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Income Tax Appellate Tribunal, BANGALORE BENCH ‘C’
Before: SHRI VIJAYPAL RAO & SHRI JASON P BOAZ
PER SHRI VIJAYPAL RAO, JUDICIAL MEMBER :
These cross appeals and cross objections by the assessee are directed against the order dated 21/10/2013 of Commissioner of Income-tax (Appeals) - III, Bangalore for the assessment year 2010- 11.
First we take up the Revenue’s appeal wherein the following grounds have been raised:
“i. On the facts and in the circumstances of the case the learned CIT(A) erred in law in deleting the addition made by the AO u/s 26(1)(iv) by placing reliance on the decision of the ITAT, Bangalore in the case of assessee for AY 2007-08 without appreciating the fact that the Department has not accepted that decision of the ITAT and further appeal has been filed before the High Court. ii. For these and other grounds that may be urged at the time of hearing, it is prayed that the order of the CIT(A) is so far as it relates to the above grounds may be reversed and that of the AO may be restored.”
& 470/B/14 CO No.74/B/14 3
The assessee claimed Rs.81,57,099/- as Revenue expenditure for payment towards interest on PF. The AO asked the assessee as to why such interest on PF was made over and above the statutory liability. The assessee submitted that the same is allowable expenditure since such interest was offered by the employees as perquisite which has suffered tax in the hands of the employee. The AO did not accept the contention of the assessee and disallowed the said amount of Rs.81,57,099/- paid on account of interest on PF. On appeal, the CIT(A) has allowed the claim of the assessee by following the decision of this Tribunal in the assessee’s own case for the assessment year 1999-2000 and 2006-07 to 2007-08.
We have heard the learned DR as well as the learned AR and considered the relevant material on record. At the outset we note that identical issue has been considered and decided by the coordinate bench of the tribunal in the assessee’s own case for the assessment year 1999-00 as well as for the assessment year 2006-07 and 2007-08 vide order dated 27/2/2012. The relevant part of the finding of the Tribunal is in para 9 to 11 as under:- & 470/B/14 CO No.74/B/14 4
“9. We have carefully considered the submissions of both the parties and have perused the material available on record. In the instant case, it is not in dispute that the AO made the disallowance of the interest paid by the assessee on the running balance of PF. This issue was involved in an earlier assessment year 1998-99, in the assessee’s case, and the ITA while deciding the appeal of the assessee in remanded the issue back to the file of the AO for fresh adjudication vide order dated 4.10.2003. The AO in accordance with the Tribunal’s directions considered the matter and decided the issue in favour of the assessee vide order dated 21.12.2004, a copy of which was furnished by the learned counsel for the assessee during the course of hearing and is available on record. It is also seen that for the AY 2005-06, an addition on the same issue has been deleted by the learned CIT(A). The contention of he learned counsel for the assessee that this order dated 27.2.2009 passed by the learned CIT(A)-V, Bangalore for the AY 2005-06 was not challenged by the Department in further appeal has been rebutted. From the above facts, it is clear that the Department has accepted a similar claim in similar circumstances in AY 1998-99 and also for the AY 2005-06. Further, the tribunal in AY 1999-2000 and 2006-07 in ITA Nos.1530 & 1531/Bang/2010 (Supra) has also held in favour of the assessee on the very same issue. Therefore, we do not see any valid ground to interfere & 470/B/14 CO No.74/B/14 5 with or deviate from the finding of the learned CIT(A) for the assessment year under consideration i.e 2007-08.
For the aforesaid view, we are fortified by the ratio laid down by the Hon’ble Punjab & Haryana High Court in CIT Vs. Leader Valves Ltd. [2007] 295 ITR 273, wherein it has been held as under:
“that keeping in view the principle of consistency, the Revenue could not be permitted to raise an issue in isolation only for one year in the case of one assessee, while accepting the findings on the same issue in the case of other assessees and for the other years in the case of the assesssee.
11. In the present case also, the department had accepted the claim of the assessee on the same issue for the AY 1998-99 and 2005-06. The principle of consistency is required to be maintained. We, therefore, hold that the disallowance made by the AO was not justified and that the learned CIT(A) rightly deleted the same. In view of the above, we do not see any merit in the appeal of the Department.
& 470/B/14 CO No.74/B/14 6
Following the earlier orders of this tribunal and to maintain the rule of consistency, we do not find any error or legality in the order of the CIT(A). Accordingly, Revenue’s appeal is dismissed.
CO 74/Bang/2014 as well as the appeal in filed by the assessee raised common grounds as under:
“i. That the orders of the authorities below in so far as it is against the appellant is against the law, facts, circumstances, natural justice, without jurisdiction, band in law and all other known principles of law. ii. The total income computed and total tax computed is hereby disputed. iii. The learned CIT(A) erred in upholding the disallowance made u/s 14A of the Act amounting to Rs.41,86,447/-.”
From the grounds, in the cross objection as well as in the appeal filed by the assessee, the only issue raised is regarding disallowance made by the AO is of Rs.41,86,447/- u/s 14A which has been upheld by the CIT(A). & 470/B/14 CO No.74/B/14 7
From the assessment proceedings, the AO noted that the assessee company has claimed exempt income in respect of dividend received. Accordingly, the AO proposed to make disallowance u/s 14A. In response, the assessee submitted before the AO that the investment has been made out of assessee’s own fund and internal transfers. Therefore, no expenditure has been incurred by the assessee for earning the exempt income. Alternatively, it was submitted that the expenditure incurred if any is minimum and negligible considering the income earned out of these investment.
The AO has worked out the disallowance u/s 14A read with Rule 8D on account of indirect expenses and accordingly disallowance being 0.5% of average investment has been worked out as Rs.41,86,447/-.
The assessee challenged the action of the AO before the CIT(A) but could not succeed.
Before us, the learned AR of the assessee submitted that the assessee’s entire investment is in mutual funds, therefore, the assessee has not incurred any expenditure for earning the dividend income from the mutual funds. He has further submitted that AO has not pointed out or identified which of the expenditure has having nexus for earning the exempt income. In support of his contention, he & 470/B/14 CO No.74/B/14 8 has relied upon various decisions of this Tribunal and submitted that when the AO has not recorded its satisfaction and identified the expenditure which can be apportioned for earning the exempt income then the disallowance made by the AO is not sustainable.
10. On the other hand, learned DR has submitted that as per Rule 8D disallowance is worked out being 0.5% of the average investment.
Therefore, the AO has proceeded as per the provision of the Act as well as Rules. He has further contended that the AO has not made any disallowance on account of interest expenditure. Therefore, the contention of the assessee that the investment is made from its own funds is not relevant. He has relied upon the orders of the authorities below:
We have considered the rival submissions as well as relevant material on record. We note from the details filed by the assessee that during the year under consideration there are several instances of fresh investment as well as sale of the investment in mutual funds.
Therefore, there is a frequent movement in the assessee’s investment portfolio and accordingly it cannot be accepted that no expenditure can be said to have been incurred by the assessee for earning exempt & 470/B/14 CO No.74/B/14 9 income. Once the assessee has taken various decision of purchase and sale of the investment during the year under consideration then the expenditure in relation to the salary and other remuneration of higher executive staff and top management who are involved in the process of taking decision of purchase and sale of the investment has a nexus, at lease proximate nexus with investment made by the assessee yielded the exempt income. Accordingly, it is a matter of finding of fact as which of the expenditure can be relatable being an indirect expenditure incurred for an activity which has resulted the exempt income as well as taxable income. Since there is a frequent movement in the investment portfolio of the assessee therefore, the question which requires to be ascertained by indentifying the particular items of the expenditure debited by the assessee in the profit and loss account which can be apportioned u/s 14A.
Accordingly, in the facts and circumstances of the case, we are of the considered opinion that this issue requires a proper verification and examination of the fact on the aspect of identifying the particular expenditure for the purpose of disallowance u/s 14A. The AO has not given any finding or identified the expenditure which can be allocated for earning the exempt income. Therefore, this issue is set aside to the record of the AO for proper verification and for identifying & 470/B/14 CO No.74/B/14 10 expenditure which can be treated as allocable for the purpose of earning the dividend income and consequently can be disallowed u/s 14A of the Act. We make it clear that the disallowance made u/s 14A and quantum of disallowance worked out as per Rule 8D can’t exceed the actual expenditure debited by the assessee in the profit and loss account which has a nexus for earning exempt income.
Accordingly the AO is directed to re-adjudicate the issue after giving an opportunity of hearing to the assessee.
In the result, the appeal filed by the Revenue is dismissed and the appeal filed by the assessee is allowed for statistical purposes and cross objection of the assessee stands dismissed
Order pronounced in the open court on 7th Oct, 2015.