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Income Tax Appellate Tribunal, MUMBAI BENCHES “C”, MUMBAI
Before: Shri Joginder Singh & Shri Rajendra
आदेश / O R D E R Per Joginder Singh (Judicial Member) The assessee is aggrieved by the impugned order dated 23/09/2011 of the ld. First Appellate Authority, Mumbai. The first ground pertains to upholding the disallowance of Rs.33,52,540/- u/s 14A of the Income Tax Act, 1961 (hereinafter the Act).
During hearing, Shri Madhur Agarwal, ld. counsel for the assessee claimed that the impugned issue is covered by the decision of the Tribunal (Assessment year 2006-07) by order dated 20/02/2015 (ITA No.9128/Mum/2010), for which our attention was invited to page-4, para-6 of the order by claiming that the facts are similar. This factual matrix was consented to be correct by Shri V.K. Agarwal, ld. DR. 2.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order dated 20/02/2015 for ready reference:-
“ 3. The ground No.1(a) is relating to disallowance under section 14A of the Income Tax Act. During the assessment proceedings the Assessing Officer (hereinafter referred to as the AO) noticed that the assessee has earned sufficient exempt income. He therefore made the disallowance under section 14A of the Income Tax Act applying Rule 8D of the Income Tax Rules. The DRP also directed the AO to compute the said disallowance as per the provision of Rule 8D of the Income Tax Rules.
We have heard the learned representatives of both the parties and have also gone through the records on this issue. It may be observed that in the case of Godrej & Boyce Manufacturing Co. Ltd. (supra) the Hon'ble Bombay High Court has held that Rule 8D r.w.s. 14A(2) 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, 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).
5. It may be further observed that it is not a case where no exempt income was received by the assessee despite making
investments for earning exempt income. It is also not the case of the Revenue that the exempt income earned by the assessee was very less or not in proportion to the investments made by the assessee for this purpose. Under such circumstances the different coordinate benches of this Tribunal have observed that in such cases 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 08.01.13 has upheld the order of the Tribunal directing the AO to restrict the disallowance to the extent of 2% of the total exempt income earned by the assessee.
In view of the above, the straightway application of rule 8D in the case of the assessee by the lower authorities is not sustainable. Taking into consideration the overall facts and circumstances of the case, in our view, the expenses equal to 4% of the exempt income earned by the assessee would constitute be reasonable disallowance and the same is restricted to that extent accordingly. This ground of appeal of the assessee is thus partly allowed.”
2.2. If the observation made in the assessment order, leading to addition made to the total income, conclusion drawn in the impugned order, material available on record and the conclusion drawn by the Tribunal in the aforesaid order dated 20/02/2015, assertions made by the ld. respective counsel, if kept in juxtaposition and analyzed, we find that considering the totality of circumstances and the facts, the expenses equal to 4% of the exempt income, earned by the assessee, was held to be reasonable disallowance, therefore, following the aforesaid decision of the Tribunal, the ld. Assessing Officer is directed to follow the aforesaid order, therefore, this ground is partly allowed.
The next ground is with respect to adding an amount of Rs.2,10,08,937/- to the value of closing stock u/s 145A of the Act on account of cenvat credit in respect of goods other than capital goods. The crux of argument on behalf of the assessee is that this issue also covered by the aforesaid decision of the Tribunal dated 20/02/2015. It was also explained that the assessee is regularly followed the exclusive method. This factual matrix was consented to be correct by the ld. DR. 3.1. We have considered the rival submissions and perused the material available on record. In view of the above, we are reproducing hereunder the relevant portion from the aforesaid order of the Tribunal dated 20/02/2015 for ready reference and analysis:-
“9. Vide ground No.2(a), the assessee has agitated the addition of Rs.14,728,838/- to the value of the closing stock under section 145A of the Act on account of CENVAT credit and service tax credit. The assessee alternatively, vide ground No.2(b), has contended that if the above amount is to be added to the closing stock, the AO ought to have added Rs.11,801,670/- to the opening stock on account of addition made to closing stock for assessment year 2005-06 as per assessment order dated 15.12.06.
We find that the assessee had agitated such additions in the preceding assessment years. The Commissioner of Income Tax (Appeals) [hereinafter referred to as the CIT(A)], in its order in relation to assessment year 2005-06, has observed that it had been a recurring issue from the assessment year 2002- 03 onwards. The Ld. CIT(A), in view of the decision on this issue taken in the earlier assessment years and following the principle of judicial consistency, had deleted the additions made by the AO in respect of CENVAT credits etc. The Revenue though agitated the order of the Ld. CIT(A) before the ITAT on certain other issues, but did not agitate the action of the Ld. CIT(A) in deleting the addition in respect of this issue. The order of the Ld. CIT(A), thus, has become final in respect of assessment year 2005- 06 and the same cannot be disturbed in this appeal.
However, as per the provisions of sec. 145A of the Act, the valuation of purchase and sale of goods and inventory for the purpose of determining the income under the head "Profits and gains of business or profession" shall be (i) in accordance with the method of accounting regularly employed by the assessee; and (ii) further adjusted to include the amount of any tax, duty, cess or fee (by whatever name called) actually paid or incurred by the assessee to bring the goods to the place of its location and condition as on the date of valuation.
In the instant case, the AO has added a sum of Rs.1,00,42,664/- towards CENVAT and Rs.46,86,174/- towards Service tax to the Closing stock of inventories. The AO has added a sum of Rs.52,33,736/-, being the adjustment made to the closing stock value of the immediately preceding year, to the Opening stock. Thus, the AO has made a net addition of Rs.94,95,102/- to the total income of the assessee.
The claim of the assessee is that it is following exclusive method for accounting the Cenvat and Service tax and there will not be any tax implication, if the inclusive method as prescribed u/s 145A of the Act is followed. Alternatively, it was contended that the amount adjusted to the Closing stock should be correspondingly allowed as deduction as expenditure. Another alternative contention was that the opening stock should have been increased by a sum of Rs.11,801,670/-, since the AO has increased the value of closing stock as on 31.3.2005 with the above said amount.
The DRP has however held that the opening stock should be increased by Rs.52,33,736/- only, since (the remaining amount apparently pertain to Service tax) does not form part of cost of goods.
We have already noticed that the valuation of purchase and sale of goods and inventory is required to be adjusted to include only with the amount of tax, duty, cess or fee (by whatever name called) actually paid or incurred to bring the goods to the place of its location and condition on the date of valuation. If the DRP is taking the view that "Service tax" does not form part of cost of goods, apparently meaning that the same was not incurred to bring the goods to the place of its location and condition on the date of valuation, then the DRP should not have upheld the adjustment of Rs.46,86,174/- pertaining to the Service tax portion to the value of closing stock. Thus, it is seen that there is apparent contradiction in the approach of the DRP.
The main contention of the assessee is that there is no tax implication even if the "inclusive method" prescribed in sec. 145A of the Act is followed. However, the assessee has not furnished workings to show that the "net profit" remained the same under both "inclusive method" and "exclusive method". Since the assessee has followed the guidance note issued by the ICAI, it would be in a position to demonstrate the above said fact before the AO, i.e., the assessee could establish that there was no change in the income under both the methods by furnishing necessary workings. Accordingly, we are of the view that the assessee should be given one more opportunity to demonstrate this fact.
If the assessee fails to furnish the workings discussed above, in our view, the AO should consider the alternative contention of the assessee, viz., to adjust the opening stock with the correct amount that was actually adjusted in the closing stock of immediately preceding year. We have already noticed that the there was contradiction in the stand of DRP. If the service tax is considered to the tax incurred in bringing the goods to the present location and condition, then the same is required to be adjusted both in the opening stock and closing stock. Otherwise, the same should not be adjusted in both the items.
The other alternative contention of the assessee is that the amount adjusted in the closing stock should correspondingly be allowed as deduction. We are unable to agree with this contention, since this claim would not fall either under inclusive method or exclusive method. Hence this claim would be against the guidance note issued by the ICAI.
In view of the foregoing, we set aside the order of DRP on this issue and restore the same to the file of the assessing officer with the direction to examine this matter afresh in the light of discussions made supra.”
3.2. Considering the totality of facts, the Ld. Assessing Officer is directed to examine the facts of Assessment year 2005-06 (order dated 25/11/2010) of the Ld. Commissioner of Income Tax (Appeal) and examine, whether, facts are identical, while reaching to particular conclusion. In the light of the above decision, we direct the ld. Assessing Officer to follow the aforesaid order of the Tribunal to examine the issue afresh and after providing opportunity of being heard to the assessee, decide in accordance with law.
4. The next ground i.e. ground no.3 with respect to addition of Rs.4,52,19,313/- u/s 40(a)(ia) of the Act. The ld. counsel for the assessee did not furnish any details, to substantiate its claim, before us, therefore, we affirm the stand of the Ld. Commissioner of Income Tax (Appeal) and decide this ground against the assessee.
The next ground pertains to making addition of Rs.63,28,864/- u/s 40(a)(ia) of the Act being proportionate amount on which tax was deducted at lower rate. The ld. counsel for the assessee contended that for short deduction, no disallowance is to be made for which he place reliance upon the decision from Hon’ble Kolkata High Court in CT vs S.K. Tekriwal (2014) 361 ITR 432 (Cal.) and the decision of the Tribunal in DCIT vs Chanda Bhoy and Jassobhoi (2012) 17 taxmanc.om 158 (Mum.). This factual matrix was not controverted by the ld. DR. 5.1. We have considered the rival submissions and perused the material available on record. We find that so far as, the issue of short deduction of TDS is concerned, the ld. DRP has discussed this issue at page-13, para-8.1 onwards of the order. The assessee deducted tax at source at lower rate than required under the provisions of the Act.
The ld. Assessing Officer did not accept the explanation of the assessee, thus, he allowed the claimed deduction of expenses to the extent of TDS made and disallowed the expenses corresponding to default in making the TDS. We find that this issue has been examined by the Mumbai Bench of the Tribunal in (2012) 17 taxman.com 158 (Mum.), wherein, it was held that the provisions of section 40(a)(ia) can be invoked only in the event of non-deduction of tax at source but not lessor deduction of tax at source.
Identical view was taken by Hon’ble Kolkata High Court in the case of S.K. Tekeriwal (supra) order dated 03/12/2012.
In the absence of any contrary decision brought to our notice, we allow this ground of the assessee.
6. Next ground is with respect to making disallowance of Rs.28,76,961/- u/s 43B in respect of motivator (Rs.21,74,152/-) and leave encashment provision (Rs.7,02,809/-). The ld. counsel for the assessee contended that there is a factual error in making the disallowance.
Thus, considering the totality of facts, the ld. Assessing Officer is directed to examine the claim of the assessee and after providing due opportunity of being heard to the assessee, decide in accordance with law, thus, this ground of the assessee is allowed for statistical purposes.
So far as, ground no. 6 & 7 with respect to granting credit of Rs.39,14,703/- for tax deducted at source as against Rs.85,05,037/-, claimed in the revised return and thereby short credit and charging interest u/s 234 as against Rs.19,338/- is concerned, the ld. counsel contended that there is calculation mistake, therefore, the Assessing Officer may be directed to verify the claim of the assessee. The ld. DR had no objection to the request of the assessee. Thus, considering the totality of facts and the assertions from both sides, we direct the ld. Assessing Officer to examine the claim of the assessee and after providing due opportunity of being heard decide in accordance with law, consequently, both these grounds are allowed for statistical purposes.
Ground no. 8 is with respect to charging of interest of Rs.1,51,95,613/ u/s 234B as against Rs.1,18,03,380/- is concerned, the same is consequential in nature and the Assessing Officer is directed to examine the claim of the assessee afresh.
Finally, the appeal of the assessee is partly allowed for statistical purposes.
This order was pronounced in the open in the presence of ld. representatives from both sides at the conclusion of the hearing on 18/05/2016.