Excise Duty related to earlier years allowed under section 43B

DCIT Vs Adani Wilmar Ltd. (ITAT Ahmedabad)

The issue under consideration is whether the CIT(A) correct in deleting the addition made on account of disallowance of prior period expenses?

In the instant case, the assessee in the year under consideration has claimed an expense under the head prior period item in its profit and loss account. Such prior period item was representing the excise duty with respect to waste i.e. Spent Earth generated during the manufacturing process. The assessee during the assessment proceedings admitted that such expenses pertains to the earlier year but the same is allowable on payment basis under section 43B of the Act. However, the AO disagreed with the contention of the assessee by observing that the assessee was very much aware about such liability in the year of its incurrence. Therefore the assessee should have claimed the deduction of such expenses in the year in which it was crystallized. Accordingly the AO disallowed the claim of the assessee and added the sum to the total income of the assessee.

ITAT states that, there is no ambiguity to the fact that such item of prior period expenses represents the excise duty paid by the assessee in the year under consideration. Similarly, the provisions of section 43B, being overriding section, provides to allow the deduction to the assessee on payment basis with respect to certain items including the excise duty. As the assessee has paid the excise duty, pertaining to the earlier year, in the year under consideration, ITAT are of the view that such payment of excise duty is eligible for deduction in the current year. In view of the above, ITAT do not find any infirmity in the order of the learned CIT (A) and accordingly they decline to interfere in his order. Thus the ground of appeal of the revenue is dismissed.

FULL TEXT OF THE ITAT JUDGEMENT

The captioned appeal has been filed at the instance of the Revenue against the order of the Learned Commissioner of Income Tax(Appeals)-1, Ahmedabad, dated 26/04/2016 (in short “Ld.CIT(A)”) arising in the matter of assessment order passed under s.143(3) of the Income Tax Act, 1961 (here-in-after referred to as “the Act”). The assessee has filed C.O No.133/Ahd/2916 in Revenue’s appeal bearing ITA No.1761/Ahd/2016 relevant to the Assessment Year 2015-2016.

2. The Revenue has raised the following grounds of appeal:

1. That the ld.CIT(A) erred in law and on facts in deleting the addition o f Rs.2,11,98,182/- made u/s.14A r.w.r. 8D of the Act.

2. That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs.8,35,560/-made on account of disallowance of prior period expenses.

3. That the ld.CIT(A) erred in law and on facts in deleting the addition o f Rs.2,36, 63,532/- made u/s. 41(1) of the Act on account of cessation of liability.

4. That the ld.CIT(A) erred in law and on facts in deleting the addition o f Rs.46, 98,154/- considering the professional fees as revenue expenditure.

On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit.

The appellant prays that the order of CIT(A) on the above grounds be set aside and that of the Assessing Officer be restored to the above extent. The appellant craves, to leave, to amend or alter any ground or add a new ground which may be necessary.

3. The 1^st issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 2,11,98,182 under section 14A read with rule 8D of Income Tax Rule.

4. The facts in brief are that the assessee in the present case is a limited company and engaged in the business of manufacturing/refining, export and trading of edible oil, seeds and cakes, pulse and grains. The assessee during the year has earned dividend income amounting to ₹ 11,37,500/- which was claimed as exempted from tax under section 10(34) of the Act. The assessee during the assessment proceedings claimed that it has not incurred any expense against such exempted income. However the AO disagreed the contention of the assessee and invoked the provisions of section 14A read with rule 8D of Rules for making the  disallowance against such exempted income. The AO has made the disallowance of ₹ 2,11,98,182/- as detailed under:

5. Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO.

Being aggrieved by the order of the learned CIT (A) the revenue is in appeal before us.

6. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them.

7. We have heard the rival contentions of both the parties and perused the materials available on record. The issue arises before us for the adjudication whether the disallowances made under section 14A r.w rule 8D can exceed the amount of exempted income earned during the year under consideration. At this juncture, we find important to refer the provisions of section 14A of the Act which reads as under:

“Expenditure incurred in relation to income not includible in total income⁸⁵.

⁸⁶ 14A. ⁸⁷[(1)] For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred⁸⁸ by the assessee in relation to⁸⁸ income which does not form part of the total income⁸⁸ under this Act.]

⁸⁷[(2) The Assessing Officer shall determine the amount of expenditure incurred in relation to such income which does not form part of the total income under this Act in accordance with such method as may be prescribed⁸⁹, if the Assessing Officer, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act.”

7.1 The above provision requires to make the disallowance of the expenses in relation to the income which does not form part of the total income under this Act. The term used under section 14A of the Act a”mount of expenditure incurred in relation to such income” implies that the expenditure cannot exceed the amount of exempted income.

7.2 In holding so we find support and guidance from the judgment of Hon’ble Delhi High Court in the case of Joint investments Private Ltd versus CIT reported in 372 ITR 694 wherein it was held as under:

“By no stretch of imagination can s. 14A or r. 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in s. 14A, and is only to the extent of disallowing expenditure “incurred by the assessee in relation to the tax exempt income”. This proportion or portion of the tax exempt income surely cannot swallow the entire amount as has happened in this case.”

7.3 We also note that in the identical facts and circumstances the Hon’ble jurisdictional High Court has decided that the amount of disallowance of the expenditure cannot exceed the amount of exempted income in the case of CIT versus Vision Finstock Stock Ltd. in tax appeal No. 485 of 2017 vide order dated 31 July 2017. The relevant extract of the order is extracted below:

“1. The Revenue has challenged the judgement of the Income Tax Appellate Tribunal dated 07.07.2016 raising following questions for our consideration:

“A. Whether on the facts and circumstances of the case and in low, the ITAT was justified in restricting the disallowance made of Rs. l,02,82,049/- u/s. 14A to the extent of exempt income of Rs. 55,6047- only?

B. Whether on the facts and circumstances of the case and in law, the ITAT was justified in restricting the disallowance of Rs. 1,02,82,049/- made u/s. 14A of the Act to the extent of income earned of Rs. 55,6047- without appreciating that the assessee had paid interest of Rs.1,45,52,6327- on borrowed funds?”

2. From the record it emerges that, during the period relevant to the assessment year 2008-09, the assessee had earned exempt income of Rs.55,604/-. As against that, the Assessing Officer had worked out the disallowance of expenditure under section 14A of the Act read with Rule 8D to Rs. 1,02,82,049/-. The Tribunal, while restricting the disallowance to Rs. 55,604/-, relied on the decision of Delhi High Court in case of Joint Investments (P) Ltd vs. CIT reported in 372 ITR 694 holding that disallowance of expenditure in terms of section 14A read with Rule 8D cannot exceed the exempt income itself. Our High Court has also adopted the similar view in case of Commissioner of Income Tax vs. Corrtech Energy Pvt Ltd. reported in 372 ITR 97. 3. Tax appeal is, therefore, dismissed.

7.4 We also note that the Hon’ble Apex court has also confirmed the principles laid down by the Hon’ble High Court as discussed above in the case of CIT versus State Bank of Patiala reported in 99 taxmann.com 286 by dismissing the Special Leave petition.

7.5 In view of the above, we hold that the disallowance of the expenses under section 14A read with rule 8D cannot exceed the amount of exempted income. Hence we do not find any reason to interfere in the order of the learned CIT (A).

7.6 It is also pertinent to note that the AO has made the disallowance under section 14A read with rule 8D of the Rules amounting to Rs. 2,11,98,182/- which was restricted by the learned CIT (A) to the extent of exempted income i.e. 11,37,500/- only. In other words the addition of Rs. 2,00,60,682/- was deleted by the learned CIT (A). The grievance of the revenue is against the deletion of the addition made by the learned CIT (A) for Rs. 2,00,60,682/- only. But on perusal of the ground of appeal raised by the revenue, the revenue has registered grievance for amount of Rs. 2,11,98,182/- which is not the correct amount. It is because out of the total disallowance/addition made by the AO, a sum of ₹ 11,37,500/- was confirmed by the learned CIT (A). However, at the time of hearing neither the learned AR nor the learned DR has brought to our notice about such mistake in the amount mentioned in the ground of appeal raised by the revenue. Accordingly, we direct the AO to restrict the amount of disallowance for ₹ 11,37,500/- in giving effect order. Hence the ground of appeal of the Revenue is dismissed.

8. The 2^nd issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO for ₹ 8,35,560/- on account of prior period expenses.

9. The assessee in the year under consideration has claimed an expense under the head prior period item for ₹ 8,35,560/- in its profit and loss account. Such prior period item was representing the excise duty with respect to waste i.e. Spent Earth generated during the manufacturing process. The assessee during the assessment proceedings admitted that such expenses pertains to the earlier year but the same is allowable on payment basis under section 43B of the Act.

10. However, the AO disagreed with the contention of the assessee by observing that the assessee was very much aware about such liability in the year of its incurrence. Therefore the assessee should have claimed the deduction of such expenses in the year in which it was crystallized. Accordingly the AO disallowed the claim of the assessee and added the sum of ₹ 8,35,560/- to the total income of the assessee.

11. Aggrieved assessee preferred an appeal to the learned CIT (A) who deleted the addition made by the AO by observing that the deduction for the excise duty paid by the assessee is available on payment basis under the provisions of section 43B of the Act which has overriding effect over any other provisions of the Act.

Being aggrieved by the order of the learned CIT (A), the revenue is in appeal before us.

12. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them.

13. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we note that, there is no ambiguity to the fact that such item of prior period expenses represents the excise duty paid by the assessee in the year under consideration. Similarly, the provisions of section 43B, being overriding section, provides to allow the deduction to the assessee on payment basis with respect to certain items including the excise duty. As the assessee has paid the excise duty, pertaining to the earlier year, in the year under consideration, we are of the view that such payment of excise duty is eligible for deduction in the current year.

13.1 The case law referred by the AO i.e. Saurashtra Cement and chemicals industries Ltd reported in 213 ITR 523, the principles of it are not applicable to the present facts and circumstances as the issue therein was in relation to the expenses other than the expenses covered under section 43B of the Act whereas the issue on hand relates to the deduction of excise duty which is an allowable deduction under the provisions of section 43B of the Act.

13.2 In view of the above, we do not find any infirmity in the order of the learned CIT (A) and accordingly we decline to interfere in his order. Thus the ground of appeal of the revenue is dismissed.

14. The next issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 2,36,63,562/- under section 41(1) of the Act.

15. The AO during the assessment proceedings found that there are certain sundry creditors in the nature of trading liabilities shown by the assessee in its books of accounts which are outstanding for a period exceeding 3 years. Accordingly, the AO was of the view that such creditors in the nature of trading liability are not traceable and therefore liable to tax under the provisions of section 41(1) of the Act. Thus the AO treated the impugned liability of sundry creditors as ceased to exist which is deemed income under the provisions of section 41(1) of the Act. Thus the AO disallowed the same and added to the total income of the assessee.

Aggrieved assessee preferred an appeal to the learned CIT (A).

16. The assessee before the learned CIT (A) submitted that impugned amount was shown/classified along with the sundry creditors in the books of accounts. But in actuality it represents the amount receivable from certain parties which was given as an advance for the import purchase/domestic purchase/services to be received. Accordingly such amount does not represent any trading liability. Thus the question of applying the provisions of section 41(1) of the Act does not arise.

16.1 The assessee without prejudice to the above also contended that there cannot be any addition under the provisions of section 41(1) of the Act merely it was barred under the limitation Act, more particularly in a situation, it has not ceased to exist/ written off in the books of accounts.

17. The learned CIT (A) after considering the submission of the assessee reversed the order of the AO by observing that the provisions of section 41(1) of the Act deals with the remission or cessation of trading liability whereas the amount of Rs. 2,36,63,532/- relates to the trade advances made by the assessee. Thus the impugned amount of trade advance cannot attract the provisions of section 41(1) of the Act.

17.1 The learned CIT (A) without the prejudice to the above also held that trading liability shown by the assessee cannot be treated as income merely on the ground that the same was outstanding for more than 3 years until and unless it does not cease to exist in the books of accounts of the assessee.

Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us.

18. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them.

19. We have heard the rival contentions and perused the materials available on record. First of all, we would like to refer the provisions of section 41(1) of the Act which reads as under:

Profits chargeable to tax.

^{41. 14}[ ¹⁵(1) Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,—

(a) the first-mentioned person has obtained ¹⁶, whether in cash or in any other manner whatsoever, any amount in respect of such ¹⁶ loss or expenditure ¹⁶ or some benefit in respect of such trading liability ¹⁶ by way of remission or cessation thereof ¹⁶, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or

(b) the successor in business has obtained ¹⁶, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof ¹⁶, the amount obtained ¹⁶ by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year.

19.1 A plain reading of the aforesaid provisions reveals that it is applicable with respect to the trading liabilities and not with respect to the trading receivable. Thus the trading receivable shown by the assessee along with the sundry creditors cannot be treated as trading liabilities. Thus the question of treating such trading receivable as income under the provisions of section 41(1) of the Act does not arise. The

learned DR at the time of hearing has also not brought anything on record contrary to the finding of the learned CIT (A).

19.2 We also note that even if we assume that such amount of Rs. 2,36,63,532/-represents the trading liability, then also it cannot be treated as income of the assessee under the provisions of section 41(1) of the Act as the same has not ceased to exist in the books of accounts. In this regard we draw support and guidance from the judgment of Hon’ble Gujarat High Court in the case of PCIT vs. Babul Products (P.) Ltd. reported in 96 Taxman.com 82 wherein it was held as under:

3. Now so far as proposed question no.(b) is concerned, the same is squarely covered against the revenue in view of the decision of the Hon’ble Supreme Court in the case of Commissioner v. Mahindra & Mahindra Ltd. [2018] 93 taxmann.com 32/255 Taxman 305. The factual matrix, which came to be considered by the learned Tribunal is that the learned Tribunal while deleting the addition made under Section 41(1) of the Income Tax Act on account of cessation of the liability, namely, the assessee had not written off the liability in the books of accounts, and therefore, the liability with respect to debtors is not ceased is concerned, considering the aforesaid factual matrix and when in the books of accounts the assessee carried forward and continued the liability and has not written off, no error has been committed by the learned Tribunal in deleting the addition of Rs.54,24,294/- made by the learned Assessing Officer under Section 41(1) of the Income Tax Act on account o f cessation of liability.

19.3 We also place our reliance on the judgment of Hon’ble Gujarat High Court in the case of CIT vs. Nitin S. Garg reported in 208 Taxman 16 wherein it was held as under:

It had not been established that the assessee had written off the outstanding liabilities in the books of account. The Tribunal was justified in taking the view that the assessee had continued to show the admitted amounts as liabilities in its balance sheet, the same could not be treated as cessation of liabilities. Merely because the liabilities were outstanding for last many years, it could not be inferred that the said liabilities has ceased to exist. The Tribunal had rightly observed that the Assessing Officer would have to prove that the assessee had obtained the benefits in respect of such trading liabilities by way of remission or cessation thereof. Merely because the assessee obtained benefit of reduction in the earlier years and balance was carried forward in the subsequent year, it would not prove that the trading liabilities of the assessee had become non-existent. [Para 15]

19.4 In view of the above we do not find any infirmity in the order of learned CIT (A) and accordingly decline to interfere in his order. Hence the ground of appeal of the revenue is dismissed.

20. The last issue raised by the revenue is that the learned CIT (A) erred in deleting the addition made by the AO for Rs. 46,98,154/- on account of professional fees.

21. The assessee in the year under consideration has claimed professional fees amounting to Rs. 46,98,154/- only. As per the assessee such professional fees was incurred for getting the report of its market share in Refine Oil Consumer Pack products in which the assessee is already dealing.

22. However, the AO found that the benefit from such report is enduring in nature and therefore the same should be treated as capital expenditure. Accordingly the AO disallowed the claim of the assessee and added the same to the total income of the assessee.

Aggrieved assessee preferred an appeal to the learned CIT (A).

23. The assessee besides reiterating the submissions as made before the AO contended that such expenses were not incurred in connection with introduction of new capital or diversification of the business. As such the professional fees expenses relates to the study of existing market situation to ascertain the share of the assessee in the market.

24. The learned CIT (A) after considering the submission of the assessee deleted the addition made by the AO by observing that the impugned professional expenses were incurred for carrying out survey for the existing products and the same does not give any benefit of enduring nature. Therefore the same cannot be treated as capital expenditure.

Being aggrieved by the order of learned CIT (A), the revenue is in appeal before us.

Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them.

25. We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion we find that impugned professional expenses represents the expenditure incurred in relation to the market survey of the existing product. Furthermore, no new assets or benefit of enduring nature has come into existence. The purpose of the survey report was to ascertain the market share of the assessee in the existing products in which it was already dealing. Accordingly we are of the view that such expenditure was incurred in the normal course of business and without generating any benefit of enduring nature. Hence we do not find any infirmity in the order of learned CIT (A). Accordingly we dismiss the ground of appeal raised by the revenue.

25.1 In the result, the appeal filed by the Revenue is dismissed

26. Coming to the CO raised by the assessee bearing No. 133/ AHD/2016 for A.Y. 2011-12. The assessee has raised following grounds of Cross-Objections.

1. On the facts and in the circumstances of the case, the CIT(A) erred in upholding the addition of Rs.77,826 on account of disallowance of Employees contribution to Provident Fund.

2. On the facts and in the circumstances of the case, the CIT(A) erred in upholding disallowance of Rs.11,37,500 out of the total disallowance of Rs.2,11,98,182 made by the Assessing Officer u/s. 14A read with section 115JB i.e the Book Profit.

3. The respondent craves leave to add, alter, amend and/or withdraw any ground or grounds of cross objection either before or during the course of hearing of the same.

27. The 1^st issue raised by the assessee is that learned CIT (A) erred in confirming the disallowance Rs. 77,826/- on account of employees PF contribution.

28. At the outset, the learned AR for the assessee before us agreed that the issue stands covered against the assessee by virtue of the judgment of Hon’ble Gujarat High Court in the case of CIT versus GSRTC reported in 366 ITR 170 . On the other hand, the learned DR vehemently supported the order of the authorities below.

29. Heard the rival contentions of both the parties and perused the materials available on record. The deduction for the delayed deposit made to the employees Provident fund and ESIC is not eligible for deduction by virtue of the decision of Hon’ble Gujarat High Court in the case of CIT versus GSRTC reported in 366 ITR 170 wherein it was held as under:

“In view of the above and considering section 36(1)(va), read with sub-clause (x) of clause (24) of section 2, it is to be held that with respect to the sum received by the assessee from any of his employees to which provisions of sub-clause (x) of clause (24) of section 2 applies, the assessee shall be entitled to deduction in computing the income referred to in section 28 with respect to such sum credited by the assessee to the employees account in the relevant fund or funds on or before the ‘due date’ mentioned in Explanation to section 36(1)(va). Consequently, it is held that the Tribunal has erred in deleting respective disallowances being employees’ contribution to PF Account/ESI Account made by the Assessing Officer as, as such, such sums were not credited by the respective assessee to the employees ‘accounts in the relevant fund or funds on or before the due date as per the Explanation to section 36(1)(va) of the Act i.e. date by which the concerned assessee was required as an employer to credit employees’ contribution to the employees account in the Provident Fund under the Provident Fund Act and/or in the ESI Fund under the ESI Act.

In view of the above, we do not find any reason to interfere in the order of the authorities below. Hence the ground of appeal of the assessee is dismissed.

30. The next issue raised by the assessee is that the learned CIT (A) erred in upholding the disallowance of ₹ 11,37,500/- under section 14A read with rule 8D of Income Tax Rules determining the income under section 115 JB of the Act.

31. The AO while determining the income under section 115 JB of the Act has added the sum of Rs. 2,11,98,182/- disallowed under section 14A read with rule 8D in accordance to the clause (f) to explanation 1 to section 115 JB of the Act. However, on appeal the learned CIT (A) restricted such disallowance to the extent of exempted income amounting to ₹ 11,37,500/-.

Being aggrieved by the order of the learned CIT (A) the assessee is in appeal before us.

32. The learned AR before us submitted that the disallowance made under section 14A of the Act read with rule 8D cannot be imported while determining the income under the provisions of section 115 JB of the Act.

33. On the other hand the learned DR vehemently supported the order of the authorities below.

34. We have heard the rival contentions of both the parties and perused the materials available on record. The AO in the instant case has made the disallowance u/s 14A r.w.r. 8D of the Income Tax Rules for Rs. 2,11,98,182/- while determining the income under normal computation of income. Further, the AO while determining the income under Minimum Alternate Tax (MAT) as per the provisions of section 115JB of the Act, has added the disallowance made under the normal computation of Income under section 14A r.w.r. 8D of Income Tax Rule for Rs. 2,11,98,182/- in pursuance to the clause (f) of explanation 1 to section 115JB of the Act which was restricted to Rs. 11,37,500/- by the ld. CIT-A.

34.1 However, we note that in the recent judgment of Special Bench of Hon’ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the net profit u/s 115JB of the Act. The relevant portion of the said order is reproduced below:

“In view of above discussion, the computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962.”

34.2 The ratio laid down by the Hon’ble Tribunal is squarely applicable to the facts of the case on hand. Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) to explanation 1 to section 115JB of the Act.

34.3 However, it is also clear that the disallowance needs to be made with respect to the exempted income in terms of the provisions of clause (f) to section 115JB of the Act while determining the book profit. In holding so, we draw support from the judgment of Hon’ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. in GO No.1501 of 2014 (ITAT No.47 of 2014) dated 19.11.14 wherein it was held that the disallowance regarding the exempted income needs to be made as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. The relevant extract of the judgment is reproduced below:-

“We find computation of the amount of expenditure relatable to exempted income of the assessee must be made since the assessee has not claimed such expenditure to be Nil. Such computation must be made by applying clause (f) of Explanation 1 under section 115JB of the Act. We remand the matter for such computation to be made by the learned Tribunal.

We accept the submission of Mr. Khaitan, learned Senior Advocate that the provision of section 115JB in the matter of computation is a complete code in itself and resort need not and cannot be made to section 14A of the Act.”

34.4 Given above, we hold that the disallowances made under the provisions of Sec. 14A r.w.r. 8D of the IT Rules, cannot be applied to the provision of Sec. 1 15JB of the Act as per the direction of the Hon’ble Calcutta High Court in the case of CIT Vs. Jayshree Tea Industries Ltd. (Supra).

34.5 Now the question arises to determine the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. In this regard, we note that there is no mechanism/ manner given under the clause (f) to Explanation-1 of Sec. 115JB of the Act to workout/ determine the expenses with respect to the exempted income. Therefore in the given facts & circumstances, we feel that ad-hoc disallowance will serve the justice to the Revenue and assessee to avoid the multiplicity of the proceedings and unnecessary litigation. Thus we direct the AO to make the disallowance of 1% of the exempted income as discussed above under clause (f) to Explanation-1 of Sec. 115JB of the Act. We also feel to bring this fact on record that we have restored other cases involving identical issues to the file of AO for making the disallowance as per the clause (f) to Explanation-1 of Sec. 115JB of the Act independently. But now we note that there is no mechanism provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income as per the clause (f) to Explanation-1 of Sec. 115JB of the Act. Thus the ground of appeal of the the assessee is partly allowed.

34.6 In the result, the CO. of the assessee is partly allowed.

35. In the combined result, the appeal of the Revenue is dismissed whereas the CO. of the assessee is partly allowed.