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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA & SHRI LALIET KUMAR
O R D E R Per Shri Laliet Kumar, Judicial Member All these three appeals are filed by the assessee which are directed against three separate orders of ld. CIT(A)-11, Bangalore all dated 26.09.2016 for Assessment Years 2010-11, 2011-12 and 2013-14. All these appeals were heard together and are being disposed of by way of this common order for the sake of convenience.
The grounds raised
by the assessee for Assessment Year 2010-11 in are as under. “Ground I: Disallowance of Contract expenses amounting to Rs. 255,00,000/-:
1. On the facts and circumstances of the case and in law, the learned CIT(A)has erred in upholding the action of the Deputy Commissioner of Income-tax, Central Circle 2(2), Bangalore (hereinafter referred to as AO) in disallowingthe claim of contract expenses of Rs.2.55 Cr by , 2146 & 2148/Bang/2016 Page 2 of 8 treating the same as capitalloss of the prior period.
2. On the facts and circumstance of the case and in law, the learned CIT(A)has failed to appreciate and ought to have held that the appellant had incurred said project expenses in the course of its business and in terms of the EPC contract and had incurred loss in the said project due to substantial increasein material cost, subcontractors cost, etc.
3. On the facts and circumstance of the case and in law, the learned CIT(A) has failed to appreciate and ought to have held that the appellant had earned /received the contract receipt from the said Project contract in the earlier years and had offered the same for tax in those earlier years and the appellant hadto bear the additional cost and complete the projects to avoid liquidateddamages.
4. On the facts and circumstance of the case and in law, the learned CIT(A) haserred in not considering that the Appellant had made a provision of Rs. 3.10Crores in the books of account of Assessment Year 2009-10 for pending works with respect to the Amabala Chandigrah Road Project and against this provision for expenses, bills and extra claims of expenses were received at Rs. 5.65 Crores in the Assessment Year 2010-11.
5. On the facts and circumstance of the case and in law, the Appellant prays that AO be directed to allow the amount of contract expenses of Rs.2.55 Cr incurred. WITHOUT PREJUDICE TO GROUND II: Ground II :Disallowance u/s 14A
1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the disallowance of Rs.11,88,25,672/- u/s.14A as expenses incurred for earning exempt income of Rs.26,52,083/-.
2. On the facts and circumstance of the case and in law, the learned CIT(A) failed to appreciate and ought to have held that the Appellant had in the course of assessment proceedings by way of revised computation of income has claimed that disallowance U/s 14A of the Act should be restricted to dividend income of Rs.26,52,083/- earned by the Appellant.
3. On the facts and circumstance of the case and in law, the Appellant prays that AO be directed to restrict the disallowance U/s 14A of Rs.26,52,083/-being to the amount of exempt income earned during the year. Ground II: The Appellant craves leave to add, alter and/or amend all or any of the foregoing grounds of appeal.” , 2146 & 2148/Bang/2016 Page 3 of 8
3. In this year, the assessee has also raised some additional grounds. But at the time of hearing, it was submitted by ld. AR of assessee that additional grounds are not pressed and hence, these additional grounds are rejected as not pressed and we are not reproducing the additional grounds.
4. Similarly, the grounds raised
by the assessee for Assessment Year 2011-12 in are as under. “Ground I : Disallowance u/s 14A
1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the disallowance of Rs.1,67,39,653/- u/s.14A as expenses incurred for earning exempt income of Rs.25,86,000/-.
2. On the facts and circumstance of the case and in law, the learned CIT(A) failed to appreciate and ought to have held that the Appellant had in the course of assessment proceedings by way of revised computation of income has claimed that disallowance U/s 14A of the Act should be restricted to dividend income of Rs.25,86,000/- earned by the Appellant.
3. On the facts and circumstance of the case and in law, the Appellant prays that AO be directed to restrict the disallowance U/s 14A of Rs.25,86,000/-being to the amount of exempt income earned during the year. Ground II: The Appellant craves leave to add, alter and/or amend all or any of the foregoing grounds of appeal.”
5. In this year also, the assessee has raised two additional grounds but it was submitted by ld. AR of assessee that these additional grounds are not pressed and accordingly, these additional grounds are rejected as not pressed and we are not reproducing the additional grounds.
6. The grounds raised by the assessee for Assessment Year 2013-14 in are as under. “Ground I : Disallowance u/s 14A
1. On the facts and circumstances of the case and in law, the learned CIT(A) has erred in upholding the disallowance of Rs.31,32,540/- u/s.14A as expenses incurred for earning exempt income of Rs.Nil.
2. On the facts and circumstance of the case and in law, the learned CIT(A) failed to appreciate and ought to have held that the Appellant had in the course of assessment proceedings by way of revised computation of income has claimed that disallowance U/s 14A of the Act should be restricted to dividend income of Rs.Nil earned by the , 2146 & 2148/Bang/2016 Page 4 of 8 Appellant.
3. On the facts and circumstance of the case and in law, the Appellant prays that AO be directed to restrict the disallowance U/s 14A of Rs.Nil being to the amount of exempt income earned during the year. Ground II: The Appellant craves leave to add, alter and/or amend all or any of the foregoing grounds of appeal.”
7. Now we take up the appeal of the assessee for Assessment Years 2010-11 and 2011-12 together because this was the submission of ld. AR of assessee that the facts in dispute in these two years are identical. In respect of ground no. 1 regarding disallowance of contract expenses amounting to Rs. 255 Lakhs, it was submitted by ld. AR of assessee that this ground is not pressed and accordingly this ground is rejected as not pressed.
8. The remaining issue in these two years is regarding disallowance u/s. 14A of the IT Act. Regarding this issue, it was submitted by ld. AR of assessee that disallowance u/s. 14A is to be restricted by considering only those investment on which dividend income was earned by the assessee in the relevant year. In this regard, reliance has been placed on the Tribunal order of the Special Bench of the Delhi Bench of the Tribunal rendered in the case of ACIT Vs. Vireet Investment (P.) Ltd. as reported in [2017] 165 ITD 27 (Delhi-Trib.). He submitted that similar direction should be given to the AO. As against this, the ld. DR of revenue supported the orders of authorities below. It was submitted by ld. DR of revenue that the assessee has made suo moto disallowance u/s. 14A in the return of income filed by the assessee and the claim of assessee cannot be accepted to reduce the disallowance below such amount of disallowance suo moto made by the assessee. In this regard, she placed reliance on CBDT Circular No. 549 dated 31.10.1989. The relevant para of this CBDT Circular has been reproduced by the ld. DR of revenue in the written submissions filed by her.
9. We have considered the rival submissions. First of all, we reproduce the relevant para of CBDT Circular No. 549 dated 31.10.1989 reproduced by the ld. DR of revenue in her written submissions. The same is as under. “5.12 Since under the provisions of sub-section (1) of the new section 143, as assessment is not to be made now, the provisions of sub- , 2146 & 2148/Bang/2016 Page 5 of 8 sections (2) and (3) have also been recast and are entirely different from the old provisions. A notice under sub-section (2), which will be issued only in cases picked up for scrutiny, is now issued only to ensure that the assessee has not understated his income or has not computed excessive loss or has not underpaid the tax in any manner while furnishing his return of income.”
10. On this aspect of the matter, the ld. AR of assessee has placed reliance on various judicial pronouncements including judgement of Hon’ble Gujarat High Court rendered in the case of CIT Vs. UTI Bank Ltd. as reported in [2014] 223 Taxman 157 (Gujarat) and reliance was also placed on the Tribunal order rendered in the case of Rupee Finance & Management (P.) Ltd. Vs. DCIT as reported in [2017] 81 taxmann.com 249 (Mumbai-Trib.). For the sake of ready reference, we reproduce para no. 9 of the Tribunal order rendered in the case of Rupee Finance & Management (P.) Ltd. Vs. DCIT (supra). The same is as under. “9. We have gone through the orders passed by lower authorities and submissions made by both the sides before us. It is well settled and has been echoed so at number of occasions by Hon'ble Supreme Court and many other courts of our country that objective of the income-tax proceedings is to determine the taxable income of the assessee and tax payable thereon, fairly and as per law only. It is also noted that Article 265 of Constitution of India also provides in express terms that no tax can be collected without authority of law. It is also noted by us that way back in 1955, the Central Board of Revenue (now called as Central Board of Direct Taxes) had issued a circular wherein guidance was given to the AOs that they should assess taxable income and compute the tax liability of the taxpayers in accordance with law only and they should not take undue advantage of ignorance of the assessee. In case, any deduction is omitted to be claimed by an assessee and if same is allowable to the assessee as per law, then the AO should, in all fairness, give an opportunity to the assessee to claim it in accordance with law. Further, on this issue, our attention has rightly been drawn upon the judgment of Hon'ble Supreme Court in the case of Kedarnath Jute Mfg. Co Ltd. (supra) wherein it was observed by Hon'ble Supreme Court that whether the assessee is entitled to a particular deduction or not will depend on the provision of law relating thereto and not on the view, which the assessee may take and nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. Similarly, in the case of India Discount Co Ltd. (supra), it was inter-alia observed by Hon'ble Supreme Court that it is well established that a receipt which in law cannot be regarded as income cannot become so merely because the assessee wrongly credited it to the P & L Account. Similar view has been taken in other judgements relied upon by the , 2146 & 2148/Bang/2016 Page 6 of 8 Ld. Counsel. Thus, in our considered view, if assessee is able to show that income has been wrongly offered by him to tax in his return of income, then the assessee has legal right to resile from his return so long as assessee is able to demonstrate that the income returned by him is not in accordance with law and requisite facts in this regard are placed on records. This very issue was decided by Hon'ble Delhi High Court also in the case of CIT v. Bharat General Insurance Co. Ltd [1971] 81 ITR 303. Thus, in our considered view, the assessee must be given an opportunity in the interest of justice and fair play to demonstrate and establish that disallowance made u/s 14A is not in accordance with law.”
11. As per this para of the Tribunal order in which the Tribunal has considered various judgements of Hon’ble Apex Court and Hon’ble Delhi High Court, we feel that there is no merit in this argument of ld. DR of revenue that disallowance u/s. 14A cannot be lower than the amount disallowed by the assessee while filing the return of income if as per law, lower disallowance is justified. This argument of ld. DR of revenue is rejected.
12. Now we examine the applicability of the Tribunal order cited by ld. AR of assessee having been rendered in the case of ACIT Vs. Vireet Investment (P.) Ltd. (supra). As per this order of the Special Bench of the Tribunal, it was held as per Para 11.16 of this order of Special Bench of the Tribunal that only those investments are to be considered for computing average value of investment which yielded exempt income during the relevant year. Respectfully following this order of Special Bench of the Tribunal, we direct the AO to determine the amount of disallowance to be made u/s. 14A on this basis.
In the result, both the appeals field by the assessee for Assessment Years 2010-11 and 2011-12 are partly allowed for statistical purposes in the terms indicated above.
Now we take up the remaining appeal of the assessee for Assessment Year 2013-14. In this year, this was the argument of ld. AR of assessee that there is no exempt income earned in this year and therefore, no disallowance can be made u/s. 14A and in support of his contention, he placed reliance on the judgement of Hon’ble Delhi High Court rendered in the case of Cheminvest Pvt. Ltd. Vs. CIT as reported in (2015) 378 ITR 33. , 2146 & 2148/Bang/2016 Page 7 of 8 Regarding this aspect that there is no exempt income in this year, he drawn our attention to page no. 81 of the paper book. It was submitted that audited accounts of the assessee for Assessment Year 2013-14 is available on page nos. 69 to 95 of paper book. It was pointed out that as per P&L Account on page no. 81 of paper book, there is revenue from operations and other income. He submitted that the schedule no. 18 in respect of other income is available on page no. 90 of the paper book which says that in the present year, there is no exempt income in this year. In this regard, the ld. DR of revenue placed reliance on the Tribunal order rendered in the case of Lally Motors India (P) Ltd. Vs. Pr. CIT as reported in [2018] 93 taxmann.com 39 (Amritsar-Trib.) and on the judgement of Hon’ble Apex Court rendered in the case of Maxopp Investment Vs. CIT as reported in [2018] 402 ITR 640 (SC).
We have considered the rival submissions. First we deal with the applicability of the two judgements cited by ld. DR of revenue. As per the judgement of Hon’ble Apex Court rendered in the case of Maxopp Investment Vs. CIT (supra), it was held that dominant purpose for which investment into shares is made by assessee may not be relevant as section 14A applies irrespective of whether shares are held to gain control or as stock-in-trade. Hence, in our considered opinion, this judgment is not relevant to decide this aspect that whether disallowance u/s 14A is to be made in a year in which there is no exempt income.
Now we deal with the Tribunal order cited by ld. DR of revenue rendered in the case of Lally Motors India (P) Ltd. Vs. Pr. CIT (supra). In this regard, we are of the considered opinion that since, the judgment of Hon’ble Delhi High Court and other High Courts are in favour of the assessee on this aspect that no disallowance u/s 14A is to be made in a year in which there is no exempt income, any adverse order of Tribunal cannot be followed by ignoring the judgment of High Court. Respectfully following the decision of Hon’ble Delhi High Court rendered in the case of Cheminvest Pvt. Ltd. Vs. CIT (supra), we decide this issue in favour of the assessee and delete the disallowance made u/s. 14A. , 2146 & 2148/Bang/2016 Page 8 of 8 17. In the result, the appeal filed by the assessee for Assessment Year 2013-14 is allowed.
In the combined result, the appeals of the assessee for Assessment Years 2010-11 and 2011-12 are partly allowed for statistical purposes and the appeal for Assessment Year 2013-14 is allowed. Order pronounced in the open court on the date mentioned on the caption page.