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Income Tax Appellate Tribunal, “F” BENCH, MUMBAI
Before: SHRI PRAMOD KUMAR&
Shri Nikunj Gada, AR Appellant by : Respondent by : Mrs. Samatha Mullamudi, D.R. Date of Hearing 06.01.2020 28.07.2020 Date of Pronouncement O R D E R PER Ms. MADHUMITA ROY - JM:
The instant appeal filed by the assessee is directed against the order dated 17.01.2018 passed by the Ld. Commissioner of Income Tax (Appeals) – 2, Mumbai arising out of the order dated 30.11.2006 passed by the ACIT, Cir-1 (2)(1), Mumbai under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for Assessment Year 2014-15.
The brief facts leading to the case is this that the assessee company engaged in the business of consultancy of insurances and risk management filed its return of income for A.Y. 2014-15 on 29.11.2014
J.B. Boda Reinsurance Brokers Pvt. Ltd. vs. ACIT Asst.Year –2014-15 - 2 - declaring total income at Rs. 36,39,62,800/- which was scrutinized and ultimately completed under section 143(3) of the Act, with an addition of Rs. 17,72,201/- on account of disallowance under section 14A of the Act. The same was, in turn, restricted to Rs. 12,61,787/- by the Ld. CIT(A). Hence, the instant appeal before us.
We have heard the parties and we have perused the relevant materials available on record.
It appears that during the course of assessment proceeding it was found that the average value of the tax free investment was of Rs. 25,23,57,489/-. The assessee has earned dividend income Rs. 95,17,274/-. The assessee incurred an expenditure towards the demand charges of Rs. 1,685/- and administrative cost of Rs. 5,000/- which was suo moto disallowed by the assessee. The assessee company has explained that it has investment from its own funds and has not incurred any interest expenditure to make such investment in Mutual Funds and Shares by way of borrowing. The case of the assessee before the Revenue was this that Rule 8D can only be invoked when it is not possible for the AO to work out the disallowance correctly having regard to the accounts of the assessee. Even assuming disallowance can be made, the same can be done only on the basis of investment from which only exempt income yielded in the year under consideration. In this regard, before us the assessee relied upon the judgment passed by the Hon’ble Delhi Bench in the case of ACIT vs. Vireet Investment Pvt. Ltd. [2017] 82 taxmann.com 415 (Delhi – Trib.) (SB). However, such plea of J.B. Boda Reinsurance Brokers Pvt. Ltd. vs. ACIT Asst.Year –2014-15 - 3 - the assessee was not found acceptable by the Ld. AO and having been not satisfied with the correctness of the assessee’s expenditure in relation to income which does not form part of the total income, the AO determined the amount of expenditure in accordance with Rule 8D of the Act. The Ld. AO has applied both Rule 8D(2)(i), Rule 8D(2)(ii) and Rule 8D(2)(iii) and computed direct expenses attributable, expenditure by way of interest and 0.5% of average investments respectively. The direct expenses has been worked out at Rs. 1,685/- on account of Demat charges. The expenditure incurred by way of interest is to the tune of Rs. 5,15,414/- invoking Rule 8D(2)(ii) and 0.5% of the average investment under Rule 8D(2)(iii) has been computed at Rs. 12,61,787/- which was under challenge before us.
As it appears from the records that the Ld. CIT(A) while confirming this particular addition he has observed that upon due consideration of the proceeding and the judicial pronouncements the Ld. AO made the addition of Rs. 12,61,787/- under Rule 8D(2)(iii). The total quantum of exempt income earned by the assessee was much higher than that of the disallowance made by the Ld. AO and relying upon the judgment passed by the Hon’ble Delhi High Court the Ld. AO has been directed to restrict the disallowance to the tune of Rs. 1,685/- and Rs. 12,61,787/- on account of Rule 8D(2)(i) & 8D(2)(iii).
In this respect we have carefully considered the judgment passed by the Hon’ble Delhi Bench in the matter of ACIT vs. Vireet Investment Pvt. Ltd. as relied upon by the Ld. AR. However, we find that the ratio
J.B. Boda Reinsurance Brokers Pvt. Ltd. vs. ACIT Asst.Year –2014-15 - 4 - laid down in the said judgment has not been followed in its true spirit. As we find that while making addition of .5% of the average investment under Rule 8D(2)(iii) the Ld. AO considered the entire investment made by the assessee instead of only those investment which yielded exempt income during the year. Thus, having regard to the entire facts and circumstances of the case we dispose of the appeal by restoring the issue to the file of the Ld. AO for re-computing the disallowance under Section 14A of the Act on the basis of investment which yielded exempt income in the year under consideration as observed by us hereinabove. Assessee’s appeal is thus allowed for statistical purpose.
In the result, assessee’s appeal is allowed for statistical purpose.
Before parting we would like to make certain observation relating to the issue cropped up under present scenario as to whether when the hearing of the matter was concluded on 06.01.2020 the order can be pronounced today i.e. on 22.07.2020. The issue has already been discussed by the Co- ordinate Bench in the case of DCIT vs. JSW Ltd. (ITA Nos. 6264 & 6103/Mum/2018) pronounced on 14.05.2020 in the light of which it is well within the time limit permitted under Rule 34(5) of the Appellate Tribunal Rules, 1963 in view of the following observations made therein:
“7. However, before we part with the matter, we must deal with one procedural issue as well. While hearing of these appeals was concluded on 8th January 2020, this order thereon is being pronounced today on the day of 14th May, 2020, much after the expiry of 90 days from the date of conclusion of hearing. We are also alive to the fact that rule 34(5) of the Income Tax
J.B. Boda Reinsurance Brokers Pvt. Ltd. vs. ACIT Asst.Year –2014-15 - 5 - Appellate Tribunal Rules 1963, which deals with pronouncement of orders, provides as follows:
(5) The pronouncement may be in any of the following manners :— (a) The Bench may pronounce the order immediately upon the conclusion of the hearing. (b) In case where the order is not pronounced immediately on the conclusion of the hearing, the Bench shall give a date for pronouncement. (c) In a case where no date of pronouncement is given by the Bench, every endeavour shall be made by the Bench to pronounce the order within 60 days from the date on which the hearing of the case was concluded but, where it is not practicable so to do on the ground of exceptional and extraordinary circumstances of the case, the Bench shall fix a future day for pronouncement of the order, and such date shall not ordinarily (emphasis supplied by us now) be a day beyond a further period of 30 days and due notice of the day so fixed shall be given on the notice board.
Quite clearly, “ordinarily” the order on an appeal should be pronounced by the bench within no more than 90 days from the date of concluding the hearing. It is, however, important to note that the expression “ordinarily” has been used in the said rule itself. This rule was inserted as a result of directions of Hon’ble jurisdictional High Court in the case of Shivsagar Veg Restaurant Vs ACIT [(2009) 317 ITR 433 (Bom)] wherein Their Lordships had, inter alia, directed that “We, therefore, direct the President of the Appellate Tribunal to frame and lay down the guidelines in the similar lines as are laid down by the Apex Court in the case of Anil Rai (supra) and to issue appropriate administrative directions to all the Benches of the Tribunal in that behalf. We hope and trust that suitable guidelines shall be framed and issued by the President of the Appellate Tribunal within shortest reasonable time and followed strictly by all the Benches of the Tribunal. In the meanwhile(emphasis, by underlining, supplied by us now), all the J.B. Boda Reinsurance Brokers Pvt. Ltd. vs. ACIT Asst.Year –2014-15 - 6 - revisional and appellate authorities under the Income-tax Act are directed to decide matters heard by them within a period of three months from the date case is closed for judgment”. In the ruled so framed, as a result of these directions, the expression “ordinarily” has been inserted in the requirement to pronounce the order within a period of 90 days. The question then arises whether the passing of this order, beyond ninety days, was necessitated by any “extraordinary” circumstances.
Let us in this light revert to the prevailing situation in the country. On 24th March, 2020, Hon’ble Prime Minister of India took the bold step of imposing a nationwide lockdown, for 21 days, to prevent spread of Covid 19 epidemic, and this lockdown was extended from time to time. As a matter of fact, even before this formal nationwide lockdown, the functioning of the Income Tax Appellate Tribunal at Mumbai was severely restricted on account of lockdown by the Maharashtra Government, and on account of strict enforcement of health advisories with a view of checking spread of Covid 19. The epidemic situation in Mumbai being grave, there was not much of a relaxation in subsequent lockdowns also. In any case, there was unprecedented disruption of judicial wok all over the country. As a matter of fact, it has been such an unprecedented situation, causing disruption in the functioning of judicial machinery, that Hon’ble Supreme Court of India, in an unprecedented order in the history of India and vide order dated 6.5.2020 read with order dated 23.3.2020, extended the limitation to exclude not only this lockdown period but also a few more days prior to, and after, the lockdown by observing that “In case the limitation has expired after 15.03.2020 then the period from 15.03.2020 till the date on which the lockdown is lifted in the jurisdictional area where the dispute lies or where the cause of action arises shall be extended for a period of 15days after the lifting of J.B. Boda Reinsurance Brokers Pvt. Ltd. vs. ACIT Asst.Year –2014-15 - 7 - lockdown”. Hon’ble Bombay High Court, in an order dated 15th April 2020, has, besides extending the validity of all interim orders, has also observed that, “It is also clarified that while calculating time for disposal of matters made time-bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”, and also observed that “arrangement continued by an order dated 26th March 2020 till 30th April 2020 shall continue further till 15th June 2020”. It has been an unprecedented situation not only in India but all over the world. Government of India has, vide notification dated 19th February 2020, taken the stand that, the corona virus “should be considered a case of natural calamity and FMC (i.e. force majeure clause) may be invoked, wherever considered appropriate, following the due procedure…”. The term ‘force majeure’ has been defined in Black’s Law Dictionary, as ‘an event or effect that can be neither anticipated nor controlled’ When such is the position, and it is officially so notified by the Government of India and the Covid-19 epidemic has been notified as a disaster under the National Disaster Management Act, 2005, and also in the light of the discussions above, the period during which lockdown was in force can be anything but an “ordinary” period.
In the light of the above discussions, we are of the considered view that rather than taking a pedantic view of the rule requiring pronouncement of orders within 90 days, disregarding the important fact that the entire country was in lockdown, we should compute the period of 90 days by excluding at least the period during which the lockdown was in force. We must factor ground realities in mind while interpreting the time limit for the pronouncement of the order. Law is not brooding omnipotence in the sky. It is J.B. Boda Reinsurance Brokers Pvt. Ltd. vs. ACIT Asst.Year –2014-15 - 8 - a pragmatic tool of the social order. The tenets of law being enacted on the basis of pragmatism, and that is how the law is required to interpreted. The interpretation so assigned by us is not only in consonance with the letter and spirit of rule 34(5) but is also a pragmatic approach at a time when a disaster, notified under the Disaster Management Act 2005, is causing unprecedented disruption in the functioning of our justice delivery system. Undoubtedly, in the case of Otters Club Vs DIT [(2017) 392 ITR 244 (Bom)], Hon’ble Bombay High Court did not approve an order being passed by the Tribunal beyond a period of 90 days, but then in the present situation Hon’ble Bombay High Court itself has, vide judgment dated 15th April 2020, held that directed “while calculating the time for disposal of matters made time- bound by this Court, the period for which the order dated 26th March 2020 continues to operate shall be added and time shall stand extended accordingly”. The extraordinary steps taken suo motu by Hon’ble jurisdictional High Court and Hon’ble Supreme Court also indicate that this period of lockdown cannot be treated as an ordinary period during which the normal time limits are to remain in force. In our considered view, even without the words “ordinarily”, in the light of the above analysis of the legal position, the period during which lockout was in force is to excluded for the purpose of time limits set out in rule 34(5) of the Appellate Tribunal Rules, 1963. Viewed thus, the exception, to 90-day time-limit for pronouncement of orders, inherent in rule 34(5)(c), with respect to the pronouncement of orders within ninety days, clearly comes into play in the present case. Of course, there is no, and there cannot be any, bar on the discretion of the benches to refix the matters for clarifications because of considerable time lag between the point of time when the hearing is concluded and the point of time when the order thereon is being
J.B. Boda Reinsurance Brokers Pvt. Ltd. vs. ACIT Asst.Year –2014-15 - 9 - finalized, but then, in our considered view, no such exercise was required to be carried out on the facts of this case.”
On the basis of the observation made in the aforesaid judgment we exclude the period of lockdown while computing the limitation provided under Rule 34(5) of the Income Tax (Appellate Tribunal) Rule 1963. Order is, thus, pronounced under Rule 34(4) of the said Rule by placing the details on the Notice Board.