Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, MUMBAI BENCHES “D”, MUMBAI
Before: SHRI RAJESH KUMAR (AM) & SHRI RAM LAL NEGI (JM)
O R D E R PER RAM LAL NEGI, JM These are the cross appeals filed by the assessee and the revenue against the order dated 26.03.2018 passed by the Ld. Commissioner of Income Tax (Appeals)-10, Mumbai, which pertains to assessment year 2014- 15, whereby the Ld. CIT (A) has partly allowed the appeals filed by the assessee against assessment order passed u/s 143 (3) the Income Tax Act, 1961 (for short „the Act‟). Assessment Year: 2014-2015 2. Brief facts of the case are that the assessee company engaged in the business of manufacturing and sale/trading of pharmaceutical formulations, dietetic etc., filed its return of income for the assessment year under consideration declaring total income of Rs. 153,80,35,775 under the normal provisions of the Act and Rs. 116,76,68,142/- under section 115JB of the Act. Accordingly, AO passed assessment order u/s 143 (3) of the Act determining the total income at Rs. 156,39,12,276/- under the normal provisions of the Act and Rs. 119,55,15,733/- under section 115JB (2)of the Act, inter alia making addition on account of additional disallowance of Rs. 2,58,76,501/- u/s 14A of the Act. Further, the assessee filed revised statement of income claiming long term capital loss on sale of shares on the basis of the decision of the ITAT in assessee‟s own case for the AY 2007-08. AO rejected the claim of assessee holding that as per the settled law, assessee can claim deduction by filing revised return and not by filing revised statement. The assessee challenged the assessment order before the Ld. CIT (A). The Ld. CIT (A) partly allowed the appeal of the assessee. Feeling aggrieved by the impugned order passed by the Ld. CIT (A), the assessee and the revenue are in appeal before this Tribunal.
3. The assessee has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds: Ground I: Disallowance under section 14A of the Act r.w.r. 8D(2)(iii) of the Income Tax Rules, 1962, (The Rules).
On the facts and circumstances of the case and in law, the CIT (A) erred in upholding the action of the AO to disallow expenses incurred towards earning exempt income under section 14A of the Act r.w.r. 8D(2)(iii) the Rules.
2. The Appellant prays that disallowance made under section 14A of the Act r.w.r. 8D(2)(iii) of the Rules be deleted and the disallowance u/s 14A should be restricted to Rs. 19,71,090/- towards expenses incurred for the purpose of earning exempt income as worked out by the Appellant. Alternatively, disallowance u/s 14A be appropriately reduced. Assessment Year: 2014-2015 3. Without Prejudice to 1 & 2 above, if Rule 8D(2)(iii) were to apply, “average investments” for the purpose of calculation under should include only those investments from which exempt income has been earned during the year.”
Before us, the Ld. counsel for the assessee submitted that the Ld. CIT (A) has erred in upholding the action of AO to disallow expenses incurred towards earning exempt income in accordance with Rule 8D(2) (iii) of the Income Tax Rules (the Rules). The Ld. counsel further submitted that the disallowance made should have been restricted to the suo moto disallowance made by the assessee or the same should have been appropriately reduced. Without prejudice the Ld. counsel submitted that if Rule 8D(2)(iii) were to apply, the average investment for the purpose of calculating disallowance should include only those investments which earned exempt income during the year relevant to the assessment year under consideration. The Ld. counsel relied on the decision of the special Bench of the Delhi Tribunal in the case of ACIT and another vs. Vireet Investments Pvt. Ltd. 188 TTJ 0001 (Del) (SB) to substantiate the contention of assessee.
On the other hand, the Ld. departmental representative submitted that since the AO had computed the disallowance u/s 14A read with Rule 8D(2)(iii) of the Rules, the Ld. CIT(A) ought to have confirmed the addition made by the AO. However, in the present case the Ld. CIT(A) has directed the AO to exclude investments made by the assessee in growth scheme of Mutual Fund for the purpose of computing average investment for working disallowance u/s 14A read with Rule 8D(2)(iii) of the Rules. The Ld DR further submitted that the revenue has challenged the action of the Ld. CIT(A) by filing cross appeal. In view of the aforesaid facts, the Ld. DR submitted that the impugned order may be set aside and the findings of the AO may be restored.
We have heard the rival submissions of the parties and perused the material on record in the light of the rival contention of the parties. Vide ground No 1 and 2, the assessee has challenged the action of the Ld. CIT(A) Assessment Year: 2014-2015 in affirming the method followed the AO for computing disallowance under Rule 8D(2)(iii). We notice that the Ld. CIT (A) has directed the AO to re- compute the disallowance under rule 8D(2)(iii) after excluding investment in growth schemes of Mutual Funds, which are not capable of generating any exempt income. In our considered view, the findings of the Ld. CIT(A) are based on the law laid down by the Hon‟ble Supreme court and the various High Courts. Hence, we are of the considered view that the authorities below have rightly invoked Rule 8D(2)(iii) of the Rules for determining the disallowance.
So far as ground No 3 is concerned, the assessee has raised this ground without prejudice to ground No 1and 2 discussed above. According to the Ld. counsel, the average investment for the purpose of calculating disallowance under rule 8D(2)(iii) should include only those investments from which the assessee has earned exempt income during the year. However, the Ld. CIT (A) has rejected the plea of the assessee holding that the same cannot be accepted in view of the decision of the Special Bench of the ITAT, Delhi in the case of ACIT and another vs. Vireet Investments Pvt. Ltd. 188 TTJ 0001 (Del) (SB).
Admittedly, during the year under consideration, the assessee company earned dividend income of Rs. 12,40,41,686/- and claimed as exempt u/s 10(34) of the Act. The assessee worked out an amount of Rs. 19,71,090/- as expense attributable to earning exempt income. The AO rejecting the computation of assessee applied rule 8D(2)(iii) and computed the total disallowance under rule 8D(2)(iii) amounting to Rs. 2,78,47,591/- as against the suo moto disallowance of Rs. 19,71,090/- made by the assessee. Under rule 8D(2)(iii) disallowance is made equal to one-half percent of the average of the value of investment, income from which does not or shall not form part of total income as appearing in the balance sheet of the assessee on the first day and the last day of the previous year. We further notice that the AO has brought on record the fact that the assessee has worked out 20% of the time of two employees out of total strength of 90 Assessment Year: 2014-2015 employees of head office only as expenses attributable to investment activity and has not provided any justification for such allocation. Hence, in our considered view, since the AO had computed the disallowance under rule 8D(2)(iii), the Ld. CIT(A) has rightly upheld the action of AO in applying Rule 8D(2)(iii) of the Rules, for determining disallowance. However, the Ld. CIT(A) has rejected the contention of the assessee that only those investments from which exempt income has been earned during the year may be included for the purpose of determining disallowance under rule 8D(2)(iii) of the Rules by following the decision of the special Bench in the case of ACIT vs. Vireet Investments Pvt. Ltd. (supra) 9. We notice that the Ld. CIT (A) has decided this issue contrary to the decision of the Special Bench of the Delhi Tribunal. The Special Bench has categorically held in the said case that while computing disallowance under Rule 8D(2)(iii), only those investments are required to be taken into consideration which yielded exempt income during the year. The relevant para of the findings of the Tribunal reads as under:
11.16 Therefore, in our considered opinion, no contrary view can be taken under these circumstances. We, accordingly, hold that only those investments are to be considered for computing average value of investment which yielded exempt income during the year.
Hence, we are of the considered view that the findings of the Ld. CIT(A) are not in accordance with the decision of the special Bench of the Delhi Tribunal, therefore, the same is liable to be set aside. Accordingly, we set aside the order passed by the Ld. CIT(A) and direct the AO to recomputed the disallowance u/s 14A r.w.r 8D(2)(iii) of the Act in accordance with the decision of the special Bench discussed above after taking the average investment of only those investments which yielded the exempt income during the year. This ground of appeal is accordingly allowed for statistical purposes. Assessment Year: 2014-2015 The revenue has challenged the impugned order passed by the Ld. CIT (A) on the following effective grounds: 1. “Whether on the facts and circumstances of the case and in law, the Ld. CIT (A) was justified in excluding Investment in growth scheme of Mutual Fund for the purpose of computation of Average Investment for working disallowance u/s 14A r.w. Rule 8D.
2. Whether on the facts and circumstances of the case and in law, the Ld.CIT (A) was justified in deleting disallowance u/s 14A r.w. Rule 8D.
Whether on the facts and circumstances of the case and in law the Ld.CIT (A) was justified in allowing loss claimed on sale of Mutual Funds and Equity shares by submitting revise statement and by not revising return of income and ignoring the decision of the Supreme Court in the case of Goetze (India) Vs CIT (2006) 284 ITR 323 (SC).”
Before us, the Ld. Departmental Representative (DR) submitted that the Ld. CIT (A) has wrongly directed the AO to exclude investment in growth schemes of Mutual Funds for the purpose of computing average investment for working disallowance u/s 14A r.w.r. 8D. Since, we have dealt with this issue in assessee‟s appeal aforesaid and upheld the findings of the Ld. CIT(A), we find no merit in this ground of appeal
of the revenue. Hence, dismiss this ground of appeal of the revenue.
3. Vide Ground No. 2, the revenue has challenged the action of the Ld.CIT (A) in deleting disallowance u/s 14A r.w.r. 8D from the book profit u/s 115JB. The Ld. DR submitted before us that since the AO had added back the disallowance made u/s 14A in the computation of book profit u/s 115JB in accordance with the decision of the “F” Bench of the ITAT in the case of Ferani Hotels Pvt. Ltd., ITA No. 857/Mum/2013, the Ld. CIT (A) has wrongly directed the AO to exclude the same from book profit u/s 115JB. The Ld. DR further relied on the decision of the Mumbai Tribunal in the case Assessment Year: 2014-2015 of DCIT vs. Viraj Profiles Ltd. 64 taxmann.com 52 (Mumbai) in support of his contention.
4. On the other hand, the Ld. counsel for the assessee submitted that this issue is covered in favour of the assessee by the Judgment of the Hon‟ble Bombay High Court in the case of CIT vs. Bengal Finance & Investments Pvt. Ltd. ITA No. 337 of 2013, in which the Hon‟ble Court has held that an amount disallowed u/s 14A of the Act cannot be added to arrive at book profit for the purposes of section 115JB of the Act. The Ld. counsel further pointed out that the Special Bench of the Delhi Tribunal in the case of ACIT vs. Vireet Investments P. Ltd. 82 taxmann. Com 415 has held that disallowance computed u/s 14A cannot be added to the book profit.
5. We have heard the rival submissions of the parties and perused the material on record including the cases relied upon by the parties. As pointed out by the Ld. counsel, this issue is covered in favour of the assessee by the judgment of the Hon‟ble jurisdictional High Court and the decision of the Special Bench of the Delhi Tribunal referred above. Since, the findings of the Ld. CIT (A) are in accordance with the ratio laid down by the Hon‟ble Bombay High Court and the decision of the Special Bench, we do not find any reason to interfere with the same. Hence, we dismiss this ground of appeal of the revenue.
6. Vide Ground No. 3, the revenue has challenged the action of the Ld. CIT (A) in allowing loss claim on sale of Mutual Funds and equity shares on the basis of revised statements. The Ld. DR submitted that since the assessee filed revised statement of income pursuant to the decision of the “D” Bench of the Mumbai Tribunal in assessee‟s own case for the AY 2007- 08 allowing the long term capital loss on sale of shares, the AO rejected the claim of the assessee. The Ld. DR further submitted that the action of the AO is based on the decision of the Hon‟ble Supreme Court in the case of Goetze India Ltd. vs. CIT 284 ITR 232 (SC), wherein it has been held that an appellant can amend the return filed by him for making a claim of deduction Assessment Year: 2014-2015 only by filing a revised return. Therefore, the action of the Ld. CIT (A) is liable to be set aside.
7. On the other hand, the Ld. counsel for the assessee submitted that as per the law laid down by the Hon‟ble the jurisdictional High Court in the case of M/s Pruthvi Brokers and shareholder Pvt. Ltd. 349 ITR 0336, the appellate authorities have jurisdiction to admit and adjudicate additional claim raised during appellate proceedings. Therefore, there is no merit in this ground of appeal of the revenue.
8. We have heard the rival submissions of the parties and perused the material on record including the cases relied upon by the parties. The Ld. CIT (A) has decided this issue in favour of the assessee following the ratio laid down by the Hon‟ble Bombay High Court in the case of M/s Pruthvi Brokers and shareholder Pvt. Ltd. (supra). So far as the judgment of the Hon‟ble Supreme Court in the case of Goetze (India)(supra) is concerned the issue involved in the said case was the power of assessing authority an not the powers of appellate authorities. Since the decision of the Ld. CIT(A) is in accordance with the judgment of the Hon‟ble jurisdictional High Court, we do not find any infirmity in the order passed by the Ld. CIT (A) to interfere with. We therefore, uphold the findings of the Ld. CIT (A) and dismiss this ground of appeal of the revenue. In the result, assessee‟s appeal is partly allowed for statistical purposes and the revenue‟s appeal is dismissed. Order pronounced on 29th October, 2020 under Rule 34 (4) of the Income Tax Appellate Tribunal Rules, 1963. (RAJESH KUMAR) JUDICIAL MEMBER म ुंबई Mumbai; दिन ुंक Dated: 29/10/2020