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Income Tax Appellate Tribunal, [ DELHI BENCH: ‘E’ NEW DELHI ]
Before: DR. B. R. R. KUMAR & SH. YOGESH KUMAR U.S.
This appeal is filed by the Revenue for assessment year 2013-14 against the order of the ld. Commissioner of Income Tax (Appeals)-37, New Delhi [hereinafter referred to as CIT (Appeals)] dated 23.07.2019.
ACIT Vs. National Textile Corpn., ND
The Revenue has raised the following substantive grounds of appeal:-
“1. Whether on facts and in circumstances of the case, Ld. CIT (Appeals) is legally justified in not upholding the disallowance u/s 14A of the Act amounting to Rs.29,15,045/- even when assessee is in receipt of exempt income and when section 14A of the Act stipulates mandatory computation of direct and indirect expenses relating to the income not forming part of total income under all the clauses of Rule 8D(2) of the Rule ?
2. Whether on the facts and in the circumstances of the case and in law, the Ld. CIT (Appeals) was justified in deleting the disallowance made of Rs.8,81,44,000/- by the Assessing Officer as prior period expenses ? ”
Brief facts of the case are that, the assessee filed return declaring loss of 46,63,39,610/-. The assessment order u/s 143(3) of the Act was passed against the assessee by disallowing the expenses u/s 14A of the Act read with Rule 8D amounting to Rs.29,15,045/- further disallowed the prior period expenses of Rs.8,81,44,000/- by computing the total income of the assessee at Rs.37,52,80,570/-. The book profit u/s 115JB of the Act is also recomputed as under:-
Book Profit as declared 83,82,32,808.00 29,15,045.00 Add:- Disallowance u/s 14A 84,11,47,853.00 Book Profit u/s 115JB
ACIT Vs. National Textile Corpn., ND
Aggrieved by the assessment order dated 25/03/2016, the assessee has preferred an appeal before the CIT(A) and the Ld.CIT(A) has allowed the appeal of the assessee by deleting the additions made by the A.O. vide order dated 23/07/2019.
Aggrieved by the order of the Ld.CIT(A) dated 23/07/2019, the Department has preferred the present appeal on the grounds mentioned above.
Ground No. 1 is against deleting the disallowance made u/s 14A of the Act of Rs.29,15,045/-. The Ld. DR vehemently submitted that the Ld.CIT(A) has committed an error in not upholding the disallowance u/s 14A of the Act even when the assessee is in receipt of exempt income and when Section 14A of the Act stipulates mandatory computation of direct and indirect expenses relating to the income not forming part of total income of the Clause of Rule 8D(2) of the Rules.
Per contra, the Ld. AR submitted that, the issue involved in Ground No. 1 is squarely covered by Assessee’s own case for the Assessment Year 2009-10, 2014-15,2015-16 & 2016-17 and further submitted that the Appeal filed by the Revenue deserves to be dismissed and the ld. Counsel has also drawn our attention to the orders of the Tribunal in Assessee’s own cases.
ACIT Vs. National Textile Corpn., ND
We have heard the parties, perused the material available on record and gave our thoughtful consideration. In the present case, the assessee made
suo-moto disallowance of Rs.9,05,9171- under Rule 8D(2)(iii) of the Income Tax
Rules after taking into account only those investments which actually yielded exempt income in calculating amount of average investment. The Ld.AO made disallowance of Rs.38,20,962/- by invoking section 14A of the Act. The amount of Rs.27,51,847/- was computed by the Ld.AO according to Rule
8D(2)(ii) and the amount of Rs. 10,69,115/- was computed by the Ld.AO according to Rule 8D(2)(iii) taking into account of total investments instead of investments which actually yielded exempt income. Accordingly, the Ld. A.O. made total disallowance of Rs. 29,15,045/- u/s 14A read with Rule 8D of the Act.
In the appeal filed by the assessee before the Ld. CIT(A) by relying on the orders of the earlier and subsequent years in Assessee’s own case, deleted the additions made by the A.O. in following manners:-
“5.2.3. On perusal of the facts of the case and the orders of the CIT(A) ‘s and Hon’ble ITAT quoted by the appellant in its written submission, it is noticed that there is no change in the facts of the case for the year under consideration in comparison to the earlier years and the subsequent years decided by the respective appellate authorities. The issue has already been decided in favour of the appellant that the interest paid on loan from Government of India and banks for working capital assistance has been spent by the ACIT Vs. National Textile Corpn., ND appellant for earning taxable income and cannot be considered for disallowance under rule 8D(ii). Accordingly, following the IT AT order on the same issue and order of my predecessor as quoted above, I am of the view that the AO was not justified in making disallowance of Rs.27,51,847/- under Rule 8D(2)(ii).
5.2.4As far as the additional amount of disallowance computed by the AO under Rule 8D(2)(iii), the appellant has substantiated in its submission that the amount of disallowance computed by il at Rs. 9,05,917/- was in line with the judgment of jurisdictional High Court in the case ofACB India Ltd. Vs. ACIT 2015 (4) TMI 224 as per which only those investments on which exempt income has been earned in the year under consideration can only be considered for computation of disallowance under Rule 8D. In view of the above, the AO is directed to delete disallowance of Rs. 29,15,045/-. Ground of appeal no. 4 is allowed.
10. It is found that the similar disallowances were made by the A.O. in Assessee’s own case which have been decided in favour of the assessee by the Tribunal in following orders:-
Sl. No. Date of Order Year 1 19/09/2019 5524/Del/2018 2015-16 2 07/06/2022 7445/Del/2019 2016-17 3 22/01/2020 4668/Del/2017 2014-15 4 19/11/2014 2211/Del/2013 2009-10
ACIT Vs. National Textile Corpn., ND
For the ready reference, the order of the Tribunal for the Assessment Year 2015-16 in dated 29/09/2022 in respect of the issue under consideration is reproduced hereunder:-
“7. In regard to the issue in ground No. 1 it can be observed that the Id CIT(A) has taken into consideration the determination of issue in favour of the Assessee in the previous AYs 2008-09, 2009-10, 2010-11 and 2014-15 from the Tribunal. The Assessee had given a tabulated information with regard to details of interest expenditure which have been reproduced by the Id.CIT(A) in para No. 4.2 of its order.
8. The Id DR could not substantiate argument as to why inspite of a suo moto disallowance being made by the Assessee without justifying anything to differ, the AO made a disallowance while the interest expenditure was incurred to earn taxable income only. At the same time the Assessee"s own fund as on 31.03.2015 were Rs. 145173.31 and investment of Rs. 1957.39 lacs. No intervention required in the findings of the Id CIT(A) which based on correct interpretation and reliance of law. The ground is No. 1 decided against the revenue.
By considering the above facts and circumstances and also by following the principal of consistency we do not find any error or infirmity in the order of the Ld.CIT(A) and find no justification to interfere with the order of the Ld.CIT(A) . Accordingly, the Ground No. 1 of the Department is dismissed.
ACIT Vs. National Textile Corpn., ND
Ground No. 2 is regarding deleting the disallowance of Rs. 8,81,44,000/- as prior period expenses. The Ld. DR vehemently submitted that the Ld.CIT(A) has committed grave error in deleting the disallowance made by the A.O. as prior period expenses and sought for interference by the Tribunal.
Per contra, the Ld. DR submitted that the above issue is also covered in Assessee’s own case for Assessment Year 2009-10 in vide order dated 19/11/2014 therefore, submitted that the ground raised by the Revenue deserves to be dismissed.
We have heard the parties perused the material available on record and gave our thoughtful consideration. The facts in brief are that during the year under consideration, the assessee has recorded prior period income of Rs.5462.21 Lakhs as against prior period expenses of Rs.8,81,44,000/- and net income of Rs.4580.77 Lakhs has been offered for taxation in the Profit & Loss account. The assessee company claimed that the Company has been consistently following the policy of netting out prior period income with prior period expenses and these expenses may pertain to earlier periods but have crystallized only in the current year i.e. AY 2013-14 as under:-
Prior Period Income- Prior Period expenses = Net Prior Period Income (Rs.5462.21 Lakhs- Rs.881.44 Lakhs = Rs.4580.77 Lakhs)
ACIT Vs. National Textile Corpn., ND The AO made the disallowance of Rs. 8,81,44,000/- by relying upon the order passed in the preceding years in the Assessee’s own case.
The Ld.CIT(A) has deleted the above addition by relying on the Assessee’s own case for the Assessment Year 2007-08, 2009-10, 2011-12, 2012-13, 2014- 15 and 2015-16. It is also found that the Ld. A.O. made the addition by relying upon the orders passed in the preceding years and the Ld.CIT(A) had deleted the addition of the preceding years by relying on the decision of the Tribunal in Assessee’s own case in dated 19/11/2014. The Co- ordinate Bench while deciding the issue in favour of the assessee, held as under:-
““7.2. Ground nos. 3 and 4 are on the issue of disallowance of prior period expenses. The assessee has incurred prior period expenses of Rs.16,61,43,508/-. It had prior period income of Rs.10,22,60,782/-. The net prior period amount of Rs.63,88,272/-, was already added by the assessee in the computation of income. Thus, the finding of the First Appellate Authority that there is a double addition of Rs.63,88,272/- is factually correct.
7.3. As far as the balance amount is concerned the assessee’s contention is that the amount has crystallised during the year, as the assessee came to know about these expenses only in the F. Y. 2008-09.
7.4. The second limb of the argument of the assessee is that, which has been consistently following the policy of netting out prior period income with prior period expenses and the net effect was ACIT Vs. National Textile Corpn., ND disclosed in the computation of income. It was also submitted that such a treatment was accepted by the Revenue for the AY 2007-08 and 2008-09. The First Appellate Authority has, on the principle of consistency, accepted the contentions of the assessee. We find no infirmity in the same. Thus ground no. 3 and 4 are dismissed”
By considering the above facts and circumstances and also by following the principals of consistency, we do not find any justification to interfere with the order of the Ld.CIT(A). Accordingly, the Ground No. 2 of the Department is dismissed.
In the result, the appeal filed by the Department is dismissed.
Order pronounced in the Open Court on 09th February, 2023.