Cit And Another v. Microlabs Ltd;[6]Cit And Another V. Microlabs Ltd;[6

I.T.A No.177/2019 IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 19 DAY OF APRIL, 2023 PRESENT THE HON’BLE MR. JUSTICE P.S. DINESH KUMAR AND THE HON’BLE MR. JUSTICE C.M. POONACHA INCOME TAX APPEAL NO.177 OF 2019 BETWEEN: M/S. BHARATH BEEDI WORKS PVT. LTD. 15-07-366/1 BHARATH BAGH KADRI ROAD MANGALORE – 575 003 …APPELLANT (BY Ms. SHEETAL BORKAR, ADVOCATE FOR SHRI. A. MAHESH CHOWDARY, ADVOCATE) AND: THE ASSISTANT COMMISSIONER OF INCOME TAX, RANGE-2 MANGALORE. …RESPONDENT (BY SHRI. N. SUSHAL TIWARI, JUNIOR STANDING COUNSEL) THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED: 13.07.2018 PASSED IN ITA NO. 459/BANG/2018, FOR THE ASSESSMENT YEAR: 2013-2014, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN AND ALLOW THE APPEAL, SET ASIDE THE ORDER OF THE INCOME-TAX APPELLATE TRIBUNAL DATED: 13.07.2018 IN SO FAR AS IT PERTAINS TO THE APPEAL OF THE APPELLANT IN ITA NO. 459/BANG/2018 FOR THE ASSESSMENT YEAR 2013-14 AND ETC. I.T.A No.177/2019 THIS ITA, HAVING BEEN HEARD AND RESERVED FOR JUDGMENT ON 13.03.2023 COMING ON FOR PRONOUNCEMENT OF JUDGMENT, THIS DAY, P.S.DINESH KUMAR, J, PRONOUNCED THE FOLLOWING:- JUDGMENT This appeal by the Assessee, directed against the order dated July 13, 2018 in ITA No. 7459/Bang/2018 passed by the ITAT[1], has been admitted to consider following questions of law: i.Whether the Tribunal was correct in passing an order without appreciating the facts of the case and confirming the additions made by the Assessing Office? without appreciating the facts of the case and confirming the additions made by the Assessing Office? ii.Whether the Tribunal was right in upholding the addition under Section 14A read with Rule 8D (iii) without appreciating that the condition precedent for invoking the said provisions are absent?under Section 14A read with Rule 8D (iii) without appreciating that the condition precedent for invoking the said provisions are absent? 2. Heard Shri. A. Mahesh Chowdhary, learned Advocate for the Assessee and Shri. K.V. Aravind, learned Senior Standing Counsel for the Revenue. 3. Briefly stated the facts of the case are, assessee is a private limited company engaged in the business of manufacturing and sales of hand-rolled beedis. Assessee 1 Income Tax Appellate Tribunal I.T.A No.177/2019 filed its returns for the A.Y.[2] 2013-14 declaring an income of Rs. 49,18,70,340/-. It made a suo motu disallowance of Rs. 4,00,000/- toward indirect expenses. 4. The AO[3]increased the disallowance Rs.19,33,219/- by following the decision of the ITAT[4] in assessee’s own case for the A.Y. 2008-09 and 2009-10. On appeal, CIT(A)[5]and ITAT have confirmed the addition made by the AO. Hence, this appeal. to 5. Shri. Mahesh Chowdhary, for the Assessee, praying to allow the appeal, submitted that: the investments of assessee are long term and the investments of assessee are long term and hence no day to day monitoring was required; there are no other expenses attributable to exempt income; there are no other expenses attributable to exempt income; 2 Assessment Year 3 Assessing Officer 4 Income Tax Appellate Tribunal 5 Commissioner of Income Tax (Appeal) I.T.A No.177/2019 AO has increased the disallowance without recording any satisfaction in the assessment order. recording any satisfaction in the assessment order. 6. In support of his contention, he has placed reliance upon the following authorities: CIT and Another v. Microlabs Ltd;[6]CIT and Another v. Microlabs Ltd;[6] CIT Vs Karnataka State Industrial and Infrastructure Development Corpn. Ltd.[7]Infrastructure Development Corpn. Ltd.[7] 7. Opposing the appeal, Shri. K.V. Aravind, for the Revenue supported the decision of the lower authorities. 8. We have carefully considered rival contentions and perused the records. 9. Assessee’s case is, it has earned exempt income of Rs.33,10,497/-. Assessee has voluntarily disallowed 5 Commissioner of Income Tax (Appeal) I.T.A No.177/2019 AO has increased the disallowance without recording any satisfaction in the assessment order. recording any satisfaction in the assessment order. 6. In support of his contention, he has placed reliance upon the following authorities: CIT and Another v. Microlabs Ltd;[6]CIT and Another v. Microlabs Ltd;[6] CIT Vs Karnataka State Industrial and Infrastructure Development Corpn. Ltd.[7]Infrastructure Development Corpn. Ltd.[7] 7. Opposing the appeal, Shri. K.V. Aravind, for the Revenue supported the decision of the lower authorities. 8. We have carefully considered rival contentions and perused the records. 9. Assessee’s case is, it has earned exempt income of Rs.33,10,497/-. Assessee has voluntarily disallowed Rs.4,00,000/- towards indirect expenses. The AO has recorded in his order that assessee had borrowed certain 6 [2016] 383 ITR 490 (Kar) 7 [2016] 65 taxmann.com 295 funds and invested in earning dividend income. He has noted that assessee had already disallowed expenditure of Rs. 2,46,730/- and a sum of Rs.4,00,000/- as indirect expenditure. 10. It is relevant to note that without recording any reasons the AO has disallowed Rs. 19,33,219/- and added back the same to the total income. The only reason mentioned in the order is that AO has followed ITAT’s decision dated 22.03.2013 for A.Y. 2008-09 and 2009-10. 11. The CIT(A) has recorded in para 5.2 of his order that the assessee had certainly incurred expenditure and it could not be believed that assessee had earned Rs.33,10,497/- without incurring any expenditure. By stating so, the CIT(A) has upheld AO’s order. 12. Similarly, the ITAT has held in para 5 of its order that when the assessee itself had disallowed certain expenditure no separate satisfaction was required to be recorded by the AO in disallowing assessee’s claim I.T.A No.177/2019 because the assessee had not given the details for disallowance of Rs. 4,00,000/- made by it. 13. We may record that the AO has considered half percent of average value of investment while disallowing Rs. 19,33,219/-. 14. Thus all the authorities namely AO, CIT(A) and the ITAT have not recorded any cogent reasons as to how much exactly the expenditure is, and the details of disallowance of Rs.19,33,219/-. It is relevant to note that assessee has voluntarily disallowed Rs. 4,00,000/- towards indirect expenditure. The CIT(A) has noted assessee’s contention in para 5.2 of his order that it uses common staff and resources but not agreed with the said contention. However, no cogent reason is given for rejecting the said contention. 15. Assessee has made certain investment and earned exempt income of Rs.33,10,497/-. The disallowance made by the AO is Rs.19,33,219/- and the I.T.A No.177/2019 same is without any reasons recorded in the order. In order to impose tax on the earnings of an assessee, the taxing authority has to record satisfactory reasons. In this case, the only reason recorded is that it had followed ITAT’s decision for A.Y. 2008-09 and 2009-10. The exact expenditure incurred to earn exempt income will have to be recorded in the order to justify the disallowance. 16. In view of the above discussion, we are of the view that matter requires reconsideration in the hands of the AO. 17. Hence, the following: ORDER (a)Appeal is allowed. (b)Order of ITAT confirming the order of the AO and CIT(A) is set-aside. (c)Matter is remitted to the AO for reconsideration in accordance with law. Since the I.T.A No.177/2019 matter has been remitted, the questions of law do not require consideration and hence not answered. No costs. Sd/-JUDGE Sd/- JUDGE SPS