Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “A” BENCH, PUNE
Before: SHRI D. KARUNAKARA RAO, AM & SHRI VIKAS AWASTHY, JM
आदेश / ORDER
PER VIKAS AWASTHY, JM :
This appeal by the assessee is directed against the order of Commissioner of Income Tax (Appeals)-1, Nashik dated 17-06-2016 for the assessment year 2011-12.
2 ITA No.1907/PUN/2016, A.Y. 2011-12
The assessee in appeal has assailed the order of Commissioner of Income Tax (Appeals) enhancing the income by making addition u/s. 14A r.w. Rule 8D Rs.32,60,974/-. The assessee apart from challenging the addition on merits has raised additional ground of appeal challenging jurisdiction of Commissioner of Income Tax (Appeals) in enhancing income from fresh source that has not been subject of assessment.
Shri Pramod Shingte appearing on behalf of the assessee submitted that the assessee is engaged in manufacturing of poultry farm products. The assessee filed its return of income on 29-09-2011 declaring total income of Rs.3,59,56,837/-. In scrutiny assessment proceedings, the Assessing Officer made part disallowance of Rs.9,66,383/- in respect of assessee’s claim of deduction u/s. 80IA of the Act. Aggrieved against partial disallowance of deduction u/s. 80IA, the assessee filed appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) granted relief to the assessee with regard to claim of deduction u/s. 80IA, however, issued enhancement notice for making disallowance u/s. 14A r.w.r. 8D. The ld. AR submitted that it is a well settled law that the Commissioner of Income Tax (Appeals) cannot enhance income by discovering a new source of income in First Appellate proceedings. In support of his contentions the ld. AR placed reliance on following decisions : i. Ram Infrastructure Ltd. Vs. Joint Commissioner of Income Tax in ITA No. 746/PN/2013 for assessment year 2009-10 decided on 30-12-2016; ii. M/s. Vijay Builders Vs. Income Tax Officer in ITA No. 863/PN/2013 for assessment year 2008-09 decided on 25-02-2015;
3 ITA No.1907/PUN/2016, A.Y. 2011-12
iii. M/s. Jaihind Engineers Vs. Income Tax Officer in ITA No. 791/PN/2016 for assessment year 2008-09 decided on 15-07-2016.
3.1 The ld. AR further pointed that even on merits the assessee has got good case in its favour. The own funds of assessee are much more than the investment made. Referring to Balance Sheet as on 31-03-2011 at page 11 of the paper book, the ld. AR submitted that a perusal of Balance Sheet would show that own funds of assessee (Partners Capital) are to the tune of Rs.18,98,07,414.42/- as against Investments of Rs.9,47,69,105.84/-. Thus, in view of the law laid down by the Hon’ble Bombay High Court in the case of Commissioner of Income Tax Vs. HDFC Bank Ltd. reported as 366 ITR 505 no disallowance u/s. 14A(2) is called for. The ld. AR further contended that for making disallowance u/s. 14A r.w.r. 8D it is mandatory to record satisfaction. In this case disallowance u/s. 14A has been made by the Commissioner of Income Tax (Appeals), however, before making disallowance, the Commissioner of Income Tax (Appeals) has not recorded satisfaction. Thus, the addition made u/s. 14A r.w.r. 8D is liable to be set aside.
On the other hand Shri Aseem Sharma representing the Department vehemently defended the impugned order. The ld. DR submitted that the Commissioner of Income Tax (Appeals) before enhancing the income of assessee had issued notice to the assessee. The Commissioner of Income Tax (Appeals) has sought remand report from the Assessing Officer and has thereafter made addition. So far as the claim of assessee that own funds are much more than the investment, to verify the fact, the matter can be referred back to Assessing Officer.
4 ITA No.1907/PUN/2016, A.Y. 2011-12
We have heard the submissions made by representatives of rival sides and have perused the orders of authorities below. We have also considered the decisions on which the ld. AR of assessee has placed reliance to support his contentions. The solitary issue raised in the appeal by the assessee is with respect to enhancement of income by Commissioner of Income Tax (Appeals) by making disallowance u/s. 14A r.w.r. 8D.
A perusal of assessment order reveals that the Assessing Officer has not touched upon the issue of disallowance u/s. 14A r.w.r. 8D during assessment proceedings. The solitary addition made by Assessing Officer was with respect to partial disallowance of assessee’s claim of deduction u/s. 80IA of the Act. In first appeal the Commissioner of Income Tax (Appeals) has granted relief to the assessee qua deduction claimed u/s. 80IA of the Act. The enhancement made by the Commissioner of Income Tax (Appeals) by invoking the provisions of section 14A r.w.r. 8D is a new source of income. We are of considered view that the Commissioner of Income Tax (Appeals) has gone beyond his jurisdiction in invoking the provisions of section 14A r.w.r. 8D for making addition on new source.
The Co-ordinate Bench of Tribunal in the case of Ram Infrastructure Ltd. Vs. Joint Commissioner of Income Tax (supra) has dealt with issue in detailed and after placing reliance on various decisions has deleted addition made by Commissioner of Income Tax (Appeals) on fresh source of income during First Appellate stage. The relevant extract of findings of Tribunal in the aforesaid case reads as under :
5 ITA No.1907/PUN/2016, A.Y. 2011-12
“12. In ground Nos. 5 and 6 the assessee has assailed the addition of Rs.7,37,68,681/- made u/s. 2(22)(e) of the Act by the Commissioner of Income Tax (Appeals). The Assessing Officer in his order has not touched upon the issue of deemed dividend. The Commissioner of Income Tax (Appeals) has observed that the assessee has violated the provisions of section 42 of the Companies Act. The subsidiary of the company has made investment in the share capital of the assessee (a holding company). The ld. AR of the assessee has made two fold submissions. The first contention of the assessee is that the Commissioner of Income Tax (Appeals) cannot made addition on the basis of new source of income during first appellate proceedings. The Hon’ble Supreme Court of India in the case of Commissioner of Income Tax Vs. Shapoorji Pallonji Mistry (supra) has held that AAC is not competent to enhance assessment in appeal by discovering new source of income not mentioned in return or consider by the Assessing Officer in assessment. The relevant extract of the judgment of Hon’ble Apex Court in the aforesaid case is as under:
“8……………The only question is whether in enhancing the assessment for any year he can travel outside the record, that is to say, the return made by the assessee and the assessment order passed by the Income tax Officer with a view to finding out new sources of income, not disclosed in either. It is contended by the Commissioner of Income tax that the word " assessment " here means the ultimate amount which an assessee must pay, regard being had to the charging section and his total income. In this view, it is said that the words " enhance the assessment " are not confined to the assessment reached through a particular process but the amount which ought to have been computed if the true total income had been found. There is no doubt that this view is also possible. On the other hand, it must not be overlooked that there are other provisions like sections 34 and 33B, which enable escaped income from new sources to be brought to tax after following a special procedure. The assessee contends that the powers of the Appellate Assistant Commissioner extend to matters considered by the Income tax Officer, and if a new source is to be considered, then the power of remand should be exercised. By the exercise of the power to assess fresh sources of income, the assessee is deprived of a finding by two tribunals and one right of appeal.
The question is whether we should accept the interpretation suggested by the Commissioner in preference to the one, which has held the field for nearly 37 years. In view of the provisions of sections 34 and 33B by which escaped income can be brought to tax, there is reason to think that the view expressed uniformly about the limits of the powers of the Appellate Assistant Commissioner to enhance the assessment has been accepted by the legislature as the true exposition of the words of the section. If it were not, one would expect that the legislature would have amended section 31 and specified the other intention in express words. The Income tax Act was amended several times in the last 37 years, but no amendment of section 31(3)
6 ITA No.1907/PUN/2016, A.Y. 2011-12
was undertaken to nullify the rulings, to which we have referred. In view of this, we do not think that we should interpret section 31 differently from what has been accepted in India as its true import, particularly as that view is also reasonably possible.”
The Hon’ble Apex Court thereafter in the case of Commissioner of Income Tax Vs. Rai Bahadur Hardutroy Motilal Chamaria (supra) has reaffirmed its view taken in the case of Commissioner of Income Tax Vs. Shapoorji Pallonji Mistry (supra). The Hon’ble justice V. Ramaswami speaking for the court stated: “As we have already stated, it is not open to the Appellate Assistant Commissioner to travel outside the record, i.e., the return made by the assessee or the assessment order of the Income tax Officer with a view to find out new sources of income and the power of enhancement under section 31(3) of the Act is restricted to the sources of income which have been the subject matter of consideration by the Income tax Officer from the point of view of taxability. In this context " consideration " does not mean " incidental " or " collateral " examination of any matter by the Income tax Officer in the process of assessment. There must be something in the assessment order to show that the Income tax Officer applied his mind to the particular subject matter or the particular source of income with a view to its taxability or to its non taxability and not to any incidental connection”.
The law laid down by the Hon’ble Apex Court has been reiterated by the full Bench of the Hon’ble Delhi High Court in the case of Commissioner of Income Tax Vs. Sardari Lal & Co. (supra). The Hon’ble Delhi High Court held: “Looking from the aforesaid angles, the inevitable conclusion is that whenever the question of taxability of income from a new source of income is concerned, which had not been considered by the Assessing Officer, the jurisdiction to deal with the same in appropriate cases may be dealt with under section 147/148 of the Act and section 263 of the Act, if requisite conditions are fulfilled. It is inconceivable that in the presence of such specific provisions, a similar power is available to the first appellate authority”.
Thus, in view of the well settled law laid down by the Hon’ble Apex Court and subsequently followed by the Hon’ble Delhi High Court we hold that the Commissioner of Income Tax (Appeals) has exceeded his jurisdiction in making addition u/s. 2(22)(e) of the Act as there is no reference of such income either in the return of income or in the assessment proceedings. Thus, the addition made u/s. 2(22)(e) by Commissioner of Income Tax (Appeals) is not sustainable and is therefore set aside being void ab-initio.
Since, the addition made by the Commissioner of Income Tax (Appeals) u/s. 2(22)(e) of the Act has been held to be void ab-initio, the arguments raised by the ld. AR of the assessee on merits have become academic and are thus, not dealt with. The ground Nos. 5 and 6 raised by the assessee in grounds of appeal are allowed, accordingly.”
7 ITA No.1907/PUN/2016, A.Y. 2011-12
Similar view has been taken by the Co-ordinate Bench in the cases of M/s. Vijay Builders Vs. Income Tax Officer (supra) and M/s. Jaihind Engineers Vs. Income Tax Officer (supra).
The ld. AR has asserted that before invoking the provisions of section 14A r.w.r. 8D no satisfaction has been recorded by the Commissioner of Income Tax (Appeals) as envisaged u/s. 14A (2) & (3). A perusal of impugned order shows that the Commissioner of Income Tax (Appeals) has placed reliance on various decisions of Hon’ble Supreme Court of India and Hon’ble High Courts before invoking the provisions of section 14A r.w.r. 8D. However, no satisfaction per se as contemplated u/s. 14A (2) & (3) has been recorded. The road to Rule 8D passes through sub-section (2) and (3) of section 14A. In catena of judgments by the Hon’ble High Courts it has been held that recording of satisfaction by Assessing Officer is a pre- condition to invoking of Rule 8D. In the instant case we observe that the Commissioner of Income Tax (Appeals) before making disallowance u/s. 14A has discussed various judicial pronouncements but has not recorded his satisfaction as to why disallowance is warranted.
The ld. AR has further demonstrated from the Balance Sheet of assessee as on 31-03-2011 that own funds to the assessee are much more than the investment made.
After considering the documents on record and various decisions, we are of considered view that the Commissioner of Income Tax (Appeals) has erred in exceeding his jurisdiction by enhancing income from a fresh source that was neither part of return of income nor touched upon by the
8 ITA No.1907/PUN/2016, A.Y. 2011-12
Assessing Officer in proceeding u/s. 143(3) of the Act. Consequently, the impugned order is modified and enhancement made by Commissioner of Income Tax (Appeals) is set aside.
In the result, the appeal of assessee is allowed.
Order pronounced on Wednesday, the 27th day of February, 2019.
Sd/- Sd/- (डी. करुणाकरा राव/D. Karunakara Rao) (ववकास अवस्थी / Vikas Awasthy) ऱेखा सदस्य / ACCOUNTANT MEMBER न्याययक सदस्य / JUDICIAL MEMBER ऩुणे / Pune; ददनाांक / Dated : 27th February, 2019. RK आदेश की प्रयिलऱवऩ अग्रेवषि / Copy of the Order forwarded to : अऩीऱाथी / The Appellant. 1. प्रत्यथी / The Respondent. 2. आयकर आयुक्त (अऩीऱ) / The CIT(A)-1, Nashik 3. 4. The Pr. Commissioner of Income Tax-1, Nashik ववभागीय प्रयतयनधध, आयकर अऩीऱीय अधधकरण, “ए” बेंच, 5. ऩुणे / DR, ITAT, “A” Bench, Pune. गाडड फ़ाइऱ / Guard File. 6. //सत्यावऩत प्रयत // True Copy// आदेशानुसार / BY ORDER,
यनजी सधचव / Private Secretary, आयकर अऩीऱीय अधधकरण, ऩुणे / ITAT, Pune