UNITED LEASING & INDUSTRIES LTD.,NEW DELHI vs. ITO, WARD- 27(1), NEW DELHI

During the course of assessment proceedings, AO noticed that assessee had investments amounting to Rs.3.79 crore (rounded off) and according to the AO those investments were bound to yield tax free dividend. AO also noticed that assessee had suo moto disallowed Rs.13,33,732/- u/s 14A of the Act, the basis of which was not provided by the assessee. Assessee was asked to justify the basis of disallowance more so when it had incurred finance costs of Rs.27,36,768/- against the total earnings from operations of Rs.29,20,038/-. Assessee was also asked to justify as to why interest expenses not be considered for disallowance. Before AO, assessee inter alia submitted that considering the present interpretation of law, disallowance made u/s 14A of the Act was not required as also it had not earned any exempt income. The assessee therefore submitted that the suo moto disallowance made by the assessee be treated as withdrawn. The submissions of the assessee was not found acceptable to AO. AO was of the view that disallowance u/s 14A of the Act has to be computed as per Rule 8D of I.T. Rules, 1962. He thereafter relying on the decision of Mumbai ITAT in the case of Daga Capital Management Pvt. Ltd., Chem Investment Pvt. Ltd. (Special Bench Delhi) worked out that disallowance u/s 14A of the Act at Rs.27,36,768/-. He thereafter considering the suo moto disallowance of Rs.13,33,732/- made by the assessee, made a net disallowance of Rs.14,03,036/-.

Aggrieved by the order of AO, assessee carried the matter before the CIT(A). Before CIT(A) assessee inter alia reiterated the submissions made before the AO and submitted that since it had not earned any exempt dividend income, therefore as per the decision of Jurisdictional High Court, no disallowance u/s 14A of the Act is called for and further the suo moto disallowance made by the assessee be considered to be withdrawn. The submissions of the assessee was not found acceptable to CIT(A). CIT(A) did not find any fault with invoking the provision of Section 14A r.w.r 8D of the Act. He however agreed with the contention of the assessee that in the absence of any exempt income, no disallowance u/s 14A of the Act is called for but considering the fact that the assessee had suo moto made the disallowance u/s 14A of the Act in the return of income and since assessee had not withdrawn the claim of disallowance u/s 14A of the Act by filing revised return, he was of the view that the claim of withdrawal of disallowance u/s 14A of the Act could not be entertained. He placed reliance on the decision of Hon’ble Apex Court in the case of Goetze India Ltd. vs. CIT reported in 2006-TIOL-198-SC-IT. He thereafter deleted the additional disallowance of Rs.14,03,036/- made by the AO u/s 14A of the Act but upheld the suo moto disallowance made by assessee. Aggrieved by the order of CIT(A), assessee is now before us.

Before us, Learned AR reiterated the submissions made before the AO & CIT(A) and further submitted that assessee had not earned any exempt income and in the absence of any exempt income, no disallowance could be made u/s 14A of the Act and for this preposition he relied on the decision rendered by Hon’ble Delhi High Court in the case of CIT vs. Holcim India Pvt. Ltd. reported in [2014] 90 CCH 0081 Del High Court. He further submitted that the aforesaid decision was rendered by Hon’ble Delhi High Court on 5th September 2014 and therefore it was not available to the assessee when it filed its return of income on 30.09.2010. He further submitted that the time limit u/s 139(5) of the Act for revising the return of income expired on 31.03.2014 and therefore it could not file revised return of income before the AO. Before us, Learned AR also submitted that it is a settled law that the CIT(A) as well as Tribunal have the jurisdiction to consider the additional claim. He therefore submitted that considering the binding precedent rendered by the Hon’ble Delhi High Court in the case of Holcim India Pvt. Ltd. (supra), no disallowance u/s 14A of the Act is called for and therefore the suo moto disallowance made by assessee be allowed to be withdrawn.

Learned DR on the other hand supported the order of lower authorities and further submitted that once the assessee has suo moto disallowed the expenses u/s 14A of the Act then without filing revised return of income, assessee cannot be permitted to withdraw the claim of suo moto disallowance. She thus supported the order of lower authorities.

We have heard the rival submissions and perused the materials available on record. The issue in the present ground is with respect to disallowance made u/s 14A of the Act. It is an undisputed fact that in the computation of income, assessee had made a suo moto disallowance of Rs.13,33,732/- u/s 14A of the Act. It is also a fact that before the AO as well as CIT(A), assessee had sought the withdrawal of suo moto disallowance made u/s 14A of the Act in view of the settled law and the decision of Hon’ble Delhi High Court wherein it was held that no disallowance u/s 14A of the Act is called for when assessee has not earned any exempt income. The fact of assessee having not earned exempt income is not disputed by the lower authorities. CIT(A) did not allow the withdrawal of the suo moto disallowance made by the assessee in the absence of filing of revised return by the assessee. The last date for filing the revised return of income for A.Y. 2012-13 by the assessee u/s 139(5) of the Act was 31st March 2014. Before us, Learned AR has pointed out that the decision rendered by Hon’ble Delhi High Court the jurisdictional High Court, in the case of Holcim India Pvt. Ltd. (supra) was rendered on 5th September 2014 wherein it has been held that in the absence of tax free income, no disallowance u/s 14A of the Act could be made. We therefore find force in the argument of the Learned AR that assessee could not file the revised return income before the AO. Further, it is a settled law that the purpose of assessment proceedings is to assess the tax liability of an assessee correctly in accordance with law. We find that Hon’ble Gujarat High Court in the case of CIT vs. Mitesh Impex reported in [2014] 46 taxmann.com 30 after considering the decision of Hon’ble Apex Court in the case of Goetze (India) Ltd. vs. CIT and various other decisions cited therein has held that if a claim though available in law is not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come, merely because it is raised for the first time before the appellate authority without resorting to revising the return before the AO. It has further held that any ground, legal contention or even a claim would be permissible to be raised for the first time before the appellate authority or the Tribunal when the facts necessary to examine such ground, contention or claim are held on record. It has further held that income tax proceedings are not strictly adversarial in nature and the intention of the Revenue should be to tax the real income.

Considering the aforesaid and the settled legal position of law that in the absence of any exempt income, no disallowance u/s 14A of the Act could not made, we are of the view that the assessee cannot be denied to withdraw the suo moto disallowance of Rs.13,33,732/- u/s 14A of the Act. We therefore direct the AO to allow the assessee to withdraw the suo moto disallowance made u/s 14A of the Act. Thus the ground of assessee is allowed.