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Income Tax Appellate Tribunal, “SMC” BENCH, AHMEDABAD
Before: SHRI PRAMOD KUMAR&
PER Ms. MADHUMITA ROY - JM:
The instant appeal filed by the assessee is against the order dated 28.11.2016 passed by the Commissioner of Income Tax (Appeals) – 1, Ahmedabad under section 143(3) of the Income Tax Act, 1961 (in short ‘the Act’) arising out of the order dated 29.01.2016 passed by the Dy. Commissioner of Income Tax, Circle-1(1)(1), Ahmedabad for the Assessment Year 2013-14.
The assessee filed its return of income on 29.09.2013 declaring total loss of Rs.(-)32,28,046/- which was processed u/s 143(1) of the Act. Subsequently, under scrutiny notice u/s 143(2) of the Act was issued on 04.09.2014 followed by a further notice u/s 143(2) r.w.s 129 and along with a
ITA No.297/Ahd/2017 Ardor Structures pvt. Ltd.vs. DCIT Asst.Year –2013-14 - 2 - notice u/s 142(1) along with a questionnaire dated 13.07.2015 due to change of jurisdiction. It appears from the record that the assessee invested in shares of M/s. Chem-Edge International Pvt. Ltd. and M/s. Ardor International Pvt. Ltd. The investment to the tune of Rs. 21,03,01,050/- as on 31.03.2013 was increased from Rs. 16,13,35,150/- as on 31.03.2012. The AO observed that the assessee suo moto disallowed an amount of Rs.43,16,239/- in the return of income towards disallowance u/s 14A of the Act. It is a fact that the assessee had not earned any exempt income or any dividend income u/s 10(34) of the Act. Further that, the assessee made a request for withdrawing such suo moto disallowance u/s 14A before the Learned AO which was ultimately rejected. The Learned AO relying upon the CBDT Circular being No.5/2014 dated 11.02.2014 observed that the assessee incurred various indirect expenses such as administrative expenses for business activity and therefore these indirect expenses would include expenditure associated for investment activity. Ultimately the order was finalized by the Learned AO upon determination of disallowance u/s 14A r.w.Rule 8D amounting to Rs.52,49,165/-. The assessee claimed expenses of Rs. 45,207/- in the profit and loss account and thus disallowance as per provision u/s 14A Rule 8D has been worked out at Rs. 4,36,028/-. Since the appellant had suo moto disallowed an amount of Rs.43,16,239/- in its return of income further disallowance to the tune of Rs.44,042/- was made by the Learned AO while determining assessed income. The order passed by the Learned AO was confirmed by the Learned CIT(A). Hence, the instant appeal before us.
At the time of hearing of the instant appeal, the Learned Advocate appearing for the assessee submitted before us that similar addition has been deleted by the Learned CIT(A) in one of the group companies namely Greenland Infracon Pvt. Ltd. in A.Ys. 2012-13 and 2013-14 when the appellate
ITA No.297/Ahd/2017 Ardor Structures pvt. Ltd.vs. DCIT Asst.Year –2013-14 - 3 - authority fully allowed the appeal in favour of the assessee which was in turn was affirmed by the Co-ordinate Bench in ITA Nos. 2039 and 2040/Ahd/2016 a copy whereof has also been submitted before us. He therefore prayed for the similar relief before us. It was further submitted by the Learned Advocate that since there is no exempt income being claimed by the assessee the provision of section 14A r.w.r. 8D cannot be applied so as to make disallowance of expenditure u/s 14A of the Act as also settled by the Jurisdictional High Court in the case of CIT-vs-Corrtech Energy Pvt. Ltd. reported [2014] 45 taxmann.com 116. However, the Learned representative of the department relied upon the order passed by the authorities below.
We have heard the representative of the respective parties, we have also perused the relevant materials available on record including the judgment passed by the Co-ordinate Bench as cited by the Learned AR in favour of his case. It appears from the said judgment in that case the AO disallowed at Rs.1,67,32,314/- and after reducing the disallowance suo moto made by the assessee amounting to Rs.98,03,322/- computed the additional disallowance u/s 14A of the Act at Rs.69,28,992/- against which the assessee preferred an appeal before the first appellate authority and withdrawn the suo moto disallowance of Rs.98,03,322/- being wrongly offered in its return of income under erroneous impression of law. Ultimately, the Learned CIT(A) in that occasion granted relief to the assessee since there was no admitted exempt income or dividend income earned by the assessee in the relevant assessment year granting total relief in the matter of disallowance u/s 14A of the Act including on account of suo moto disallowance made by the assessee; the relevant portion of the said order passed by the co-ordinate bench is as follows:
ITA No.297/Ahd/2017 Ardor Structures pvt. Ltd.vs. DCIT Asst.Year –2013-14 - 4 - “4. When the matter was called for hearing, the leaned AR for the assessee straightway adverted our attention to the undisputable fact recorded by the AO in para 4.1.1 of its order that the investments made by the assessee company has not given rise to any exempt income concerning the assessment year. Notwithstanding such fact, the assessee voluntarily disallowed Rs.98.03 Lakhs against the non- existent tax free income. The AO however re-worked the disallowance at Rs.1,67,32,314/- and after reducing the disallowance suo moto made by the assessee amounting to Rs.98,03,322/- computed the additional disallowance under s.14A of the Act at Rs.69,28,992/-. The learned AR thereafter submitted that the assessee preferred appeal before the CIT(A) and withdrawn the suo moto disallowance of Rs.98,03,322/- being wrongly offered in its return of income under erroneous impression of law. The learned AR submitted that in the light of various judicial pronouncements on the issue discussed in detail by the CIT(A), the CIT(A) granted relief to the assessee and deleted the entire disallowance in tune with the decision of the Hon'ble Supreme Court of India in CIT vs. Chettinad Logistics (P.) Ltd. (2018) 95 taxmann.com 250 (SC). And host of other binding judicial precedents. The learned AR accordingly concluded that no interference with the order of the CIT(A) is called for in the circumstances of the case. 5. The learned DR, on the other hand, relied upon the order of the AO and inter alia submitted that where the assessee itself has made a disallowance of Rs.98,03,322/-, there was no justification for the CIT(A) to grant relief on this score. The learned DR next submitted that the CIT(A) ought to have confirmed the suo moto disallowance made by the assessee as well as the additional disallowance of Rs.69,28,992/- as computed by the AO in terms of Rule 8D of the Income Tax Rules. 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)
ITA No.297/Ahd/2017 Ardor Structures pvt. Ltd.vs. DCIT Asst.Year –2013-14 - 5 - 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. 7. The first issue framed above appears quite simple as we see. While adjudicating the issue, we take note of CBDT Circular No. 5/2014 dated 11/02/2014 which seeks to emphasize that all expenses pertaining to an exempt income is required to be disallowed notwithstanding the fact that no corresponding tax free income has been earned during the financial year. Notwithstanding the aforesaid circular, various Courts have held that Section 14A of the Act disallowance cannot be kicked when there was no exempt income earned by the assessee as is the case in the present appeals. Hon'ble Delhi High Court in PCIT vs IL&FS Energy Development Company Ltd. (2017) 84 Taxman.com 186(Delhi) and the Hon'ble Madras High Court in CIT v. Chettinad Logistics (P.) Limited (2017) 80 taxmann.com 221(Madras) have expressed a clear disagreement with CBDT Circular and held that where there is no exempt income in relevant year there cannot be a disallowance of expenditure under s.14A of the Act. Similar proposition has been laid down by the Hon'ble Gujarat High Court in the case of Corrtech Energy (P.) Ltd (2014) 45 taxmann.com. 116 (Guj) and Pr.CIT vs. India Gelatine and Chemicals Ltd. (2016) 66 taxmann.com 356 (Guj). The aforesaid judicial fiat was reiterated by the Hon'ble Delhi High Court in the case of Joint Investments Pvt. Ltd. vs. CIT reported in 372 ITR 692 (Delhi) wherein Hon'ble Delhi High Court has categorically ruled that disallowance under s.14A of the Act cannot exceed the amount of tax exempt income. Notably, the SLP filed against the decision of Hon'ble Madras High Court in Chettinad Logistics (supra) has been dismissed by Hon'ble Supreme Court in CIT vs. Chettinad Logistics (P.) Ltd. (2018) 95 taxmann.com 250 (SC). Hence, in conformity with the judicial precedents, we find substantial merit in the conclusion drawn by the CIT(A) which essentially holds that Section 14A of the Act can be triggered only if assessee seeks to square off expenditure against the income which does not form part of total income under the Act and Section 14A of the Act cannot be invoked where no exempt income was earned in the relevant assessment years. In consonance with the judicial precedents, we do not see any infirmity in the conclusion drawn by the CIT(A) for non-applicability of Section 14A of the Act in the facts of the case.
ITA No.297/Ahd/2017 Ardor Structures pvt. Ltd.vs. DCIT Asst.Year –2013-14 - 6 - 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. 9. It is trite that the authorities under the Act are under sacrosanct obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, mis-conception or not being properly instructed, is over assessed, the authorities under the Act are required to ensure that only legitimate tax dues are collected. This is the view which flows from innumerable judgments including CIT vs. Shelly Products (2003) 261 ITR 367 (SC), S. R. Koshti vs. 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. 10. So viewed, we do not see any potency in the argument laid on behalf of the Revenue that the CIT(A) allegedly committed error in granting total relief in the matter of disallowance under s.14A of the Act. In our considered view, the action of the CIT(A) in granting relief under s.14A of the Act on account suo moto disallowance by the
ITA No.297/Ahd/2017 Ardor Structures pvt. Ltd.vs. DCIT Asst.Year –2013-14 - 7 - assessee and thereby granting relief higher than claimed in the return of income cannot be faulted in law. 11. In the result, appeal of the Revenue is dismissed.” The assessee before us is on the better footing. He made such request for withdrawal of suo moto disallowance before the Assessing Officer itself. Therefore the issue relating to request for withdrawal of suo moto disallowance before the Learned CIT(A) whether can at all been entertained is not required to be dealt with in this particular case before us. Respectfully relying upon the judgment we do not hesitate to delete the disallowance to the tune of Rs.52,44,165/- u/s 14A r.w.r. 8D particularly in view of the fact that the assessee neither have any exempt income nor earned dividend income in the case in hand before us.
In the result, assessee’s appeal is allowed. This Order pronounced in Open Court on 29/03/2019
Sd/- Sd/- ( PRAMOD KUMAR ) ( Ms. MADHUMITA ROY ) VICE PRESIDENT JUDICIAL MEMBER Ahmedabad; Dated 29/03/2019 Priti Yadav, Sr.PS आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-1, Ahmedabad. �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad