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Income Tax Appellate Tribunal, “B” BENCH: KOLKATA
ORDER Per Shri A.T.Varkey, JM and 166/Kol/2017 filed by the assessee against the separate orders of Ld. CIT(A)-17, Kolkata dated 31.10.2016 for AYs 2006-07 and 2007-08 and ITA Nos. 968 and 969/Kol/2015 filed by the assessee against the separate orders of Ld. CIT(A)-1, Kolkata dated 23.03.2015 and 19.03.2015 for AYs 2008-09 and 2009-10 respectively. Since most of the grounds are common and facts are identical, we dispose of all these appeals by this consolidated order for the sake of brevity and convenience.
The first ground of all the appeals of the assessee is against the action of Ld. CIT(A) in upholding the disallowance being the provision made for leave encashment in the current assessment year on the basis of actuarial valuation.
At the outset itself, the Ld. Counsel brought to our notice that the similar issue had come up before this Tribunal in M/s. S. R. Batliboi & Co. vs. DCIT, for AY 2007-08 wherein the Tribunal vide para 4 has held as under:
2 & ITA Nos.968-969/Kol/2015 The Tinplate Co. of India Ltd.., AYs 2006-07 to 2008-09 “4. After hearing rival submissions and going through the facts and circumstances of the case and the order of the Tribunal cited supra, we find that the issue is dealt by the Coordinate bench of this Tribunal as under:
“3. At the outset, ld. senior counsel for the assessee submitted that in all these three appeals, the issue relates to allowability of provision for leave encashment in terms of sub-section (f) of section 43B of the Income Tax Act. The assessee had advanced its claim relying on the decision of the Hon’ble Kolkata High Court in the case of M/s. Exide Industries Ltd. reported in 292 ITR 470. However, the Assessing Officer did not accept the assessee’s claim observing that Department has preferred a Special Leave Petition before the Hon’ble Supreme Court and stay of the order of the Hon’ble Kolkata High Court was granted by the Hon’ble Apex Court. Ld. senior counsel submitted that under identical circumstances, Tribunal has restored the matter to the file of Assessing Officer to decide the issue in accordance with the decision of the Hon’ble Apex Court in the case of DCIT, Circle-8, Kolkata –vs.- M/s. Ernst & Young Pvt. Ltd. in ITA No. 1787/Kol./2008. He, therefore, submitted that the matter may be restored back to the file of Assessing Officer.
Learned Departmental Representative did not raise any objection.
We have considered the submissions of both the parties and have perused the records of the case. We find that Tribunal on identical issue in ITA No. 1787/Kol./2008 in the case of M/s. Ernst & Young Pvt. Ltd. has observed at para 12 in page 6 as under :- “12. Ground No. 5 of the revenue’s appeal is against the relief allowed by the CIT(A.) in respect of provision for leave encashment which was deleted by the CIT(A.) following the decision of the Hon’ble jurisdictional High Court in the case of M/s. Exide Industries Ltd. (supra). It was pointed out by the ld. DR that the Hon’ble Apex Court in”SLP (Civil) 22889 of 2008 has stayed the operation of the decision of the Hon’ble jurisdictional High Court. In view of the above, we set aside the orders of the authorities below on this point and restore the matter back to the file of the AO with the direction that he will readjudicate this issue as per decision of the Hon’ble Apex Court in the case of M/s. Exide Industries Ltd. (supra)”. Respectfully following the same we set aside the orders of authorities below on this point and restore the matter back to the file of Assessing Officer for adjudication as per the decision of the Hon’ble Apex Court in the case of M/s. Exide Industries Ltd.(supra).
In view of the above and respectfully following the same, we set aside the orders of the authorities below and restore the matter back to the file of Assessing Officer for adjudication as per the decision of Hon’ble Apex Court in the case of M/s. Exide Industries Ltd. (Supra). This ground of appeal of assessee is allowed for statistical purposes.”
4. In view of the aforesaid decision of the coordinate bench on a similar issue, we set aside the order of the Ld. CIT(A) and restore the matter back to the file of the AO for adjudication in accordance with the decision of Hon’ble Apex court in the case of M/s. Exide Industries Ltd., supra. Thus, this ground of all the appeals of assessee is allowed for 3 & ITA Nos.968-969/Kol/2015 The Tinplate Co. of India Ltd.., AYs 2006-07 to 2008-09 statistical purposes. In the result, appeals of assessee for AYs 2006-07 and 2007-08 are disposed off.
5. The second ground of appeal is only in AYs 2008-09 and 2009-10 of assessee is against the order of Ld. CIT(A) in confirming disallowance made u/s. 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 while computing the book profit u/s. 115JB of the Act. For the sake of brevity we adjudicate this issue on facts for AY 2008-09.
6. Briefly stated facts are that the AO observed from the P&L Account of the assessee company that as on 31.03.2008 the assessee company made investment of Rs.22,83,000/- in quoted/unquoted shares and claimed exemption of dividend income of Rs.1,72,000/-. According to AO, since income from share investment i.e. dividend is exempt as per provision of Sec. 14A of the Act, the managerial and administrative cost related to the share investment is not an allowable expenses and, thereafter he took note that the assessee has substantial investment in shares and there was no stock in trade of shares. Therefore, as per requirement of section 14A(2) and 14A(3) of the Act he was of the opinion that he was satisfied that in this case provision of Rule 8D of the Income-tax Rules, 1962 is applicable. So he calculated the disallowance on the basis of Rule 8D of the Rules as under:
“i) Director expenses: The amount of expenditure directly relating to income which does not form part of total income-in the P& A/c no item of expenditure is identified which can be directly attributable to earning of such income or making of the long term investments listed above. Therefore, this figure is adopted at Rs.1000/- on estimate basis. ii) Disallowance of interest: A x B/C Where A = Amount of expenditure by way of interest other than the amount of interest included in point no. (i) incurred during the previous year. B= The average of value of Investment income from which does not or shall not form part of the total income, as appearing in the Balance Sheet of the assessee, on the first day and the last day of the previous year; C= The average of total Assets as appearing in the Balance Sheet of the assessee, on the first day and the last day of the previous year: Here A= Rs.3,24,12,000/- B= Rs.22,83,000/- + Rs.22,83,000/- = Rs.22,83,000 2 C = Rs.5,15,23,40,000/- + Rs.4,19,56,77,000/- = Rs.4,67,40,08,500/- 2 4 & ITA Nos.968-969/Kol/2015 The Tinplate Co. of India Ltd.., AYs 2006-07 to 2008-09 So the resultant figure of A x B/C = Rs.15,831/- iii) Disallowance of ½% of average value of investment. The average value of investment, the income from which does not or shall not form part of total income; in assessee’s case this amount is Rs.22,83,000/-. Therefore, this component of disallowance would be Rs.11,415/-. Therefore, total disallowance u/r. 8D of the I. T. Rules read with Sec. 14A of the I. T Act = (i) + (ii) + (iii) = Rs.1,000/- + Rs.15,831/- + Rs.11,415/- = Rs.28,246/-. As the assessee co. already disallowed Rs.1,700/- so the balance amount of Rs.26,546/- (Rs.28,246/- - Rs. 1700/-) is hereby disallowed.”
Aggrieved, assessee preferred appeal before the Ld. CIT(A), who deleted the disallowance of Rs.1000/- as made by the AO under Rule 8D(ii)(a) of the Rules and also directed the AO to recompute the disallowance under Rule 8D(2)(iii) of the Rules after verifying the investment on which exempt income had been earned during the year and also held that the disallowance u/s. 14A of the Act was to be considered while computing Book Profit u/s. 115JB of the Act. Aggrieved, the assessee is in further appeal before us.
We have heard rival submissions and gone through the facts and circumstances of the case. At the outset, Ld. counsel for the assessee Ms. Sushmita Basu raised a legal issue that there is no satisfaction recorded by the AO for invoking the provisions of section 14A read with Rule 8D of the Rules. However, after going through the order of the AO while disallowance was made, we do not find any merit in the contention of Ld. AR taking into consideration the narratives/reasoning given by the AO for AY 2009-10 to apply Rule 8D and it cannot be said that AO’s exercise of discretion to invoke Rule 8D is perverse and so we reject it. With regard to the claim of the Appellant that provisions of Section 14A were not applicable while computing book profit u/s. 115JB, we note that similar issue came up before the Hon’ble jurisdictional High Court in GA No.1501 of 2014 (ITAT 47 of 2014) CIT, Kol-2 Vs. M/s. Jayshree Tea & Industries Ltd. wherein the second ground of appeal
before the Hon’ble High Court was as under:
2. Whether on the facts and in the circumstances of the case, the Ld. Tribunal has erred in law in upholding the order of the CIT(A) that disallowance u/s. 14A of the Income-tax Act, 1961, amounting to Rs.2,20,15,787/- is not to be considered for book profit for calculation of book profit under section 115JB of the Act.” The Hon’ble High Court held as under:
5 & ITA Nos.968-969/Kol/2015 The Tinplate Co. of India Ltd.., AYs 2006-07 to 2008-09 “We admit the question no.2 for adjudication in this appeal. By consent of the parties, the appeal is treated as ready for hearing and taken up as such. We find computation of the amount of expenditure relatable to exempt income of the assessee must be made since the assessee has not claimed such expenditure to be nil. Such computation must be made by applying clause (f) of Explanation 1 u/s. 115JB of the Act. We remand the matter for such computation to be made by the Ld. Tribunal. We accept the submission of Mr. Khaitan, Ld. Sr. Advocate that the provision of sec. 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to sec. 14A of the Act.” (Emphasis given by us)
We note that sec. 14A falls in Chapter IV wherein the computation of total income is given. The section 14A starts with the phrase for the purpose of computing the total income under this chapter ; which means section 14A disallowance given under the said section is made applicable only in respect to computation of total income under chapter IV, whereas section 115JB falls in chapter XIIB and it is a settled law that sec. 115JB is a complete code of its own. That is precisely the reason why the disallowance made u/s. 14A read with Rule 8D is not imported while computing tax u/s. 115JB of the Act. Therefore, any disallowance made u/s. 14A read with Rule 8D cannot be automatically brought to taxation while applying the special provision u/s. 115JB of the Act, however the provision of clause (f) of Explanation 1 u/s 115JB (2) need to be complied with. For this purpose, since there is no exercise carried out by the AO, we remand the matter back to AO to do so in the light of the order of Hon’ble Jurisdictional High Court in CIT, Kol-2 Vs. M/s. Jayshree Tea & Industries Ltd (supra).
Now coming to the action of the Ld. CIT(A)’s direction in respect to application of Rule 8D(2)(iii) this Tribunal has consistently held in REI Agro Ltd. 144 ITD 141 in which the coordinate Bench of the Tribunal held that only investment which has given rise to the exempted income should be taken into consideration. This order of the Tribunal has been upheld by the Hon’ble Calcutta High court vide its order dated 23.12.2013. We find force in the argument of the Ld. AR in the facts and circumstances of the case and we accordingly, direct the AO to recompute Rule 8D disallowance only under Rule 8D(iii) of the Rules taking into consideration only the investment which has given rise to the exempted income should be taken into consideration and we order accordingly.
6 & ITA Nos.968-969/Kol/2015 The Tinplate Co. of India Ltd.., AYs 2006-07 to 2008-09 11. Similar issue is involved in AY 2009-10. Since we have allowed the ground of appeal of assessee in AY 2008-09, this ground of appeal of assessee is also allowed in favour of assessee in the manner as given above.