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Income Tax Appellate Tribunal, JAIPUR BENCHES, JAIPUR
Before: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No.1049/JP/16
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR Jh dqy Hkkjr] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM vk;dj vihy la-@ITA No.1049/JP/16 fu/kZkj.k o"kZ@Assessment Year : 2013-14 cuke The DY. Commissioner of M/s A.U. Financiers (India) Vs. Income-tax, Circle-2, Ltd., 19-A, Dhuleshwar Jaipur. Garden, Ajmer Road, Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN No. AAACL2777N vihykFkhZ@Appellant izR;FkhZ@Respondent jktLo dh vksj ls@Revenue by : Shri R. A. Verma fu/kZkfjrhdh vksj ls@Assessee by : Shri Sanjay Jhanwar
lquokbZ dh rkjh[k@Date of Hearing : 25/05/2017 ?kks"k.kk dh rkjh[k@Date of Pronouncement: 29/05/2017. vkns'k@ORDER PER SHRI VIKRAM SINGH YADAV, A.M.
This is an appeal filed by the Revenue against the order of Ld. CIT(A)-I, Jaipur dated 30.09.2016 for A.Y. 2013-14. The grounds of appeal taken by the Revenue are as under:- “(i) Whether on the facts and in the circumstances of the case and in law the Ld. CIT(A) has erred in deleting the entire addition of Rs. 46,91,892/- made by the AO under section 14A of the Act, 1961, r.w. clauses (ii) & (iii) of Rule 8D and whether it is in consonance with CBDT circular 5/2014 dated 11.02.2014.
ITA No. 1049/JP/16 DCIT,C-2 Vs M/s A.U. Financiers (India) Ltd., Jaipur. (ii) Whether on the facts and circumstances of the case and in law the Ld. CIT(A) has erred in appreciating the fact that in computation of Income, the assessee has quoted expenses of Rs. 99389/- as ‘Management Fees’ instead of ‘disallowance of interest Expenses’ for earning exempt income.”
At the outset, the ld. AR submitted that the issue is squarely covered by the recent decision of Hon’ble Supreme Court in case of Godrej & Boyce Manufacturing Company Ltd. v. DCIT [2017] 81 taxmann.com 111 as well as the decision passed by Hon’ble ITAT Jaipur Benches in assessee’s own case for A.Y. 2011-12 & 2012-13.
The proposition in law laid down by the Hon’ble Supreme Court in case of Godrej & Boyce Manufacturing Company Ltdis as under:- “36. Section 14A as originally enacted by the Finance Act of 2001 with effect from 1.4.1962 in the same form and language as currently appearing in sub-section (1) of Section 14A of the Act. Section 14A (2) and (3) of the Act were introduced by the Finance Act of 2006 with effect from 1.4.2007. The finding of Bombay High Court in the impugned order that sub-sections (2) and (3) of Section 14A is retrospective has been challenged by the Revenue in another appeal which is presently pending before this Court. This said question, therefore, need not and cannot be gone into. Nevertheless, irrespective of the aforesaid question, what cannot be denied is that the requirement for attracting the provisions of Section 14A(1) of the Act is proof of the fact that the expenditure sought to be disallowed/deducted had actually been incurred in earning the dividend income. Insofar as the appellant-assessee is concerned, the issues stand concluded in its favour in respect of the Assessment years 1998-1999, 1999-2000 and 2001-2002. Earlier to the introduction of sub-sections (2) and (3) of section 14A of the Act, such a determination was required to be made by the Assessing Officer in his best judgment. In all the aforesaid assessment years referred to above it was held that the Revenue had failed to establish any nexus between the expenditure disallowed and the earning of the dividend income in question. In the appeals arising out of the assessments made for some of the assessment years the
ITA No. 1049/JP/16 DCIT,C-2 Vs M/s A.U. Financiers (India) Ltd., Jaipur. aforesaid question was specifically looked into from the standpoint of the requirements of the provisions of sub-section (2) and (3) of Section 14A of the Act which has been then been brought into force. It is on such consideration that findings have been recorded that the expenditure in question bore no relation to the earning of the dividend income and hence the assessee was entitled to the benefit of full exemption claimed on account of dividend income.
We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-03. Sub-section (2) and (3) of Section 14A of the Act read with Rule 8D 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.
In the present case, we do not find any mention of the reasons which had prevailed upon the Assessing Officer, while dealing with the Assessment Year 2002-03, to hold that the claims of the Assessee that no expenditure was incurred to earn the dividend income cannot be accepted and why the orders of the Tribunal for the earlier Assessment Years were not acceptable to the Assessing Officer, particularly, in the absence of any new fact or change of circumstances. Neither any basis has been disclosed establishing a reasonable nexus between the expenditure disallowed and the dividend income received. That any part of the borrowings of the assessee had been diverted to earn tax free income despite the availability of surplus or interest free funds available (Rs. 270.51 crores as on 1.4.2001 and Rs. 280.64 crores as on 31.3.2002) remains unproved by any material whatsoever. While it is true that the principle of res judicata would not apply to assessment
ITA No. 1049/JP/16 DCIT,C-2 Vs M/s A.U. Financiers (India) Ltd., Jaipur. proceedings under the Act, the need for consistency and certainty and existence of strong and compelling reasons for a departure from a settled position has to be spelt out which conspicuously is absent in the present case. In this regard we may remind ourselves of what has been observed by this Court in Radhasoami Satsang v. Commissioner of Income-Tax [1992] 193 ITR (SC) 321 [At Page 329]. “We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year.”
The relevant finding of the Coordinate Bench in ITA No. 122/JP/2015 vide its order dated 05.05.2016 for A.Y. 2011-12 held as under:-
“2.7 The above finding on fact by the Revenue is not controverted by placing any material on record. Moreover there is no dispute with regard to fact that the assessee has earned exempt income of Rs. 27,006/- against which disallowance of expenditure amounting to Rs. 42,22,857/- was made. The AO has not recorded his satisfaction as to how the expenditure disallowed by the assessee of Rs.62,878/- towards administrative expenses is not reasonable. Further we find that the assessee has demonstrated by placing sufficient material on record that no borrowed funds were utilized for making investment and wherefrom the exempt income is earned. In our considered view, the provisions of section 14A of the Act read with rule 8D of Income Tax Rules, cannot be invoked in mechanical way by AO. As per section 14A(2), the AO is required to determine the amount of expenditure incurred in relation to such income which does not form part of the total income under the Act and in accordance with rule 8D of Income Tax Rules, 1961 if the AO having regarding to the accounts, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to such exempt income, is empowered for making disallowance as per rule 8D. In the case in hand, no finding is recorded by the AO in this regard. On the contrary, the ld. CIT(A) has given a finding after 4
ITA No. 1049/JP/16 DCIT,C-2 Vs M/s A.U. Financiers (India) Ltd., Jaipur. examining the accounts of the assessee. The AO has not brought on record any material to show that the assessee has incurred any expenditure in relation to the income which do not form part of the total income. Moreover it is not in dispute that the assessee has earned exempt income of Rs.27,006/- and expenditure amounting to Rs.42,22,857/- in relation to this is disallowed. The finding of the ld. CIT(A) is not rebutted by revenue by placing any contrary materials. Therefore, we do not see any reason to interfere with the order of the ld. CIT(A). The same is hereby upheld. The ground raised by the Revenue is dismissed.” 5. Similar issue was involved in AY 2012-13 (in ITA No. 100/JP/16) where this Bench following the above decision of the Coordinate Bench had deleted the disallowance made by the AO u/s 14A vide our order dated 23.09.2016.
On perusal of the assessment order, the AO observed that since assessee has earned dividend income of Rs 6,90,933 and the fact that it has incurred interest expenditure of Rs 180.91 crores, it cannot be ruled out that certain part of this interest expenditure could have also been attributable to earning of exempted income. Hence, the contention of the assessee company that it has not incurred any expenses attributable to earning of dividend income other than administrative expenditure of Rs 99,389 cannot be accepted. The above are generic observation/presumptions made by the AO without taking into consideration the nature of the business of the assessee company and establishing the reasonable nexus between the expenditure incurred and earning of dividend income and cannot form the basis for disallowance under Section 14A. What is relevant to examine is whether any expenditure sought to be disallowed had actually been incurred in earning the dividend income. The AO has not brought on record any material to show that the assessee has incurred any expenditure in relation to the income which do not form part of the total income. No reasonable nexus between the expenditure disallowed and the dividend income received has been established by the AO.
ITA No. 1049/JP/16 DCIT,C-2 Vs M/s A.U. Financiers (India) Ltd., Jaipur. 7. It is equally relevant to note that out of Rs 30.82 crores worth of investments in subsidiary/associate concerns, an amount of Rs 6.50 lacs has been invested during the year out of company’s own funds and the rest all investments have been made in the earlier years wherein the AO has not established any reasonable nexus between the expenditure disallowed and the dividend income received in the respective years. Further, in earlier years, the Coordinate Benches have decided the matter in favour of the assessee company holding no disallowance under section 14A other than the administrative expenses suo-moto disallowed by the assessee company and we see no reason to deviate from the same.
Another aspect of the matter which the AO has lost sight of is the fact that the assessee company is in the business of financing wherein the funds are borrowed and lend as part of its regular business activity. Therefore, looking at interest expenditure of Rs 180.91 crores without taking into consideration interest earned on loans/advances to its customers amounting to Rs 370.69 crores will not be factually correct.
In the entirety of facts and circumstances of the case, respectfully following the decision of the Hon’ble Supreme Court and decisions in assessee’s own case in the earlier years, we see no reason to interfere with the order of the ld CIT(A). The grounds taken by the Revenue are thus dismissed.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open court on 29/05/2017.
Sd/- Sd/- ¼dqy Hkkjr ½ ¼foØe flag ;kno½ (Kul Bharat) (Vikram Singh Yadav) U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
ITA No. 1049/JP/16 DCIT,C-2 Vs M/s A.U. Financiers (India) Ltd., Jaipur.
Jaipur Dated:- 29/05/2017 Santosh आदेश की प्रतिलिपि अग्रेषित@ब्वचल वf जीम वतकमत वितूंतकमक जवरू
vihykFkhZ@The Appellant- The Deputy Commissioner of Income tax, 1. Circle-2, Jaipur. izR;FkhZ@The Respondent- M/s A.U. Financiers (India) Ltd., Jaipur. 2. vk;dj vk;qDr@CIT 3. vk;dj vk;qDr¼vihy½@The CIT(A) 4. विभागीय प्रतिनिधि] आयकर अपीलीय अधिकरण] जयपुर@क्त्ए प्ज्Aज्ए 5. xkMZ QkbZy@Guard File (ITA No.1049/JP/2016) 6.
vkns'kkuqlkj@ By order,
सहायक पंजीकार@ Aेेपेजंदज. त्महपेजतंत.