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Income Tax Appellate Tribunal, “H” BENCH, MUMBAI
Before: SHRI SHAMIM YAHYA, AM & SHRI AMARJIT SINGH, JM
स्थधयी लेखध सं./जीआइआर सं./PAN/GIR No. : AADPC1634R (अपीलाथी /Appellant) (प्रत्यथी / Respondent) .. Revenue by: Shri Manoj Kumar Singh (DR) Assessee by: Ms. Dinkle Hariya (AR) सुनवाई की तारीख / Date of Hearing: 04/04.2019 घोषणा की तारीख /Date of Pronouncement: 24/04/2019 आदेश / O R D E R
PER AMARJIT SINGH, JM:
The assessee has filed the present appeal against the order dated 20.11.2017 passed by the Commissioner of Income Tax (Appeals)-28, Mumbai [hereinafter referred to as the “CIT(A)”] relevant to the A.Y.2012- 13.
The assessee has raised the following grounds of appeal: -
1. NATURAL JUSTICE The Learned Commissioner of Income - tax (Appeals) - 28, Mumbai, ["Ld. CIT (A)"] erred in not granting proper, sufficient and adequate opportunity of being heard to the Appellant while framing the appellate order. It is submitted that, in the facts and the circumstances of the case, and in law, the appellate order so framed be held as bad and illegal, as (i) The same is framed in breach of the principles of natural justice; and 2 A.Y. 2013-14 (ii) The same is passed without application of mind to the facts and the submissions brought on record by the Appellant. WITHOUT PREJUDICE TO THE ABOVE 2. DISALLOWANCE U/S. 14A READ WITH RULE 8D: The Id CIT (A) erred in confirming the action of the A.O. in making disallowance of Rs.1,03,71,636/- by invoking the provisions of section 14A of the Income - tax Act, 1961 ["the Act"] read with Rule SD of the Income - tax Rules, 1962. While doing so, the A.O. failed to appreciate that section 14A did not apply to the facts of the Appellant's case. It is submitted that in the facts and the circumstances of the case and in law, no such disallowance was called for. Without prejudice to the above, assuming - but not admitting - that the case of the Appellant fall within the purview of section 14A of the Act, the calculation of the disallowance is not in accordance with the law, is arbitrary and is excessive.”
The brief facts of the case are that the assessee filed his return of income on 27.09.2013 declaring total income to the tune of Rs.50,80,51,900/-. The return was processed u/s 143(1) of the Act. Thereafter, the case was selected for scrutiny and notices u/s 143(2) & 142(1) of the Act were issued and served upon the assessee. The assessee is an individual and engaged in the profession of architect and earns Business Income from other sources. During the year under consideration, the assessee has earned the following exempt income.:- Sr. No. Particular Amount (Rs.) 1 Dividend on Shares /Mfs. 6,37,31,965/- 2 Interest on IIFCL bonds 19,12,029/- 3 Interest on PPF 5,93,590/- 4 Interest on IRFCL 1,30,79,603/- 5 Interest on HUDCO bonds 16,40,000/- 6 Interest on NHAI bonds 34,98,756/- Total 8,44,55,943/- It was also found that the assessee did not make any disallowance u/s 14A r.w. Rule 8D of the Act, therefore, notice was given to the assessee. The AO assessed the expenditure to earn the exempt income in sum of Rs.1,03,71,636/-. The total income of the assessee was assessed to the tune of Rs.51,84,23,536/-. Feeling aggrieved, the assessee filed an appeal before 3 A.Y. 2013-14 the CIT(A) who dismissed the appeal of the assessee, therefore, the assessee has filed the present appeal before us. ISSUE NOs. 1 & 2 5. Under these issues the assessee has challenged the confirmation of disallowance u/s 14A r.w. Rule 8D of the Act in sum of Rs.1,03,71,636/-. At the very outset, the Ld. Representative of the assessee has argued that the Hon’ble ITAT has decided the matter of controversy for the A.Y.2011- 12 & 2012-13 by virtue of order dated 02.01.2019 in the assessee’s own case in which the matter of controversy was restored before the AO, therefore, in the said circumstances, the present case is also liable to be remanded before the AO to decide the matter of controversy afresh on similar instructions. However, on the other hand, the Ld. Representative of the Department has strongly relied upon the order passed by the CIT(A) in question. In the present case, the issue is in connection with the assessing the expenditure to earn the exempt income in view of the provisions u/s 14A r.w. Rule 8D of the Act. The Hon’ble ITAT in the assessee’s own case for the A.Y. 2011-12 & 2012-13 in ITA. No.1920 & 1919/M/2017 dated 02.01.2019 has restored the matter of controversy before the AO. The copy of order is on the file in which the relevant finding has been given in para nos.6,7,8,9,10 & 11 which are hereby reproduced as under.:- “6. We have heard the counsels for both the parties at length and we have also perused the material placed on record, judgment cited by the parties as well as the orders passed by revenue authorities. Before we decide the merits of the case, it is necessary to evaluate the orders passed by Ld. CIT(A). The Ld. CIT(A) has dealt with the above grounds raised by the revenue in para no. 6 to 7 of its order. The operative portion of the order of Ld. CIT(A) is contained in para no. 7 of its order and the same is reproduced below:- 7.1 I have gone through the assessment order and the submissions of the appellant. The Assessing Officer noticed that the appellant had earned exempt income of Rs.7,59,10,833/-. He also noticed that appellant had average investment worth Rs.1,95,47,09,274/- during the previous year 2010-11. I find from paragraph 4.1 of the assessment order that on the basis of this facts alone, the Assessing Officer jumped to the conclusion 4 A.Y. 2013-14 that the appellant ought to have made disallowance of expenditure u/s 14A in accordance with provision of Rule 8D. The Assessing Officer failed to appreciate that not in every case where the assessee has and some kind of investment, the provisions of section 14A gets 7.4 During the course of appeal proceedings, the appellant further submitted; that he maintains separate bank account, separate of accounts in respect of investment activity and professional activity that the investments are Demat form and therefore requires no handling. that the dividend of interest are directly credited to the bank and as such no administrative work is involved. that the appellant had apportioned the expenses in the nature of administrative expenses to the extent of Rs. 1,34,394/- being 20% of the salary paid to the accountant and telephone. 7 I.T.A. No. 1920 & 1919/Mum/2017 Hafeez S. Contractor that the following expenses were incurred by the appellant and that they were debited to his capital account: 1. STT charges Rs. 7,67,527 2. share expenses Rs. 9,09,637 3. Demat charges Rs. 11,391 7.5 On going through the capital a/c, I found that STT charges, share expenses and Demat charges have been debited to the appellant's capital account. After considering all the materials before me, I have come to the conclusion that the Assessing Officer was not justified in invoking provisions of subsection 2 of section 14A. Therefore, in my view, the disallowance made by the Assessing Officer under clause (iii) of rule 8D was unjustified. Therefore, I direct the Assessing Officer to allow the expenses which were disallowed under rule 8D. In the result, the 2nd, 3rd & 4th grounds of appeal
are treated as allowed. After having gone through the facts of the present case and hearing the parties at length, we find that AO had made disallowance by holding that assessee had earned exempt income of Rs. 7,59,10,833 and further notice that assessee had average investment of Rs. 1,95,47,09,274/- during the previous year 2010-11. The AO recorded its finding in para no.
4. (4.1 to 4.5) and concluded that the assessee ought to have made disallowance of expenditure u/s 14A in accordance with rule 8D and thus made disallowance of Rs 97,73,546/- after adjusting the suo moto disallowance made by the assessee. Ld. CIT(A) deleted the disallowance made by AO only by holding that AO can invoke the provisions of rule 8D only if, having regard to the accounts of the assessee, is not satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under this Act. Ld. CIT(A) also categorically mentioned in para no. 7.4 of its order that the assessee during the course of proceedings had further submitted that he maintains separate bank account, separate of accounts in respect of investment activity and professional activity, the investments are Demat form and requires no handling, the dividend of interest are directly credited to the bank and as such no administrative work is involved, the assessee had apportioned the expenses in the nature of administrative expenses to the extent of Rs. 1,34,394/- being 20% of the 5 A.Y. 2013-14 salary paid to the accountant and telephone, the expenses were debited to his capital account.
7. After having gone through the facts of the present case, considering the judgments mentioned in the order of Ld. CIT(A) and cited by the parties, we find that during the course of appellate proceeding, assessee pointed out the factual as well as documents in support of his case. The Ld. CIT(A) deleted the additions while holding that AO has not recorded his satisfaction to the correctness of the claim of the assessee in respect of such expenditure, having regard to the accounts of the assessee and has not considered the documents in the right perspective. It is true that the powers of Ld. CIT(A) are co-terminus with that of the AO and the Ld. CIT(A) could himself carried out further investigation which ought to have been carried out by the AO, but in the present case, we have observed that Ld. CIT(A) had only pointed out the short comings of the AO and has not carried out further investigations. The Ld. CIT(A) had not controverted the findings of AO by elaborating the documentary evidence.
8. Be that as it may, it is primary duty bestowed upon Ld. CIT(A) that the complete and all relevant facts of the case must be brought on record and discussed while deciding the appeal. It would be relevant here to quote from Hon’ble Delhi High Court in the case of CIT vrs. Jansampark Advertising and Marketing Pvt. Ltd. Dated 11.03.15, wherein it was held as under:- 35. Assessment proceedings under the Income Tax Act are not a game of hide and seek. The inquiry in the wake of a notice under Section 148 is not an empty formality. It must be effective and with a sense of purpose. There is an elaborate procedure set out which requires scrupulous adherence and followed up on. In the hierarchy of the authorities, the AO is placed at the bottom rung. The two layers of appeals, before the matter engages the appellate jurisdiction of this court, are authorities vested with the jurisdiction, power and obligation to reach appropriate findings on facts. Noticeably, it is only the appeal to the High Court, under Section 260-A, which is restricted to consideration of "substantial question of law", if any arising. As would be seen from the discussion that follows, the obligation to make proper inquiry and reach finding on facts does not end with the AO. This 11 I.T.A. No. 1920 & 1919/Mum/2017 Hafeez S. Contractor obligation moves upwards to CIT (Appeals), and also ITAT, should it come to their notice that there has been default in such respect on the part of the AO. In such event, it is they who are duty bound to either themselves properly inquire or cause such inquiry to be completed. If this were not to be done, the power under Section 148 would be rendered prone to abuse.
The provision of appeal, before the CIT (Appeals) and then before the ITAT, is made more as a check on the abuse of power and authority by the AO. Whilst it is true that it is the obligation of the AO to conduct proper scrutiny of the material, given the fact that the two appellate authorities above are also forums for fact-finding, in the 6 A.Y. 2013-14 event of AO failing to discharge his functions properly, the obligation to conduct proper inquiry on facts would naturally shift to the door of the said appellate authority. For such purposes, we only need to point out one step in the procedure in appeal as prescribed in Section 250 of the Income Tax Act wherein, besides it being obligatory for the right of hearing to be afforded not only to the assessee but also the AO, the first appellate authority is given the liberty to make, or cause to be made, "further inquiry", in terms of sub-section (4) which reads as under:- 12 I.T.A. No. 1920 & 1919/Mum/2017 Hafeez S. Contractor ―The Commissioner (Appeals) may, before disposing of any appeal, make such further inquiry as he thinks fit, or may direct the Assessing Officer to make further inquiry and report the result of the same to the Commissioner (Appeals).
The AO here may have failed to discharge his obligation to conduct a proper inquiry to take the matter to logical conclusion. But CIT (Appeals), having noticed want of proper inquiry, could not have closed the chapter simply by allowing the appeal and deleting the additions made. It was also the obligation of the first appellate authority, as indeed of ITAT, to have ensured that effective inquiry was carried out, particularly in the face of the allegations of the Revenue that the account statements reveal a uniform pattern of cash deposits of equal amounts in the respective accounts preceding the transactions in question.
Apart from above, we find that Hon’ble Apex Court in the case of Kapurchand Shrimal Vrs. CIT 1981 131(ITR) Page 451 has held that the duty of the Tribunal does not end with making a declaration that the assessments are illegal and it is duty bound to issue further directions. The appellate authority has the jurisdiction as well as the duty to correct all errors in the proceedings under appeal and to issue, if necessary, appropriate directions to the authority against whose decision the appeal is preferred to dispose of the whole or any part of the matter afresh unless forbidden from doing so by the statute and the statute does not say that such a direction cannot be issued by the appellate authority in a case of this nature.
Therefore, keeping in view the interest of justice, we set aside the order of Ld. CIT(A) and remit the matter back to the file of AO with a direction to carry out further necessary investigations /verification and record reasons if AO is not satisfied with the correctness of the claim of the assessee in respect of any expenditure if incurred by the assessee in relation to income, which does not form part of the total income under this Act. AO is further directed to verify all the documents placed on record by the assessee and so pointed out in para no. 7.4 of order of Ld. CIT(A). It is needless here to mention that before passing afresh order of assessment, the AO shall provide sufficient opportunity of hearing to the assessee.
Before parting, we may make it clear that our decision to restore the matter back to the file of AO shall in no way be construed as having any reflection or expression on the merits of the dispute, which shall be