ARDOR IN-FIN PVT. LTD.,,AHMEDABAD vs. THE INCOME TAX OFFICER, WARD-1(3),, AHMEDABAD

सुनवाई क� तार�ख/Date of Hearing : 22/05/2020 घोषणा क� तार�ख /Date of Pronouncement : 2705/2020 O R D E R Assessee is in appeal before the Tribunal against order of the ld.CIT(A)-6, Ahmedabad dated 23.2.2015 passed for the Asstt.Year 2011- 12.

3. With the assistance of the ld.representatives, I have gone through the record carefully. It emerges out from the record that the assessee has filed its return of income on 30.9.2011 declaring total income at Rs.13,28,278/-. This return was filed electronically. The case of the assessee was selected for scrutiny assessment, and notice under section 143(2) was issued and served upon the assessee. The ld.AO observed that as per rule 8D(2) the assessee was required to disallow 0.5% of the average value of the investment on account of administrative expenses. He found that the assessee has not calculated the disallowance under section 14A with help of this formula, rather under the head administrative expenses, it has disallowed a sum of 6,275/-. Thus, the AO took note of the investment and applied formula. He worked out a disallowance at Rs.2,97,347/-. Dissatisfied with the disallowance the assessee carried the matter in appeal before the first appellate authority. But the ld.CIT(A) concurred with the AO and confirmed the disallowance.

“6. We have carefully considered the rival submissions and perused the orders of the authorities below. The substantive question arises in the Revenue's appeal is to ascertain the correctness of the action of the CIT(A) in refusing to endorse the action of the AO for resorting to disallowance under s.14A of the Act. Two broad issues emerges in the context of the case; (i) whether the disallowance under s.14A is maintainable where admittedly no exempt income i.e. dividend was earned by the assessee in the relevant assessment year and (ii) whether the CIT(A) was justified in going beyond the return of income and remove the disallowance which the assessee itself has made while filing the return of income. In other words, whether the action of the CIT(A) in bringing down the income returned by the assessee and granting relief on the issues not raised at the time of filing original return of income or by way of revised return at a subsequent stage is justified in law or not.

8. We shall now turn to the second issue raised on behalf of the Revenue regarding propriety of the action of the CIT(A) in granting relief on the disallowance (suo moto made by the assessee) beyond the return of income and in the absence of any formal revised return. The CIT(A) has discussed this aspect in very great detail in para 2.5 to 2.28 of its order. We are not inclined to reiterate the findings of the CIT(A). However, we fully endorse the observations of the CIT(A) which essentially holds that the mistake or inadvertence on the part of the assessee whereby an income not taxable has been wrongly offered for tax, will not operate as any kind of estoppel against the assessee and regardless of whether the revised return was filed or not. Once the assessee is in a position to show that it has been over assessed under the provisions of the Act even on account of assessee's own mistake or otherwise, the Revenue is under duty to assess correct income.

CIT (2005) 276 ITR 165 (Guj), Ester Industries vs. CIT (2009) 185 TAXMAN 266 (Delhi) and CIT vs. Pruthvi Brokers & Shareholders (P.) Ltd. [2012] 349 ITR 336 (Bom). The essence of these decisions are that mere admission on the part of the assessee with respect to an addition/disallowance in its original return or in revised return would not ipso facto bar an assessee from claiming an expense or disputing an addition if it is otherwise permissible under law. It is thus well settled that if a particular income is not taxable under the Act, it cannot be taxed on the basis of estoppel or any other equitable doctrine. The Revenue authorities cannot enforce untenable actions of the assessee against it which led to declaration of income of higher amount incorrectly. It is thus open to assessee to show that it was over assessed in correctly owing to its own mistake.

7. This order has been upheld by the Hon’ble High Court. It is pertinent to note that on the issue, whether suo motto disallowance made by the assessee, could be excluded from the taxable income offered by itself, by the appellate authority, on the basis of position of law changed, on account of subsequent decision of the Hon’ble High Court ? It is true that return was filed by the assessee on 30.9.2011. At that point of time decision of Hon’ble Gujarat High Court in the case of Corrtect Energy P.Ltd. was not in picture. It was delivered on 24.3.2014. Therefore, on the basis of position of law, the assessee might have worked out the expenses which were required to be disallowed under section 14A in spite of non-availability of tax free income. The question is, whether the assessee can be permitted to take a plea that his self-admission in the return of income be allowed to be withdrawn on the basis of subsequent decision of Hon’ble jurisdictional High Court, and his income is to be re- computed ? With regard to the above proposition, the ITAT in the case of Greeland Infracon (supra) has already taken note of the decision of Hon’ble Gujarat High Court in the case of S.R. Koshti Vs. CIT, 276 ITR 165 as well as CIT Vs. Shelly Products, 261 ITR 367 (SC). The Tribunal has further made reference to the decision of Hon’ble Delhi High Court as well as Hon’ble Bombay High Court in the finding extracted (supra). Apart from the above, I am of the view that a court decides a dispute between the parties. The cause can involve decision on facts. It can also involve a decision on a point of law. Both may have bearing on the ultimate result of the case. When a court interprets a provision, it decides as to what is the meaning and effect of the words used by the Legislature. It is a declaration regarding the statute. In other words, the judgment declares as to what the Legislature had said at the time of the promulgation of the law. The declaration is - This was the law. This is the law. This is how the provision shall be construed. In the decision of Corrtech Energy (supra) the Hon’ble Gujarat High court has construed section 14A that in case there is no exempt income to an assessee, then no expenses can be worked out hypothetically for the purpose of disallowance under section 14A. This decision has come after filing of the return by the assessee. But this decision made it clear – what is position of law prevalent at the time of filing of the return, and how the assessee has committed an error which ought to have been looked into by the AO while passing the assessment order or by the CIT(A) while deciding the appeal in the year 2015, when this decision came in. The ITAT in the case of Greenland Infracon (supra) has also made reference to a large number of decisions as well as Board circular pointing out that it is the duty of the Revenue to guide the assessee for computing true income. If something has been offered by an assessee patently under some misconstruction of law, then the revenue cannot be permitted to plead that since the assessee has offered as its income, therefore, it has to be taxed. Therefore, respectfully following order of the ITAT, Division Bench, which is based on large number of decisions including that of Hon’ble jurisdictional High Court in the case of S.R. Koshti (supra), I allow the additional ground of appeal as well as original ground raised by the assessee. In other words, since there is no tax free income, there could not be any disallowance under section 14A of the Act. I direct the AO to re-compute the income of the assessee after excluding the suo motto amount disallowed by the assessee of Rs.59,55,723/-. Apart from the above disallowance made by the AO on account of administrative expenses of Rs.2,97,347/- is concerned, this also stands deleted. Both amounts be excluded from the computation of income, and thereafter income of the assessee be duly determined. Appeal of the assessee is allowed.