80G in the hands of the payee would not affect the interest of the assessee. In view of the aforesaid facts and circumstances of the case, we direct the Assessing Officer to grant the deduction u/s 80G of the Act in respect of donation given by the assessee in accordance with law.
10. In the result, the appeal filed by the assessee ( In ITA No.1903/K/2017, for A.Y. 2013-14), is allowed
11. Now we shall take Revenue’s appeal in A.Y. 2013-14, wherein grievances raised by the Revenue are as follows: Page | 5 Page | Page | Page | M/s. M. K. Shah Exports Ltd. & 1974/Kol/2017 Assessment Years: 2013-14 “1. The Ld. CIT(A) erred in determining the arm’s length rate of interest in accordance with section 92C of the income tax Act, 1961, read with Rule 10B & Rule 10C of the Income Tax Rules, 1962.
The Ld. CIT(A) erred to undertake adequate comparability analysis and reliable and accurate adjustments to account for differences between international transaction and comparable uncontrolled transactions and envisages under transfer pricing provisions.
Whether on the fact and circumstances of the case and also in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs. 1,10,88,923/- (effective disallowance Rs. 44,35,569/- being 40% of Rs. 1,10,88,923/-) of employees contribution towards EFP which was paid beyond the due date.
Whether on the facts and circumstances of the case and also in law, the Ld. CIT(A) has erred in deleting effective addition of Rs. 44,35,569/- without appreciating the facts enumerated in CBDT Circular No. 22/2015 dated 17.12.2015.
5. Whether on the facts and circumstances of the case and also in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,04,168/- as disallowance made u/s 14A read with rule 8D overlooking the fact that the same was made in accordance with the provisions of IT Act, 1961.
6. Whether on the facts and circumstances of the case and also in law, the Ld. CIT(A) has erred in deleting the addition of Rs. 1,48,506/- (disallowed u/s 14A) to the Book Profit of assessee company.
7. That on the facts and circumstances of the case, it is humbly requested to set aside the order of Ld. CIT(A) and restore back the assessment order passed by the AO.”
Ground No. 1 and 2 raised by the Revenue relates to upward transfer pricing adjustment of Rs.92,42,535/-, on account of interest charged to the assessee’s subsidiary, by the name of M/s. GAO Classic in the Russian Federation.
When this appeal was called out for hearing, the learned counsel for the assessee invited our attention to the order of the Tribunal in passed by the Division Bench of this Tribunal in assessee’s own Page | 6 Page | Page | Page | M/s. M. K. Shah Exports Ltd. ITA Nos.1903 & 1974/Kol/2017 Assessment Years: 2013-14 case, for the A.Y. 2011-12 and 2012-13, whereby the upward TP adjustment was deleted. Learned counsel for the assessee submitted that the present appeal is squarely covered by the aforesaid order of the Tribunal, a copy of which was also placed before the Bench. In this order, the Tribunal has inter alia observed as follows: “13. We see no reasons to take any other view of the matter than the view so taken by the Division Bench of this Tribunal in assessee’s own case vide order dated 12.05.2017,in ITA No.2149/Kol/2014, (Supra). In this order, the Tribunal has inter alia observed as follows: “4. As far as ground no.1 raised by the revenue is concerned the facts are as follows :- The Assessee is a company engaged in the business of growing and manufacturing of tea and are also blenders, packers and exporters of tea. The assessee entered into international transaction of giving of loans to its subsidiary AZO classic Russia. It is not in dispute that the transaction of giving loan to a subsidiary was an international taxation and the rate of interest that has to be charged by the assessee on such loan has to confirm to the arms length test laid down in section 92 of the Income Tax Act, 1961 (Act). It is not in dispute that the loan in question was given in foreign currency i.e., US$ and the rate of interest that was charged was at 4% p.a. which was increased to 8% on 02.04.2007. The basic details of the loan agreement were as follows :- "Under an Agreement titled 'Credit Agreement No.2' dated 08 December, 2003, the assessee had advanced a loan of USD 800,000 to its subsidiary ZAO Classic in Russia. The principal amount was increased to 1,500,000 USD by an amendment dated 19,02.2004. the rate of interest charged on the loan was increased from 4% p.a. to 8% p.a. through an amendment dated 02.04.2007, i.e. during the financial year pertaining to assessment year 2008-09. The basic terms of this Agreement were as follows: S.No. Description Details 1. Loan mount/currency 800 000/USD(original agreement); amended on 19.02.2004 to 15,00,000 USD 2. Term of the loan 5 years (as per the original agreement); 3. Purpose of loan To expand operations, purchase of goods 4. Borrower's Country Russia 5 Year of Loan 8 December, 2003 6. Rate 4% p.a. (original agreement); increased to 8% on 02.04.2008 7. Put or Call option Both options 8. Security unsecured 9. Seniority N.A. 10. Any other condition n.a.
The Transfer Pricing Officer (TPO) examined the rate of interest charged on the loan by the assesee in the light of mandate laid down in section 92 of the Act that the rate of interest on such loans must be at arms length i.e. rate at which similar loan would be given or taken by unrelated parties.
The plea of the assessee before the AO was that the loan to the subsidiary ZAO Classic was a trade investment in form of foreign currency loan which in turn provides benefit to the parent company i.e. the assessee in the form of increased market share. It was submitted by the assessee that borrowings in the Page | 7 Page | Page | Page | M/s. M. K. Shah Exports Ltd. & 1974/Kol/2017 Assessment Years: 2013-14 hands of ZAO Classic was External Commercial Borrowing (ECBs) and the range of rates of interest vary between LIBOR plus 100 bps to 200 bps. The European Central Bank has recommended rates ranging from 2.00% to 5.25% on ECBs. Foreign Currency Loans are given by Banks globally bearing LIBOR based Rate. The average of the LIBOR based Rate for the period from 01.4.2007 to 3l.03.2008 was 4.68 %. It has been compared by taking average monthly opening and closing rate for the period from 01.04.2007 to 31.03.2008. The Assessee enclosed a copy of data sourced from Global-rates .com in support of its plea. The assessee pointed out that it had charged 8% on the Loan given to Zao Classic for 01.04.2007 to 31.03.2008 which was higher than the USD Libor Rate. The assessee placed reliance on the decision of Hon'ble ITAT Chennai (2011) 46 SOT 2 (Chennai) (URO)/] 1 taxman. Com 404 (Siva Industries & Holdings Limited vs. The Assistant Commissioner of Income Tax, Company Circle - VI (4), Chennai) wherein it was held that where loan is given to the associated enterprises in US dollars then the transaction would have to be looked upon the applying the commercial principles in regard to international transaction. If that was so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR rate had to be considered while determining the arm's length interest rate in respect of the transaction between the assessee and the associated enterprises. The assessee claimed that the facts of its case fairly and squarely match with that of the case decided by ITAT, Chennai and considering the interest rate of 8% charged on loan given to subsidiary Zao Classic, the provisions relating to arm's length transaction have no applicability.
The TPO was of the view that the rate of interest has been charged by the assessee on the loan to its subsidiary keeping in mind the arms length rate would be 14.12% and he accordingly suggested an adjustment of Rs.40,32,011/- and the said sum should be added to the total income of the assessee by way of adjustment to ALP. Consequently a sum of Rs.40,32,011/- was added to the total income of the assessee.
8. On appeal by the assessee the CIT(A) deleted the addition made by the AO by following the decision of ITAT Chennai in the case of Siva Industries & Holdings Limited vs. The Assistant Commissioner of Income Tax (supra) . The following were the relevant observations of CIT(A): "4.2. I have considered the facts of the case. The assessee had advanced a loan in foreign currency to its subsidiary ZAO Classic, Russia on which it was charged interest at the rate of 8% p.a. The TPO was of the view that price of the loan i.e. the interest charged has to be worked out on the basis of taking two parties as separate and bench-marking the price of the loan on the basis of what an independent third party would charge from ZAO Classic, Russia based on its analysis of risk associated with the loan. The assessee stated in reply to show cause notice issued by the TPO, that foreign currency loans are given by banks bearing UBOR based rate as a global practice. The average of LIBOR based rate for the year under consideration was 4.68%. Thus the rate of 8% charged by the assessee was higher than the LIBOR rate. The assessee also relied upon a number of decisions, in particular the decision of ITAT, Chennai in the case of Siva Industries and Holdings Ltd vs ACIT, Central Circle-6(1) Chennai 46 SOT 112. In the appellate proceedings the assessee has cited some more decisions such as Four Soft Ltd vs DCIT in ITA No. 1495/Hyd 12010, Cotton Natural (I) Pvt Ltd. vs DCIT in ITA No. 5855/De1/2012. In the case of Siva Industries and Holdings Ltd. (supra), it has been held by the Hon'ble tribunal that once the transaction is between the assessee and the AEs is in foreign currency, the transaction would have to be looked upon by applying commercial principle in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate fixed being LIBOR would come into play. Same view was taken by tribunal in the case of Four Soft Ltd (supra) and some other cases cited by the assessee. Further, it has been held in the decision in the case of Cotton Natural (I) Pvt Ltd. (supra), that financial position and credit rating of the subsidiary would be broadly same as the holding company and LIBOR should be taken as bench- mark without going into aspects like financial health of subsidiary. In one of the cited cases, viz. Aurionpro Solution Ltd. vs Addl. CIT in ITA NO.7872/Mum/2011, Hon'ble tribunal has observed that appropriate rate would be LIBOR plus 2%. In the assessee's case, the TPO has not countered the decision in the case of Siva Industries and Holdings Ltd (supra) cited by the assessee before him, nor cited any authority in support of his view. The ratio given by the Hon'ble tribunal in the cases cited by the assessee is, that in the foreign currency lending, rate of interest to be adopted is to be based on LIBOR and at the most LIBOR plus 2%. As per documents given by the assessee, the average LlBOR rate for the previous year was 4.68%. Even if a mark up of 2% is given, the rate would be 6.68% whereas the assessee has charged 8% on the loan given to its AEs. It is also not in dispute that the cost of funds in the hands of the assessee is lower than 8% charged from the AE. Considering the facts and circumstances of the case and respectfully following the ratio given by the various benches of Hon'ble tribunal, the adjustment price of Rs.40,32,011/- is deleted." Page | 8 Page | Page | Page | M/s. M. K. Shah Exports Ltd. & 1974/Kol/2017 Assessment Years: 2013-14 9. Aggrieved by the order of CIT(A) the revenue has raised ground no.1 before the Tribunal.
After hearing the submissions of the ld. Counsel for the assessee we are of the view that there is no merit in ground no.1 raised by the revenue. It has been consistently held in several decisions by the tribunal that wherever the transaction of loan between the associated enterprises is in foreign currency then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. Therefore the domestic prime lending rate would have no applicability and the international rate LIBOR would come into play. It has therefore been held that LIBOR rate has to be considered while determining the arms length rate of interest in respect of transactions of loan in foreign currency between the associated enterprises. This view has also been accepted by the Hon'ble Delhi High Court in the case of CIT vs Cotton Naturals (I) Ltd. 276 CTR 445 (Delhi) and by the Hon'ble Bombay High Court in the case of Tata Auto Comp System Ltd approving the decision of ITAT in the case of Tata Auto Comp Vol.52 SOT 48 (Mum). In view of the above settled legal position we find no merits in ground no.1 and dismiss the same. 14.Respectfully following the above binding precedent, we uphold the contention of the assessee, since the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench in ITA No.2149/Kol/2014 for Assessment Year 2008-09 (supra) and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings and the ld. CIT(A) has allowed the appeal of the assessee.We find no reason to interfere in the said order of the ld. CIT(A) and the same is hereby upheld. Therefore, this ground of appeal of Revenue is dismissed.”
14.Since the issue is squarely covered in favour of the assessee by the decision of the Coordinate Bench (supra) and there is no change in facts and law and the Revenue is unable to produce any material to controvert the aforesaid findings and the ld. CIT(A) has allowed the appeal of the assessee by following the judgment of Tribunal in assessee`s own case. Therefore, and ground no. 1 and 2 raised by the Revenue are dismissed.
Ground No. 3 and 4 relates to disallowance of Rs. 44,35,569/- being 40% of Rs. 1,10,88,923/- of employees contribution towards EPF which was paid beyond the due date.
The brief facts qua the issue are that the assessee company received contribution made by its employees towards PF and deposited the same in the accounts of the concerned statutory authority. On perusal of the relevant details furnished in the tax audit report submitted by the assessee, it was noted by the Assessing Officer that the assessee deposited the part of its employees contributions on account of PF beyond the due dates applicable to the assessee as per relevant rules and regulations of the aforesaid authority. From the relevant details as in the tax audit report, it was noted that a total amount of Rs. Page | 9 Page | Page | Page | M/s. M. K. Shah Exports Ltd. & 1974/Kol/2017 Assessment Years: 2013-14 1,10,88,923/- being an employee’s contribution towards PF received by the assessee in the previous year, was deposited beyond the due dates. Since the amount of contribution mentioned above was deposited beyond the due dates, the said amount was treated as income of the assessee u/s 2(24)(x) read with section 36(1)(va) of the Income Tax Act, 1961 and accordingly Assessing Officer made the addition.
Aggrieved by the stand so taken by the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) who has deleted the addition.Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us.
The learned DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, the learned counsel for the assessee defended the order passed by the Ld. CIT(A).
We have given a carefully consideration to the rival submissions and perused the material available on record, we note that the Assessing Officer added back a sum of Rs. 44,35,569/- being 40% of Rs. 1,10,88,923/- on account of payment of employee’s contribution to EPF by applying provisions of the section 2(24)(x) read with section 36(1)(va) of the Act. While making addition on this account, the Ld. AO relied upon Circular No. 22/2015 dated 17.12.2015 issued by the Central Board of Direct Taxes CBDT. We note that through this Circular, the Ld. Assessing Officer disregarded the ratio pronounced by the Hon’ble Supreme Court in the case of CIT vs Alom Extrusions Ltd. (2009) 185 taxman 416 (SC). We note that these payments were made by the assessee before the due date of filing of return of income and this isevidencedby the tax audit report of the assessee that payments were made by the assessee before the due date of filing of return of income. We note that disallowance u/s 36(1)(va) read with section 2(24)(x) of the Income Tax Act, 1961 should not be made in view of the authorized decisions of several High Courts and Tribunals. The decision of the Hon’ble Rajasthan High Court in the case of ITO vs Jaipur Vidyut Vitran Nigam limited inITA No. 278/2011 and also the Hon’ble Kolkata High Court in the case Page | 10101010 Page | Page | Page | M/s. M. K. Shah Exports Ltd. & 1974/Kol/2017 Assessment Years: 2013-14 CIT vs Vijay Shree limited, in ITA 245 of 2011 G.A. No. 2607 of 2011 decided on 06.09.2011 in relation to the A.Y. 2006-07, wherein it was held that the assessee paid EPF contribution within the due date of filing of return of income therefore the addition should not be made. Therefore, we note that in the assessee’s case under consideration, the employee’s contribution towards the PF was made by the assessee before the due date of filing the return of income and thereforeemployee’s contribution towards the PF shall be allowed as deduction u/s 43(b) of the Act, therefore, respectfully following the judgment of Hon’ble Supreme Court in the case of CIT vs Alom Extrusions Ltd. (supra) we find no infirmity in the order passed by the Ld. CIT(A), that being so we declare to interfere in the order of the Ld. CIT(A) and his order on this issue is hereby upheld and the ground raised
by the revenue is dismissed.
20. Ground No 5 relates to addition of Rs. 1,04,168/- u/s 14A read with Rule 8D of the IT Rules.
21. The brief facts qua the issue are that assessee company claimed to have earned dividend to the tune of Rs. 49,250/- and tax free interest of Rs. 17,84,563/- on IRFC bonds in the assessment year under consideration. The assessee claimed these income as exempt and accordingly added back an amount of related expenditure of Rs. 44,338/- in the contribution of total income. The Ld. Assessing Officer noted that logically related expenses ought to have been disallowed by the assessee in accordance with the provision of section 14A of the Act read with Rule 8D. On examination of relevant particulars available on record, it was noted by the Assessing Officer that the disallowance of expenses made by the assessee was not in conformity with Rule 8D. Therefore, the Assessing Officer relying on the Circular No. 5 of 2014, issued by the CBDT, computed the disallowance u/s 14A read with rule 8D, to the tune of Rs. 1,48,506/- under Rule 8D(2)(iii) of the IT Rules. Since the assessee had already disallowed and added back suo moto Rs. 44,338/- in its computation of total income, the balance expenditure to the tune of Rs. 1,04,168/- (Rs. 1,48,506 - Rs. 44,338) was disallowed and added back to the total income of the assessee. Page | 11111111 Page | Page | Page | M/s. M. K. Shah Exports Ltd. & 1974/Kol/2017 Assessment Years: 2013-14 22. Aggrieved by the order of the Assessing Officer, the assessee carried the matter in appeal before the Ld. CIT(A) with success. The Ld. CIT(A) deleted the addition stating that the Assessing Officer has passed a non-speaking order therefore relying on the judgment of DCIT vs AshishJhunjhunwala in ITA No. 1809/K/2012 of Kolkata Tribunal, restricted the disallowance u/s 14A to Rs. 44,338/- that is the amount of disallowance made by the assesseesuo moto in its return of income.
Aggrieved by the order of the Ld. CIT(A), the Revenue is in appeal before us. The learned DR for the Revenue has primarily reiterated the stand taken by the Assessing Officer which we have already noted in our earlier para and is not being repeated for the sake of brevity. On the other hand, the learned counsel for the assessee defended the order passed by the Ld. CIT(A).
We have given a carefully consideration to the rival submissions and perused the material available on record, we note that the assessee has suo moto disallowed u/s 14A read with Rule 8D to the tune of Rs. 44,338/-. We note that the Ld. Assessing Officer has not mentioned the cogent reasons for rejecting the claim of the assessee in the assessment order.If the Assessing Officer proposes to invoke section 14A then he has to record a satisfaction on this issue. This satisfaction is to be done with regard to the accounts of the assessee. In the present case wenote that there is no satisfaction recorded by the Assessing Officer and therefore, in view of the decision of the Co-ordinate Bench on this issue in the case of Ashish Jhunjhunwala (supra) no disallowance u/s 14A can be made. Therefore, the order passed by the Assessing Officer is a non-speaking order and Ld. CIT(A) has rightly restricted the disallowance u/s 14A to the tune of Rs. 44,338/-.
Ground No. 6 relates to addition of Rs. 1,48,506/- (disallowed u/s 14A) to the book profit of the assessee company u/s 115JB of the Act.
At the outset itself, the learned counsel for the assessee submitted that this issue is no longer res integra. Section 115JB of the Act is a code itself and whatever adjustment by way of increase or decrease to the net profit shown by the Page | 12121212 Page | Page | Page | M/s. M. K. Shah Exports Ltd. & 1974/Kol/2017 Assessment Years: 2013-14 assessee company in profit and loss account is made as per section 115JB of the Act. The items which are to be added to the net profit, have been listed in explanation 1 to that section. The Ld. AO should adhere to that list and cannot travel beyond these items.
After hearing the learned DR for the revenue on this issue, we note that the provisions relating to adjustments by way of increase and decrease to the net profit shown by the assessee in Profit & Loss Account, are very explicit in section 115JB of the Act. The items which are to be added to the net profit have been listed out in Explanation 1 to that section. The learned AO should adhere to that list and cannot travel beyond these items. Since there is no mention of Section 14A in the said Explanation 1 to Section 115JB, the same cannot be added to re-determine the quantum of "Book Profit". The provisions of section 115JB relating to computation of book profit are amply clear and unambiguous. These provisions do not leave any room for adjustment by the assessing officer other than those mentioned in Explanation 1 to section 115JB to the net profit reflected in the accounts of any assessee and adjustment by way of disallowance u/s 14A is not included in the said explanation. Therefore, such upward revision in the sum of Rs.1,48,506/-to the book-profit by making disallowance section 14A read with rule 8D is not permitted as per tribunal’s Special Bench’s decision in Vineet Investments (2017) 82 taxmann.com 415 (Del-Trib).That being so, we decline to interfere with the order of Id. CIT (A) deleting the aforesaid addition. His order on this issue is, therefore, upheld and the grounds of appeal
of the Revenue are dismissed.
28. In the result, the appealof the Revenue ( ), is dismissed. Order is pronounced in the open court on 16.11.2018. Sd/- Sd/- (S. S. GODARA) (A.L.SAINI) �या�यकसद�य / लेखासद�य / JUDICIAL MEMBER ACCOUNTANT MEMBER कोलकाता /Kolkata; �दनांक/ Date: 16 /11/2018 Page | 13131313 Page | Page | Page | M/s. M. K. Shah Exports Ltd. ITA Nos.1903 & 1974/Kol/2017 Assessment Years: 2013-14 (RS, Sr.PS)