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Income Tax Appellate Tribunal, “D” Bench, Mumbai
Before: Shri G. Manjunatha & Shri Ravish SoodDr. Rajni Patel Marg,
Appellant by: Ms. Madhur Agarwal & Shri Jay Bhansali, A.Rs Respondent by: Shri Sanjay Singh, D.R Date of Hearing: 26.02.2019 Date of Pronouncement: 30.04.2019 O R D E R
PER RAVISH SOOD, JM
The present appeal filed by the assessee is directed against the order passed by the Pr. CIT-3, Mumbai under Sec.263 of the Income Tax Act, 1961 (for short ‘I.T Act’), dated 21.12.2017. The assessee assailing the order of the Pr. CIT has raised before us the following grounds of appeal: “1. On the facts and circumstances of the case and in law, the Principal Commissioner Income-tax - 3, Mumbai (“the Pr.CIT”) erred in assuming jurisdiction under section 263 and holding the assessment order, under section 143(3) of the Income-tax Act, 1961 ('hereinafter referred to as “the Act”) dated 08.11.2016 (hereinafter referred to as “the assessment order”), as erroneous and prejudicial to the interest of P a g e | Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 the Revenue. The reasons given by him for doing so are wrong, contrary to the facts of the case and against the provisions of law;
2. The Pr. CIT failed to appreciate that, where two views are possible and the Assessing Officer, after conduct of due enquiry, has taken one view with which the Pr. CIT does not agree, the assessment order cannot be treated as erroneous and prejudicial to the interest of the revenue;
3. Assuming without admitting that the present case was a case of inadequate enquiry, the Pr. CIT failed to appreciate that the power of revision envisaged under section 263 of the Act and the Explanation 2 thereto can be exercised only where no enquiry as required under the law is done and that it is not open to invoke the said provisions in cases of inadequate enquiry;
4. The Pr. CIT erred in directing the Assessing Officer to re-compute disallowance under section 14A read with Rule 8D including on investments in partnership firm for reasons which are wrong contrary to the law and facts of the case;
5. The above grounds/sub-grounds are without prejudice to each other;
6. The appellant craves leave to add, amend or alter all or any of the grounds of appeal.”
2. Briefly stated, the assessment in the case of the assessee company which is engaged in the business of investment and financing as well as trading in Raw Cotton Bales, Guar Seeds, Castor Seed, Commodity Futures and Paintings was framed under Sec.143(3) of the I.T Act on 08.11.2016.
3. The Pr. CIT called for the assessment records of the assessee and after perusing the same held a conviction that the assessment order passed by the A.O under Sec. 143(3), dated 08.11.2016 was erroneous and prejudicial to the interest of the revenue. It was observed by the Pr. CIT that though the assessee in the course of assessment proceedings had pursuant to a query raised by the A.O admitted that the disallowance under Sec. 14A r.w. Rule 8D worked out at Rs.1,39,50,000/-, however, he had erred in restricting such disallowance to Rs. 10,96,734/- as was offered by the assessee in its return of income. The Pr. CIT being of the view that the assessment order passed by the A.O under Sec. 143(3), dated 08.11.2016 was P a g e | 3 AY. 2014-15 Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 erroneous and prejudicial to the interest of the revenue, therefore, issued a ‘Show Cause Notice’ (for short ‘SCN’) dated 15.03.2017 to the assessee, therein calling upon it to explain as to why the assessment framed in its case may not be revised.
4. In reply, it was stated by the assessee that during the financial year ended 31.03.2014 the ‘opening balance’ of investment as on 01.04.2013 was Rs.787,44,03,252/- and ‘closing balance’ of the same on 31.03.2014 was Rs.332,28,46,590/-. Insofar the investment of the assessee in the partnership firms was concerned, the same was as under: Firm As on 31.03.2014 As on 31.03.2014 NSEK Partners Rs. 144,00,00,000 Rs. 144,00,00,000 NS & Company Rs. 120,00,00,000 Rs. 120,00,00,000 Total Rs. 264,00,00,000 Rs. 264,00,00,000 It was submitted by the assessee that while working out the disallowance of Rs. 10,96,734/- under Sec.14A as was offered by the assessee in its return of income for the year under consideration viz. A.Y. 2014-15, it had excluded the investments made in the partnership firms. Further, it was the claim of the assessee before the revisional authority that it had furnished all the details including the working of disallowance under Sec.14A with the A.O along with a reasoning as to why the investments in the partnership firms was to be excluded while computing the said disallowance. In the backdrop of his aforesaid contention, it was submitted by the assessee that now when the A.O had conducted a detailed inquiry and had specifically applied his mind to the issue under consideration, therefore, the assessment framed by him could not be revised for the reason that the revisional authority held a different view. In sum and substance, it was the case of the assessee that now when the A.O had resorted to one of the two legally permissible view, therefore, merely because the P a g e | 4 ITA No. 371/Mum/2018 AY. 2014-15 Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 adoption of the other view would have resulted in collection of larger revenue could not have formed a basis for rendering the order passed by the A.O amenable for revision under Sec. 263 of the I.T. Act.
5. The Pr. CIT after deliberating on the contentions advanced by the assessee was however not persuaded to subscribe to the same. It was noticed by the revisional authority that the A.O had in the course of the assessment proceeding called upon the assesses to explain that as to why the additions/disallowances that were made in the earlier years should not be made during the year under consideration. It was observed by the Pr. CIT that the A.O had not raised any specific query as regards the disallowance under Sec.14A r.w. Rule 8D in the course of the assessment proceedings. Rather, the A.O had merely gone by the submissions of the assessee and had not made any further disallowance under Sec. 14A by applying Rule 8D and had summarily accepted the disallowance offered by the assessee in its return of income. On the basis of his aforesaid observations, it was concluded by the Pr. CIT that as was discernible from the records, the A.O had not applied his mind to the issue of disallowance under Sec.14A. Insofar the contention of the assessee that the A.O while framing the assessment was in agreement with its submission that the investment in the partnership firms were not to be considered for computing the disallowance under Sec.14A r.w. Rule 8D(2)(iii) was concerned, it was observed by the Pr. CIT that no specific remarks on the said issue were either discernible from the assessment order or by way of a office note in the assessment records. In fact, it was noticed by the Pr. CIT that a similar submission of the assessee for exclusion of the investments made in partnership firms while computing the disallowance under Sec.14A r.w. Rule 8D was rejected by the A.O while framing the assessment in its case for the immediately preceding P a g e | Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 year i.e. A.Y 2013-14. As observed by the Pr. CIT, the A.O while framing the assessment for A.Y 2013-14 had after rejecting the plea of the assessee for excluding the investments in the partnership firms had worked out the disallowance under Sec.14A at Rs.1,59,44,536/-. The Pr. CIT was of the view that as the A.O while computing the disallowance under Sec.14A r.w. Rule 8D(2)(iii) had failed to make any inquiry in respect of exclusion by the assessee of its investments made in the partnership firms, therefore, it was a case of non-application of mind by the A.O, which thus rendered the order passed by him under Sec.143(3), dated 08.11.2016 as erroneous insofar it was prejudicial to the interest of the revenue. On the basis of his aforesaid observations the Pr. CIT was of the view that now when the assessee had claimed the share of profit from the firms to the extent of Rs.128,61,73,159/- as exempt, therefore, there was no reason for excluding the investments made in the partnership firms while computing the disallowance under Sec.14A r.w. Rule 8D(2)(iii), specifically when it was proved that the entire business of the partnership firms viz. (i) M/s NS & Company; and (ii) NSEK Partners was being looked after by the assessee company. It was thus observed by the Pr. CIT that as the income from the partnership firms did not form part of the total income of the assessee company, therefore, the investments made in the said partnership firms were required to be included by the assessee in the investments to arrive at the ‘average value of such investments’ for computing the disallowance under Sec.14A as per Rule 8D(2)(iii). In the backdrop of his aforesaid observations the Pr. CIT held the assessment order passed by the A.O under Sec.143(3) dated 08.11.2016 as erroneous and prejudicial to the interest of the revenue and ‘set aside’ the same under Sec. 263 of the I.T. Act with a direction to the A.O to frame a fresh assessment.
P a g e | Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 6. Aggrieved, the assessee has assailed the order passed by the Pr. CIT in appeal before us. The ld. Authorised Representative (for short ‘A.R’) for the assessee took us through the facts of the case and submitted that as the profit share of the assessee company as a partner in the partnership firm viz. (i) M/s NS & Company; and (ii) NSEK Partners had suffered tax in the hands of the firm, therefore, while computing the disallowance under Sec.14A r.w. Rule 8D(2)(iii) the investments of the assessee in the said firms were not to be included for working out the ‘average value of investments’. It was further submitted by the ld. A.R that the A.O while framing the assessment had made inquiries as regards the disallowance offered by the assessee under Sec.14A and had only after due application of mind accepted the same. In order to fortify his aforesaid contention the ld. A.R took us through the relevant pages of the assesses ‘Paper Book’ (for short ‘APB’). Apart there from, it was submitted by the ld. A.R that as the issue as to whether the investments made by the assessee in the partnership firms was to be included for the purpose of working out the average investment under Sec.14A r.w. Rule 8D(2)(iii) was a debatable issue, therefore, now when the A.O had adopted one of the possible view, the assessment framed by him could not be held to be erroneous within the meaning of Sec.
263. In order to fortify his aforesaid contention that the issue under consideration was not free from doubts and debate, it was submitted by the Ld. A.R that for the said reason the matter was referred to a ‘Special Bench’ of the Tribunal in the case of Vishnu Anant Mahajan Vs. ACIT, Circle-5 Baroda (2012) 137 ITD 189 (Ahd) (SB). It was the contention of the ld. A.R that the ‘Special Bench’ of the Tribunal had decided the issue against the assessee. The Ld. A.R averred that the fact that the matter was referred to a ‘Special bench’ in itself proved that the issue therein involved had remained highly debatable. It was further submitted by P a g e | 7 AY. 2014-15 Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 the ld. A.R. that a coordinate bench of the Tribunal had remanded back the issue as regards quantification of disallowance under Sec. 14A in the assesses own case for the immediately preceding year i.e. A.Y. 2013-14 to the file of the A.O for fresh adjudication. Alternatively, it was submitted by the ld. A.R that as the tax liability of the assessee was worked out by the A.O while framing the assessment under Sec. 143(3), dated 08.11.2016 as per the MAT provisions under Sec.115JB, therefore, a further disallowance under Sec.14A r.w. Rule 8D(2)(iii) will have no bearing on its tax liability. The ld. A.R taking support of his aforesaid contention had tried to impress upon us that as any further disallowance under Sec.14A will have no bearing on its tax liability for the year under consideration which had been determined under Sec.115JB, therefore, it could safely be concluded that the order passed by the A.O was in no way prejudicial to the interest of the revenue. In order to fortify his aforesaid contention the ld. A.R relied on the order of the Hon’ble High Court of Bombay in the case of CIT-3 Vs. Sea Glimpse Investments Pvt. Ltd. 2013 (1) TMI 955 (copy placed on record). It was submitted by the ld. A.R that the Hon’ble High Court in its aforementioned order had observed that in a case where the assessee is being assessed to tax on ‘book profits’ under Sec. 115JB, then even if disallowance made under Sec.14A is higher than that worked out by the A.O, it would not have any effect on the ‘book profit’ on which the tax is payable, and resultantly the requirement that the order passed by the A.O is found to be prejudicial to the interest of the revenue would not be satisfied. In sum and substance, the Ld. A.R. has tried to impress upon us that now when the assessment framed by the A.O is not found to be prejudicial to the interest of the revenue, therefore, the same could not be revised under Sec. 263 of the I.T. Act.
P a g e | Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 7. Per contra, the ld. Departmental Representative (for short ‘D.R’) submitted that the assessee during the year had substantial exempt income by way of profit from the partnership firms amounting to Rs.128,61,73,159/-. It was submitted by the ld. D.R that though the assessment orders of the assessee for the preceding years i.e. A.Y. 2013-14, A.Y 2012-13 & A.Y.2011-12 were available before the A.O wherein after rejecting a similar claim of the assessee an additional disallowance under Sec. 14A in context of the issue under consideration was made by his predecessors, however, he had proceeded with and framed the assessment without applying his mind in context of the issue under consideration. It was further submitted by the ld. D.R that even the order of the ‘Special Bench’ of the Tribunal i.e. Vishnu Anant Mahajan Vs. ACIT, Circle-5 Baroda (2012) 137 ITD 189 (Ahd) (SB) was available before the A.O at the time of framing of the assessment on 08.11.2016, which clearly provided that as the income of a partner from a partnership firm is not liable to tax under Sec. 10(2A), therefore, the provisions of Sec. 14A would be attracted in respect of the exempt share of profit of an assessee claimed as exempt. It was stated by the ld. D.R that though admittedly the assessee had been assessed to tax under the MAT provisions contemplated under Sec.115JB, however, on the raising of the disallowance under Sec.14A as the consequential carry forward of the MAT credit would be substantially effected, therefore, it was not correct on the part of the counsel for the assessee to claim that the assessment framed by the A.O was not prejudicial to the interest of the revenue.
We have heard the authorized representatives for both the parties, perused the orders of the lower authorities and the material and judicial pronouncements relied upon by them. As observed P a g e | Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 hereinabove, the Pr. CIT had under Sec. 263 revised the assessment framed by the A.O under Sec. 143(3), dated 08.11.2016 for the reason that he had without application of his mind summarily accepted the disallowance offered by the assessee in its return of income under Sec. 14A of the I.T. Act. It was observed by the Pr. CIT that though the A.O in the course of the assessment proceedings had called upon the assessee to explain as to why additions/disallowances made in the earlier years should not be made in the year under consideration, however, no direct query was raised by him regarding disallowance under Sec. 14A r.w. Rule 8D. In fact, it was noticed by the Pr. CIT that though the assessee in pursuance to the aforesaid query raised by the A.O had vide its letter dated 25.10.2016 furnished its reply as regards disallowance under Sec. 14A was concerned, however, the A.O had not raised any query as to why disallowance was not to be made under Sec. 14A r.w. Rule 8D. Insofar the claim of the assessee that the A.O had while framing the assessment called for the requisite details and had after necessary deliberations adopted a possible view and restricted the disallowance under Sec. 14A to the extent the same was offered by the assessee in its return of income is concerned, we find that the said claim of the assessee did not find favour with the Pr. CIT.
We have given a thoughtful consideration to the facts of the case in the backdrop of the material available on record. Admittedly, the A.O vide a query letter issued under Sec. 142(1), dated 20.04.2016, had vide ‘Point No. 14’ called upon the assessee to furnish the copies of the assessment orders for the last three assessment years and explain as to why similar additions/disallowances made in the earlier years should not be made in its hands during the year under consideration also. In reply, the assessee had vide its letter dated 25.10.2016, despite the fact that no specific query was raised by the P a g e | Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 A.O in context of disallowance under Sec. 14A, submitted at length that no disallowance of expenses was required to be made with reference to its investments made in the partnership firms. Alternatively, in pursuance to the directions of the A.O the assessee had also submitted the working of disallowance under Sec. 14A r.w. Rule 8D(2)(iii) [after including the investments in the partnership firms], which worked out at Rs. 1,50,46,734/-. It was stated by the assessee that as it had already disallowed an amount of Rs. 10,96,734/-, thus in the backdrop of the aforesaid working the additional disallowance as per Sec. 14A r.w. Rule 8D(2)(iii) after considering the investments in the partnership firms would work out at Rs. 1,39,50,000/-. In fact, a perusal of the letter dated 25.10.2016 filed by the assessee with the A.O reveals that the assessee had at length tried to impress upon the A.O that no disallowance under Sec. 14A was liable to be made insofar the investments made in the partnership firms were concerned. Interestingly, the assessee vide its reply dated 23.08.2016 had also furnished with the A.O the details of its returned income and assessed income of the last three assessment years, which clearly revealed that in all the said three years additional disallowance under Sec. 14A was made by the A.O, which thereafter was assailed by the assessee in appeal before the CIT(A)/ITAT. As the aforesaid details filed by the assessee will have a strong bearing on the adjudication of the present appeal, therefore, the same are reproduced as under :
Assessment Returned Income Assessed income Nature of Addition Result of 1st Result addition, if any amount appeal of 2nd Year Apeal 2013-14 23,295,760 37,995,760 Disallowance 14,700,000 Pending NA u/s 14A 2012-13 2,659,278,795 2,676,291,9877 Disallowance 17,013,192 Pending NA u/s 14A (U.s. 115JB) 2011-12 112,952,961 132,152,962 Disallowance 19,200,001 Dismissed Pending u/s 14A P a g e | Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 10. In the backdrop of the aforesaid facts, we find substantial force in the observations of the Pr. CIT that despite the fact the A.O was well aware that additional disallowance under Sec. 14A was made in the hands of the assessee in all the three preceding years viz. A.Y(s). 2011- 12 to 2013-14, however, he chose not to refer to the respective assessment orders and deliberate on the basis on which such additional disallowance was made in the hands of the assessee. In fact, our aforesaid conviction is substantially fortified by the fact that the assessee by its letter 23.08.2016 had in compliance to the directions of the A.O also placed on his record the copies of the returns of income along with the assessment orders for the aforementioned three preceding years. In sum and substance, we are of the considered view that despite the fact the A.O had before him the relevant assessment orders for the last three preceding years, as well as was conversant of the fact that substantial additional disallowance under Sec. 14A was made by his predecessors while framing the assessment for the said preceding years, however, he had without any application of mind proceeded with and had summarily accepted the disallowance of Rs. 10,96,734/- that was offered by the assessee under Sec. 14A in its return of income for the year under consideration. In the backdrop of the aforesaid facts, we are absolutely in agreement with the observations of the Pr. CIT that the A.O while framing the assessment under Sec. 143(3), dated 08.11.2016, had failed to make any enquiry as regards the disallowance under Sec. 14A r.w. Rule 8D in the hands of the assessee.
We shall now advert to the claim of the Ld. A.R that as the A.O while framing the assessment had adopted one of the possible views, therefore, the assessment order passed by him could not have been subjected for revision under Sec. 263, for the reason that on the basis P a g e | Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 of the other view higher revenue could be collected from the assessee. The Ld. A.R in the course of hearing of the appeal had tried to impress upon us that as the issue that whether the provisions of Sec. 14A would be applicable for disallowing expenditure incurred on earning of share of profit exempt under Sec. 10(2A) by a partner from a partnership firm was highly debatable, therefore, the adoption of one of the possible views by the A.O who had concurred with the view taken by the assessee that investments in the partnership firms were not to be considered for working out the ‘average of the investments’ for computing the disallowance under Sec. 14A r.w. Rule 8D(2)(iii), thus could not have been dislodged by revising the same under Sec. 263 of the I.T. Act. We have given a thoughtful consideration and are unable to persuade ourselves to accept the said claim of the assessee. We find that the A.O on the date of framing of assessment under Sec. 143(3) i.e. on 08.11.2016, had before him the order of the ‘Special Bench’ of ITAT, Ahmedabad in the case of Vishnu Anant Mahajan Vs. ACIT, Circle-5, Baroda (2012) 137 ITD 189 (Ahd) (SB), wherein it was held that as the share of income of a partner from the partnership firm is not liable to tax under Sec. 10(2A), thus the provisions of Sec. 14A would apply to disallow expenditure incurred on earning of such income. Insofar the orders of the coordinate benches of the Tribunal that has been relied upon by the Ld. A.R to drive home his contention that no disallowance under Sec. 14A was liable to be made in respect of share of profit of an assessee from a partnership firm which is exempt under Sec. 10(2A) viz. (i) Hitesh D. Gajaria Vs. ACIT-11(2), Mumbai (ITA No. 993/Mum/2007, dated 14.11.2008); and (ii) Sh. Sudhir Kapadia Vs. ITO, Ward 11(3)(3), Mumbai (ITA No. 7888/Mum/2003, dated 26.02.2007) are concerned, we find that as the same were delivered much prior to the order of the ‘Special Bench’ of the ITAT in the case of Vishnu Anant Mahajan (supra), hence the P a g e | 13 AY. 2014-15 Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 same at the relevant point of time did not hold the ground any more. In terms of our aforesaid observations, we are unable to accept the claim of the assessee that as the A.O by adopting one of the possible views in context of the issue under consideration had concurred with the view taken by the assessee that the investments in the partnership firms were not to be considered for working out the ‘average value of investments’ while computing the disallowance under Sec. 14A r.w. Rule 8D(2)(iii), thus decline to accept the same.
We shall now advert to the disallowance made under Sec. 14A r.w. Rule 8D(2)(iii) in the course of the assessments framed in the case of the assessee for the immediately three preceding years viz. A.Y(s) 2011-12 to 2013-14. On a perusal of the order passed by a coordinate bench while disposing off the appeal of the assessee for A.Y. 2010-11 and A.Y. 2011-12, it stands revealed that the A.O had rejected the claim of the assessee as regards exclusion of the investments made in the partnership firm for computing the disallowance under Sec. 14A r.w. Rule 8D. In fact, the Tribunal had allowed relief to the assessee in context of the disallowance made under Sec. 14A in the said respective years for the reason that the suo motto disallowance made by the assessee which worked out to almost 44% and 35.45% of the total expenditure was found to be reasonable. The Tribunal while concluding as hereinabove had gone by the fact that the disallowance offered by the assessee in the aforementioned respective years viz. A.Y. 2010-11 and A.Y. 2011-12 was found to be more as in comparison to disallowance of 35.10% offered by the assessee in A.Y. 2009-10. Further, the ITAT in the assesses own case for A.Y. 2013-14 observing that the disallowance offered under Sec. 14A r.w. Rule 8D worked out at 0.22%, thus on the said count had declined to follow the view earlier taken in the assesses own case for A.Y. 2009-10 to A.Y. 2011- P a g e | Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 12. In sum and substance, we find that in all of the aforementioned preceding years the A.O while making the disallowance under Sec. 14A r.w. Rule 8D had rejected the claim of the assessee and had made a further disallowance by including the investments made in the partnership firms while working out the ‘average value of investment’ for computing the disallowance under Rule 8D(2)(iii). As observed hereinabove, the Tribunal had in neither of the aforementioned cases allowed any relief to the assessee by excluding the investments made in the partnership firms for computing the disallowance under Sec. 14A r.w. Rule 8D. Be that as it may, the facts involved in the case of the assessee for the aforementioned previous year viz. A.Y(s). 2011-12 to 2013-14 as were available before the A.O in the course of framing the assessment for the year under consideration, establishes to the hilt that he had without making any enquiry summarily accepted the disallowance of Rs. 10,96,734/- that was offered by the assessee under Sec. 14A in its return of income for the year under consideration.
We shall now advert to the claim of the Ld. A.R that as the tax liability of the assessee was determined under the MAT provisions envisaged under Sec. 115JB of the I.T. Act, therefore, any additional disallowance made in its hands would not have any bearing on its tax liability. In sum and substance, it is the claim of the Ld. A.R that as the order passed by the A.O under Sec. 143(3), dated 08.11.2016 is not found to be prejudicial to the interest of the revenue, hence the jurisdiction of the Pr. CIT to revise the said order under Sec. 263 stands excluded. In support of his aforesaid contention the Ld. A.R has relied on the judgment of the Hon’ble High Court of Bombay in the case of CIT-3 Vs. Sea Glimpse Investments Pvt. Ltd. 2013 (1) TMI 955 (Bom). We have given a thoughtful consideration to the aforesaid P a g e | Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 contention of the Ld. A.R and are unable to persuade ourselves to accept the same. Admittedly, though the said claim of the assessee at the first blush appeared to be very convincing, but after necessary deliberations the same was found to be not acceptable. On a perusal of the facts involved in the case of the assessee before us, we find that the same are distinguishable as against the facts as were there before the Hon’ble High Court of Bombay in the case of Sea Glimpse Investments Pvt. Ltd.(supra). In the case before the Hon’ble High Court the assesses income was determined by the A.O at Rs. 5.79 crores and its ‘book profits’ at Rs. 45.73 crores for the purpose of Sec. 115JB of the I.T. Act. The assessee had shown an exempt income of Rs. 24.34 lacs in its return of income. The A.O in the course of the assessment proceedings disallowed an amount of Rs. 2.14 lacs under Sec. 14A. However, as the assessee had brought forward losses, therefore, its income under the normal provisions was determined at nil and tax was payable on ‘book profit’ under Sec. 115JB. The CIT being of the view that the A.O had not correctly worked out the disallowance under Sec. 14A, therefore, by his order dated 30.03.2011 directed the A.O to recompute the disallowance of interest on borrowed funds which were utilized for making investments in the exempt income yielding shares. Aggrieved, the assessee carried the matter in appeal before the Tribunal. The Tribunal observing that the order passed by the A.O was not prejudicial to the interest of the revenue vacated the order passed by the CIT under Sec.
263. On further appeal by the revenue, the Hon’ble High Court upheld the order of the Tribunal and declined to entertain the question raised by the revenue before them. We find that in the case before the Hon’ble High Court, as in the assessment order originally passed the tax payable on ‘book profit’ was more than the tax payable on regular income, therefore, the assessee was assessed to tax on its ‘book profit’ under Sec. 115JB of the I.T. Act. In the P a g e | 16 AY. 2014-15 Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 consequential assessment order passed by the A.O giving effect to the order of the CIT under Sec. 263, the business income of the assessee was determined at Rs. Nil and the assessee was assessed to tax on its ‘book profits’ under Sec. 115JB of the I.T. Act. In sum and substance, the assessed income as per the normal provisions/book profits of the assessee continued to be the same even after the disallowance of a higher amount under Sec. 14A by the A.O pursuant to the directions of the CIT under Sec.
It was in the backdrop of the aforesaid peculiar facts wherein the assessed income under the normal provisions/book profits of the assessee continued to be the same in the assessment framed by the A.O under Sec. 143(3) r.w.s. 263, that the Hon’ble High Court had observed that as the assessee was being assessed to tax on its ‘book profits’ under Sec. 115JB, therefore, even if the disallowance under Sec. 14A made pursuant to the directions of the CIT under Sec. 263 was higher than that earlier made by the A.O, the same would not have any effect on the ‘book profits’ on which the tax was payable and the entire exercise would be rendered as academic.
As per Section 115JB r.w.s. 115JAA of the I.T. Act, where an assessee company had paid any tax under sub-section (1) of Section 115JB, then the difference of the tax paid for the said assessment year under sub-section (1) of Section 115JB and the amount of tax payable by the assessee on its total income computed in accordance with the normal provisions of the Act are to be allowed set-off in a year when tax becomes payable on the total income computed in accordance with the provisions of the I.T. Act other than Section 115JB. In nutshell, the excess of the tax paid by the assessee under the MAT provisions i.e. difference between the tax liability under Sec. 115JB and that computed as per the normal provisions, is allowed as a ‘tax credit’ P a g e | Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 which is set-off in a year when the tax liability of the assessee under the normal provisions exceeds the tax liability determined under Sec. 115JB. We find that as in the case of Sea Glimpse Investments Pvt. Ltd. (supra) as the assessed income under the normal provisions/book profit continued to be the same even after disallowance of a higher amount by the A.O under Sec. 14A in the assessment framed under Sec. 143(3) r.w.s. 263 in pursuance to the directions of the CIT, therefore, the ‘tax credit’ under Sec. 115JAA r.w.s. 115JB continued to remain the same. In sum and substance, despite a higher disallowance made by the A.O under Sec.14A in pursuance to the directions of the CIT under Sec. 263 did neither effect the tax liability of the assessee for the year under consideration nor had any bearing on the ‘tax credit’ which was to be carried forward for being set-off in the succeeding years, therefore, it was in the backdrop of the said peculiar facts that the Hon’ble High Court had observed that the assessment order passed by the A.O was not prejudicial to the interest of the revenue. However, the facts involved in the case before us are distinguishable as against those which were there before the Hon’ble High Court. In the present case before us, the A.O had assessed the income of the assessee vide his order passed under Sec. 143(3), dated 08.11.2016 under the normal provisions at Rs. 1,28,32,980/-, while for the ‘book profit’ under Sec. 115JB was determined at Rs. 22,13,30,072/-. As the tax liability of the assessee under the MAT provisions was higher than that worked out as per the normal provisions, therefore, the assessee was subjected to tax on the ‘book profit’ determined under Sec. 115JB. As per the directions of the Pr. CIT in his order passed under Sec. 263, dated 21.12.2017 the disallowance under Sec. 14A r.w. Rule 8D(2)(iii) was to be substantially enhanced after including the investments of the assessee in the partnership firms for working out the ‘average value of P a g e | 18 AY. 2014-15 Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 investments’ for the purpose of computing the said disallowance. In pursuance to the directions of the Pr. CIT, the income of the assessee as per the normal provisions would stand enhanced. Admittedly, the additional disallowance under Sec. 14A would have no effect on the ‘book profits’ of the assessee determined under Sec. 115JB. Insofar the tax liability of the assessee for the year under consideration viz. A.Y. 2014-15 is concerned, the same would remain as such i.e. static as the same would be determined at the same amount of ‘book profit’ under Sec. 115JB. However, the ‘tax credit’ which would be available to the assessee after the assessment framed under Sec. 143(3) r.w.s. 263 would be lower than that to which it was entitled as per the original assessment framed under Sec. 143(3), dated 08.11.2016. In result, the amount of the ‘tax credit’ which the assessee as per Section 115JB r.w.s. 115JAA would be entitled to carry forward and claim the set-off of the same in the year in which its tax becomes payable on the total income determined as per the normal provisions, would stand reduced. In the backdrop of the aforesaid facts, we are of the considered view that the Ld. A.R is in error in claiming that as the assessee has paid the tax as per the MAT provisions envisaged under Sec. 115JB, therefore, a further additional disallowance would not effect its tax liability and as such the assessment framed by the A.O under Sec. 143(3), dated 08.11.2016 cannot be held to be prejudicial to the interest of the revenue. As observed by us hereinabove, as the judgment of the Hon’ble High Court of Bombay in the case of CIT-3 Vs. Sea Glimpse Investments Pvt. Ltd. 2013 (1) TMI 955 (Bom) is distinguishable on facts, therefore, the same would not assist the case of the assessee before us. We thus in terms of our aforesaid observations reject the aforesaid claim of the Ld. A.R.
P a g e | Radha Madhav Investments Pvt. Ltd. Vs. Pr. CIT-3 15. We thus in terms of our aforesaid observations finding no infirmity in the order of the Pr.CIT-3, Mumbai, who rightly observing that the order passed by the A.O under Sec. 143(3), dated 08.11.2016 is found to be erroneous and prejudicial to the interest of the revenue had rightly revised the same, uphold the same. The Grounds of Appeal
No. 1 to 4 raised by the assessee are dismissed in terms of our aforesaid observations. The Grounds of Appeal No. 5 & 6 being general are dismissed as not pressed.
16. The appeal of the assessee is dismissed.