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Income Tax Appellate Tribunal, MUMBAI BENCH “ C ”, MUMBAI
ORDER
PER VIKAS AWASTHY, JM:
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals), National Faceless Appeal Centre, Delhi[ in short ‘the CIT(A)’] dated 21/06/2023, for the Assessment Year 2015- 16.
The assessee in appeal has raised as many as eight grounds. All the grounds of appeal are in respect of a single issue i.e. disallowance u/s. 14A of the Income Tax Act, 1961 [in short ‘the Act’] r.w. rule 8D of the Income Tax Rules, 1962 [in short ‘the Rules’].
3. Shri Jay Bhansali appearing on behalf of the assessee submitted that during the period relevant to the assessment year under appeal, the assessee had earned dividend income of Rs.48.00 crores. The assessee made suo-motu disallowance of Rs.35.00 crores u/s. 14A of the Act. The computation of disallowance of expenditure by the assessee is at page 34 of the paper book. In assessment proceedings the Assessing Officer applied Rule - 8D and made total disallowance of Rs.73.00 cores u/s. 14A r.w.r. 8D. During assessment, the assessee furnished fresh computation of disallowance u/s. 14A of the Act revising suo-motu disallowance to Rs.7,88,98,649/-. The revised claim of the assessee along with revised computation of income is at page 35 to 37 of the paper book.
3.1 The ld. Authorized Representative of the assessee narrating facts submits that the assessee had received equity shares of Zee Entertainment Enterprises Ltd.(ZEEL) to the tune of Rs.1466.60 crores consequent to the scheme of amalgamation approved by Hon'ble Bombay High Court vide order dated 02/12/2011. The aforesaid shares were acquired at Nil cost, hence, there was no actual outflow of funds for acquiring the aforesaid shares. The assessee had also purchased shares of ZEEL in October,2011 to the tune of Rs.176.47 crores. The assessee had sufficient own interest free funds for acquiring the said shares, hence, no disallowance of interest expenditure u/r.8D(2)(ii) was required to be made. The Assessing Officer while computing disallowance u/s. 14A r.w.r. 8D made disallowance of Rs.6531.24 crores towards interest cost. The ld. Authorized Representative of the assessee pointed that similar disallowance u/r.8D was made in Assessment Year 2014-15. The assessee carried the issue in appeal before the Tribunal . The Tribunal deleted the disallowance made by Assessing Officer u/r.8D(2)(ii).
3.2 The ld. Authorized Representative of the assessee further submitted that though the assessee had made suo-motu disallowance on account of interest expenditure, the said disallowance was made by the assessee wrongly and was not in conformity with the decisions of Hon'ble Jurisdictional High Court in the case of HDFC Bank Ltd. vs. DCIT, 383 ITR 529 and Reliance Utilities & Power Ltd., 313 ITR 340. The assessee filed revised computation with revised working of disallowance u/s. 14A of the Act before the Assessing Officer, however, the same was rejected by the Assessing Officer. The assessee raised the issue before the CIT(A) by way of additional ground of appeal. The CIT(A) dismissed the additional ground on merits. The ld. Authorized Representative of the assessee submitted that the asessee’s revised working of suo-motu disallowance u/s. 14A of the Act may be accepted as the same is in accordance with the law laid down by the Hon'ble Bombay High Court in the judgments aforementioned.
3.3 The ld. Authorized Representative of the assessee further submitted that the another grievance with respect to disallowance u/s. 14A of the Act r.w.r. 8D is that disallowance made u/s. 14A of the Act should be disregarded while working book profits under MAT provisions. In support of his submissions, the ld. Authorized Representative of the assessee placed reliance on the decision in the case of ACIT vs. Vireet Investments Pvt. Ltd., 82 taxmann.com 415 (Del-Trib).
Per contra, Shri Prabhat Kumar Gupta representing the Department vehemently defended the impugned order and prayed for dismissing the appeal of assessee. The ld. Departmental Representative submitted that the assessee has made suo-motu disallowance u/s. 14A, which includes disallowance in respect of interest expenditure as well. The assessee under the shelter of judgment of Hon'ble Bombay High Court now cannot be allowed to revise the working of suo-motu disallowance made in respect of interest expenditure. In any case, additional ground raised by the assessee is a question of fact for which entire working of disallowance made u/s. 14A of the Act r.w.r. 8D will have to be examined. The additional ground on facts cannot be admitted at the belated stage. He further asserted that the assessee cannot ask for relief which result in reduction of returned income below the assessed income.
We have heard the submissions made by rival sides and have examined the orders of authorities below. In so far as the facts relating to quantum of exempt income earned by the assessee and suo-motu disallowance made u/s. 14A of the Act , they are not in dispute. As against the dividend income of Rs.48.00 crores earned by the assessee during the period relevant to the assessment year under appeal, the Assessing Officer has made disallowance of Rs.73.00 crores u/s. 14A of the Act r.w.r. 8D. We find that in the immediate preceding Assessment Year i.e. Assessment Year 2014-15 similar disallowance u/s. 14A of the Act was made by Assessing Officer u/r.8D(2)(ii) in respect of interest expenditure. The assessee carried the issue in appeal before the Tribunal in ITA NO.1209/Mum/2023. The Tribunal vide order dated 19/07/2023 deleted the disallowance made u/r.8D(2)(ii) by holding as under:
“ 6. We have considered the submissions of both sides and perused the material available on record. From the perusal of the financials of the assessee, forming part of the paper book, we find that the total investment during the year was Rs.164308.70 lacs in the shares of the Zee Entertainment Enterprises Ltd. and the assessee earned dividend income of Rs.4828.06 lacs. While filing its return of income, the assessee suo moto disallowed Rs.8,21,54,350.98 under section 14A read with Rule 8D. From the annual report of the assessee for the financial year 2011-12, we find that the scheme of amalgamation between Essel Business Process Ltd and the assessee was sanctioned by the Hon’ble Bombay High Court on 02/12/2011, w.e.f. 15/10/2011. We further find that as on 31/03/2011 the value of investment in the books of account of the assessee was nil. However, as on 31/03/2012, i.e. after the aforesaid amalgamation, the value of the investment was increased to Rs.164308.70 lakhs. From the balance sheet of Essel Business Process Ltd, we find that as on 15/10/2011, i.e. on the date of the amalgamation, the total value of the investment was Rs.27 only in the 130,888,822 shares of Zee Entertainment Enterprises Ltd. As per the assessee, Essel Business Process Ltd acquired the shares by way of gift at nil consideration, however, the same was recorded at Rs.27 for accounting purposes. We find from the annual report of the assessee for the financial year 2011-12 that after the amalgamation, the assessee valued the aforesaid investment in shares of Zee Entertainment Enterprises Ltd. at Rs.146660.93 lacs, i.e. the fair value of the investment as on 15/10/2011, and recorded the same in its books of accounts. Thus, it is clearly evident that the investment to the extent of Rs. 146660.93 lacs in the books of the assessee is nothing but the shares transferred to the assessee pursuant to the aforesaid scheme of amalgamation with Essel Business Process Ltd. The Revenue has not brought any material to controvert the aforesaid facts as emanating from the material placed on record. Therefore, we are of the considered view that the investment to the extent of Rs. 146660.93 lacs cannot be considered for computation of disallowance under section 14A read with Rule 8D(2)(ii), since no interest-bearing funds were utilised for the acquisition of the aforesaid investment.
7. As regards the balance investment of Rs.17647.77 lacs (i.e. investment of Rs.164308.70 lacs as on 31/03/2014 minus investment of Rs. 146660.93 acquired by way of aforesaid amalgamation), we find that the assessee had a share capital of Rs. 95.00 lacs and reserves & surplus of Rs.88,294.94 lacs as on 31/03/2014. We further find that there is no change in the value of investment since 31/03/2012. However, even on 31/03/2012, the assessee had a share capital of Rs. 95.00 lacs and reserves & surplus of Rs.98,054.37 lacs, i.e. more than the value of balance investment of Rs.17647.77 lacs. Therefore, it is sufficiently evident that the assessee's own funds are more than investments, including the investments for earning exempt income. We find that the Hon'ble Jurisdictional High Court in CIT vs HDFC Bank Ltd., [2014] 366 ITR 505 (Bom.) held that where assessee's own funds and other non-interest bearing funds were more than the investment in tax-free securities, no disallowance under section 14A of the Act can be made. We further find that the Hon'ble Supreme Court in South Indian Bank Ltd. vs CIT, [2021] 438 ITR 001 (SC) held that disallowance under section 14A of the Act would not be warranted where interest-free own funds
exceed the investment in tax-free securities and in such a case the investment would be presumed to be made out of assessee's own funds. Therefore, respectfully following the law laid down by the Hon'ble Supreme Court and the Hon'ble jurisdictional High Court in cases cited supra, we find no merit in disallowance of Rs. 80,08,92,309 made by the AO and upheld by the learned CIT(A) under section 14A read with Rule 8D(2)(ii). As regards the disallowance computed under section 14A read with Rule 8D(2)(iii) is concerned, it is undisputed that the assessee had suo moto disallowed Rs. 8,21,54,351 under section 14A read with Rule 8D, while filing its return of income. Therefore, in view of the aforesaid findings, the disallowance of Rs. 80,08,92,309 made by the AO and upheld by the learned CIT(A) is deleted. Accordingly, the grounds raised by the assessee are allowed” [Emphasized by us]
The assessee while making suo-motu disallowance u/s. 14A of the Act has also made disallowance with respect to interest expenditure. During assessment proceedings, the assessee filed revised working of suo-motu disallowance u/s. 14A of the Act reducing the disallowance made in respect of interest expenditure taking cue from the decisions rendered by Hon'ble Bombay High Court in the case of HDFC Bank Ltd. (supra) and Reliance Utilities & Power Ltd.(supra). The Assessing Officer in light of the decision rendered by Hon'ble Apex Court in the case of Goetze (India) Ltd. vs. CIT, 284 ITR 323 refused to take cognizance of the claim not made by way of return of income or revised return of income. The Hon'ble Apex Court in the said decision has clarified that the powers of Appellate Tribunal are not impinged to admit the claim made by assessee in a manner other than by way of return of income or revised return of income. Though the assessee had raised additional ground for admitting of revised working of disallowance u/s. 14A of the Act before CIT(A), however, the same was rejected. As pointed earlier the revised working of disallowance u/s. 14A of the Act by the assessee is supported by decisions rendered by the Hon'ble Jurisdictional High Court. Therefore, the claim made by the assessee is a mixed question of fact and law. All the facts necessary for adjudication of the revised claim made by the assessee are already on record and no fresh evidence is required to be adduced for the adjudication of the revised claim of the assessee.
In so far as the objection of the Revenue that the claim of the assessee would result in reduction of the returned income below the assessed income, hence, the same should not be accepted, we find no force in the objection raised by ld. Departmental Representative. The Hon'ble Gujarat High Court in the case of CIT vs. Milton Laminates Ltd., 37 taxmann.com 249 has held that while giving effect to an order, the Assessing Officer can compute income lower than that returned. Similar view has been expressed by Hon'ble High Court in the case of Gujarat Gas Co. Ltd. vs. ACIT, 245 ITR 84 (Guj). Moreover, the legal position that the State cannot collect taxes from its subjects more than what is due, cannot be ignored.
In the light of the aforesaid decisions the revised working on suo-motu disallowance made by the assessee u/s. 14A of the Act is admitted and is restored to the file of Assessing Officer for denovo examination. The Assessing Officer is directed to examine assessee’s revised claim of exemption u/s. 14A of the Act in the light of the decision of Co-ordinate Bench and also the law expounded by Hon'ble Jurisdictional High Court.
Another prayer made by the assessee is with respect to the working of book profits u/s. 115JB of the Act disregarding disallowance made u/s. 14A of the Act. The Special Bench of the Tribunal in the case of Vireet Investments Pvt. Ltd. (supra) has considered the issue and has held that computation under clause (f) of Explanation -1 to section 115JB(2) of the Act is to be made without resorting to computation u/s. 14A r.w.r. 8D. Hence, the prayer made by assessee in respect of computation of book profit u/s. 115JB of the Act is accepted.
In the result, appeal of the assessee is partly allowed in the terms aforesaid.
Order pronounced in the open court on Monday the 23rd day of October, 2023. Sd/- Sd/- (AMARJIT SINGH ) (VIKAS AWASTHY) लेखाकार सद�य/ACCOUNTANT MEMBER �याियक सद�य/JUDICIAL MEMBER मुंबई/ Mumbai, �दनांक/Dated 23/10/2023 Vm, Sr. PS(O/S) �ितिलिप अ�ेिषतCopy of the Order forwarded to : �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत 1. अपीलाथ�/The Appellant , 2. �ितवादी/ The Respondent.