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Income Tax Appellate Tribunal, ‘PANAJI’ BENCH, PANAJI
Before: SHRI CHANDRA MOHAN GARG & SHRI GIRISH AGRAWAL
IN THE INCOME TAX APPELLATE TRIBUNAL, ‘PANAJI’ BENCH, PANAJI BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER AND SHRI GIRISH AGRAWAL, ACCOUNTANT MEMBER ITA No.69/PAN/2018 Assessment Year: 2013-14 DCIT, CIRCLE-1, Udupi M/S. MANIPAL TECHNOLOGIES LIMITED, Vs. Udayavani Building, Manipal- 576104. PAN: AABCM 9516 H (Appellant) (Respondent) Present for: Assessee by : Smt. Sheetal Borkar, Advocate Revenue by : Shri Mayur Kamble, Sr. DR Date of Hearing : 13.06.2022 Date of Pronouncement : 15.06.2022 O R D E R PER GIRISH AGRAWAL, ACCOUNTANT MEMBER: The present appeal filed by the Department is arising out of the order of Commissioner of Income Tax (Appeals), Mangaluru in Appeal No. ITA No. 10030/UDP/CIT(A)MNG/2016-17 dated 27.11.2017 against the order of DCIT, Circle- 1, Udupi passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as ‘the Act’) dated 29.03.2016.
There are six grounds of appeal taken by the Department in the present appeal, all of which relate to the disallowance made u/s 14A of the Act r.w.r. 8D(2)(ii) & 8D(2)(iii) of the Income-tax Rules, 1962 (hereinafter referred to as ‘the Rules), amounting to Rs. 1,61,65,201/-.
Before us, Smt. Sheetal Borkar, Advocate represented the assessee and Shri Mayur Kamble, Sr. DR represented the Department.
2 ITA No.69/PAN/2018 M/s. Manipal Technologies Limited A.Y. 2013-14
Brief facts of the case are that assessee is a domestic company engaged in the business of manufacture / production of printed materials / books etc., manufacturing of corrugation and folding cartons. The assessee filed its return of income on 27.11.2013 reporting a loss of Rs. 6,97,35,250/- and book profit computed u/s 115JB of Rs. 6,24,94,092/-. The last revised return of income was filed on 28.03.2015 reporting a loss of Rs. 4,37,39,018/- and book profit u/s 115JB of Rs. 6,24,94,092/-. During the year, assessee has earned dividend income of Rs. 1,08,793 which was claimed as exempt u/s 10(34) of the Act. In the course of assessment proceeding, ld. AO noted that assessee has not disallowed any amount towards expenses incurred in relation to earning the said exempted income. Ld. AO show caused the assessee to explain as to why a disallowance u/s 14A read with Rule 8D should not be made, in response to which the assessee submitted that it has made investments in shares in Indian Companies and Indian Mutual Funds of Rs. 29,32,06,800/- made from the own funds of the assessee. Own funds were at Rs. 239,60,57,866/- as on 31.03.2013. It further submitted that no amount was spent to earn the dividend income and hence no disallowance u/s 14A can be made. While completing the assessment, ld. AO relied on various case laws for making the disallowance u/s 14A of the Act and completed the assessment by making the disallowance of Rs. 1,47,89,917/- under Rule 8D(2)(ii) and Rs. 13,95,284/- under Rule 8D(2)(iii), totaling to Rs. 1,61,85,201/-.
Aggrieved, the assessee went in appeal before the Ld. CIT(A).
In the first appeal, the ld. CIT(A) while deleting the addition made by the ld. AO noted that AO did not record his non-satisfaction on the claim made by the assessee having regard to the accounts of the assessee and also that AO did not point out any specific direct and indirect expenses which were incurred fully and exclusively for the earning of exempted income. He also noted that the nexus between the interest bearing funds and investments made was also not established by the ld. AO who made the disallowance merely by relying on various case laws. Ld. CIT(A) also noted the fact that in the assessee’s own case, the ld. AO in the assessment orders dated 31.03.2016 passed u/s 143(3) r.w.s. 254 of the Act for A.Y. 2009-10 & 2010-11 held that on detailed verification of the details furnished / produced, it is seen that the assessee had not utilized the loan funds, where he is
3 ITA No.69/PAN/2018 M/s. Manipal Technologies Limited A.Y. 2013-14 paying interest, for the purpose of investment in shares in debentures. Therefore, it cannot be stated that, the assessee has incurred any expenditure, as mentioned in Rule 8D(2)(i) or 8D(2)(ii).
6.1. Ld. CIT(A) further noted that despite finding in A.Y. 2009-10 and A.Y. 2010-11, the same AO made a disallowance of Rs. 1,47,89,917/- under Rule 8D(2)(ii) of the rules in the impugned year for which the reason for such change in the stand by the AO are not discernible from the impugned assessment order of the ld. AO. Considering this observations and facts and relying upon the decision of Hon’ble Jurisdictional High Court of Karnataka in the case of CIT vs Karnataka State Industrial & Infrastructure Development Corpn. Ltd. (2016) 65 Taxmann.com 295 (Kar), ld. CIT(A) deleted the addition made by the AO u/s 14A of the Act r.w.r. 8D(2)((ii) and (iii) of the Rules.
Aggrieved, the Department is in appeal before the Tribunal.
Before us, the ld. counsel of the assessee Smt. Sheetal Borkar submitted that the present issue is squarely covered by the decision of Co-ordinate Bench of Bangalore ITAT in assessee’s own case in ITA 890/Bang/2013 for A.Y. 2010-11 order pronounced on 18.07.2014. The extract of the said order are reproduced for ease of reference:
“3. Learned counsel for the assessee, Smt.Sheetal, while reiterating the contentions raised by the assessee before the authorities below, submitted that in the case of the sister concern of the assessee viz. M/s. Manipal Media Networks Ltd., in ITA No.889/Bang/2013 dated 4-3- 2014 for the assessment year 2010-11, 'B' Bench of this Tribunal had remanded the issue to the file of the AO for de novo consideration in view of the decision of the Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. (cited supra). A copy of the said order is produced before us. Para.6 of the said order is as under:
"6. Having heard both the parties and having considered the rival contentions, we find that this Tribunal, in ITA No.1266/Bang/2012 dated 25-10- 2013, in the assessee's own case for the assessment year 2009-10, has considered the issue at length and after considering the judicial precedent in the case of Godrej & Boyce Mfg. Co. Ltd. Vs. DCIT(supra) and the provisions of rule 8D, has remanded the issue to the file of the AO for re-examination. The relevant portion of the order at para.5.3.5 at page 7 is reproduced hereunder:
4 ITA No.69/PAN/2018 M/s. Manipal Technologies Limited A.Y. 2013-14
"5.3.5 In this appeal, the dispute in respect of the disallowance under section 14A r.w. Rule 8D is with regard to expenditure under Rule 8D(2)(ii) i.e. expenditure which is not directly attributable to any particular income or receipt and Rule 8D(2)(iii) i.e. other indirect expenditure than that referred to in Rule 8D(2)(i) and 8D(2)(ii). It is seen from the facts on record that the assessee has not deducted any expenses direct or indirect, while computing its income from dividend income which is exempt under section 10(34) of the Act. In this regard on a similar issue, a co- ordinate bench of this Tribunal in the case of ITA No.633/Bang/2014 Jindal Aluminium Ltd. in ITA Nos.799 & 864/Bang/2012 dt.30.4.2012 cited by the assessee (supra) has held that it is necessary for the assessee to point out how each item of expense debited to its profit and loss account is wholly incurred for the purpose of earning income which is taxable and therefore remanded the matter for re-examination to the file of the Assessing Officer. In the case on hand too, similarly, we find that the position is that the assessee has merely taken the stand that it has not incurred any direct or indirect expenditure in earning its dividend income which is exempt under section 10(34) of the Act. We are therefore of the view that it would be in the interest of equity and justice if the assessee makes its claim in this regard before the Assessing Officer. The Assessing Officer will examine the claim of the assessee and thereafter decide the issue in accordance with law and as explained in the judicial decisions referred to (supra). It is ordered accordingly."
Since the facts and circumstances of the case before us are similar, we remand this issue back to the file of the AO for re-examination with similar directions. The first ground of appeal is accordingly allowed for statistical purposes.
As regards the addition of disallowance u/s 14A of the Act, while computing book profit u/s 115JB of the Act is concerned, the learned counsel for the assessee has placed reliance upon the decision of the 'D' Bench of the Tribunal at Mumbai in the case of Reliance Industrial Infrastructure Ltd. vs. Addl.CIT in ITA Nos.69 & 70/Mum/2009 dated 5-4-2013 wherein, by following the decision of the Delhi Bench of the Tribunal in the case of Goetze (India) Ltd,. it was held that while computation of adjusted book profits, the provisions of sec.14A cannot be imported into clause (f) of the Explanation to sec.115JB of the Act. Copy of the said order is produced before us.
Learned Departmental Representative, Shri Balakrishnan, on the other hand, supported the orders of the authorities below.
Having heard both the parties and having considered the material on record, we find that the issue is also covered in favour of the assessee by the decision of the ITA
5 ITA No.69/PAN/2018 M/s. Manipal Technologies Limited A.Y. 2013-14 No.633/Bang/2014 Tribunal at Mumbai cited supra. Therefore, we direct that the addition of disallowance made u/s 14A cannot be made while computing book profit u/s 115JB of the Act. The AO is directed accordingly. This ground of appeal is accordingly allowed for statistical purposes.”
8.1. She submitted that subsequent to the order of Co-ordinate Bench of ITAT, Bangalore, an appeal effect giving assessment order was passed u/s 143(3) r.w.s. 254 of the Act dated 31.03.2016 for A.Y. 2010-11 wherein ld. AO noted that assessee had not utilized loan funds for the purpose of investment in shares and debentures and accordingly held that no disallowance can be made under Rule 8D(2)(ii) of the Rules. However certain disallowance was computed under Rule 8D(2)(iii) of the Rules. Relevant part from the assessment order is extracted as under: “On detailed verification of the details furnished/produced, it is seen that the assessee had not utilized the loan funds, where he is paying interest for the purpose of investment in shares and debentures. Therefore, it cannot be stated that, the assessee has incurred any expenditure, as mentioned in Rule 8D(2)(i) or 8D(2)(ii). But it cannot be ruled out that the assessee has to incur some indirect expenditure like, administrative expenditure etc. as mentioned in Rule 8D(2)(iii). Accordingly, the indirect expenditure as mentioned in Rule 8D(2)(iii) is worked out as under: 01.04.2009 31.03.2010 Average Investment in 12,68,88,217/- 19,35,58,090/- 16,02,23,154/- shares/mutual fund
0.5% of average value of investment in shares i.e. 0.5% of Rs. 16,02,23,154/- Rs. 8,01,115/-
Total disallowance u/s 14A Rs. 8,01,115/-”
8.2. For the disallowance made by the ld. AO in Rule 8D(2)(iii) for A.Y. 2010-11, matter went into appeal before ld. CIT(A) in ITA No. 10031/UDP/CIT(A)MNG/2016- 17. Ld. CIT(A) vide order dated 27.11.2017, deleted the addition made by the ld. AO amounting to Rs. 8,01,115/- u/s 14A r.w.r. 8D(2)(iii). Against this deletion, the department is not in appeal before the Tribunal, as submitted by the ld. counsel. Accordingly, she submitted that the present appeal before the Tribunal on the issue of disallowance u/s 14A r.w.s. 8D(ii) and 8D(iii) is a settled issue in assessee’s own case,
6 ITA No.69/PAN/2018 M/s. Manipal Technologies Limited A.Y. 2013-14 videe the above referred orderse for assessment year 2010-11, copies of which are placed on record in the Paper Book.
8.3. She further strongly submitted that ld. AO has not recorded his non-satisfaction having regard to the accounts of the assessee and also that no nexus was established by the ld. AO between the interest bearing funds and investments made yielding exempted income. The relevant extract from the impugned order of ld. CIT(A) while giving relief to the assessee are reproduced as under: “5.6 The submissions of the appellant and the assessment order were carefully considered. There is merit in the submissions of the appellant. The appellant claimed that no expenditure was incurred for earning the exempt income. As can be seen from the assessment order the AO merely relied on various case laws for making the disallowance u/s 14A. The AO didn’t record his non-satisfaction of the claim having regard to the accounts of the assessee. The AO didn’t point out any specific direct and indirect expenses which were incurred not wholly and exclusively for the earning of taxable income. Nexus between the interest bearing funds and investments made was not established.
5.7 In the case of appellant itself, the AO in the assessment orders dated 31.03.2016 passed u/s 143(3) r.w.s. 254 for AY 2009-10 & 2010-11 held that on detailed verification of the details furnished / produced, it is seen that the assessee had not utilized the loan funds, where he is paying interest, for the purpose of investment in shares in debentures. Therefore, it cannot be stated that, the assessee has incurred any expenditure, as mentioned in Rule 8D(2)(i) or 8D(2)(ii). The reasons for such change in the stand should have been mentioned in the impugned assessment order, which was not done.”
Per contra, the ld. Sr. DR placed his reliance on the order of ld. AO.
We have heard the rival contentions and perused the material on record and given thoughtful consideration on the submissions made before us including the order of Co-ordinate Bench of ITAT, Bangalore in assessee’s own case for A.Y. 2010-11 and the subsequent orders of authorities below, giving effect to the order of Co-ordinate Bench in assessee’s own case (supra). We note that assessee has earned dividend income of Rs.1,08,793/- and claimed it exempt u/s 10(34) of the Act. From the financial statement of the assessee placed at record, it is a fact that company has made investment in shares
7 ITA No.69/PAN/2018 M/s. Manipal Technologies Limited A.Y. 2013-14 of Indian Company and Mutual Fund of Rs. 29,32,06,800/-, against which the own funds of the assessee as on 31.03.2013 reported in its balance sheet stands at Rs. 239,60,57,866/-. The assessee has claimed that it has not spent any amount to earn the exempted dividend income against which ld. AO has not recorded any non-satisfaction about the correctness of the claim of the assessee having regard to the accounts of the assessee and proceeded to make the disallowance u/s 14A r.w.r. 8D(2)(ii) and 8D(2)(iii). We also note that from the perusal of orders of the authorities below giving effect to the order of Co-ordinate Bench of ITAT, Bengalore in assessee’s own case for A.Y. 2010-11, the claim of the assessee has been accepted by the department, both in respect of disallowance made under Rule 8D(2)(ii) and under Rule 8D(2)(iii) of the Rules.
10.1. It is also worth observing that the impugned assessment order is dated 29.03.2016 and the assessment order giving effect to the order of Co-ordinate Bench of ITAT, Bangalore (supra) is dated 31.03.2016 which are both passed by the same incumbent officer i.e. DCIT, Circle-1, Udupi, who has taken two divergent views in the assessee’s own case for the two assessment years i.e. 2010-11 and the impugned assessment year 2013-14 without bringing on record, any material change in fact or law, to justify such a divergent approach. Thus, considering the fact pattern, material on record, judicial precedent and the conclusion drawn in A.Y. 2010-11, we do not find any reason to interfere with the order of ld. CIT(A). We accordingly dismiss the grounds taken by the Department in its appeal.
In the result, the appeal filed by the Revenue is dismissed. Order pronounced in the open court on 15.06.2022.
Sd/- Sd/- (CHANDRA MOHAN GARG) (GIRISH AGRAWAL) JUDICIAL MEMBER ACCOUNTANT MEMBER Panaji, Dated:15.06.2022. Biswajit, Sr. P.S.
8 ITA No.69/PAN/2018 M/s. Manipal Technologies Limited A.Y. 2013-14 Copy to: 1. The Appellant: DCIT, Circle-1, Udupi. 2. The Respondent: M/s. Manipal Technologies Limited. 3. The CIT, Concerned, 4. The CIT (A) Concerned, 5. The DR Concerned Bench //True Copy// [ By Order
Sr. Private Secretary ITAT, Panaji (on tour)