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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Per Shri A.T.Varkey, JM Both these appeals preferred by the revenue and assessee are against the order of the Ld. CIT(A)-22, Kolkata dated 27.03.2017 for AY 2009-10.
2. Ground no. 1 of revenue’s appeal and ground no. 1 and additional grounds of assessee are against the action of Ld. CIT(A) in restricting the disallowance u/s. 14A read with rule 8D to Rs.39,57,250/-.
Briefly stated facts are that during the year the assessee had earned exempt dividend income of Rs.92,73,195/-. Against the said income the assessee had offered Rs.2,25,735/- as expenses attributable in order to earn such exempt income u/s. 14A of the Income-tax Act, 1961 (hereinafter referred to as the “Act”). According to Ld. AR the basis of quantifying
2 & 1393/Kol/2017 Exide Industries Ltd., AY 2009-10 such expenses was based on the fact that about 20% of the time cost of the Treasury Department of the assessee was involved in the investment in mutual funds and some other investments dividend from which are exempted and, therefore, 20% of the salary cost of the Treasury Department was offered for taxation u/s. 14A of the Act. The AO did not accept this contention of assessee as the disallowance offered by the assessee u/s. 14A of the Act was inadequate. He, therefore, applied Rule 8D of the I. T. Rules, 1962 (hereinafter referred to as the “Rules”) and computed the disallowance u/s. 14A of the Act at Rs.7,06,48,036/- in the assessment order u/s. 143(3) of the Act, which is as under: Particulars Amount (Rs.) Expenses directly related 2,25,735/- to income which does not form a part of total income (Rule 8D(2)(i) Interest which is not Out of interest of Rs.48.19 crores, Rs.33.22 4,17,08,051/- directly attributable to any crores and Rs.0.11 crores can be identified particular income (Rule to be directly linked with regular business 8D(2)(ii) and generating taxable income. Hence, interest to be proportioned to 14,85,75,011 x 574.285/2045.795 Amount equal to 0.5% of 0.5% x 574.285 2,87,14,250/- average investment (Rule 8D(2)(iii) Total : 7,06,48,036/- During the course of assessment proceedings the Ld. AR of the assessee has filed a detailed written submission and explained the details of the workings of the above disallowance. He also submitted that the assessee had not utilized borrowed funds for investment. Hence, no disallowance should be made under Rule 8D(ii) and 8D(2)(iii) of the Rules. Aggrieved, assessee preferred an appeal before the Ld. CIT(A). Before the Ld. CIT(A), the assessee has raised additional ground to the effect that the AO has erred in taking total investments lying in the balance sheet as on 31.03.2008 and 31.03.2009 (excluding foreign investments) instead of those investments which have yielded exempted income during the relevant year. After considering the detailed submission of the Ld. AR, the Ld. CIT(A) directed to compute the disallowance under rule 8D(ii) and 8D(2)(iii) by adopting those investments which have yielded exempted dividend during the relevant year and not all the investments by relying on the decision of Hon’ble Calcutta High Court in the case of CIT Vs. REI Agro Ltd., ITAT 161 of 2013 dated 23.12.2013 and the decision of ITAT, Kolkata in the case of GVN Fuels Ltd. Vs. DCIT in dated 25.05.2016 and made the total
3 & 1393/Kol/2017 Exide Industries Ltd., AY 2009-10 disallowance u/s. 14A read with rule 8D of the Rules to Rs.39,57,250/-. Aggrieved, revenue as well as assessee is now in appeal before us.
We have heard rival submissions and gone through the facts and circumstances of the case. Coming to the assessee’s ground of appeal on this issue, the Ld. AR drew our attention to page 90 of the paper book to show that assessee had total Reserves of Rs.6281.59 cr. and total own funds is Rs.9094.521 cr. And in this year the total investment made was only to the tune of Rs.1499 cr. So, the working made under Rule 8D(ii) i.e interest which is not directly attributable to any income, should not be allocated, since assessee has own funds as demonstrated above. We note that when assessee is possessed of mixed funds which includes its own funds in sufficient quantity, a presumption that its own funds were utilized for the advances is to be drawn as held by the Hon’ble Bombay High Court in Reliance Utility & Power Ltd. Vs. CIT 313 ITR 340. Relying on the aforesaid decision of the Hon’ble Bombay High Court, we find force in this ground raised by the assessee. Therefore, we direct the AO to verify the facts stated above and if it is found that assessee had own funds to make investment in tax free securities, then no disallowance u/s. 14A of the Act is warranted. So this ground of assessee is allowed for statistical purpose. Coming to the additional ground of assessee, we do not find any merit in the same because AO has expressed his dissatisfaction in the disallowance suo-motto made by the assessee, so it is dismissed
5. Coming next to the issue in question is as to whether the Ld. CIT(A) is justified in directing the AO compute the disallowance under rule 8D(ii) and 8D(2)(iii) by adopting those investments which have yielded exempted dividend during the relevant year. The direction to the AO to compute the disallowance under rule 8D(ii) have been already disposed of by us, so what is left is his direction in respect of Rule 8D (iii) and for that we note that this Tribunal has consistently followed the dictum of law laid down in REI Agro Ltd. Vs. DCIT 144 ITD 141 in which the Tribunal held that only investment which has given rise to the exempted income should be taken into consideration while computing disallowance u/s. 14A read with Rule 8D (iii) of the Rules. This order has been upheld by the Hon’ble Calcutta High Court vide judgment dated 23.12.2013. The Ld. CIT(A) order is confirmed only in respect to his direction for application of Rule 8D (iii) and since the Ld.
4 & 1393/Kol/2017 Exide Industries Ltd., AY 2009-10 DR was unable to bring on record any change in law or facts, we do not find any infirmity in the order of the Ld. CIT(A) and hence, the same is hereby upheld. Therefore, this ground of appeal of revenue is dismissed. .
6. Ground no. 2 of the revenue is against the action of Ld. CIT(A) in treating the expenses of ERP upgradation in the nature of revenue expenditure. Brief facts of the issue are that the AO held that the expenses of Rs.2,03,13,632/- on account of ERP up-gradation were in the nature of capital expenses and hence, he added back the same in the computation of total income but the AO allowed depreciation at 60% on the above expenses in the assessment order. On appeal, the Ld. CIT(A) directed the AO to consider the software expenses as allowable revenue expenses by following the decision of ITAT in assessee’s own case for AY 2003-04 in dated 20.01.2016 by observing as under:
“1. I have carefully gone through the submission filed by the Ld. AR, the explanation made by the Ld. AR during the course of hearing on the issue, observation made by the AO in the order u/s. 143(3) and the order of the Hon’ble Kolkata ITAT filed by the appellant for AY 2003-04, 2004-05 and 2008-09. I find that the above expenses were routine maintenance/support services/consultancy services etc. In my view the said expenses should be allowed as revenue expenses.
Further, similar disallowance was deleted by the Hon’ble ITAT with a detailed observation in the order for AY 2003-04. The said decision has been followed by the Hon’ble ITAT in its subsequent orders. In view of the above, I direct the AO to consider the software expenses as allowable revenue expenses.” Aggrieved, revenue is in appeal before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the according to AO, the expenses of Rs.2,03,13,632/- on account of ERP up-gradation were in the nature of capital expenses but the Ld. CIT(A) directed the AO to consider the software expenses as allowable revenue expenses by following the decision of ITAT in assessee’s own case for AYs 2003-04, 2004-05 and 2008-09. We note that the issue is squarely covered in favour of the assessee by the decision of ITAT in assessee’s own case for AYs. 2003-04, 2004-05 and 2008-09 and the Ld. CIT(A) has given relief to the assessee by following aforesaid decisions, cited supra. Since the Ld. CIT(A) has directed the AO to consider the software expenses as allowable revenue expenses by following the aforesaid decisions of ITAT, supra and the Ld. DR was unable to bring on record any 5 & 1393/Kol/2017 Exide Industries Ltd., AY 2009-10 change in law or facts, we do not find any infirmity in the order of the Ld. CIT(A) and hence, the same is hereby upheld. Therefore, this ground of appeal of revenue is dismissed.
8. Ground no. 3 of revenue’s appeal is against the action of Ld. CIT(A) in deleting the proportionate disallowance of interest attributable to CWIP. Brief facts are that the AO allocated the interest expense of Rs.12,27,289/- to CWIP on ad hoc basis applying proportionate method on the ground that the same was incurred for CWIP. On appeal, the Ld. CIT(A) deleted the disallowance by holding that the AO allocated interest expenses on ad hoc basis merely on surmises and conjectures and hence, the same was not sustainable. The AO did not identify any borrowed fund which was utilized for CWIP. The Ld. CIT(A) while deleting the disallowance also relied on the decision of ITAT, Kolkata Benches in departmental appeal for AY 2008-09. Aggrieved, revenue is in appeal before us.
We have heard rival submissions and gone through the facts and circumstances of the case. We note that the AO allocated the interest expenses of Rs.12,27,289/- to CWIP on ad hoc basis. On appeal, the Ld. CIT(A) deleted the disallowance by following the decision of ITAT in departmental appeal for Ay 2008-09 in dated 13.04.2016. We note that the issue is squarely covered in favour of the assessee by the decision of ITAT in departmental case for AY 2008-09, cited supra, and the Ld. CIT(A) has given relief to the assessee by following aforesaid decision, cited supra. Since the Ld. CIT(A) has deleted the disallowance by following the aforesaid decision of ITAT, supra and the Ld. DR was unable to bring on record any change in law or facts, we do not find any infirmity in the order of the Ld. CIT(A) and hence, the same is hereby upheld. Therefore, this ground of appeal of revenue is dismissed.
9 In the result, the appeal of revenue is dismissed and assessee’s appeal is allowed for statistical purposes.