TMI Blog2018 (12) TMI 396X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed for statistical purposes. Deduction under section 80IB(9) - Held that:- Considering the assessee has raised the issue by way of additional grounds which were never raised before the first appellate authority and further, the issue relating to assessee’s claim of deduction under section 14A is restored to the Assessing Officer, we are inclined to restore the issue relating to assessee’s claim of deduction under section 80IB(9) of the Act to the Assessing Officer for deciding afresh by applying the ratio to be laid down in MAXOPP INVESTMENT LTD. VERSUS COMMISSIONER OF INCOME TAX, NEW DELHI AND PRINCIPAL COMMISSIONER OF INCOME TAX-I VS. D.B. CORP LTD. [2018 (3) TMI 805 - SUPREME COURT OF INDIA] in the appeal pending before them on identical issue as referred to above. Needless to mention, the Assessing Officer before deciding the issue must afford reasonable opportunity of being heard to the assessee. Additional grounds are allowed for statistical purposes. Disallowance of direct expenditure under rule 8D(i) read with section 14A - Held that:- Assessing Officer has ultimately proceeded to determine the total income and compute tax liability of the assessee under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome on 24th September 2008, declaring total income of ` 3,18,50,000 after claiming deduction under section 80IB(9) of the Act. During the assessment proceedings, the Assessing Officer noticing that in the relevant previous year, the assessee has received dividend of ` 5,03,45,485 from mutual funds and claimed it as exempt under section 10(35) of the Act, called upon the assessee to show cause as to why expenditure attributable to earning of such income should not be disallowed under section 14A r/w rule 8D. In response to the show cause notice, the assessee filed its submissions on 13th August 2010, stating that the only expenditure indirectly attributable to earning the exempt income is the proportionate salary cost of two employees, proportionate telephone expenditure and related overheads. Accordingly, the assessee estimated the expenditure attributable to earning of exempt income @ 5% of the exempt income and quantified the disallowance under section 14A at ` 25,17,274. The Assessing Officer after considering the submissions of the assessee was not convinced with them. He observed, 2.88% of the amount incurred towards establishment expenses, other expenses and bid related expen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rule 8D is unsustainable. He submitted, the assessee on a scientific basis has worked out and quantified the direct expenditure for earning exempt income at ` 2,54,989. A copy of the working of the said disallowance was also furnished before the Bench. The learned Authorised Representative submitted, even in the preceding assessment years, when rule 8D was not in the statute, the Assessing Officer himself has restricted disallowance under section 14A @5% of the exempt income. Thus, the learned Authorised Representative submitted, the issue may be restored to the Assessing Officer to examine assessee s working of direct expenditure for earning exempt income and deciding the issue keeping in view the ratio laid down by the Tribunal, Special Bench. 6. The learned Departmental Representative also submitted that the issue may be restored to the Assessing Officer for determining the quantum of expenditure to be disallowed for earning the exempt income. 7. We have considered rival submissions and perused materials on record. Undisputedly, the Assessing Officer having found that tax liability of the assessee on the book profit computed under section 115JB of the Act is more than t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the Assessing Officer must afford a reasonable opportunity of being heard to the assessee before deciding the issue. Grounds raised in this regard are allowed for statistical purposes. 8. The next issue which arises for consideration relates to assessee s claim of deduction under section 80IB(9) of the Act. 9. As discussed earlier, the assessee is engaged in the business of prospecting, exploration and production of mineral oil and natural gas. For the assessment year under dispute, the assessee filed its return of income claiming deduction of ` 16,95,29,150 under section 80IB(9) of the Act. During the assessment proceedings, when the Assessing Officer called upon the assessee to explain why deduction claimed under section 80IB(9) of the Act should not be disallowed, the assessee vide letter dated 20th October 2010, made elaborate submissions justifying its entitlement / eligibility for claiming deduction under section 80IB(9) of the Act. It was submitted, the assessee is a member of a consortium which has entered into a contract with the Government of India to extract petroleum in Cauvery Off shore area. It was submitted, as per the production sharing contract (PSC), the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a, 374 ITR 369 (Guj.), wherein, the Hon'ble Gujarat High Court struck down Explanation to section 80IB(9) of the Act as violative of Article 14 of the Constitution of India, the assessee has raised the issue of deduction under section 80IB(9) of the Act before us through additional grounds. 10. The learned Authorised Representative relying upon the decision of the Hon'ble Gujarat High Court in Niko Resources Ltd. (supra) submitted, since Explanation 1 to section 80IB(9) of the Act has been struck down as ultra virus, the assessee is entitled to claim deduction under section 80IB(9) of the Act in respect of each oil well by treating them as independent undertaking. 11. The learned Departmental Representative opposing the aforesaid contention of the learned A.R. submitted that while admitting Department s Special Leave Petition against the judgment of Hon'ble Gujarat High Court in Gujarat State Petroleum Corporation on identical issue, the Hon'ble Supreme Court has directed the High Courts not to dispose off appeals pending before them on identical issue till the issue is dealt with by the Hon'ble Supreme Court. Thus, he submitted, in view of the aforesaid d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epartmental Authorities never had the occasion to examine assessee s claim of deduction vis a vis the ratio laid down by the Hon'ble Gujarat High Court in Niko Resources Ltd, which in any case of the matter was delivered after disposal of appeal by learned Commissioner (Appeals). Moreover, the aforesaid decision of the Hon'ble Gujarat High Court has been challenged by the Department, before the Hon'ble Supreme Court and while admitting the SLP of the Department the Hon ble Supreme Court has passed the following order: ORDER Delay condoned. Issue notices on the special leave petitions as also on the prayer for interim relief returnable after 10 weeks. Mr. Shashibhushan P. Adgaonkar, Ms. Abha R. Sharma and Ms. Bindi Girish Dave, learned counsel, have entered appearance on behalf of the respondents. No further notice need to be issued to them. Counter affidavit, if any, be filed within six weeks. Rejoinder affidavit, if any, be filed within four weeks therefrom. List the matters after ten weeks. The prayer for interim relief shall be considered on the next date of hearing. As we are entertaining the matter, the High Court(s) where the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ); and ii) Taylor Investment Co. (India) Ltd. v/s CIT, [1998] 232 ITR 771. 15. Moreover, it is not disputed that the aforesaid decision of the Hon'ble Gujarat High Court has been challenged by the Department before the Hon'ble Supreme Court and the Hon'ble Supreme Court has directed all High Courts not to decide the pending appeals on identical issue till the issue is decided by them. Though, the aforesaid direction of the Hon'ble Supreme Court is to the High Courts, however in our view, as a matter of propriety neither the Tribunal nor the Departmental Authorities should also decide the issue either in favour or against the assessee, but, should wait for the decision of the Hon'ble Supreme Court on the issue. In the aforesaid fact situation, there are two courses open to us, i.e., either to keep the appeal pending till the issue is decided by the Hon'ble Supreme Court or to restore the issue to the Assessing Officer for deciding it by applying the law to be laid down by the Hon'ble Supreme Court on the issue. Considering the fact that the assessee has raised the issue by way of additional grounds which were never raised before the first appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed the issue relating to addition made to the book profit on account of disallowance made under section 14A r/w rule 8D. That being the case, the issue raised in the present appeal becomes redundant as it is of mere academic importance. Hence, there is no need for adjudication. 22. In the result, Revenue s appeal is dismissed. ITA no.2791/Mum./2013 Assessee s Appeal A.Y. 2009 10 23. In this appeal also, in addition to the grounds raised in the memorandum of appeal, the assessee has raised additional / supplementary grounds of appeal vide letter dated 7th July 2016 and 19th February 2018. However, the issue raised in the main grounds as well as additional grounds pertain to disallowance of deduction claimed under section 80IB(9) of the Act and disallowance of expenditure under section 14A r/w rule 8D. The additional grounds raised by the assessee being of purely legal nature and which can be decided on the basis of facts available on record, we admit the additional grounds for adjudication. 24. Insofar as the grounds raised towards claim of deduction under section 80IB(9) of the Act are concerned, in the main ground the assessee has raised the issue of computation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... salary cost of two employees cannot be accepted. He also observed that since the disallowance worked out by the assessee is on ad hoc basis it cannot be accepted. Thus, the Assessing Officer proceeded to compute disallowance under section 14A r/w rule 8D at ` 93,11,108. Being aggrieved of such disallowance, assessee preferred appeal before the first appellate authority. 26. The learned Commissioner (Appeals) after considering the submissions of the assessee, though, agreed with the decision of the Assessing Officer to compute the disallowance under rule 8D, however, he directed the Assessing Officer to exclude the investment yielding taxable income from the average value of investment for computing disallowance under rule 8D. 27. We have considered rival submissions and perused materials on record. The first contention of learned Authorised Representative is, the Assessing Officer has not recorded satisfaction before rejecting the disallowance made by the assessee. As could be seen from the assessment order, the assessee has allocated expenditure on proportionate basis towards earning of exempt income. The Assessing Officer, though, has rejected the computation of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not yielded any exempt income during the relevant previous year. As regards the final submission of the learned Authorised Representative that disallowance made under section 14A r/w rule 8D cannot be added to the book profit under section 115JB of the Act, we find merit in the said submissions. As held in the Special Bench decision of the Tribunal, Delhi Bench, in Vireet Investment Pvt. Ltd. (supra) computation under clause (f) of Explanation-1 of section 115JB of the Act is to be made without resorting to computation as contemplated under section 14A r/w rule 8D. In view of the aforesaid, we restore the issue of disallowance under section 14A r/w rule 8D to the Assessing Officer for de novo adjudication keeping in view our observations herein above and only after affording due opportunity of being heard to the assessee. The grounds are allowed for statistical purposes. 28. In the result, assessee s appeal is allowed for statistical purposes. ITA no.2469/Mum./2013 Revenue s Appeal A.Y. 2009 10 29. The only issue raised by the Revenue is in relation to assessee s claim of deduction under section 80IB(9) of the Act. 30. As could be seen from the facts on record, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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