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Income Tax Appellate Tribunal, F BENCH, MUMBAI
order : 14.12.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant has challenged the order, dated 22.09.2021, passed by the Ld. Commissioner of Income Tax (Appeals)-50, Mumbai [hereinafter referred to as „the CIT(A)‟] for the Assessment Year 2011-12, whereby the Ld. CIT(A) had partly allowed the appeal against the Assessment Order, dated 30.03.2014, passed under Section 153C read with Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as „the Act‟).
The grievance of the Appellant in the present case is restricted to the computation of disallowance made under Section 14A of the Act
Assessment Year: 2011-12 read with Rule 8D of the Income Tax Rules, 1962 (hereinafter referred to as „the Rules‟).
In the return of income the Appellant had made suo-moto disallowance of INR 1,89,75,144/- consisting of disallowance of INR 2,39,724/- made under Rule 8D(2)(i), INR 95,95,886/- made under Rule 8D(2)(ii) and INR 91,39,534/- made under Rule 8D(2)(iii) of the Rules. The Assessing Officer vide order dated 30.03.2014, passed under Section 153C read with Section 143(3) of the Act computed disallowance under Section 14A read with Rule 8D at INR 2,84,01,670/- consisting of disallowance of INR 1,34,07,685/- made under Rule 8D(2)(i), INR 58,54,452/- made under Rule 8D(2)(ii) and INR 91,39,534/- made under Rule 8D(2)(iii) of the Rules.
Being aggrieved, the Appellant carried the issue in appeal before CIT(A) who granted partial relief to the Appellant by restricting the disallowance to INR 2,48,29,595/- consisting of disallowance of INR 2,39,724/- made under Rule 8D(2)(i), INR 1,54,50,338/- made under Rule 8D(2)(ii) and INR 91,39,534/- made under Rule 8D(2)(iii) of the Rules.
Being aggrieved, the Appellant has preferred the present appeal raising two grounds directed against the order of CIT(A) computing disallowance at INR 2,48,29,595/-. Subsequently, vide letter dated 22.08.2022, the Appellant filed modified grounds of appeal along with an additional ground which are as under:
Ground No. 1 (Modified Ground) On the facts and in circumstances of the case and in law, interest expenditure is not required to be disallowed u/s 14A rwr 8D(2)(ii) of the Rules, when the appellant‟s own interest free funds is in excess of investments which have yielded exempt income. The Assessment Year: 2011-12 appellant further submits that the suo-moto disallowance of interest expenditure should also be deleted. Ground No.2 (Original Ground) Without prejudice to Ground 1 above, on the facts and circumstances of the case and in law, the Hon‟ble CIT(A) erred in making further disallowance u/s 14A r.w.r. 8D(2)(ii) of the Act of Rs. 58,54,452 over and above the suo moto disallowance made by the appellant in its Return of Income. The appellant prays that the said action of Hon‟ble CIT(A) may please be held as bad-in-law and be deleted. Ground No. 3 (Additional Ground) On the facts and in circumstances of the case and in law, disallowance under Section 14A rwr 8D(2)(iii) ought to have considered only those investment which has yielded exempt income in light of Special Bench decision of Delhi Tribunal in case of Vireet Investments Pvt. Ltd.”
All the grounds pertain to disallowance under Section 14A of the Act and therefore, are being taken up together.
The Ld. Authorised Representative for the Appellant appearing before us submitted that the Appellant is entitled to the benefit of judgment of the Hon‟ble Supreme Court in the case of South Indian Bank Ltd. vs. CIT : 438 ITR 1 as sufficient interest free funds were available with the Appellant for making the investment for the relevant Assessment Year. In this regard, he placed on record computation showing average value of total investments and details of own funds available with the Appellant for the Assessment Year 2011-12. He further submitted that while computing disallowance under Section 14A read with Rule 8D of the Rules the Assessing Officer/CIT(A) have taken into account the amount of total investments instead of investments which yielded exempt income during the previous year relevant to the Assessment Year 2011-12. In this regard, he relied upon the decision of Special Bench of the Tribunal in the case of Assistant Commissioner of Income Tax - 3
Assessment Year: 2011-12 Circle 17(1), New Delhi vs. Vireet Investment Private Limited: [2017] 188 TTJ 1 (Delhi - Trib.) (SB). He also relied upon the judgment of the Hon‟ble Supreme Court in the case of CIT Vs. Shelly Products [2003] 261 ITR 367 in support of Ground No. 1 above.
Per contra, Ld. Departmental Representative submitted that the aforesaid submissions were not made by the Appellant before the Assessing Officer or the CIT(A). He further submitted that the factual averments made by the Ld. Authorised Representative for the Appellant before the Tribunal need to be verified.
We have considered the rival submissions and perused the material on record. An assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional claims before them. The appellate authorities have the discretion whether or not to permit such additional claims to be raised. It cannot, however, be said that they have no jurisdiction to consider the same. They have the jurisdiction to entertain the new claim. [CIT – Central-1, Mumbai vs Pruthvi Brokers & Shareholders: [2012] 349 ITR 336 (Bombay)]. It was contended by the Ld. Departmental Representative that the Appellant has raised ground/claim for the first time before the Tribunal. In our view, the additional ground/claim raised by the Appellant do not require examination of facts other than those already on record and therefore, the Tribunal has jurisdiction to examine the same. Accordingly, we proceed to examine the grounds/additional grounds raised by the Appellant.
We note that there is no dispute regarding computation of disallowance in respect of direct expenses in terms of Rule 8D(2)(i) of the Rules. In relation to computation of disallowance of interest expenses in terms of Rule 8D(2)(ii) of the Rules, reliance has been 4
Assessment Year: 2011-12 placed on behalf of Appellant on the judgment of the Hon‟ble Supreme Court in the case of South Indian Bank Ltd. (supra) wherein it has been held as under:
“27. The aforesaid discussion and the cited judgments advise this Court to conclude that the proportionate disallowance of interest is not warranted, under section 14A of Income Tax Act for investments made in tax-free bonds/securities which yield tax-free dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments. With this conclusion, we unhesitatingly agree with the view taken by the learned ITAT favouring the assessees.”
In relation to computation of disallowance of administrative and other expenses in terms of Rule 8D(2)(iii) of the Rules, reliance has been placed on behalf of Appellant on the decision in the case of Vireet Investment Private Limited (Supra) wherein it has been held that only those investments are to be considered for computing average value of investment which yielded exempt income during year.
Therefore, we find merit in the contention advanced by the Ld. Authorised Representative for the Appellant that the benefit of the aforesaid judgments should be granted to the Appellant while computing disallowance under Section 14A of the Act read with Rule 8D of the Rules. However, keeping in view of the submissions of Ld. Departmental Representative, we remand the issue back to the file of Assessing Officer with the directions to carry out necessary verification and to re-compute disallowance under Section 14A of the Act read with Rule 8D(2)(ii) and Rule 8D(2)(iii) of the Rules in accordance with the judgment of Hon‟ble Supreme Court in the case of South Indian Bank Ltd. (Supra) and the decision of Special Bench of the Tribunal in the case of Vireet Investment Private Limited (Supra). The amount so computed shall be disallowed under Section Assessment Year: 2011-12 14A of the Act irrespective of the amount of suo-moto disallowance offered by the Appellant in view of the judgment of the Hon‟ble Supreme Court in the case of CIT v. Shelly Products [2003] 261 ITR 367 wherein it has been held that any tax recovered in excess of what is legitimately payable by the assessee would be without authority of law.
In the result, the present appeal is allowed for statistical purposes.
Order pronounced on 14.12.2022.