ACIT, CHANDIGARH vs. M/S PUNJAB STATE WAREHOUSING CORPORATION, CHANDIGARH

आयकर अपील�य अ�धकरण,च�डीगढ़ �यायपीठ, “बी ” च�डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, ‘B’, CHANDIGARH �ी संजय गग�, �या�यक सद�य एवं डा. बी.आर.आर, कुमार, लेखा सद�य BEFORE SHRI SANJAY GARG, JUDICIAL MEMBE AND Dr. B.R.R.KUMAR, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No. 459/CHD/2006 �नधा�रण वष� / Assessment Year : 1996-97 The ACIT, M/s Punjab State बनाम Circle 2(1), Warehousing Corpn Ltd., Chandigarh SCO 74-75, Sector 17-B, Chandigarh �थायी लेखा सं./PAN NO: AABCP7825J अपीलाथ�/Appellant ��यथ�/Respondent

(Appellant) (Respondent) Appellant by : Shri T.N Singla, CA Respondent by : Sh. Ashish Abrol, CIT DR Date of Hearing : 21.08.2018 Date of Pronouncement : 04.10.2018

ORDER Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the Revenue against the order dated 27.3.2006 of the Commissioner of Income Tax(A), Chandigarh [hereinafter referred to as ‘CIT(A)’]

ITA No. 459-chd-2006 M/s Punjab State Warehousing Corpn Ltd., Chandigarh 2

matter to the Tribunal with a direction for adjudication afresh in

accordance with law in terms of the order of the Hon'ble High Court

dated 3.10.2013 passed in ITA No.848-08 in the own case of the

assessee.

during the year was involved in two activists i.e. in the activity of

procurement of food grains and activity of warehousing. The

income from the warehousing activity was exempt u/s 10(29) of the

Income-tax Act, 1961 (in short 'the Act'). The Assessing officer,

therefore, bifurcated the common expenses incurred for both the

activities i.e. warehousing and procurement and made disallowance

u/s 14A of the Income Tax Act on account of indirect expenditure

incurred for earning of tax exempt income from warehousing

activity on the basis of gross profit rate. The matter travelled to the

Tribunal and the ITAT vide its consolidated order dated 24.12.2007

held that the Assessing officer was not empowered to invoke

section 14A of the Act in respect of the assessments for assessment

years beginning on or before 1.4.2001 as the original assessment

were made before the incorporation of section 14A of the Act. The

Tribunal held that the Assessing officer was debarred from taking

recourse to section 14A of the Act by virtue of the proviso to the

said section. In view thereof, ground of appeal raised by the

assessee relating to the applicability of the provisions of section

14A for the year under consideration was dismissed.

ITA No. 459-chd-2006 M/s Punjab State Warehousing Corpn Ltd., Chandigarh 3

appeal filed by the Revenue held that, “It was accepted that the

assessment orders were passed under section 143(3) of the Act. In

other words, the proviso to section 14A was not attracted in the

present cases and the provisions of section 14A having its

applicability retrospectively w.e.f. 1.4.1962 would thus be

applicable to the assessment years in question”.

In view thereof the present appeals have been restored back

to the file of the Tribunal and we proceed to decide the same after

hearing both the authorised representatives.

disallowance to be worked out under section 14A of the Income Tax

Act in relation to the common and indirect expenses attributable to

the tax exempt income u/s 10(29) of the Act from warehousing

activity.

and have also gone through the records on this issue. It may be

observed that in the case of ‘Godrej & Boyce Manufacturing Co.

Ltd. 234 CTR 1 (Bom.) the Hon'ble Bombay High Court has held

that Rule 8D of the I.T. Rules r.w.s. 14A(2) of the I.T. Act is not

arbitrary or unreasonable but can be applied only if the assessee's

method is not satisfactory. It has been further held that Rule 8D is

not retrospective and applies from A.Y. 2008-09. For the years for

which Rule 8D is not applicable and in the event of that the AO is

not satisfied with the explanation/working given by the assessee,

ITA No. 459-chd-2006 M/s Punjab State Warehousing Corpn Ltd., Chandigarh 4

disallowance under section 14A has to be made on a reasonable

basis. Almost similar view has been expressed by Hon'ble Delhi

High Court in the case of 'Maxopp Investment Ltd, & Others' vs.

CIT (247 ITR 162). In respect of cases prior to assessment year

2008-09, the different co-ordinate Benches of this Tribunal have

observed that certain percentage of exempt income can constitute a

reasonable estimate for making disallowance for the years earlier to

assessment year 2008-09. The Hon'ble Bombay High Court in the

case of ‘CIT Vs. Godrej Agrovet Ltd.,’ (ITA No. 934/2011) decided

on 8.1.2013 has upheld the order of the Tribunal directing the

Assessing officer to restrict the disallowance to the extent of 2%

of the total exempt income earned by the assessee. The Coordinate

Mumbai Bench of the Tribunal in the case of ‘M/s ‘CIBA India Ltd

Vs. DCIT’ ITA No. 9128/2010 for assessment year 2006-07 vide

order dated 20.2.2015 while relying upon the decision of the

Hon'ble Bombay High Court in the case of ‘CIT Vs. Godrej

AGrovet Ltd.,’(supra) taking into account the consideration of facts

and circumstances of that case has held that the expenditure equal

to 4% of the exempt income earned by the assessee would

constitute reasonable disallowance u/s 14A and directed

accordingly.

in our view, 5% of the tax exempt income of the assessee from

warehousing activity would constitute a reasonable disallowance

for the purpose of section 14A of the Income tax Act. We direct

accordingly.

ITA No. 459-chd-2006 M/s Punjab State Warehousing Corpn Ltd., Chandigarh 5

In the result, the appeal of the Revenue is partly allowed.

Order pronounced in the Open Court on 04.10.2018

Sd/- Sd/- बी.आर.आर, कुमार संजय गग� ( B.R.R. KUMAR) (SANJAY GARG ) लेखा सद�य/ Accountant Member �या�यक सद�य/ Judicial Member

�दनांक/Date: 04.10. 2018 “आर.के.” आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File

सहायक पंजीकार/ Assistant Registrar