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TMI Blog2022 (1) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... Rules, the average value of investments which yielded the exempt income alone to be considered for the purpose of arriving at average value of investment as envisaged therein - this ground of appeal is remitted to the file of the Assessing Officer to calculate the amount of disallowance under clause (iii) of Rule 8D(2) on the above lines indicated above. Thus, this ground of appeal is partly allowed. Deduction paid towards Education Cess under Finance Act while computing the taxable income - HELD THAT:- We note that the assessee paid Education Cess while computing the taxable income under normal provision of the I.T. Act. The Hon ble High Court of Bombay in the case of Sesa Goa Ltd. [ 2020 (3) TMI 347 - BOMBAY HIGH COURT ] was pleased to hold that the Education Cess is an allowable expenditure as per the provision of the I.T. Act. That therefore, from the legal perspective, the issue of education cess is an allowable expenditure as per provisions of Section 40(a)(ii) of the Act and placing reliance on the decision of the Hon ble Bombay High Court (supra.), we direct the Assessing Officer to allow deduction in respect of Education Cess paid by the assessee. Accordingly, the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1956. It is engaged in manufacturing of automobile and brake systems components and generation of power through windmill. The return of income for the assessment year 2013-14 was filed on 27.11.2013 declaring total income of ₹ 20,07,54,650/-. Against that return of income, assessment was completed by the Assessing Officer vide order dated 19.12.2016 passed u/s.143 (3) of the Income Tax Act, 1961 (hereinafter referred to as "the Act‟) determining total income of ₹ 20,62,63,290 after making following disallowances: i) Disallowance of initial public offer (IPO) expenses of ₹ 24,78,871/- ii) Disallowance u/s.14A of the Act of ₹ 30,29,773/- 4. Being aggrieved by the above disallowances, an appeal was filed before the Ld. CIT(Appeals) who vide impugned order confirmed the disallowances mentioned hereinabove. 5. Being further aggrieved, the assessee/appellant filed an appeal before us. 6. Ground No.1 challenges the disallowance of expenditure of ₹ 24,78,871/- incurred on aborted initial public offer (IPO) expenses. 7. The issue in the present appeal is no more res-integra as the issue is decided in assessee‟s own case in ITA No.2104/PU ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e at all". 21. Further, it was held that there may be cases where expenditure even if incurred for obtaining advantage of enduring benefit, may, nonetheless, be on revenue account and the test of enduring benefit may break down. It was pointed out that it is not every advantage of enduring nature acquired by an assessee that brings the case within the principle laid down in this test. What is material to consider is the nature of advantage in a commercial sense and it is only where the advantage is in the capital field that the expenditure would be disallowable on an application of this test. 22. Further, it was pointed out that if the advantage consists merely in facilitating the assessee's trading operations or enabling the management and conduct of the assessee's business to be carried on more efficiently or more profitably while leaving the fixed capital untouched, the expenditure would be on revenue account, even though the advantage may endure for an indefinite future. Thus, it was held that the test of enduring benefit is not a certain or conclusive test and it cannot be applied blindly and mechanically without regard to the particular facts and circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Government of Tamil Nadu to sell the project is a very important fact, which has to be borne in mind to decide as to whether the expenditure incurred by the assessee was capital or revenue in nature. 26. The Assessing Officer fell in error in going by the fact that the expenditure was incurred from the capital account forgetting that the test to be applied to ascertain as to whether the expenditure is revenue or capital is not based on where the funds were drawn from. The broad parameters and tests, which have been laid down by various decisions are that there should be an enduring benefit, which should accrue to the assessee and there should be a creation of a new asset. In the instant case, both these parameters remain unfulfilled. 27. The High Court of Delhi in Indo Rama Synthetics Ltd. (supra) held that if the expenditure is incurred for starting a new business, which was not carried out by the assessee earlier, then such expenditure was held to be capital in nature. However, if the expenditure incurred is in respect of the same business, which is already carried on by the assessee, even if it is for the expansion of the business, viz., to start a new unit, which is same as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. (supra). 32. The learned counsel for the Revenue strenuously contended that a new project had emerged and it is immaterial whether machinery was reduced to scrap and ordered to be sold and what is required to be seen is that the expenditure was incurred from the capital account. 33. In our considered view, reliance placed on the decision of this Court in the case of E.I.D. Parry (India) Ltd. (supra) and the Kerala High Court in the case of Malabar & Pioneer Hosiery (P.) Ltd. (supra) is of little avail, as in both cases, it was for a new project, in contra distinction with the factual position in the case on hand. Therefore, those decisions are factually distinguishable. Heavy reliance was placed on the decision of this Court in the case of Mascon Technical Services Ltd. (supra). 34. At the first blush it appears that the decision would help the case of the revenue, but on a closer reading it proves otherwise. The question was whether the assessee was justified in seeking for bifurcation of the expenses incurred into capital and revenue. The Division Bench referred to the decision in the case of Brooke Bond India Ltd. v. CIT [1997] 225 ITR 798/91 Taxman 26 (SC). In the ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in assessee‟s own case in the immediately preceding year i.e. 2012-13, Ground No.1 raised in appeal by the assessee is allowed. 9. Ground No.2 challenges the disallowance u/s.14A of the Act of ₹ 30,29,773/-. 10. This issue was decided by the Co-ordinate Bench of the Tribunal in assessee‟s own case (supra.) in immediately preceding year i.e. AY 2012-13 and the operative portions of the said decision are as follows: "17. We heard the rival submissions and perused the material on record. The present issue relates to the disallowance u/s 14A of the Act. The contention of the appellant that no disallowance of interest is warranted in the year under consideration following the finding of the ld. CIT(A) for earlier facts that no interest bearing funds were utilized for the purpose of making the investment merits acceptance. The relevant finding of the ld. CIT(A) is as under :- "4.5 On an examination this bank account, I find that this is current account and not an interest bearing account. I further find that on the dates of payment made to Associated Brakes Ltd, the first one being on 20/9/2007 of ₹ 54,35,000, the current account had a positive balance mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me and 0.5% of average value of investment, which yielded the exempt income / merits acceptance. It is very well settled position of law that the amount of disallowance u/s 14A cannot exceed the exempt income. Reliance in this regard can be placed on the following decisions : (i) Principal Commissioner of Income-tax-2 vs. Caraf Builders & Constructions (P.) Ltd., [2019] 112 taxmann.com 322 (SC) - (SLP dismissed against High Court ruling that disallowance under section 14A cannot exceed exempt income of relevant year); (ii) Pragathi Krishna Gramin Bank vs. Joint Commissioner of Income-tax, [2018] 95 taxmann.com 41 (Karnataka); (iii) PCIT vs. Reliance Ports and Terminals Ltd., 114 taxmann.com 529 (Bombay); (iv) PCIT vs. State Bank of Patiala, 393 ITR 476, and, (v) PCIT vs. Envestor Ventures Ltd., 431 ITR 221. (vi) Nirved Traders Pvt. Ltd., Vs. DCIT 421 ITR 142 (Bom). (vii) Pr.CIT Vs. Ajit Ramakant Phatarpekar 429 ITR 319 (Bom). 19. It is also well settled position of law that while computing the amount of disallowance under clause (iii) of Rule 8D(2) of the Rules, the average value of investments which yielded the exempt income alone to be considered for the purpose o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess or profession" shall not be deducted in computing the income chargeable under the head "profits and gains of business or profession". There is no reference to any "cess". Obviously therefore, there is no scope to accept Ms. Linhares‟s contention that "cess" being in the nature of a "Tax" is equally not deductable in computing the income chargeable under the head "profits and gains of business or profession". Acceptance of such a contention will amount to reading something in the text of the provision which is not to be found in the text of the provision in Section 40(a)(ii) of the IT Act. 23. If the legislature intended to prohibit the deduction of amounts paid by an Assessee towards say, "education cess" or any other "cess", then the legislature could have easily included reference to "cess" in clause (ii) of Section 40(a) of the IT Act. The fact that the legislature has not done so means that the legislature did not intend to prevent the deduction of amounts paid by the assessee towards the "cess", when it comes to computing income chargeable under the head "profits and gains of business or profession"." The Hon'ble Bombay High Court observi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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