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Before: Shri V. Durga Rao & Shri Manjunatha, G.
O R D E R
PER V. DURGA RAO, JUDICIAL MEMBER:
This appeal filed by the Revenue is directed against the order of the ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre [NFAC], Delhi, dated 10.02.2023 relevant to the assessment year 2014-15.
Facts are, in brief, that the assessee company, engaged in the business of financing for commercial vehicles, filed its return of income for the assessment year 2014-15 on 28.11.2014 declaring an income of ₹.1187,63,45,780/-. The assessee has also filed a revised return on 30.03.2016 declaring an income of ₹.1190,56,32,710/-. The return was taken up for scrutiny under CASS and notice under section 143(2) of the Income Tax Act, 1961 [“Act” in short] was issued on 31.08.2015 and was served on the assessee. Subsequently, notices under section 142(1) of the Act were issued on different dates calling for various details. In response to the notices issued, the assessee’s AR appeared before the Assessing Officer and from time to time furnished the details as called for. After considering the details furnished by the assessee, the Assessing Officer has completed the assessment under section 143(3) of the Act dated 29.12.2016. In the assessment order, the Assessing Officer has examined the application of section 14A of the Act by calling explanation and details from the assessee. The relevant portion of the order is extracted as under: 6. Disallowance u/s 14A 6.1 A perusal of the financials of the assessee shows that the assessee has investments in shares of associate and other companies and government securities. The assessee has received a dividend income of Rs. 3,00,000/- from such investments and has disallowed Rs. 50,000/- as expenses pertaining to the exempt income. However since disallowance u/s 14A is to be made by applying the procedural provisions laid down under rule 8D, the assessee was asked to show-cause as to why expenditure in relation to exempted income cannot be disallowed applying the same. 6.2 The Assessee Company vide letter dated 15/12/2016 has submitted as follows: "With regard to your query as to why disallowance u/s.14A should not be made applying the procedural provisions ordained under rule 8D of Income tax Rules, we submit as under:
1. 1. During the year we have received dividend of Rs. 3, 00, 000/-. The dividend has been received from 2 companies namely a. State Industrial Investment Corporation of Maharastra -Rs. 50,000/- Limited (SIICOM) b. Shriram Equipment Finance company Limited Rs.2, 50,000/- The dividend amount of Rs.2,50,000/- received from Shriram Equipment Finance Company Limited has been credited to our bank account under ECS. Dividend of Rs. 50,000/- from SIICOM has been received thro' cheque.
2. No interest bearing funds had been utilized for investment during the year and in the earlier years.
3. Taking into account the investments made during the year and the dividend received, we have disallowed Rs. 50,000/- /s. 14A. For the above reasons we request you not to disallow any additional amount applying Rule 8D(2).
4. Without prejudice to our above submission that no disallowance u/s. 14A r.w. Rule 8D may be made, we submit the following: a. The investments made by us included investments in subsidiary companies. The investment in subsidiary companies were not made with an intention of earning dividend income but as a promoter of the company. In the following Gases it has been held that strategic investments should be excluded for the purpose of disallowance under sec. 14A r.w Rule 8D(2) i. ITAT Chennai in the case if EIH Associated Hotels Ltd Vs DCIT in ITA No, 1503/Mds/2012 date 17.07.2013 ii. ITAT Chennai decision in the case of L & T Infrastructure Development Projects Ltd Vs ITO (37 ITR (Trib) 10). iii. Interglobe Enterprises Ltd Vs DCIT (|TA No. 1362 & 1032 /Del/2013 dated 04.04.2014, b. In the case of REI Agro Ltd Vs DCIT Central Circle XXVII Kolkata (144 ITD 141) the ITAT has held that investments from which no exempt income has been received, have to be excluded while computing the amount of disallowance u/s. 14A r.w Rule 8D(2). The above decisions are applicable to our case.
5. For the above reasons we request you not to disallow any additional amount u/s. 14Arw. Rule 8D." 6.3 The submissions of the assessee has been duly considered but is not acceptable for the following reasons:
That the assessee itself has disallowed some amount u/s 14A gives reasonable belief and satisfaction that expenditure was incurred in relation to the exempted income. It is not disputed that investments were made by acquiring shares of the companies including subsidiary companies. However the provisions of Sec 14A cannot be read narrowly so as to interpret and limit its application only when the main object of the assessee is to earn exempt income. Further, subsequent to the introduction of rule 8D by the Income Tax (Fifth Amendment) Rules 2008 vide Notification No.25/ 2008 dated 24.03.2008, disallowance is to be made only by applying the formula and which is also now made mandatory. In this context the following observation of the Mumbai Tribunal in the case of ACIT VS, Citicorp Finance India Ltd [300 ITR 398] must also be noted. It is no longer open to the AO to apply his discretion in computing the disallowance or make adhoc disallowance u/s 14A. Substantive provisions are contained in sub sec (1) of sec 14A prohibiting deduction in respect of expenditure incurred in relation to exempt income while procedural provisions regarding computation of the aforesaid disallowance are contained in sub sec (2) and (3) thereof. Sub sec (2) and (3) seek to achieve the under lying object of sec 14A(1) that any expenditure incurred in relation to exempt income should not be allowed deduction. Further, the Bombay High Court in the case of M/s Godrej & Boyce Ltd., had held that from the A.Y.2008-09, the enforcement of Rule 8D in computing the disallowances is constitutionally valid. The assessee's Contention that no disallowance u/s 14A could be made since investments were made in subsidiary companies, is not maintainable in view of the decision in United Breweries Ltd. s DCIT (Kar)241 Taxman299. Since it is undisputed that the assessee has incurred Administrative expenditure and as there will also be indirect expenditure to maintain and monitor these investments, it is held the 14A disallowance is attracted and it has to be made by applying the procedural provisions as given in Rule 8D as against an adhoc disallowance made by the assessee, in view of elaborate reasons mentioned above. 14A DISALLOWANCE As per Rule 8D(2)(i) - In Rs. In Rs. Amount of expenditure directly relating - 50000 to income which does not part form of total income as per workings As per Rule 8D(2)(ii) - Interest paid during the year A Value of Total Investments as on 01.04.2013 Value of Total Investments as on 31.03.2014 Average B Value of Total Assets as on 01.04.2013 Value of Total Assets as on 31.03.2014
(excluding revaluation increase) Average C AxB/C As per Rule 8D(2)(iii) Value of Total Investments as on 01.04.2013 3025315400 Value of Total Investments as on 31.03.2014 3069443758 Average 3047379579 0.50% DISALLOWANCE 15236898 Total Disallowance u/s 14A(i+ii+iii) 15236898 Since the assessee has already disallowed 50,000/- u/s 14A, an amount of Rs.1,52,36,898/- is disallowed and added back to the total income of the assessee. (Disallowance: Rs . 1,52,36,898/-) 3. Subsequently, the Assessing Officer has issued a notice under section 148 of the Act dated 13.06.2019 for reopening of assessment. The assessee has submitted before the Assessing Officer that the Assessing Officer has already considered the issue while completing the original assessment order under section 143(3) of the Act dated 29.12.2016 and therefore, reopening is unwarranted. However, the Assessing Officer has not agreed with the reply given by the assessee and passed assessment under section 143(3) r.w.s. 147 of the Act dated 31.12.2019
The assessee carried the matter in appeal before the ld. CIT(A). After considering the submissions of the assessee as well as facts and circumstances of the case, by following the judgement of the Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. [2010] 320 ITR 561, the ld. CIT(A) quashed the assessment order passed under section 143(3) r.w.s. 147 of the Act dated 31.12.2019 by observing as under: “7.19 In the instant case also, as explained elsewhere in this order, while framing the original assessment order, the AO had thoroughly examined the issue of as to how and what extent disallowance of expenditure us.14A of the Act as per the procedure laid down under Rule 8D(2) of the Rules including clause and thereof, and arrived at the amount of disallowance of Rs.1,52,86,898/-, including the amount already disallowed by the assessee of Rs.50,000/-. Therefore, as held by the Hon'ble Supreme Court it is not the case of the AO to reopen the assessment on the ground of short computation of disallowance under Rule 8D(2) of the Rules which is otherwise tantamount to change of opinion, which is not permissible as per the law in vogue. 7.20 In view of the above lam of the considered opinion that the AO reopened the assessment u/s. 147 of the Act based on change of opinion regarding the quantum of disallowance u/s. 14A read with Rule 8D of the Rules without there being any fresh evidence brought on record after completing the original assessment u/s. 143(3) of the Act dated 29.12.2016 (supra). Accordingly, respectfully following the decision of the Hon'ble Supreme Court in the cases of (i) CIT Vs, Kelvinator of India Ltd. (2010) 320 ITR 561; and (ii) ITO vs. TechSpan India (P) Ltd. (2018) 404 ITR 10 (supra), I hold that, in the instant case, the AO is not justified in reopening the assessment u/s.147 of the Act based on "change of opinion" and, therefore, the impugned order passed u/s.143(3) rws 147 of the Act is rendered as void ab initio. Accordingly, the AO is directed to delete the addition of Rs.16,06,89,000/-, Thus, the grounds of appeal
raised by the assessee on this issue are allowed.”
5. Aggrieved, the Revenue is in appeal before the Tribunal. The case of the Department is that the ld. CIT(A) has not considered the application of section 14A r.w. Rule 8D properly and therefore, the reopening is valid.
6. On the other hand, the ld. Counsel for the assessee has submitted that during the course of original assessment proceedings, the Assessing Officer has specifically asked for application of Rule 8D and by filing all the details, it was replied that no interest bearing funds were utilized for investment during the year and in the earlier years. It was also submitted that the assessee himself disallowed ₹.50,000/- under section 14A of the Act and therefore, no more disallowance under section 14A of the Act was required. It was further submitted that by considering the same, the Assessing Officer made disallowance of ₹.1,52,36,898/- under section 14A of the Act and completed the assessment. Thus, the ld. Counsel has further submitted that subsequent notice issued under section 148 of the Act for reopening the assessment to reconsider the disallowance under section 14A of the Act is invalid and strongly supported the order passed by the ld. CIT(A).
We have heard both the sides, perused the materials available on record and gone through the orders of authorities below. On perusal of the assessment order passed under section 143(3) of the Act dated 29.12.2016, we find that the Assessing Officer has considered the issue of disallowance under section 14A r.w. Rule 8D in his order at para 6, page 16 to 19 and the same were extracted hereinabove. However, vide notice under section 148 of the Act dated 13.06.2019, the Assessing Officer has recorded the following reasons for issue of notice under section 148 of the Act: The reason for issue of notice u/s. 148 of the IT Act are as under:
A perusal of the financials of the assessee shows that the assessee had investments in shares of associate and other companies and government securities. The assessee had received a dividend income of Rs.3,00,000/- from such investments. During the year, the assessee had expended interest expenditure of Rs.364260.76 lakhs as per schedule 18. Since the assessee had made investments out of common kitty which has interest bearing amount, interest expenditure which is indirectly attributable for the investment, needs to be disallowed. But, during the assessment proceedings only Rs.152,86,898 has been disallowed u/s 14A r.w. Rule 8D(2)(iii).
From the above, it appears that the reopening notice has been issued by the Assessing Officer on the ground that the assessee made investments out of common kitty which has interest bearing amount, interest expenditure which are indirectly attributable for the investments needs to be disallowed. On perusal of the original assessment order, we find that this aspect has already been considered by the Assessing Officer during the original assessment proceedings and the assessee has also explained that no borrowed funds were utilized for investment and by considering the same and invoking the provisions of section 14A r.w. Rule 8D, the Assessing Officer made disallowance and completed the assessment. Again reopening of assessment by issuing notice under section 148 of the Act for the same reasons, in our opinion, it is mere change of opinion of the subsequent Assessing Officer without there being any tangible material. From the reasons recorded, it is very clear that no tangible material or any information came to the notice of the subsequent Assessing Officer, on the basis of the financials and the same financials has been considered by the earlier Assessing Officer and completed the assessment order under section 143(3) of the Act dated 29.12.20216. Therefore, in our opinion, it is a clear case of change of opinion, which is not permissible as per the judgement of the Hon’ble Supreme Court in the case of CIT v. Kelvinator of India Ltd. (supra), which was rightly followed by the ld. CIT(A) in his appellate order. Under the above facts and circumstances, we find no infirmity in the order passed by the ld. CIT(A) on this issue and accordingly, the ground raised by the Revenue are dismissed.
In the result, the appeal filed by the Revenue is dismissed. . Order pronounced on 27th September, 2023 at Chennai.