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Income Tax Appellate Tribunal, “G” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
O R D E R
PER AMARJIT SINGH, JM:
The revenue has filed the present appeal against the order dated 13.03.2019 passed by the Commissioner of Income Tax (Appeals) -49 Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2011- 12.
The revenue has raised the following grounds: - "
1. Whether on the facts and circumstances of the case and in law the CIT(A) was justified in deleting the addition of Rs.78,73,864/- made for 14A of the Income tax Act when the computation made by the assessee for suo moto disallowance is not as per the prevailing law.
2. Whether on the facts and circumstances of the case and in law the CIT(A) was justified in deleting the addition disallowance A.Y.2011-12 of reduction on account of provision made for redemption of preference shares of Rs.24,38,38,437/- while computing the book profit u/s 115JB of the Act, as the assessee never credited the amount of reserves to the profit and loss account and thereafter reduce the reserve for Rs.24,38,38,437/- used for redemption of preference shares from net profit."
3. The brief facts of the case are that the search and seizure action u/s 132(1) of the I. T. Act, 1961 was carried out in Wellknown Group of Companies on 23.05.2013 and on subsequent dates by DDIT(Inv.), Unit- III(2), Mumbai. Consequent upon the search, the case of the assessee was centralized with the office vide order u/s 127(2) of the I. T. Act, 1961, F. No.CIT-4/HQ/Centralization/2013-14, dated 14.10.2013 of CIT-4, Mumbai. Thereafter, notice u/s 153A was issued and served upon the assessee. In pursuance of notice, the assessee filed its return of income on 24.07.2014 declaring total income to the tune of Rs.58,87,97,290/-. Thereafter, the notice u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee issued Preference Shares to Shell Companies at high premium. M/s. Wellknown Polysters Ltd, for the purpose debited certain purchase under the head „Capital Expenses‟ in its books of accounts and further the same has been brought back into books of accounts of the said companies in the form of Preference Share Capital after routing through various sister concerns. After the reply of the assessee, the capital-ex purchases of Rs.45,374,000/- and the excess depreciation of Rs.62,355,635/- was withdrawn by the assessee. The assessee also received the dividend income of Rs.81,31,000/- which was not the part of the total income. The AO applied the provisions u/s 14A r.w. Rule 8D of the Rules and assessed the expenditure to earn the exempt income of Rs.80,77,000/- after deducting the suo-moto disallowance in sum A.Y.2011-12 of Rs.2,03,136/- and by reducing the self-disallowance amount in sum of rs.2,03,136/-, the amounts in sum of Rs.78,73,864/- was added to the income of the assessee. The assessee also created the provision for Redemption of Preference Shares in sum of Rs.24,38,38,437/- and same was disallowance and added to the income of the assessee. The assessee has claimed the deduction u/s 80IB(3) in sum of Rs.20,58,33,236/- and after the reply of assessee, the claim was reduced to the extent of Rs.2,31,92,100/- and added to the income of the assessee. The total income of the assessee was assessed in sum of Rs.68,81,29,640/-. The book profit was assessed in sum of Rs.1,47,17,80,010/- u/s 115JB of the Act. Feeling aggrieved, the assessee filed an appeal before the CIT(Appeals) who partly allowed the claim of the assessee but the revenue was not satisfied on the grounds mentioned above, therefore, the revenue has filed the present appeal before us.
ISSUE No. 1 4. Under this issue the revenue has challenged the deletion of addition in sum of Rs.78,73,864/- u/s 14A r.w. Rule 8D. The Ld. Representative of the revenue has argued that the CIT(A) has wrongly deleted the addition of Rs.78,73,864/-, therefore, the finding of the CIT(A) is not justifiable, hence, is liable to be set aside. However, on the other hand, the Ld. Representative of the assessee has strongly relied upon the order passed by the CIT(A) in question. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.: - “6.2 The submissions of the Learned Counsel have been carefully considered. cording to the Learned Counsel, the assessee had earned dividend income of only Rs.6,300/and requested that the disallowance, if A.Y.2011-12 any, should be restricted to the dividend income earned. For this proposition, the Learned Counsel relied upon the various case laws referred to in his submissions supra. Though, it is true that there are certain judicial precedents which state that the disallowance should not exceed exempt income, this is a case where the assessee itself had made suo-moto disallowance of Rs.2,03,136/-. This means, the assessee itself is admitting that an expenditure of Rs.2,03,136/- has been incurred in the process of making investments and earning exempt income. Therefore, to turn around at the appellate stage and say that the disallowance should not exceed exempt income is not correct. What the Act envisages is that any expenditure incurred in relation to income which does not form part of total income should be disallowed. It is the assessee who is in the best position to know how much is the expenditure incurred by the assessee to earn such exempt income. In this case, as per the assessee‟s own admission, such expenditure is Rs.2,03,136/-. No reason or evidence has been given by the assessee to show that this working of disallowance of Rs.2,03,136/is wrong. Therefore, even though some Courts have said that disallowance should not exceed exempt income, as the assessee itself admitted that it had incurred an expenditure of Rs.2,03,136/-, the AO is directed to restrict the disallowance u/s. 14A to the suo-moto disallowance made by the assessee which is Rs.2,03,136/-. The assessee gets relief for the balance. 6.3. The Third ground of appeal is against the AO‟s action of adding the disallowance made u/s. 14A to book profits u/s. 115JB. The Special Bench of ITAT, Delhi in the case of CIT vs. Vireet Investment (P) Ltd (2017) 82 Taxmann.com 415 held that disallowance u/s 14A cannot be added to the book profit u/s 115JB. The Hon‟ble Delhi Tribunal in case of Quippo Telecom Infrastructure Ltd. vs. ACIT (ITA No.4931/ Del/ 2010) held as under: “No actual expenditure was debited in the profit & loss account relating to the earning of exempt income. Therefore, the provision of section 14A cannot be imported into while computing the book profit under section 115JB of the Act in as much as clause (f) of Explanation to sec. 115JB refers to the amount debited to the profit & loss account which can be added back to the book profit while computing book profit under section 115JB of the Act. In this connection, reliance can be placed upon the decision of ITAT Delhi Bench, in the case of Goetze (India) Ltd. vs. CIT [2009] 32 SOT 101 (Delhi), wherein it has been held that provisions of sub-sec. (2) & (3) of section 14A cannot be imported into clause (f) of the Explanation to sec. 115JB of the Act. In this view of the matter, we therefore, delete the disallowance of expenses confirmed by the CIT(A) while computing book profit under sec. 115JB of the Act” 6.4. Respectfully following the above decisions, the AO is directed to delete the addition being disallowance u/s 14A from the book profit A.Y.2011-12 computed in accordance with section 115JB of the IT Act. These grounds of appeal are PARTLY ALLOWED.”
5. On appraisal of the above mentioned finding, we find that the exempt income of the assessee was of Rs.6,300/-. The assessee has suo- moto disallowed the expenses to earn the exempt income in sum of Rs.2,03,136/-. There are number of decisions of the higher authorities in which it has been specified that the expenses to earn the exempt income should not be more than exempt income. In the present case assessee disallowed the expenses to earn the exempt income to the tune of Rs.2,03,136/- suo-moto which is more than the exempt income. We also find in support of the decision of Hon‟ble Delhi High Court in the case of Vireet Investment Pvt. Ltd. Vs. CIT in which it is specifically held that the disallowance could not be exceed more than the exempt income. Taking into account all the facts and circumstances, we are of the view that the CIT(A) has decided the matter of controversy judiciously and correctly which is not liable to be interfere with at this appellate stage. Accordingly, we decide this issue in favour of the assessee against the revenue.
ISSUE NO.2 6. Under this issue the revenue has challenged the deletion of addition of disallowance of redemption on account of provisions made for redemption of preference shares of Rs.24,38,38,437/- while computing the books profit u/s 115JB of the Act. Before going further, we deem it necessary to advert the finding of the CIT(A) on record.: - “7.2 The submissions of the learned Counsel have been carefully considered. This is a recurring issue in the assessee‟s own case for preceding and succeeding AYs. Which has been decided by the Hon‟ble ITAT in the appellant‟s own case for A.Ys. 2012-13 to 2014-15 vide ITA No. 4082/M/2019 A.Y.2011-12 order dated 13.06.2018 has decided the issue in favour of the assessee. The Hon‟ble ITAT held as under:- “19. In fact, another aspect which was before the Hon'ble Delhi High Court was in relation to the transfer of an amount to Debt Redemption Reserve for which also it negated the stand of the assessee and held it to be a Reserve falling within the scope of clause (b) of Explanation-1 to Sec. 11JB of the Act. In coming to such a decision, in paras 22 and 23, the Hon'ble High Court specifically noted that the assessee therein had failed to explain the nature and character of the debt and went on to hold that in the absence of such explanation, the said sum would not be liable to be accepted as .an „ascertained liability in terms of clause (c) of Explanation-1 to Sec. 115JB of the Act. In fact, in the case before us, and which has also been noted in detail by our co-ordinate Bench in the earlier year, the Provision is for premium payable on redemption of Preference shares and the additional Premium/return payable on such redemption. There is a complete explanation which reflects the nature and character of the Provision and it clearly underlines the obligation or the liability to pay over and above the face value of the Preference shares at the time of redemption. Therefore, in our view, no fault can be found with the conclusion that the impugned Provision was indeed an „ascertained liability‟ of the nature referred to in clause (c) of Explanation-1 to Sec. 115JB of the Act. We may also add here that there is nothing to distract from applying the ratio of the Judgment of the Hon'ble Bombay High Court in the case of Raymond Ltd. (supra) to conclude that the impugned amount is to be understood as a known liability and not as a Reserve.
In the result, we hereby allow the stand of the assessee following the precedent in assessee's own case dated 22.11.2016 (supra). 7.3 In view of the above, as the same issue on identical set of facts has been decided by the Hon'ble ITAT in the appellant's own case in its favour, these grounds appeal are ALLOWED.”
On appraisal of the above mentioned finding, we find that the CIT(A) has allowed the claim of the assessee on the basis of the decision of Hon‟ble ITAT in the assessee‟s own case for the A.Y. 2012-13 & 2014-15 vide order dated 13.06.2018. The CIT(A) has reproduced the finding of the Hon‟ble ITAT on record. There is nothing on record to which it can be assumed that the said order has been changed or varied. The facts are not distinguishable at this stage. Since the issue is fully covered in favour of the A.Y.2011-12 assessee in his own case for the A.Y.2012-13 to 2014-15 vide order dated 13.06.2018, therefore, we are of the view that the finding of the CIT(A) is quite justifiable which is not liable to be interfere with at this appellate stage. Accordingly, we decide this issue in favour of the assessee against the revenue.