2020 (3) TMI 222 - AT - Income Tax

ITAT Upholds CIT(A) Decisions, Dismissing Revenue's Appeal on Disallowances (A)

The Assistant Commissioner of Income Tax, Circle-4, Pune. Versus Persistent Systems Pvt. Ltd. And (Vice-Versa)

The ITAT upheld the CIT(A)'s decisions in favor of the assessee, dismissing the Revenue's appeal. The disallowance under Section 10AA(9) read with Section ... Disallowance u/s.10AA(9) r.w.s.80IA(10) - HELD THAT:- The crux of the decision of the Tribunal [2016 (12) TMI 1673 - ITAT PUNE] held in favour of the assessee was that mere existence of the close connection and 'more than ordinary profits' are not enough to assume an arrangement as contemplated u/s. 80-IA(10) of the Act. The Assessing Officer is also required to prove any such arrangement existing which resulted in more than ordinary profits. The learned AO has not proved any arrangement between the parties in the facts of the case. Therefore, following the decision of the Pune Bench of the Tribunal in assessee’s own case (supra.), we are of the opinion that the order of the Ld. CIT(Appeals) is fair and reasonable as allowing the claim - Decided against revenue. Disallowance made u/s.14A r.w.r. 8D(2)(ii) & (iii) - HELD THAT:- As relying on GODREJ & BOYCE MANUFACTURING COMPANY LIMITED VERSUS DY. COMMISSIONER OF INCOME-TAX & ANR. [2017 (5) TMI 403 - SUPREME COURT] Assessing Officer ought to record his satisfaction to the effect that assessee’s claim of expenditure of lesser amount having regard to its account is incorrect. In this case, the Assessing Officer without discussing the issue has merely stated in the assessment Order that appropriate disallowance should be made u/s.14A of the Act and accordingly, disallowed the additional amount u/s 14A of the Act which was deleted by the Ld. CIT(Appeals) - No infirmity with the findings of the Ld. CIT(Appeals) and relief provided to the assessee by the Ld. CIT(Appeals) is hereby sustained - Decided against revenue Allowable deduction while computing the taxable income - education cess and secondary & higher education cess paid on the Income Tax and Surcharge - Claim raised for the first time before the Tribunal and they have not claimed this deduction in the return of income also - HELD THAT:- We find the ground raised by assessee in cross objection is legal in nature, hence, the same is admitted in line with the decision of Hon'ble Supreme court of India in the case of NTPC Ltd. Vs. CIT [1996 (12) TMI 7 - SUPREME COURT] We find this issue has already been adjudicated by the Pune Bench of the Tribunal in the case of DCIT Vs. Bajaj Allianz General Insurance Company Limited [2019 (8) TMI 370 - ITAT PUNE] wherein held education Cess, which is not disallowable item, on its payment, the cess is an allowable expenditure as per provision of section 40(a)(ii) - Decided in favour of assessee. Issues Involved:1. Deletion of disallowance under Section 10AA(9) read with Section 80IA(10) of the Income Tax Act, 1961.2. Deletion of addition of disallowance made under Section 14A read with Rule 8D(2)(ii) & (iii) of the Income Tax Rules, 1962.3. Allowability of deduction for education cess and secondary & higher education cess.Issue-wise Detailed Analysis:1. Deletion of Disallowance under Section 10AA(9) read with Section 80IA(10):The Revenue appealed against the deletion of disallowance of Rs. 2,33,23,142/- under Section 10AA(9) read with Section 80IA(10). The Assessing Officer (AO) had observed that the assessee's net profit margin of 31.27% was significantly higher than the 'ordinary profit' margin of 11.34% of comparable companies. The AO denied the deduction claimed by the assessee for the excess profit margin.During the appellate proceedings, the CIT(A) deleted the disallowance, referencing previous years' decisions in the assessee's favor and a similar decision by the ITAT, Pune. The Tribunal had held that mere existence of a close connection and 'more than ordinary profits' were insufficient to assume an arrangement under Section 80IA(10) without proving any such arrangement. The AO had failed to prove any such arrangement.The ITAT upheld the CIT(A)’s decision, noting that similar disallowances in earlier years had been deleted based on the same reasoning. Therefore, the relief provided to the assessee by the CIT(A) was sustained, and Ground No.1 raised by the Revenue was dismissed.2. Deletion of Addition of Disallowance under Section 14A read with Rule 8D(2)(ii) & (iii):The Revenue's appeal also contested the deletion of disallowance under Section 14A read with Rule 8D(2)(ii) & (iii), amounting to Rs. 1,34,39,970/-. The AO had disallowed this amount against the exempt income earned by the assessee, which included dividend income and interest on tax-free bonds. The assessee had already disallowed Rs. 7,75,000/- suo-motto under Rule 8D(2)(i).The CIT(A) deleted the additional disallowance of Rs. 1,26,64,970/- on the grounds that the AO had not recorded any dissatisfaction with the assessee’s claim of expenditure. The CIT(A) emphasized that the AO must be satisfied that the assessee's claim is incorrect before invoking Rule 8D, which was not done in this case.The ITAT concurred with the CIT(A), referencing the Supreme Court decision in Godrej & Boyce Manufacturing Co. Ltd. vs. DCIT, which stipulates that the AO must record dissatisfaction with the assessee’s accounts before applying Rule 8D. The ITAT found no infirmity in the CIT(A)’s findings and upheld the deletion of the additional disallowance. Thus, Ground Nos. 2 and 3 raised by the Revenue were dismissed.3. Allowability of Deduction for Education Cess and Secondary & Higher Education Cess:The assessee raised a cross-objection regarding the deduction of education cess and secondary & higher education cess amounting to Rs. 2,11,88,562/-. The assessee argued that this deduction should be allowed while computing taxable income, referencing the Supreme Court’s decision in NTPC vs. CIT, which allows the ITAT to admit new legal grounds.The ITAT admitted the ground, noting that it was legal in nature and did not require fresh verification of facts. The ITAT referred to its decision in DCIT vs. Bajaj Allianz General Insurance Co. Ltd., where it was held that education cess is an allowable expenditure under Section 40(a)(ii) of the Act. Following this precedent, the ITAT allowed the ground raised by the assessee.Conclusion:The ITAT dismissed the Revenue's appeal and allowed the cross-objection filed by the assessee, thereby upholding the CIT(A)’s decisions on all contested issues.