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Income Tax Appellate Tribunal, F BENCH, MUMBAI
order : 30.08.2022 O R D E R Per Rahul Chaudhary, Judicial Member: 1. By way of the present appeal the Appellant/Assessee has challenged the order, dated 20.01.2022, passed by the Ld. Commissioner of Income Tax (Appeals)–49, Mumbai [hereinafter referred to as „the CIT(A)‟] for the Assessment Year 2015-16, whereby the CIT(A) had partly allowed the appeal against the Assessment Order, dated 23.11.2017, passed under Section 143(3) of the Act.
Appellant has raised the following grounds of appeal:
1. On the facts & circumstances of the case the Ld. CIT(A) has erred in concluding that additional claim of the appellant of reducing the disallowance u/s 14A cannot be entertained. The appellant submits that on the basis of certain facts and figures, it has worked out disallowance Assessment Year: 2015-16 u/s 14A at INR 78,12,599/- at the time of filing return of income. Thereafter, during the assessment proceedings as well as CIT(A) Proceedings, relying upon certain judicial precedents, the appellant has reworked the disallowance of INR 6,38,593/-. The Ld. CIT(A) has accepted the additional claim of the appellant but has erred in concluding that it should not be below the disallowance made in return of income filed by the appellant.
2. The appellant craves leave to add, alter or amend the grounds of appeal
which are without prejudice to one another.”
3. Brief facts of the case are that the Appellant-company filed return of income on 25.09.2015 offering suo motu disallowance of INR 78,12,599/- under Section 14A of the Act. However, during the assessment proceedings, the Appellant claimed that for the purpose of computing amount of disallowance in terms of Section 14A read with Rule 8D(2)(iii) of the Income Tax Rules, 1962 only the investments which yielded exempt income during the relevant previous year are to be considered as per the decision of the Special Bench of the Tribunal in the case of ACIT, Circle 17(1), New Delhi Vs. Vireet Investment (P.) Ltd: 58 ITR (T) 313 (Delhi - Trib.) (SB). Accordingly, vide letter dated 10.10.2017 filed before the Assessing Officer, the Appellant prayed that the amount of disallowance be restricted to INR 6,38,593/-. The Assessing Officer, however, rejected the revised claim of the Appellant and computed disallowance at under Section 14A read with Rule 8D(2)(iii) at INR 2,47,35,045/- being 0.5% of the average value of investments.
Being aggrieved, the Appellant carried the issue in appeal before the CIT(A). The CIT(A) accepted the contention of the Assessment Year: 2015-16 Appellant. However, the CIT(A) restricted the amount of disallowance to the suo motu disallowance of INR 78,12,599/- offered by the Appellant in the return of income and refused to consider the claim for reduced disallowance of INR 6,38,593/- lodged by the Appellant before the Assessing Officer vide letter dated 10.10.2017. According to the CIT(A), the time limit for filing the revised return had expired by the time Appellant lodged the aforesaid claim. Further, the Appellant had also not sought extension of time to file the claim in terms of Section 119(2)(b) of the Act. Therefore, the revised claim of the Appellant could not be entertained.
Not being satisfied with the relief granted by the CIT(A), the Appellant has preferred the present appeal.
The Ld. Authorised Representative for the Appellant appearing before us reiterated the stand taken before authorities below and submitted that the CIT(A) having accepted the contention of the Appellant erred in not accepting the revised claim of the Appellant. He submitted that in identical facts and circumstances the Tribunal has held that even if an assessee has offered disallowance of a higher amount in the return of income and over assessed itself, the Tribunal can give relief to the assessee to the extent the assessee is over assessed. In this regard he relied upon the following judgments/decisions:
- Marg Ltd. vs. CIT, Chennai: (2020) 275 Taxman 502 (Madras) - Tata Industries Ltd. vs. ITO, Mumbai 181 TTJ 600 (Mumbai) [20.07.2016] - DCIT vs. M/s Sundaram Multipap Limited : and CO. No. 272/Mum/2017, [20.04.2018] Assessment Year: 2015-16 7. In response the Ld. Departmental Representative relied upon the order passed by CIT(A) and submitted that the CIT(A) has rightly restricted the addition made by the AO under Section 14A of the Act to the amount of suo moto disallowance of INR 78,12,599/- offered to tax by the Appellant in its return of income. In this regard she relied upon the decision of the Hon‟ble Supreme Court in the case of Goetze (India) Limited Vs. CIT: (2006) 284 ITR 323 (SC).
We have heard the rival submissions and examined the material on record including the orders of authorities below. In the case of Marg Ltd. (supra) the assessee had itself offered disallowance in excess of the exempt income earned. The Hon‟ble Madras High Court held that disallowance under Section 14A of the Act read with Rule 8D cannot exceed the amount of exempt income earned by the Assessee during the relevant previous year and granting relief to the assessee observed as under:
“20. Before parting, we may also note with reference to the Table of disallowance voluntarily made by the Assessee, which is part of the Paper Book before us for the four assessment years in question. In the Table quoted in the beginning of the order, shows that the Assessee himself computed and offered the disallowance beyond the exempted income in the particular year, namely AY 2009-10, as against the dividend income of Rs. 41,042/- and the Assessee himself computed disallowance under Rule 8D of the Rules to the extent of Rs. 2,38,575/-, which was increased to Rs. 98,16,104/- by the Assessing Authority. Similarly, for AY 2012-13, against Nil dividend income, the Assessee himself computed disallowance at Rs. 8,50,000/-, which was increased to Rs. 2,61,96,790/-.
We cannot approve even the larger disallowance proposed by the Assessee himself in the computation of disallowance Assessment Year: 2015-16 under Rule 8D made by him. These facts are akin to the case of Pragati Krishna Gramin Bank (supra) decided by Karnataka High Court. The legal position, as interpreted above by various judgments and again reiterated by us in this judgment, remains that the disallowance of expenditure incurred to earn exempted income cannot exceed exempted income itself and neither the Assessee nor the Revenue are entitled to take a deviated view of the matter. ……………… this regard.
We, therefore, dispose of the present appeal by answering question of law in favour of the Assessee and against the Revenue and by holding that the disallowance under rule 8D of the IT Rules read with Section 14A of the Act can never exceed the exempted income earned by the Assesee during the particular assessment year and further, without recording the satisfaction by the Assessing Authority that the apportionment of such disallowable expenditure made by the Assessee with respect to the exempted income is not acceptable for reasons to be assigned the Assessing Authority, he cannot resort to the computation method under Rule 8D of the Income-tax Rules, 1962.” (Emphasis Supplied)
In the case of Tata Industries Ltd. (supra), the Hon‟ble Mumbai Bench of the Tribunal has held as under:
30. So far as the contention that the assessee itself has offered disallowance in the return of income more than the exempt income earned is concerned, the ld. AR has relied upon various case laws as mentioned in the written submissions dated 21.06.2016 to stress the point that even if the assessee under a mistake or misconception has over assessed itself in the return of income, the Tribunal can give relief to the assessee to the extent the assessee is over assessed and direct the lower authorities to tax the assessee as per the provisions of law. We find that in the case of National Thermal Power Co. Ltd. v. CIT [1998] 229 ITR 383 (SC), ……………….. While answering the question in affirmative, the Hon'ble Supreme Court concluded that the Assessment Year: 2015-16 Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. The full bench of the Hon'ble Bombay High Court in the cases of Ahmedabad Electricity Co. Ltd./Godavari Sugar Mills Ltd. v. CIT [1993] 199 ITR 351/66 Taxman 27 (Bom.) has observed that the basic purpose of an appeal procedure in an income tax matter is to ascertain the correct tax liability of the assessee in accordance with law. Therefore, at both the stages, either by the Appellate Assistant Commissioner or before the Appellate Tribunal, the appellate authority can consider the proceedings before it and the material on record before it for the purpose of determining the correct tax liability of the assessee. The Hon'ble Bombay High Court in the case of CIT v. Pruthvi Brokers & Shareholders [2012] 349 ITR 336/208 Taxman 498/23 taxmann.com 23 (Bom.) has observed that the assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional clams before them. The appellate authorities have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The words 'could not have been raised' must be construed liberally and not strictly. There may be several factors justifying the raising of a new plea in an appeal and each case must be considered on its own facts. The co-ordinate bench of the Tribunal in the case of Chandrashekhar Bahirwani [IT Appeal Nos. 7810 (M) of 2010 and 6599 (M) of 2011 vide order dated 17-6-2015] while deciding the question as to whether the income cannot be assessed less than the returned income has observed as under:
5. Now coming to the finding of the Ld. CIT (A), that income cannot be assessed less than the returned income, the Ld. A.R. of the assessee has submitted before us that the action of the Ld. CIT (A) in rejecting the claim of the assessee on this ground was not justified. He has further relied upon the decision of the Hon'ble Gujarat High Court in the case of "Gujarat Gas Ltd. v. JCIT" (2000) 245 ITR 84. In the said case, Assessment Year: 2015-16 the words of the Circular No. 549, para 5.12, dt. 31st October, 1989, providing that the assessed income under section 143(3) shall not be less than the returned income was considered by the Hon'ble High Court and it was held that as per proviso to section 119 of the Act, the Board cannot issue instructions to the Income Tax Authority to make a particular assessment or to dispose of a particular case in a particular manner as well as not to interfere with the discretion of the Commissioner in exercise of his appellate functions. It was further held that the AO, while exercising his quasi judicial powers, was not bound by the said circular and should have exercised his powers independently. The Hon'ble High Court, therefore, directed the AO to make the assessment without keeping in mind the said circular. It may be further observed that the Hon'ble Bombay High Court in the case of 'Pruthvi Brokers & Shareholders Pvt. Ltd.' of 2010 decided on 21.06.12, while relying upon the various decisions of the Hon'ble Supreme Court and other Hon'ble High Courts has held that even if a claim is not made before the AO, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim is not barred. The Hon'ble High Court has further observed that the decision of the Hon'ble Supreme Court in the case of 'Goetze (India) Limited v. CIT' (2006) 157 Taxman 1, relating to the restriction of making the claim through a revised return was limited to the powers of the Assessing Authority and the said judgment does not impinge on the power or negate the powers of the appellate authorities to entertain such claim by way of additional ground. Even otherwise, the Ld. CIT (A) ought to have considered the claim of the assessee in exercise of his appellate jurisdiction under section 250 of the Act. Moreover, if the assessee is, otherwise, entitled to a claim of deduction but due to his ignorance or for some other reason could not claim the same in the return of income, but has raised his claim before the appellate authority, the appellate authority should have looked into the same. The assessee cannot be burdened with the taxes which he otherwise is not liable to pay under the law. Even a duty has also been cast upon the Income Tax Authorities to charge the legitimate tax from the tax payers. They are not there to punish the tax payers for their bonafide mistakes. In view of our above observations, it is held that the assessee is not liable Assessment Year: 2015-16 to pay Capital Gains Tax, though originally he had subjected himself to the said tax as per his return of income. The AO is directed to process the claim of refund in this respect as per provisions of the law."
Respectfully following the above decisions of higher courts and that of co-ordinate benches of the tribunal, we direct the AO to restrict the disallowance u/s. 14A to the extent of exempt income earned by the assessee during the year” (Emphasis Supplied) 10. To the same effect is the decision of the Mumbai Bench of the Tribunal in the case of M/s Sundaram Multitap Ltd. (supra) wherein it has been held that voluntary disallowance made by the assessee under misconception of law cannot be used against the assessee in order to sustain a disallowance which is not permissible in law even if the deletion of the voluntary disallowance results in assessed income being less than the returned income.
Respectfully following the above judgment/decisions, we hold that once CIT(A) had accepted the contention of the Appellant that only the investments which yielded exempt income during the relevant previous year were to be considered for the purpose of computing disallowance under Section 14A read with Rule 8D(2)(iii) as per the decision of the Special Bench of the Tribunal in the case of Vireet Investment (P) Ltd. (supra), the CIT(A) was not justified in restricting the disallowance to INR 78,12,599/- being the voluntary disallowance offered by the Appellant in the return of income. Accordingly, we modify the order passed by CIT(A) on this issue and direct the Assessing Officer to restrict the disallowance under Section 14A of the Act read with Rule 8D(2)(iii) of the Rules to INR 6,38,593/-. Thus, Assessment Year: 2015-16 Ground No. 1 raised by the Appellant in the present appeal is allowed.