Income Tax Appellate Tribunal - Pune
Sargam Retails Private Limted,, Pune vs Deputy Commissioner Of Income -Tax,, ... on 4 September, 2020
IN THE INCOME TAX APPELLATE TRIBUNAL
PUNE BENCH "B", PUNE - VIRTUAL COURT
BEFORE SHRI P.M. JAGTAP, VICE PRESIDENT (K/Z)
AND
SHRI S.S. VISWANETHRA RAVI, JUDICIAL MEMBER
ITA No.1250/PUN/2017
निर्धारण वषा / Assessment Year : 2013-14
Sargam Retails Private Limited, Vs. DCIT, Central Circle-6,
4/1, Ganesh Peth, Burud Lane, Pune
Pune - 411004
PAN : AAKCS7336N
Appellant Respondent
Assessee by Shri Nikhil Pathak
Revenue by Shri Alok Malviya
Date of hearing 27-08-2020
Date of pronouncement 04-09-2020
आदे श / ORDER
PER P.M. JAGTAP, VP :
This appeal filed by the assessee is directed against the order of Ld.CIT(A)-4, Pune, dated 28.02.2017 and the main issue involved therein relates to the disallowance of Rs.1,06,67,279/- made by the Assessing Officer (AO) and confirmed by the Ld. CIT(A) u/s 14A of the Income-tax Act, 1961 (hereinafter referred to as the „the Act‟) read with rule 8D of the Income-tax Rules, 1962 (hereinafter referred to as „the Rules‟), which is raised by way of the following six grounds as originally raised.
1] The learned CIT(A) erred in confirming the disallowance u/s. 14A r.w.r. 8D of Rs.1,06,67,279/- while computing the total income of the assessee even though no objective satisfaction was recorded by the learned A.O. to demonstrate that the claim made by the assessee company of having not incurred any expenditure to earn exempt income was not correct.
2] The learned CIT(A) erred in not appreciating that the own funds available with the assessee company were far more than the amount of tax free investments and hence, there was no reason to make any disallowance of interest u/s 14A of the Act.
3] The learned CIT(A) failed to appreciate that the major amount of investment in partnership firm was as a result of addition of the assessee's share in the profit of the firm to the capital account and hence, the question of utilizing any borrowed funds for investing in partnership firm did not arise.2 ITA No.1250/PUN/2017
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4] The learned CIT(A) erred in confirming the disallowance u/s 14A r.w.r.
8D(2)(iii) of Rs.82,41,026/- in respect of indirect expenditure incurred for earning tax free income even though no such disallowance was warranted on the facts of the case.
5] The learned CIT(A) failed to appreciate that the assessee had not incurred indirect expenditure of Rs.82,41,026/- for earning the exempt income and hence, and therefore, the disallowance made was not justified on the facts of the case. 6] Without prejudice to the above grounds, the assessee submits that the investment made in partnership firms is not a tax free investment since the income earned by the firm is subjected to income tax and hence, the investment in partnership firm may be excluded from the amount of 'tax free investments' while computing the disallowance u/s 14A as per Rule 8D(2)(ii) and Rule 8D(2)(iii) of the Income Tax Rules, 1962.
2. The assessee in the present case is a company which is engaged in the business of retail and wholesale trading of tobacco, tea, lime, etc. The return of income for the year under consideration was filed by it on 30.09.2013 declaring a total income of Rs.21,56,49,944/-. In the said return, the following income earned during the year under consideration was claimed to be exempt by the assessee.
i) Dividend on shares - Rs.2,49,812/-
ii) Share of profit from partnership firm - Rs.38,56,46,448/-
iii) Tax free interest on investments - Rs.7,84,399/-
3. No disallowance on account of expenses incurred in relation to the earning of aforesaid exempt income however, was offered by the assessee as required by the provisions of section 14A of the Act. In this regard, it was submitted on behalf of the assessee company before the AO during the course of assessment proceedings that it had sufficient interest free funds of its own at the relevant time to make the investments on which tax free income was earned and there being no utilization of borrowed funds for making the said investments, no disallowance on account of interest expenditure u/s 14A of the Act was warranted as held by the Hon‟ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom). It was also submitted on behalf of the assessee company that majority of the exempt income was earned by it in 3 ITA No.1250/PUN/2017 Sargam Retails Pvt. Ltd.
the form of share of profit from the partnership firm and since no other expenditure was required to be incurred for earning the said income, there was no question of making any disallowance u/s 14A of the Act. The AO did not find merit in these submissions made on behalf of the assessee company. Relying on the decision of Hon‟ble High Court of Punjab & Haryana in the case of Haryana Land Reclamation and Development Corporation Vs. CIT (2008) 302 ITR 218 (P&H) and that of Hon‟ble Kolkata High Court in the case of Dhanuka & Sons 12 Taxmann.com 227 (Cal), he held that the onus was on the assessee to establish that the relevant investments on which exempt income had been earned were made from its own interest free funds and not from the interest bearing borrowed funds. He held that there was a failure on the part of assessee to discharge the said onus satisfactorily. He also observed that the disallowance u/s 14A of the Act to be worked out by applying rule 8D of the Rules on proportionate basis itself was based on the concept of mixed funds as involved in the case of the assessee. As regards disallowance to be made on account of other expenses, the AO observed that the decision making in respect of investments involved higher management of the assessee company and the same required expending time and resources. He held that expenses incurred by the assessee on account of various heads claimed under general administrative expenses, thus were partly attributable to the earning of the exempt income and disallowance out of the same on proportionate basis was called for u/s 14A of the Act. He accordingly, applied rule 8D of the Income Tax Rules to work out the disallowance to be made u/s 14A of the Act on account of interest at Rs.24,26,253/- and on account of other common expenses at Rs.82,41,026/- and a total disallowance of Rs.1,06,67,279/- was made by him u/s 14A of the Act.
4. The disallowance made by the AO u/s 14A of the Act read with rule 8D of the Rules was challenged by the assessee in the appeal filed before the Ld.CIT(A) and the 4 ITA No.1250/PUN/2017 Sargam Retails Pvt. Ltd.
following submissions were made on behalf of the assessee company in support of its case on this issue:
"During the course of appellate proceedings before the Ld.CIT(A):
1] In this year, the assessee has derived exempt income of Rs.38,66,80IB(10) of the Act,659/-. The exempt income, mainly includes share of profit received by the assessee from two firms namely Malpani Estates and Giriraj Enterprises of Rs.38,28,31,389/-. In the course of the assessment proceedings, it was clarified to the A.O. that the assessee firm had not incurred any expenditure to earn exempt income. The Ld. AO has not accepted the contention of the assessee. He has held that the assessee firm has received exempt income and hence, it must have incurred expenditure to earn the exempt income. According to the Ld. A.O., the assessee has earned tax free income and hence, the disallowance u/s l4A is required to be made by applying the provisions of Rule 8D. The A.O. has stated that there is always an element of indirect expenditure for earning exempt income and according to him; some indirect expenditure is incurred in relation to earning the exempt income. Accordingly, the Ld. AO has made a disallowance of Rs.1,06,67,279/- u/s. 14A r. w. Rule 8D of the Act. According to him, the assessee has incurred heavy expenditure on salary and other administrative expenses which are incurred in relation to earning both taxable income as well as exempt income. The Ld. A.O. has computed the disallowance of Rs.82,41,026/- u/r 8D (2)(iii) on account indirect expenditure incurred in relation to earning exempt income. The Ld. A.O. has also disallowed an amount of Rs.24,26,253/- u/s 14A r. w. Rule 8D (2)(ii) in respect of interest expenditure incurred for earning exempt income. Accordingly, the total disallowance of Rs.1,06,67,279/- has been made by the Ld. AO.
2] At the outset, it is submitted that in the asst. order, the Ld. A.O. has not recorded objective satisfaction as required as per the provisions of section 14A to demonstrate that the claim made by the assessee is not correct. Hence, it is submitted that the Ld. AO has nowhere recorded an objective satisfaction that the claim made by the assessee that it has not incurred any expenditure to earn tax free income is not correct. Accordingly, it is submitted that in the absence of proper satisfaction recorded by the Ld. AO, no disallowance u/s. 14A is warranted.
3] As stated above, the Ld. AO has disallowed interest expenditure of Rs.24,26,253/-
under rule 8D (ii). The assessee submits that this disallowance is not warranted at all. It is submitted that the borrowed funds have no nexus with the tax free investments and hence, the disallowance of interest on proportionate basis is not justified. In the assessment order, the Ld. AO has considered Rs.155.87 Crores as opening tax free investments and Rs.173.77 Crores as closing tax free investments. However, the correct amount is Rs.173.77 Crores as opening tax free investments and Rs.155.87 Crores as closing tax free investments. The relevant chart is enclosed on page 37 of the paper book. Now, it is submitted that the assessee has own funds available with it in the form of share capital and reserves which are much higher than the opening the closing tax free investments. The copy of the balance sheet of the assessee is enclosed on pages, 1-25 of the paper book. As per the balance sheet, the share capital and reserves of the assessee as on 31/03/2013 were Rs.27l.85 Crores and Rs.214.91 Crores as on 31/03/2012. Since, the assessee has own funds much higher than the investments made by the assessee in tax free securities and in the absence of any direct nexus that the borrowed funds have been utilized for making tax free investments, no disallowance of interest expenditure can be made u/s. 14A r. w.5 ITA No.1250/PUN/2017
Sargam Retails Pvt. Ltd.
Rule 8D. In this context, the assessee places reliance on the following decisions wherein the courts have held that if the assessee has surplus funds much higher than the tax free investments, no disallowance u/s. 14A can made -
a. HDFC Bank Ltd. [Bombay High Court].
b. Kolte Patil Developers Ltd. [ITAT Pune, copy enclosed in the
paper book]
In view of the above decisions, the assessee submits that no disallowance of interest expenditure is warranted u/s. 14A r. w. Rule 8D.
4] As regards, disallowance of indirect expenditure, the assessee submits that the disallowance made by the Ld. AO is not justified at all on the facts of the present case. The chart giving details of tax free investments made by the assessee is enclosed on page 37 of the paper book. Your Honour would note that out of the total tax free investments, major amount is investment in partnership firms namely Giriraj Enterprises and Malpani Estates which are the related entities. Out of the total investments of Rs.l73.77 Crores, the investment in these two concerns is Rs.166.97 Crores. Now, the assessee is not required to incur any expenditure for investing in these two firms. In fact, the capital of the assessee has increased over the years as a result of substantial profit earned by these firms which is credited to the capital of the assessee has share of profit. The relevant chart giving details of the year wise profit received by the assessee which is also added to the capital is enclosed in the paper book. The assessee submits that considering the facts that these are group concerns and it is not required to incur any expenditure for making the said investments, the same should be ignored for the purposes of computing the disallowance u/s. 14A. The Ld. A.O. has not appreciated that the assessee has not incurred any expenditure for earning the share of profit from these firms.
5] Further, as stated above, out of the total investment in the above two partnership firms, an amount of almost Rs.84.99 Crores is on account of the accretion to the capital of the assessee on account of share of profit. Now, if the assessee had withdrawn its capital from the said firms, to that extent, its investments would have reduced. Secondly, the assessee does not have to incur any expenditure to earn the said profit. Accordingly, it is submitted that the total investment in the partnership firm should be excluded while computing the disallowance u/s. 14A r. w. Rule 8D. Without prejudice, the assessee submits that the profit earned by it over the years which has resulted in higher capital investment amounting to Rs.84.99 Crores should be reduced while computing the disallowance u/s. 14A r.w. Rule 8D.
6] Without prejudice to the above contentions, assuming without admitting that some disallowance is justified u/s 14A r. w. Rule 8D, the assessee submits that the investment made in partnership firms is not a tax free investment. It is to be noted that the income earned by the firm is already subjected to income tax and hence, the same cannot be treated as a tax free investment for the purposes of section 14A r. w. Rule 8D. Thus, the assessee submits that investment in partnership firm may be excluded from the amount of 'tax free investments' while computing the disallowance u/s 14A as per Rule 8D (2)(ii) and Rule 8D (2)(iii) of the Rules.
7] As regards, other investments made by the assessee, it is submitted that these are very few and most of them are made in the earlier years. The assessee has also earned part of its exempt income from investments made in NHAI Bonds and LIC in respect of which it has not incurred any indirect expenditure. Thus, it is submitted that no administrative expenses debited by the assessee are relatable to earning exempt income. The assessee submits that the A.O. has also not shown that the assessee has actually incurred any indirect expenses for earning the 6 ITA No.1250/PUN/2017 Sargam Retails Pvt. Ltd.
exempt income and hence, in the absence of any such objective satisfaction, it is submitted that the disallowance made by the Ld. AO u/r 8D (2)(iii) is not justified.
5. The Ld.CIT(A) did not find merit in the submissions made on behalf of the assessee company and proceeded to confirm the disallowance of Rs.1,06,67,279/- made by the AO u/s 14A of the Act read with rule 8D of the Rules for the following reasons in the paragraph 5.3.1 of his impugned order.
"3.1 It is observed that the aforesaid contention of the appellant is devoid of merit as per as provisions of Rule 8D(2)(ii) is concerned which is effective from 01/04/2008 i.e. 2008-09 onwards. I, on the other hand, cannot but agree with the findings of the AO as given in the assessment order. The issue is relating to earning of dividend income which is exempt u/s. 10(34) of the Act and how the computation for disallowance u/s. 14A of the Act to be made. The basis of computation has specifically been laid down in the provisions of Rule 8D(2)(ii) of the Act on the facts of the appellant's case under consideration and, therefore, the AO had no other alternative but to compute the same on the basis of the said provisions. I find that the AO had made the disallowance taking into consideration the fact that the appellant had shown exempt income but no expenditure for earning such exempt income. In the decision of the Bombay High Court in the case of Godrej Boyce v/s DCIT, the issue relating to disallowance with reference to section 14A of the Act r. w. Rule 8D of the Rules has been discussed in detail. The assessment year in the case of the appellant is 2008-09. There has been an amendment of provisions of Section 14A of the Act read with Rule 8D of the IT Rules,l962 w.e.f 1.06.2007, which is effective from A.Y 2008-09 onwards. It is mandatory on the part of the AO to consider for disallowance u/s 14A in case the appellant could not otherwise prove that no interest was actually incurred for earning such exempt income. The computation for disallowing such interest is to be made mandatorily within the provisions of Rule 8D(2) of the Act. The appellant has not made any such material submission before the undersigned so as to ensure the above that the provisions of Rule 8D(2) was not applicable in its case for not considering the entire investment for the purpose of computation of disallowance under the said provisions. The various decisions cited by the appellant, in my opinion, are not applicable on the facts of appellant's case and also after the amendment of the provisions of Rule 8D(2) as above. I, therefore, do not find any reason to interfere with the findings given by the AO. Accordingly, the disallowance made of Rs.1,06,67,279/- is hereby confirmed. Ground Nos. 1 to 7 raised by the appellant is accordingly dismissed."
6. The Ld. Counsel for the assessee at the outset invited our attention to the relevant balance sheet of the assessee placed at page No. 2 of paper book to show that the interest free funds of its own were available with the assessee company aggregating to Rs.271.85 crores in the form of share capital and free reserves. He contended that since the said funds were much more than the corresponding investments of Rs.173.77 crores on which exempt income was earned by the asseessee , there was a presumption that the said 7 ITA No.1250/PUN/2017 Sargam Retails Pvt. Ltd.
investments were made by the assessee company out of its own funds as held by the Hon‟ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd. (supra) and there was no utilization of interest bearing borrowed funds for making the said investments. He contended that the disallowance on account of interest expenditure made by the AO and confirmed by the Ld.CIT(A) u/s 14A of the Act read with rule 8D of the Income Tax Rules, therefore, is not sustainable. As regards the disallowance made by the AO and confirmed by the Ld.CIT(A) u/s 14A of the Act read with rule 8D of the Income Tax Rules on account of other expenses, he submitted that the major exempt income was earned by the assessee in the form of share of profit from the partnership firm and since no expenditure was required to be incurred to earn the said income, there was no justification on the part of authorities below to make disallowance on account of other expenses u/s 14A of the Act by applying rule 8D of the Rules. Alternatively he also contended that the quantum of other expenses worked out by the AO by applying rule 8D(2)(iii) of the Rules taking into consideration the entire investments made by the assessee company in the capital of the partnership firm was not correct as said capital also included substantially the share of profit of the assessee company from the partnership firm accumulated over the years.
7. The Ld.DR on the other hand relied on the orders of the authorities below in support of the Revenue‟s case on this issue.
8. We have considered the rival submissions and perused the material available on record. It is observed that the actual investment capable of yielding exempt income as made by the assessee company on 31.03.2013 was Rs.173.77 crores and the assessee company had sufficient own funds in the form of share capital and free reserves to the tuned of Rs.271.85 crores as on 31.03.2013 as pointed by the Ld. Counsel for the assessee from the balance sheet placed at page 2 of paper book. The assessee company 8 ITA No.1250/PUN/2017 Sargam Retails Pvt. Ltd.
thus had sufficient own funds in the form of share capital and free reserves at the relevant time which were higher than actual investments made by it which were capable of yielding exempt income. As rightly contended by the Ld. Counsel for the assessee, there was a presumption that the investment capable of yielding exempt income was made by the assessee company out of its own interest free funds and there was no utilization of interest bearing borrowed funds for making such investment so as to warrant any disallowance of interest u/s 14A of the Act. This contention of the Ld. Counsel for the assessee is duly supported by the decision of Hon‟ble Jurisdictional High Court in the case of CIT Vs. Reliance Utilities & Power Ltd. (supra), wherein it was held that if the assessee had interest free funds of its own which were more than the investment capable of earning exempt income, it could be presumed that the said investments were made from interest free funds available with the assessee and not from the interest bearing borrowed funds so as to warrant the disallowance u/s 14A of the Act. This decision rendered in the case of CIT Vs. Reliance Utilities & Power Ltd. (supra) was subsequently followed by the Hon‟ble Bombay High Court in the case of HDFC Bank Ltd Vs. DCIT 366 ITR 505 (Bom) to hold that where both the interest free funds and interest bearing funds are available and the interest free funds are more than the investments made, the presumption is that the investment in tax free securities would have been made out of interest free funds available with the assessee. Since the interest free funds of its own funds available with the assessee company in the form of share capital and free reserves were substantially more than the corresponding investments made as noted by us, we are of the view that the disallowance made by the AO and confirmed by the Ld. CIT(A) on account of interest u/s 14A of the Act read with rule 8D(2)(ii) of the Rules is not sustainable and the same is directed to be deleted.
9. As regards the disallowance made u/s 14A of the Act on account of common administrative expenses by applying rule 8D(2)(iii) of the Rules, the Ld. Counsel for the 9 ITA No.1250/PUN/2017 Sargam Retails Pvt. Ltd.
assessee has contended that majority of the exempt income was earned by the assessee in the form of share of profit from the partnership firm and there was no expenditure incurred for earning the said income under the head „Common Administrative Expenses‟. However, as pointed out by the Assessing Officer in his order, common administrative expenses incurred by the assessee were partly attributable to the earning of exempt income by the assessee company even in the form of share of profit from the partnership firm as the same involved decision making by the higher management of the assessee company in respect of corresponding investments which required expending time as well as resources. The Ld. Counsel for the assessee has also contended alternatively that while determining the quantum of common administrative expenses to be disallowed u/s 14A of the Act by applying rule 8D(2)(iii) of the Rules, the Assessing Officer wrongly considered the entire investments made by the assessee company in the capital of the partnership firm without reducing the same by the share of profit of the assessee company from the partnership firm accumulated over the years. We are unable to accept this contention of the Ld. Counsel for the assessee. In our opinion, once the claim of assessee of having not incurred any common expenses in relation to the earning of exempt income is found to be not correct and the disallowance u/s 14A of the Act on account of such expenses is liable to be worked out by applying the formula given in rule 8D(2)(iii) of the Rules, the basis given therein cannot be altered or changed as sought by the Ld. Counsel for the assessee, unless and until the basis so given in the formula is found to be patently untenable in the facts and circumstances of a particular case. We, therefore, find no merit in this contention of the assessee and reject the same. The issue raised by the assessee relating to the disallowance u/s 14A of the Act read with rule 8D of the Rules as raised in ground Nos.1 to 6 is thus, partly allowed.
10. During the course of appellate proceedings before the Tribunal, the assessee has raised an additional ground, which reads as under:
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"1] The assessee submits that the education cess and secondary and high education cess amounting to Rs.20,37,889/- may kindly be allowed as a deduction while computing the total income of the assessee."
11. We have heard the arguments of both the sides on this issue and also perused the relevant material available on record. Although the Ld. DR has not specifically raised any objection for the admission of this additional ground raised by the assessee, he has made a submission on merit on the issue raised in the said additional ground to the effect that the education cess being in the nature of surcharge as explained in the relevant Memorandum explaining the intention of the relevant provisions, the same is not allowable as deduction as held by the Hon'ble Supreme Court in the case of CIT Vs. K. Srinivasan 83 ITR 346 (SC). It is however, observed that the issue raised by the assessee in the additional ground on merit as well as admission of the additional ground raising the said issue at appellate stage is directly and squarely covered by the decision of the Hon‟ble Bombay High Court in the case of Sesa Goa Ltd. Vs. JCIT (2020) 117 taxmann.com 96 (Bom), wherein both these aspects have been considered, discussed and decided by their Lordships in paragraph Nos.28 to 40 as under:
"28. In the Income-tax Act, 1922, Section 10(4) had banned allowance of any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession. In the corresponding Section 40(a)(ii) of the IT Act, 1961 the expression "cess" is quite conspicuous by its absence. In fact, legislative history bears out that this expression was in fact to be found in the Income-tax Bill, 1961 which was introduced in the Parliament. However, the Select Committee recommended the omission of expression "cess" and consequently, this expression finds no place in the final text of the provision in Section 40(a)(ii) of the IT Act, 1961. The effect of such omission is that the provision in Section 40(a)(ii) does not include, "cess" and consequently, "cess" whenever paid in relation to business, is allowable as deductable expenditure.
29. In Kanga and Palkhivala's "The Law and Practice of Income Tax" (Tenth Edition), several decisions have been analyzed in the context of provisions of Section 40(a)(ii) of the IT Act, 1961. There is reference to the decision of Privy Council in CIT v. Gurupada Dutta 14 ITR 100, where a union rate was imposed under a Village Self Government Act upon the assessee as the owner or occupier of business premises, and the quantum of the rate was fixed after consideration of the 'circumstances' of the assessee, including his business income. The Privy Council held that the rate was not 'assessed on the basis of profits' and was allowable as a business expense. Following this decision, the Supreme Court held in Jaipuria Samla Amalgamated Collieries Ltd. v. CIT [82 ITR 580] that the expression 'profits or gains of any business or profession' has reference only to profits and gains as determined in accordance with Section 29 of this Act and that any rate or tax levied upon profits calculated in a manner other than that provided by that section 11 ITA No.1250/PUN/2017 Sargam Retails Pvt. Ltd.
could not be disallowed under this sub-clause. Similarly, this sub-clause is inapplicable, and a deduction should be allowed, where a tax is imposed by a district board on business with reference to 'estimated income' or by a municipality with reference to 'gross income'. Besides, unlike Section 10(4) of the 1922 Act, this sub-clause does not refer to 'cess' and therefore, a 'cess' even if levied upon or calculated on the basis of business profits may be allowed in computing such profits under this Act.
30. The Division Bench of the Rajasthan High Court (Jaipur Bench) in Income-tax Appeal No. 52/2018 decided on 31st July, 2018 (Chambal Fertilisers and Chemicals Ltd. v. CIT Range-2, Kota), by reference to the aforesaid CBDT Circular dated 18th May, 1967 has held that the 1TAT erred in holding that the "education cess" is a disallowable expenditure under section 40(a)(ii) of the IT Act. Ms. Linhares was unable to state whether the Revenue has appealed this decision. Mr. Ramani, learned Senior Advocate submitted that his research did not suggest that any appeal was instituted by the Revenue against this decision, which is directly on the point and favours the Assessee.
31. Mr. Ramani, in fact pointed out three decisions of 1TAT, in which, the decision of the Rajasthan High Court in Chambal Fertilisers and Chemicals Ltd.(supra) was followed and it was held that the amounts paid by the Assessee towards the 'education cess' were liable for deduction in computing the income chargeable under the head of "profits and gains of business or profession". They are as follows
(i) DCIT v. Peerless General Finance and Investment and Co. Ltd. (ITA No.1469 and 1470/Kol/2019 decided on 5th December, 2019 by the ITAT, Calcutta;
(ii) DCIT v. Graphite India Ltd. (ITA No. 472 and 474 Co. No. 64 and 66/Kol/2018 decided on 22nd November, 2019)by the ITAT, Calcutta;
(iii) DCIT v. Bajaj Allianz General Insurance (ITA No. 1111 and 1112/PUN/2017 decided on 25th July, 2019) by the ITAT, Pune.
32. Again, Ms. Linhares, learned Standing Counsel for the Revenue was unable to say whether the Revenue had instituted the appeals in the aforesaid matters. Mr. Ramani, learned Senior Advocate for the Appellant submitted that to the best of his research, no appeals were instituted by the Revenue against the aforesaid decisions of the ITAT.
33. The ITAT, in the impugned judgment and order, has reasoned that since "cess" is collected as a part of the income tax and fringe benefit tax, therefore, such "cess" is to be construed as "tax". According to us, there is no scope for such implications, when construing a taxing statute. Even, though, "cess" may be collected as a part of income tax, that does not render such "cess", either rate or tax, which cannot be deducted in terms of the provisions in Section 40(a)(ii) of the IT Act. The mode of collection, is really not determinative in such matters.
34. Ms. Linhares, has relied upon M/s Unicorn Industries v. Union of India and others, 2019 SCC Online SC 1567 in support other contention that "cess" is nothing but "tax"
and therefore, there is no question of deduction of amounts paid towards "cess" when it comes to computation of income chargeable under the head profits or gains of any business or profession.
35. The issue involved in Unicorn Industries (supra) was not in the context of provisions in Section 40(a)(ii) of the IT Act. Rather, the issue involved was whether the 'education cess, higher education cess and National Calamity Contingent Duty (NCCD)' on it could be construed as "duty of excise" which was exempted in terms of Notification dated 9th September, 2003 in respect of goods specified in the Notification and cleared from a unit located in the Industrial Growth Centre or other specified areas with the State of Sikkim. The High Court had held that the levy of education cess, higher education cess and NCCD could not be included in the expression "duty of excise" and consequently, the 12 ITA No.1250/PUN/2017 Sargam Retails Pvt. Ltd.
amounts paid towards such cess or NCCD did not qualify for exemption under the exemption Notification. This view of the High Court was upheld by the Apex Court in Unicorn Industries (supra).
36. The aforesaid means that the Supreme Court refused to regard the levy of education cess, higher education cess and NCCD as "duty of excise" when it came to construing exemption Notification. Based upon this, Mr. Ramani contends that similarly amounts paid by the Appellant - Assessee towards the "cess" can never be regarded as the amounts paid towards the "tax" so as to attract provisions of Section 40(a)(ii) of the IT Act. All that we may observe is that the issue involved in Unicorn Industries (supra) was not at all the issue .involved in the present matters and therefore, the decision in Unicorn Industries (supra) can be of no assistance to the Respondent - Revenue in the present matters.
37. Ms. Linhares, learned Standing Counsel for the Revenue however submitted that the Appellant - Assessee, in its original return, had never claimed deduction towards the amounts paid by it as "cess". She submits that neither was any such claim made by filing any revised return before the Assessing Officer. She therefore relied upon the decision of the Supreme Court in Goetze (India) Ltd. v. Commissioner of Income-tax (2006) 284 1TR 323 (SC) to submit that the Assessing Officer, was not only quite right in denying such a deduction, but further the Assessing Officer had no power or jurisdiction to grant such a deduction to the Appellant - Assessee. She submits that this is what precisely held by the 1TAT in its impugned judgments and orders and therefore, the same, warrants no interference.
38. Although, it is true that the Appellant - Assessee did not claim any deduction in respect of amounts paid by it towards "cess" in their original return of income nor did the Appellant - Assessee file any revised return of income, according to us, this was no bar to the Commissioner (Appeals) or the ITAT to consider and allow such deductions to the Appellant - Assessee in the facts and circumstances of the present case. The record bears out that such deduction was clearly claimed by the Appellant - Assessee, both before the Commissioner (Appeals) as well as the ITAT.
39. In CIT v. Pruthvi Brokers & Shareholders Pvt. Ltd. 349 ITR 336, one of the questions of law which came to be framed was whether on the facts and circumstances of the case, the ITAT, in law, was right in holding that the claim of deduction not made in the original returns and not supported by revised return, was admissible. The Revenue had relied upon Goetze (supra) and urged that the ITAT had no power to allow the claim for deduction. However, the Division Bench, whilst proceeding on the assumption that the Assessing Officer in terms of law laid down in Goetze (supra) had no power, proceeded to hold that the Appellate Authority under the IT Act had sufficient powers to permit such a deduction. In taking this view the Division Bench relied upon the Full Bench decision of this Court in Ahmedabad Electricity Co. Ltd. v. CIT 199 ITR 351 to hold that the Appellate Authorities under the IT Act have very wide powers while considering an appeal which may be filed by the Assessee. The Appellate Authorities may confirm, reduce, enhance or annul the assessment or remand the case to the Assessing Officer. This is because, unlike an ordinary appeal, the basic purpose of a tax appeal is to ascertain the correct tax liability of the Assessee in accordance with law.
40. The decision in Goetze (supra) upon which reliance is placed by the ITAT also makes it clear that the issue involved in the said case was limited to the power of the assessing authority and does not impinge on the powers of the ITAT under section 254 of the said Act. This means that in Goetze (supra), the Hon'ble Apex Court was not dealing with the extent of the powers of the appellate authorities but the observations were in relation to the powers of the assessing authority. This is the distinction drawn by the division Bench in Pruthvi Brokers (supra) as well and this is the distinction which the ITAT failed to note in the impugned order."
13ITA No.1250/PUN/2017
Sargam Retails Pvt. Ltd.
12. Respectfully following the decision of the Hon‟ble Jurisdictional High Court in the case of Sesa Goa Ltd. Vs. JCIT (supra), we admit the additional ground raised by the assessee and allow the same on merit by directing the Assessing Officer to allow the deduction to the assessee company while computing its total income on account of education cess and secondary and high education cess.
13. In the result, the appeal of the assessee is partly allowed.
Order pronounced in the open Court on 4th September, 2020
Sd/- Sd/-
(S.S. VISWANETHRA RAVI) (P.M. JAGTAP)
JUDICIAL MEMBER VICE PRESIDENT
पण
ु े Pune; ददिधांक Dated : 4 September, 2020
th
GCVSR
आदे श की प्रतिलिपि अग्रेपिि/Copy of the Order is forwarded to:
1. अपीऱधर्थी / The Appellant;
2. प्रत्यर्थी / The Respondent;
3. The CIT(A)-4, Pune
4. The Pr. CIT-3, Pune
5. DR „B‟ Bench, ITAT, Pune
6. गार्ड फाईल / Guard file आदे शानुसार/ BY ORDER, // True Copy // Senior Private Secretary आयकर अपीलीय अधिकरण ,पुणे / ITAT, Pune