2018 (12) TMI 1828 - AT - Income Tax

Disallowance of Rural Employment Cess (RE Cess) and Primary Education Cess (PE Cess) - HELD THAT - As decided in own case 2015 (12) TMI 1326 - ITAT KOLKATA we hold that the cess collected from customers in the sale invoices shall not be chargeable to tax in the year of collection and accordingly the grounds raised by the assessee in this regard are allowed. Disallowance u/s 14A read with Rule 8D - HELD THAT - As decided in own case 2015 (12) TMI 1326 - ITAT KOLKATA no disallowance u/s 14A of the Act would operate in the facts and circumstances of the case. Unless an item is debited in the profit and loss account the same cannot be the subject matter of addition to book profits under clause (f) of Explanation to section 115JB of the Act. The disallowance made u/s 14A of the Act read with Rule 8D is only artificial disallowance and obviously the same is not debited in the profit and loss account and the same cannot be imported into clause (f) of Explanation to Section 115JB - Decided against revenue.

Summary

Issues Involved:
1. Deletion of Rural Employment Cess (RE Cess) and Primary Education Cess (PE Cess).
2. Deletion of disallowance under Section 14A in the context of Section 115JB.
3. Deletion of disallowance of ?49,66,000/- under Section 14A read with Rule 8D.
4. Deletion of disallowance of ?51,22,210/- under Section 14A in computation of book profit under Section 115JB.

Issue-wise Detailed Analysis:

1. Deletion of Rural Employment Cess (RE Cess) and Primary Education Cess (PE Cess):
The primary issue was whether the deletion of RE Cess and PE Cess aggregating to ?49,99,13,357/- by the CIT(A) was justified. The Tribunal referred to its earlier decision in the assessee’s own case for the assessment year 2008-09, where it was held that cess collected from customers as part of the sale price cannot be construed as trading receipts chargeable to tax. It was emphasized that such cess is collected in advance for payment to the exchequer in the succeeding year under the relevant West Bengal Acts. The Tribunal upheld the CIT(A)'s order, finding no reason to deviate from its previous ruling, and dismissed the Revenue's ground on this issue.

2. Deletion of disallowance under Section 14A in the context of Section 115JB:
The second issue concerned the CIT(A)'s deletion of disallowance under Section 14A in the context of Section 115JB. The Tribunal noted that this issue was also covered by its earlier decision for the assessment year 2008-09. It was held that Rule 8D is meant for computation of income under normal provisions and not for book profits under Section 115JB. Since the disallowance under Section 14A is not debited in the profit and loss account, it cannot be added back for book profit computation. The Tribunal upheld the CIT(A)'s order and dismissed the Revenue's ground on this issue.

3. Deletion of disallowance of ?49,66,000/- under Section 14A read with Rule 8D:
The third issue was the deletion of disallowance of ?49,66,000/- under Section 14A read with Rule 8D. The Tribunal referred to its earlier decision in the assessee’s own case, where it was held that the AO must record satisfaction about the correctness of the assessee’s claim before invoking Rule 8D. The Tribunal found that the AO had not examined the assessee’s accounts or recorded any satisfaction before making the disallowance. Additionally, it was noted that the assessee had sufficient own funds for investments, and there was no nexus between borrowed funds and investments. The Tribunal upheld the CIT(A)'s order and dismissed the Revenue's ground on this issue.

4. Deletion of disallowance of ?51,22,210/- under Section 14A in computation of book profit under Section 115JB:
The fourth issue was the deletion of disallowance of ?51,22,210/- under Section 14A in the computation of book profit under Section 115JB. The Tribunal reiterated its earlier decision that Rule 8D is not applicable for computing book profits under Section 115JB. Since the disallowance under Section 14A is not debited in the profit and loss account, it cannot be added back for book profit computation. The Tribunal upheld the CIT(A)'s order and dismissed the Revenue's ground on this issue.

Conclusion:
The Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s order on all grounds. The Tribunal’s decision was based on its earlier rulings in the assessee’s own case, finding no change in facts or law that would warrant a different conclusion. The order was pronounced in the open court on 07/12/2018.