IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCHES 'A' : PUNE Before Shri Shailendra Kumar Yadav, JM And Shri D. Karunakara Rao. AM I.T.A. No. 1278/PN/2008 : A.Y. 2005-06 Baramati Taluka Sahakari Dudh Utpadak Sangh Ltd., Barmaati 413 102 PAN AAAAB 1280 E Applicant Vs. Asstt. CIT Cir. 1(1) Pune Respondent Applicant by : Shri Pramod Shingte Respondent by: Shri Abhay Damle ORDER
Per Shailendra Kumar Yadav This appeal has been filed against the order of the CIT(A)I Pune dated 11-6-2008 for A.Y. 2005-06 on the following grounds:
"1. Ld. CIT(A) erred in confirming the disallowance of the deduction of Rs. 5,00,000/- claimed as provision for payment of rent to State Government for its land.
2. Ld. CIT(A) erred in confirming the disallowance of Rs. 4,50,000/- out of the study tour expenses of Rs. 6,44,000/- undertaken by the assessee for its directors and senior executives.
3. Without prejudice to ground no. 2 above, the ld.
CIT(A) erred in confirming the entire disallowance of study tour mentioned in gr. No. 2 which disallowance as made by the A.O was excessive and unreasonable.
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4. ld. CIT(A) erred in sustaining disallowance at 50% of the adhoc disallowance of 5% u/s 14A as made by the A.O for estimated expenses for earning alleged exempt income from co-operative interest land co- operative dividends totaling to Rs. 16,78,581/- when provision u/s 14a are not applicable to such income and when in an earlier year such disallowance was restricted by the predecessor CIT(A) to Rs. 10,000/- only."
2. At the outset of hearing, the learned counsel for the assessee did not press ground no. 1. So, the same is dismissed as not pressed.
3. Grounds no. 2 and 3 relate to confirmation of disallowance of Rs. 4,50,000/- out of study tour expenses of Rs. 6,44,000/-. The Assessing Officer found that the assessee had claimed Rs. 6,44,000/- as expenditure for study tour. After taking into consideration the detailed submissions filed by the assessee, the Assessing Officer disallowed 70% of the expenditure on study tour as having been incurred for non- business purposes which was confirmed by the CIT(A). The same has been opposed by the assessee before us.
4. After hearing the rival submissions and perusing the material available on record, we find that the CIT(A) was justified in upholding the action of the Assessing Officer in restricting the claim of the assessee and making disallowance ITA No. 1278/PN/08 Baramati Tal. Sah. Utpadak Sangh A.Y. 2005-06 -3- of 70% of the total expenditure incurred on study tour. The assessee has not been able to establish the genuineness of the claim to prove that the tour conducted by the Directors was for the purposes of business. Most of the places visited included tourist places and therefore, it was clear that the predominant purpose of the visit was sight seeing and nothing else, therefore, most of the tour was personal in nature not connected with the business activities. In the circumstances therefore, the CIT(A) was justified in upholding the action of the Assessing Officer in disallowing 70% of the total expenditure on account of study tour being for non-business expenditure and no interference is called for with the order of the CIT(A) on this issue. The grounds no. 2 and 3 are therefore, dismissed.
6. Ground no. 4 relates to sustenance of disallowance at 50% of the adhoc disallowance of 5% u/s 14A as made by the Assessing Officer for estimated expenses for earning alleged exempt income from co-operative interest and co-operative dividends totaling to Rs. 16,78,581/-. As per the submission of the assessee, the assessee has earned co-op. interest of Rs. 12,73,903/-, co-operative dividends of Rs. 4,04,678/- which was eligible for deduction u/s 80P(2)(d) of the Act. The ITA No. 1278/PN/08 Baramati Tal. Sah. Utpadak Sangh A.Y. 2005-06 -4- Assessing Officer has disallowed 5% of this amount as disallowable u/s 14A of the Act. The contention of the assessee was that the provisions of sec. 14A are applicable to exempt income as covered by the Chapter III of the Act and not to deductions given u/s 80P as contained in chapter IV of the Act. However, the CIT(A) did not find favour with the submissions of the assessee and observed that the assessee has failed to maintain details in respect of expenditure incurred for earning income attributable to income which did not form part of total income. Having regard to the totality of the facts and circumstances of the case and in view of failure of the assessee to maintain details of administrative expenses incurred in connection with earning of exempt income, the CIT(A) reduced the disallowance by 50% and gave consequential relief. Still aggrieved, the assessee is in appeal before us.
6. We have considered rival submissions and perused the material on record. We find that the issue raised in this appeal is covered in favour of the assessee by the judgment of Punjab and Haryana High Court in the case of CIT Vs. Kings Exports (2009) 318 ITR 100 (P & H) wherein it has been held that section 14A has no application in a case where a ITA No. 1278/PN/08 Baramati Tal. Sah. Utpadak Sangh A.Y. 2005-06 -5- deduction has been claimed under chapter VIA as the same is not expenditure incurred for earning income which does not form part of total income. Similarly, the Chennai 'B' Bench of the Tribunal in the case of Asstt. CIT Vs. Tamil Nadu State Producers Federation Ltd. (2006) 103 TTJ (Chennai) 716 has observed that the provision of section 14A do not speak about the deduction to be made in computing the total income as per the provisions of chapter VIA even though as a result of such deductions, the taxable income is reduced wholly or partially. In this view of the matter, the Tribunal concluded that section 14A prohibits deduction of expenditure incurred only in relation to exempt income and it cannot be applied to the provisions of chapter IVA where deductions are to be allowed in computing the total income, assessee having claimed deduction u/s 80P(2)(e) on the gross receipts without deducting the expenditure. So, following the ratio of judgment of Hon'ble Punjab and Haryana High Court in the case of Kings Exports (supra) and the decision of Chennai Bench of the Tribunal in the case of Tamil Nadu State Producers Federation Ltd. (supra), the issue is decided in favour of the assessee.
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6. The assessee has prayed for admission of the additional ground which reads as under:
"The ld. CIT(A) erred in refusing to admit additional evidence sought to be produced before him under Rule 46A(1) f the I.T. Rules 1962"
However, at the time of hearing of this appeal, nothing was addressed for admission of the above mentioned additional ground. So the same is dismissed as not pressed.
7. In the result, the appeal of the assessee is partly allowed.
Pronounced in the open court on 23rd March 2011.
Sd/- sd/- (D. KARUNAKARA RAO) (SHAILENDRA KUMAR YADAV) Accountant Member Judicial Member Pune dated the 23 March 2011 rd Ankam Copy of order forwarded to : 1. Assessees 2. Department 3. CIT - I Pune 4. CIT(A) I Pune 5. ITAT, D.R. 'A' Bench, Pune. True Copy By Order Asstt. Registrar Income Tax Appellate Tribunal Pune.