2013-VIL-995-ITAT-MUM

Income Tax Appellate Tribunal MUMBAI

ITA No. 839/Mum/2012

Date: 24.07.2013

UNIVERSAL MEDICARE P. LTD, CAPSULATION PREMISES

Vs

ACIT LTU MUMBAI

For the Petitioner : Mr. D. V. Lakhani
For the Respondent : Mr. Baban D. Patil

BENCH

Shri Rajendra Singh And Dr. S. T. M. Pavalan,JJ.

JUDGMENT

Per Dr. S. T. M. Pavalan, JM:

This appeals filed by the Assessee is directed against the order of the Ld.CIT(A) -22, Mumbai dated 27.12.2011 for the Assessment Year 2007-08.

2. Grounds No. 1, 2 & 3 relate to the disallowance of Rs.48,66,304/- made by the AO u/s 14A read with Rule 8D and the direction given by the Ld.CIT(A) to the AO to treat the expenditure directly attributable to the income theer by determine the disallowance u/s 14A and a further direction to make the disallowance @ 0.5% of the average value in shares & mutual funds.

2.1 Briefly stated, the assessee, a company engaged in the business of manufacturing, trading and sale of encapsulation of soft gelatin capsules, while filing a revised return declaring total income of Rs.14,53,32,012/- had shown a dividend income of Rs.1,35,96,026/- and a long term capital gains of Rs.6,29,325/- as exempt income. According to the assessee, the said investments were not out of any borrowed funds and hence no expenses were required to be attributed for earning the exempt income. However, in the assessment framed u/s 143(3), the AO made the disallowance of Rs.48,66,304/- by invoking section 14A read with Rule 8D.

2.2 On appeal, the Ld.CIT(A) while upholding the disallowance made by the AO, has directed the AO that for carrying out the working of disallowance, the AO shall take expenditure directly attributable to the income and disallow u/s 14A. In addition, for making the disallowance of interest, the AO shall find out the ratio of average value of investment in shares and mutual fund to the average of total assets as per Balance sheet and apply this ratio to the interest debited to the P & L account. Further, AO shall also disallow 0.5% of the average value of investment in shares and mutual fund exempt, being administrative cost. The AO has to sum up all these three which will give the correct figure of disallowance u/s 14A. Aggrieved by the impugned decision, the assessee has raised these grounds in the appeal before us.

2.3 Having heard both the sides and perused the material on record, it is noted that the question of making disallowance u/s 14A is no more res integra in view of the judgment of the Hon’ble Bombay High Court in Godrej & Boyce Ltd. Mfg. Co. VS. DCIT [(2010)] 328 ITR 81 (Bom)] holding that the provisions of section 14A are applicable in circumstances as are prevailing presently and the disallowance has to be worked out by the AO on some ‘reasonable basis’ and not under rule 8D in so far as the assessment years prior to 2008-09 are concerned. Presently we are dealing with the A.Y. 2007-08. In such year, obviously rule 8D cannot be applied, but the disallowance is required to be worked out on some reasonable basis. As the AO has computed the disallowable amount as per rule 8D, such computation cannot be upheld by the Ld.CIT(A). Under such circumstances, we set aside the impugned decision on this issue and restore the matter to the file of the AO for deciding the quantum of disallowance, as per the afore-noted judgment, after allowing a reasonable opportunity of being herd to the assessee.

3. Grounds No. 4 & 5 are not pressed by the Ld. AR of the assessee and hence do not require any adjudication.

4. Ground No. 6 relate to levying surcharge and educational cess before adjusting MAT credit. It is pertinent to mention that this issue has not been discussed in the assessment order. However, the same has been raised before the Ld.CIT(A). The claim of the assessee is that MAT credit should first be reduced from the tax payable and thereafter on the residual amount the surcharge and educational cess be levied. It is relevant to note that in the Income Tax Return form- ITR-6, column no. 4, the assessee is required to fill the credit u/s 115JAA of tax paid in earlier years and after which on the balance tax payable, the assessee has to fill the surcharge and educational cess at column no. 8 and 10 for the purpose of arriving at the gross tax liability. Also, the ITAT in the case of Richa Global Exports (P) Ltd V ACIT in ITA No. 2303/Del/2012 has held there is no need to give separate credit of education cess and surcharge while giving credit of MAT. What is required is that in the year when such credit is given, education cess and surcharge should be computed after giving credit of MAT to the tax computed on the assessed income in the same way as in the case of interest under sections 234B and 234C. The nature of MAT is like pre-paid taxes and, therefore, it should be treated alike for the purposes of computing education cess and surcharge also.

In view of that matter, we find merits in the contention of the assessee that MAT credit should first be reduced from the tax payable and thereafter on the residual amount the surcharge and educational cess be levied. We order and direct accordingly. Ground No. 6 is allowed.

5. In the result the appeals filed by the assessee is treated as allowed.

Order pronounced in the open court on this 24th day of July, 2013.

 

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