SANJEEV S. MEHTA,MUMBAI vs. ITO, 22(3)(2), MUMBAI

ITA No. 2830/Mum/2019 A.Y. 2009-10 1 Mr. Sanjeev S. Mehta Vs. ITO-22(3)(2) IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “SMC” MUMBAI BEFORE SHRI S.RIFUAR RAHMAN (ACCOUNTANT MEMBER) AND SHRI RAVISH SOOD (JUDICIAL MEMBER) ITA No.2830/MUM/2019 (Assessment Year: 2009-10) Mr. Sanjeev S. Mehta ITO - 22(3)(2) 704, Green Gates Perry Road, Vs. Piramal Chambers Bandra (West), Lalbagh, Mumbai – 400 050 Mumbai – 400 021 PAN No. AAGPM6845D (Assessee) (Revenue) Assessee by : Shri Hari Raheja, A.R Revenue by : Shri Sanjay J. Sethi, D.R Date of Hearing : 05/08/2021 Date of pronouncement : 04/10/2021

ORDER PER RAVISH SOOD, J.M:

The present appeal filed by the assessee is directed against the order passed by the CIT(A)-34, Mumbai, dated 22.01.2019, which in turn arises from the order passed by the A.O u/s 143(3) r.w.s 147 of the Income Tax Act, 1961 (for short „Act‟), dated 31.10.2014 for A.Y 2009-10. The assessee has assailed the impugned order on the following grounds before us: “1. On the Facts and Circumstances of the Case, The Hon'ble Commissioner of Income Tax (Appeal) has erred in Law in Confirming the Addition of disallowance under section 14A of Rs.1,26,048/- Made by Assessing Officer which totally unjustified and Arbitrary. 2. On the Facts and Circumstances of the Case, The Hon'ble Commissioner of Income Tax (Appeal) has erred in Law in Confirming for reopening of the Assessment by the Assessing Officer which unjustified and Arbitrary.

ITA No. 2830/Mum/2019 A.Y. 2009-10 2 Mr. Sanjeev S. Mehta Vs. ITO-22(3)(2) 3. On the Facts and Circumstances of the Case, The Assessee Officer has issued Notice u/s 154 of the Income Tax Act 1961, without Closing Rectification u/s 154 the Assessing Officer has without Authority issued Notice u/s 148. 4. The Appellant craves to Leave, Add, Amend, Alter any of The above Grounds of Appeal at the time of hearing.”

ITA No. 2830/Mum/2019 A.Y. 2009-10 3 Mr. Sanjeev S. Mehta Vs. ITO-22(3)(2) 14A r.w. Rule 8D an amount of Rs.1,24,683/- attributable to exempt income of Rs.42,81,534/- earned by the assessee during the year under consideration. It was submitted by the ld. A.R that the A.O had thereafter on the very same basis on which notice u/s 154 was issued to the assessee reopened his case u/s 147 of the Act. In order to fortify his aforesaid contention the ld. A.R had drawn our attention to the „reasons to believe‟ [as reproduced in the order of the CIT(A) and also the basis on which the notice u/s 154, dated 15.04.2013 was issued to him. Backed by the aforesaid facts, it was submitted by the ld. A.R that now when the A.O had issued a notice u/s 154, dated 15.04.2013, he thereafter stood divested of his jurisdiction to reopen the concluded assessment of the assessee on the very same basis. In sum and substance, it was the claim of the ld. A.R that having issued a notice u/s 154 of the Act to the assessee, the A.O thereafter could not have on the very same basis reopened his case u/s 147 of the Act. In support of his aforesaid contention the ld. A.R had relied on the judgment of the Hon‟ble High Court of Calcutta in the case of Berger Paints India Ltd. Vs. ACIT & Ors. (2010) 322 ITR 369 (Cal). Also, support was drawn from the order of the ITAT, Mumbai, in the case of M/s Nawany Corp (I) Ltd. Vs. ITO (2012) 33 CCH 345 (Mum). Alternatively, it was submitted by the ld. A.R that as the A.O had without recording any satisfaction dislodged the claim of the assessee that no disallowance u/s 14A was called for in its case, therefore, the same was liable to be vacated on the count of invalid assumption of jurisdiction by the A.O for making the said disallowance. 6. Per contra, the ld. Departmental Representative (for short „D.R‟) relied on the orders passed by the lower authorities. It was submitted by the ld. D.R that the A.O had rightly assumed jurisdiction in the case of the asesssee u/s 147 of the Act. Rebutting the claim of the assessee‟s counsel that the A.O had wrongly assumed jurisdiction and without recording any satisfaction made the disallowance u/s 14A of the Act, it was submitted by the ld. D.R that the same

ITA No. 2830/Mum/2019 A.Y. 2009-10 4 Mr. Sanjeev S. Mehta Vs. ITO-22(3)(2) was factually incorrect. It was submitted by the ld. D.R that the A.O remaining well within the realm of his jurisdiction had as per the mandate of law worked out the disallowance u/s 14A r.w Rule 8D. 7. We have heard the ld. Authorized Representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements that have been pressed into service by them to drive home their respective contentions. We shall first take up the claim of the ld. A.R that the A.O had wrongly assumed jurisdiction u/s 147 of the Act, for the reason, that he had reopened his concluded assessment on the very same reason on which notice u/s 154 of the Act was issued to him. 8. After giving a thoughtful consideration to the aforesaid contention of the ld. A.R, we are unable to persuade ourselves to subscribe to the same. In our considered view, the powers vested with an A.O u/s 147 and u/s 154 of the Act operate in their respective fields. On the one hand, the A.O u/s 154 of the Act is vested with the jurisdiction to rectify a mistake apparent from the record, while for on the other hand the jurisdiction u/s 147 is to be exercised by him in a case where he holds a belief that any income of the assessee chargeable to tax had escaped assessment. Admittedly, in a case where the A.O had on a specific ground sought to rectify a mistake apparent from the record in an order passed by him and issued a notice u/s 154 to the assessee, then, if such rectification proceedings are thereafter dropped by him for either of the reason, viz. (i). that there is no mistake apparent from the record; or (ii). that there were two views possible and the A.O had taken one of the possible view which therein takes the order beyond the purview of rectification proceedings; then, under either of the aforesaid circumstances it would thereafter not be permissible for him to reopen the case of the assessee on the very same basis u/s 147 of the Act. Reason being, that the order passed u/s 154 vacating/dropping the rectification proceedings would mean that either the view taken by the A.O was found to be

ITA No. 2830/Mum/2019 A.Y. 2009-10 5 Mr. Sanjeev S. Mehta Vs. ITO-22(3)(2) correct; or there were two views possible and the A.O had taken one of such plausible view. In either of the aforesaid fact situation, i.e the view taken by the A.O is found to be correct or the view so taken is one of the possible view; there would be no occasion for the A.O to thereafter on the very same basis reopen the case of the assessee as the same would partake the character of a mere „change of opinion‟, which as per the settled position of law is not permissible u/s 147 of the Act. Backed by our aforesaid observation, we though are principally in agreement with the aforesaid contention of the ld. A.R, but are afraid that the facts involved in the case before us do not befit the proposition that has been canvassed by him before us. In the present case, it is a matter of fact borne from the record that the notice issued u/s 154 by the A.O had neither been dropped nor culminated in an order till date. Accordingly, the support drawn by the ld. A.R from the aforesaid proposition that having issued a notice u/s 154 which thereafter had been dropped/vacated by the A.O, the case of the assessee on the very same basis cannot be reopened u/s 147 of the Act would be of no avail in the backdrop of the facts involved in the case before us. Insofar the reliance placed by the ld. A.R on the aforesaid judicial pronouncements, viz. Berger Paints India Ld. (supra) and M/s Nawany Corp (I) Ltd. (supra) is concerned, the same being distinguishable on facts would thus not assist its case. Unlike the case of the assessee before us in the case of Berger Paints India Ltd. (supra) the rectification proceedings that were initiated by the A.O had thereafter been dropped. On a similar footing, in the case of M/s Nawany Corp (I) Ltd. the proceedings u/s 154 are stated to have been concluded after the assessee had submitted its reply. Backed by the aforesaid facts, not being able to persuade ourselves to subscribe to the contention of the ld. A.R that the A.O having issued a notice u/s 154 of the Act could not have on the same basis validly reopened its case u/s 147 of the Act, we, thus, dismiss the same. The Grounds of appeal Nos. 2 & 3 are dismissed.

ITA No. 2830/Mum/2019 A.Y. 2009-10 6 Mr. Sanjeev S. Mehta Vs. ITO-22(3)(2) 9. We shall now deal with the alternative claim of the ld. A.R that the A.O without recording his satisfaction that as to why the claim of the assessee that no part of the expenses could be attributed to earning of the exempt income, had however, wrongly assumed jurisdiction and in a mechanical manner worked out the disallowance u/s 14A r.w Rule 8D. As is discernible from the assessment order, it was observed by the A.O that the assessee despite having earned an exempt income of Rs.42,81,534/- had however not offered any disallowance u/s 14A of the Act. Being of the view, that the assessee was obligated to work out the mandatory disallowance u/s 14A as per the mechanism provided in Rule 8D, the A.O had called upon the assessee to file a working of the said disallowance. In reply, the assessee vide its letter dated 16.10.2014 submitted before the A.O that no disallowance u/s 14A was called for in its hands. It was the claim of the assessee that as the assessee had sufficient self-owned funds of Rs.1.99 crores to justify the investment of Rs.1.35 crores made in the exempt income yielding assets, therefore, no disallowance of any part of the interest expenditure was called for in its case. However, the A.O was not inclined to accept the aforesaid explanation of the assessee. Holding a conviction that the disallowance u/s 14A r.w Rule 8D was mandatory the A.O had worked out the same at Rs.1,26,048/-. On appeal, though the assessee had assailed the disallowance made by the A.O u/s 14A of the Act, inter alia, for the reason that the latter had de hors recording of any satisfaction as to why the claim of the assessee that no expenses were attributable towards earning of the exempt income was not be accepted, therein, dislodged the same, however, the CIT(A) not finding favor with the aforesaid claim of the assessee had upheld the disallowance made by the A.O. 10. We have deliberated at length on the issue under consideration in the backdrop of the contentions advanced by the ld. authorized representatives for both the parties, perused the orders of the lower authorities and the material available on record, as well as considered the judicial pronouncements relied upon by the ld. A.R. As is discernible from the records, the assessee by not having suo motto disallowed any expenditure u/s

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14A had thus impliedly claimed that no part of the expenditure was attributable to earning of the exempt income. However, we find that the aforesaid claim of the assessee was rejected by the A.O. As is discernible from the assessment order, we find that the A.O without recording his satisfaction that having regard to the accounts of the assessee as placed before him, it was not possible to generate the reasonable satisfaction with regard to the correctness of the aforesaid claim of the assessee had summarily rejected the same, for the reason, that as per him the disallowance under Sec. 14A r.w Rule 8D was mandatory. On appeal, the CIT(A) had upheld the disallowance u/s 14A r.w Rule 8D(2)(iii) backed by a conviction that it was not necessary that satisfaction should be recorded in black & white. Further, it was inter alia observed by the CIT(A) that once the assessee makes a disallowance suo motto, that establishes the correctness of applicability of Sec. 14A. At this stage, we may herein observe that as the assessee on a suo motto basis had not offered any disallowance u/s 14A, therefore, the aforesaid observation of the CIT(A) is absolutely misconceived and irrelevant in context of the case of the assessee before us. Further, the CIT(A) was of the view that as the A.O had in the assessment order observed that disallowance computed by the assessee was not in accordance with Rule 8D, therefore, the same sufficed the requirement of recording of satisfaction on the part of the A.O.

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reasonable satisfaction with regard to the correctness of the claim of the assessee. We are of strong conviction that the failure on the part of the A.O to record a satisfaction that as to why the claim of the assessee that no part of the expenditure could be attributed to earning of the exempt income clearly reveals that he had failed to comply with the statutory obligation that was cast upon him qua recording his satisfaction as regards the correctness of the aforesaid claim of the assessee, having regard to its accounts placed before him. It was observed by the Hon‟ble Apex Court in the case of Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT & Anr. (2017) 394 ITR 449 (SC), that it was only after the A.O had recorded his dissatisfaction as regards the correctness of the claim of the assessee that the provisions of Sec.14A(2) and (3) r.w. Rule 8D could be invoked. It was observed by the Hon‟ble Apex Court, as under:

“37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule SD of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable.” The aforesaid view was once again reiterated by the Hon‟ble Supreme Court in the case of Maxopp Investment Ltd. VS. CIT (2018) 402 ITR 640 (SC). In the aforesaid case, it was once again observed by the Hon‟ble Supreme Court that if the A.O was not satisfied with the disallowance that was offered by the assessee, then, he remained under a statutory obligation to record his dissatisfaction to the said effect, as it was only thereafter that he could assume jurisdiction and take recourse to and work out the disallowance as per sub-section (2) and (3) of Sec. 14A of the Act.

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attributable to earning of its exempt income without recording his satisfaction as to why the same was not to be accepted having regard to the accounts of the assessee which were placed before him. Accordingly, we are of a strong conviction that the A.O had wrongly assumed jurisdiction and worked out the disallowance in the hands of the assessee under Sec. 14A of the Act. We, thus, in terms of our aforesaid observations respectfully follow the judgments of the Hon‟ble Supreme Court in the case of Godrej & Boyce Manufacturing Company Ltd. Vs. DCIT & Anr. (2017) 394 ITR 449 (SC) and Maxopp Investment Ltd. Vs. CIT (2018) 402 ITR 640 (SC) and vacate the disallowance of Rs.1,26,048/- made by the A.O under Sec.14A of the Act.

Order pronounced in the open court on 04.10.2021

Sd/- Sd/- (S. Rifaur Rahman) (Ravish Sood) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai; Dated: 04.10.2021 PS: Rohit Copy of the Order forwarded to : 1. The Appellant 2. The Respondent. 3. The CIT(A)- 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy//

(Sr. Private Secretary) ITAT, Mumbai