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Income Tax Appellate Tribunal, ‘A’ BENCH, BENGALURU
Before: SHRI B.R. BASKARAN & SHRI PAVAN KUMAR GADALE
O R D E R Per PAVAN KUMAR GADALE, JM : These are the appeals filed by the assessee against different orders of the CIT(A)-5, Bengaluru, passed u/s 143(3) and 250 of the Income-tax Act,1961 ['the Act' for short]. Since both the appeals have common and identical issue, they are heard together and disposed of by a consolidated order.
For the sake of convenience, we shall take up the appeal in and the facts narrated therein. The assessee has raised the following grounds of appeal:
& 268/Bang/2018 Page 2 of 10 1. “General:- The order passed by the learned CIT(A) to the extent prejudicial to the appellant is bad in law and liable to be quashed.
2. Disallowance under section 14A:- The learned CIT(A) has erred in confirming the action of the learned AO in making disallowance under section 14A read with rule 8D amounting to Rs. 1,52,32,371.
3. The learned CIT(A) has erred in confirming the action of the learned AO in making disallowance under section 14A read with rule 8D without recording satisfaction as to how the amount disallowed by the appellant under section 14A is incorrect.
4. The learned CIT(A) has erred in confirming the action of the learned AO in including investment in shares and mutual funds which did not result any exempt income during the year, share application money, investment in partnership firms, investment in exchange traded funds and investment in immovable properties for the purpose of making disallowance under section 14A read with rule 8D.
The decisions relied on by the learned CIT(A) are not applicable and distinguishable on both facts and law.
6. The learned CIT(A) has erred in not appreciating that no disallowance is warranted under section 14A as per amended rule 8D which is applicable retrospectively.
7. On facts and circumstances of the case and law applicable, disallowance under section 14A read with rule 8D amounting to Rs. 1,52,32,371 should be fully deleted.
8. Levy of interest under section 234B, 234C and 234D:- The levy of consequential interest under section 234B, 234C and 234D are also bad in law and liable to be quashed.
9. Prayer:- In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the order of the learned CIT(A) to be extent prejudicial to the appellant be quashed or in the alternative, disallowance under section 14A read with rule 8D amounting to be Rs. 1,52,32,371 and consequential levy of interest under section 234B, 234C, 234D be deleted. & 268/Bang/2018 Page 3 of 10 10. The appellant prays accordingly.”
Brief facts of the case are that the assessee is an investment company and filed the Return of income for the assessment year 2011-12 on 30/09/2011 and also filed revised return of income on 21/12/2011 disclosing total income of Rs.7,71,44,290/-. The Return of income was processed u/s 143(1) of the Act. Subsequently, the case was selected for scrutiny under CASS and notice u/s 143(2) was issued. In compliance, the learned AR filed the required details. On verification of the information, the AO found that investments of the assessee as on 31/03/2011 are Rs.181.72 crores and out of Rs.181.72 crores, Rs.111.43 crores are invested on shares/mutual funds/firms and the balance in immovable property. Further, the assessee has received dividend income of of Rs.94,61,473/- from shares and mutual funds and claimed exemption u/s 10(34) of the Act. But no expenditure was disallowed or claimed by the assessee in relation to earning of dividend income. Whereas the AO applied the provisions under section 14A of the Act read with rule 8D of IT Rules and determined the amount of disallowance in relation to earning of exempted income. Accordingly, the AO worked out ½% of Average value of investments appearing in the balance-sheet & 268/Bang/2018 Page 4 of 10 of the assessee company Rs.1,52,32,371/- and completed the assessment with other additions and determined the total income of Rs.9,27,12,661/- vide order u/s 143(3) of the Act dated 28/03/2014.
Aggrieved by the order, the assessee filed an appeal with the CIT(A). Whereas the CIT(A) has granted relief in respect of other claims but confirmed the addition u/s 14A of the Act and partly allowed the appeal.
5. Aggrieved by the CIT(A)’s order, the assessee filed an appeal before the Tribunal. At the time of hearing, learned AR submitted that the AO has considered the opening and closing balance of the average investments including shares yielding dividend income and substantiated his arguments with paper book and judicial decisions, explaining the dividend income is exempted and dividend yield investments are to be excluded and prayed for allowing the appeal.
We heard the rival submissions and perused material on record. The sole disputed issue is with respect to disallowance u/s 14A read with rule 8D. The learned AR contention that the AO has erred in working average value of investments on the opening balance and closing balance without considering the fact that non-dividend yielding investments are to be excluded. & 268/Bang/2018 Page 5 of 10 The learned AR referred to page 158 of the paper book where the assessee has disclosed the details of investments made in mutual funds and equity shares, similarly referred to dividend income at page 160 of the paper book and the contention of the learned AR that though the assessee is covered by the provisions of section 14A r.w. rule 8D(2)(iii) but the AO has restricted to ½% of average value of investments considering only exempted dividend yielding investments and relied on plethora of judicial decisions. We found the Special Bench decision in the case of ACIT vs. Vireet Investment (P) Ltd., (82 taxman.com 415(Del.) has held at para.11.16 which is 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.” Therefore, we support our view relying on the decision of the Special Bench in restoring this disputed issue to the file of the AO to recalculate disallowance u/s 14A r.w. rule 8D(2)(iii) by including those investments which yielded exempted income. Learned AR further submitted that the disallowance cannot exceed the dividend income and relied on the decision of Cheminvest Ltd. vs. CIT (61 taxmann.com 118(Del). Accordingly, we restore the entire disputed issue to the file of & 268/Bang/2018 Page 6 of 10 the AO to re-calculate the disallowance u/s 14A read with Rule 8D(2)(iii) and allow grounds of appeal of the assessee for statistical purposes.
In the result, the assessee’s appeal is allowed for statistical purposes.
Now, we shall take up the appeal for assessment year 2013-14. The assessee has raised the following grounds of appeal:
1. “General:- The order passed by the learned CIT(A) to the extent prejudicial to the appellant is bad in law and liable to be quashed.
2. Disallowance under section 14A:- The learned CIT(A) has erred in confirming the action of the learned AO in making disallowance under section 14A read with rule 8D amounting to Rs. 6,15,23,280. 3. The learned CIT(A) has erred in confirming the action of the learned AO in making disallowance under section 14A read with rule 8D without recording satisfaction as to how the amount disallowed by the appellant under section 14A is incorrect. 4. The learned CIT(A) has erred in confirming the action of the learned AO in including investment in shares and mutual funds which did not result any exempt income during the year, share application money and investment in partnership firms for the purpose of making disallowance under section 14A read with rule 8D.
5. The decisions relied on by the learned CIT(A) are not applicable and distinguishable on both facts and law.
& 268/Bang/2018 Page 7 of 10 6. The learned CIT(A) has erred in not appreciating that no disallowance is warranted under section 14A in view of amended rule 8D which is applicable retrospectively.
7. On facts and circumstances of the case and law applicable, disallowance under section 14A read with rule 8D amounting to Rs.6,15,23,280/- should be fully deleted.
8. Addition under section 50C:- The learned CIT(A) has erred in confirming the addition of Rs. 50,00,000 under section 50C in respect of sale of 2 flats made by the appellant during the year.
9. The learned AO has erred in making the addition under section 50C and the learned CIT(A) has erred in confirming the same without making reference to the valuation officer under section 50C(2) of the IT Act, 1961.
Without prejudice, no addition is warranted under section 50C in view of the two provisos to section 50C(1) which is applicable retrospectively.
On facts and circumstances of the case and law applicable, the impugned addition under section 50C amounting to Rs. 50,00,000 is incorrect, contrary to facts and law and should be fully deleted.
12. Prayer:- In view of the above and other grounds to be adduced at the time of hearing, the appellant prays that the order of the learned CIT(A) to be extent prejudicial to the appellant be quashed or in the alternative, disallowance under section 14A read with rule 8D amounting to be Rs. 6,15,23,280 and addition under section 50C amounting to Rs. 50.00,000 be deleted.
13. The appellant prays accordingly.”
The ground Nos.2 to 7 are in respect of disallowance u/s 14A read with rule 8D. We have decided this issue of disallowance in the assessee’s own case for assessment year 2011-12 in . The same decision shall & 268/Bang/2018 Page 8 of 10 apply. Accordingly, we restore this issue to the file of the AO with the said observations in the assessment year 2011-12 and the ground of appeal of the assessee is allowed for statistical purposes.
10. Whereas ground Nos.8 to 11 are relation to addition on applying the provisions of section 50C of the Act. The learned AR submitted that the assessee has sold two flats by registered sale deed on 03/08/2012 for consideration of Rs.5,45,40,000/- whereas the Sub-Registrars Officer (SRO) value for stamp duty purpose was determined at Rs.5,95,90,152/-. The AO, in the course of assessment proceedings is of the opinion that SRO value shall prevail and accordingly made addition of difference of sale consideration and on appeal the CIT(A) confirmed the addition.
11. Aggrieved by the order of the CIT(A), the assessee has filed appeal before the Tribunal. The learned AR submitted that the assessee has received sale consideration to the extent mentioned in the sale deed and stamp duty has been paid on SRO value. The learned AR further submitted that the assessee has filed details on this disputed issue before the AO and the AO has not made any reference in the assessment order and emphasized that the AO should provide adequate opportunity to the assessee to explain the reasons for adopting the & 268/Bang/2018 Page 9 of 10 consideration in sale deed and supported his argument with judicial decisions and applicability of provisions of section 55A.
Contra, learned DR relied on the order of the CIT(A).
We heard the rival submissions and perused material on record. The learned AR contention that the assessee has not suppressed the sale value of the property and paid the stamp duty on SRO value. The learned AR referred to page 73 of the paper book evidencing that stamp duty has been paid on the transaction and also page 88 where consideration is referred as Rs.54,54,000/-. The contention of the learned AR that there is an endorsement on the sale deed copy that there is no undervaluation placed at page 79 of the paper book. When a query was raised to the learned AR whether the assessee has paid the stamp duty based on SRO value or as per consideration in the sale deed, the learned AR referred to calculations and confirmed that the assessee has paid the stamp duty based on SRO value. Thus, we notice that the stamp authority has registered the document without any objection for the reason that the stamp duty was paid according to his valuation.
12.1 The learned AR submitted that the assessee has raised an objection on valuation determined by stamp authorities before the CIT(A) but the same was not addressed & 268/Bang/2018 Page 10 of 10 to. Accordingly, he prayed that assessee may be provided with an opportunity in this regard as per section 50C(2) of the Act.
12.2 In the interest of natural justice, we find merit in the said prayer. Accordingly, we set aside the order passed by the CIT(A) on this issue and restore the same to the file of AO for examining the same afresh in accordance with provisions of section 50C(2) of the Act. This ground of assessee is allowed for statistical purposes.
In the result, the assessee’s appeals for assessment year 2011-12 and 2013-14 are allowed for statistical purposes.
Order pronounced in the open court on 3rd May, 2019.