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Income Tax Appellate Tribunal, “G” Bench, Mumbai
Before: Shri Shamim Yahya (AM) & Shri Amarjit Singh (JM)
O R D E R Per Bench :
These are cross appeals by the Revenue and assessee directed against the order learned CIT(A) for respective assessment years.
2 M/s. Skill Infrastructure Ltd.
Since the issues raised are common and connected these are being disposed of by this common order. Common grounds raised in Revenue appeal read as under :
(i) "On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition u/s 14A of the Income Tax Act, 1961 ignoring that the provisions of Section 14A apply even if no exempt income is actually earned or received during the year in any form whatsoever."
(ii) "On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition u/s 14A of the Income Tax Act, 1961 by ignoring the provisions of CBDT Circular no. 5/2014 dated 11.02.2014 wherein, it has been clarified that the Rule 8D r.w.s.14A provides for the disallowance of expenditure even where the assessee in particular has not earned exempt income"
(iii) On the facts and circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition u/s 14A of the Income Tax Act, 1961 relying upon the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. overlooking the fact that the above decision is not accepted by the revenue and Civil Appeal has been preferred before the Hon'ble Supreme Court and same is pending?"
The appellant prays that the order of the CIT(A) on the grounds be set aside and the DC be restored. The appellant craves to amend or alter any ground or add new ground which may be necessary.”
Common grounds raised in assessee’s appeal read as under :-
On the facts and in the circumstances of the case and in law, the Commissioner of Income Tax (Appeals) (CIT(A) has erred in not granting the appellant the set off of carried forward speculative loss of AY 2005- 06, thereby rejecting the assessee's plea that as on the date of determination of loss, set off was available for 8 years, whereas, amendment brought in restricting the set off for 4 years was by Finance Act, 2005 w.e.f. 01.04.2006. The amendment brought in was prospective and not retrospective.
2. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in directing the AO to compute the disallowance u/s.l4A r.w.r.SD of the Income Tax Act, in respect of shares/investment in mutual funds, which have yielded dividends.
3 M/s. Skill Infrastructure Ltd.
3. On the facts and in the circumstances of the case and in law, the CIT(A) has erred in rejecting the appellant's proposition that the disallowance U/S.14A r.w.r.SD is not triggered in respect of strategic investment.
4. The appellant reserves its right to add to, alter, amend, or modify any of the grounds taken in this appeal.
Since facts are identical we are referring to facts and figures from A.Y. 2009-10.
Issues in Revenue appeal :-
Brief facts during the appellate proceedings, on this issue, the Assessing Officer observed that the assessee had earned dividend income which is claimed as exempt from tax in computation of income, however, the assessee had not made any disallowance u/s. 14A rw Rule 8D for earning exempt income. After considering the submissions of the assessee the Assessing Officer has made disallowance u/s. 14A rw Rule 8D at Rs. 3,13,17,324/- which consisted of disallowance under Rule 8D(2)(i) at Rs. Nil; under Rule 8D(2)(ii) at Rs. Nil and under Rule 8D(2)(iii) at Rs. 3,13,70,324/-.
Upon assessee’s appeal learned CIT(A) noted that assessee submissions as under :- a. The assessee is in the business of infrastructure development on its own and has field its original return of income on 20.09.2009, declaring Nil income. The assessee was subject matter of search & seizure action on 12.10.2011. The assessee had filed return u/s 153A of the Act on 18.10.2012 declaring income of Rs. 2.77 crores. With effect from 01.04.2011, the assessee amalgamated with Horizon Infrastructure Ltd, who in turn has changed its name to "SKIL Infrastructure Ltd, w.e.f 22.01.2014. b. The assessee is in the business of infrastructural development of projects for which it floats special purpose vehicles, which are held as strategic investment in the form of 100% subsidiaries & investment in Group Companies.
4 M/s. Skill Infrastructure Ltd. c. The controlling interest is liable to be taxed whenever sold and hence the same would not attract the rigors of sec 14A. d. During the year the assessee has received dividend income of Rs. 61,34,107/- which have been received from mutual funds and no dividend has been received from subsidiaries & group entities during the year. e. So far as the investment in subsidiaries & Group entities are concerned they are strategic in nature and hence they should be excluded while computing disallowance u/s 14A rw Rule 8D. The assessee has placed reliance on the decision of the Hon'ble Delhi High court in the case of Oriental Structural Engineering P Ltd in of 2012, The assessee has also placed reliance on the decision of Ld. CIT(A) in assessee's own case for AY 2010-11 order dated 29.10.2014 in Horizon Infrastructure Ltd. f. The assessee has submitted that where no dividend is received no disallowance u/s 14A rw Rule 8D can be made and in support of its contention the assessee has placed reliance on decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. The assessee has also placed reliance on the decision of the Hon'ble Bombay High Court in the case of Delite Enterprise; Hon'ble Gujarat High Court in the case of CIT vs. Gorfech Energy P Ltd; Hon'ble Delhi High Court in the case of Holicim India P Ltd; Hon'ble ITAT Bangalore in the case of Alliance Infrastructure Projects P Ltd; Hon'ble Chennai ITAT in M. Bhaskaran. g. The disallowance u/s 14A rw Rule 8D cannot exceed exempt income. In support of said contention the assessee has placed reliance on the decision of the Hon'ble Delhi High Court in the case of Joint Investment P Ltd and that of Hon'ble ITAT, Delhi in the case of Regent Automobiles P. Ltd. h. The investments on which no exempt income has been earned during the year should be excluded from average value of investments while computing disallowance u/s 14A rw Rule 8D. In support of its claim the assessee has placed reliance on the decision of the Hon'ble Delhi High Court In the case of ACB India Ltd; Hon'ble ITAT, Mumbai in the case of Dystar India P Ltd. In view of the above the assessee has submitted that if at all the disallowance u/s 14A rw Rule 8D is required to made then the same has to be made on investments made in mutual funds and the 0.5% disallowance on same works out to be Rs. 13,25,774/-.
5 M/s. Skill Infrastructure Ltd.
7. Considering the above learned CIT(A) held that disallowance under section 14A cannot exceed exempt income. CIT(A) rejected the assessee’s contention that no disallowance should be made for making strategic investment. Furthermore, learned CIT(A) held that investments which have not yielded any exempt income during the year should be excluded while computing productions u/s. 14A of the Act.
7. Against the above order assessee and Revenue both are in appeal before us.
We have heard learned Departmental Representative and perused the records. None appeared on behalf of the assessee despite notice.
Learned Departmental Representative submitted that as regards the issue of strategic investments the same is covered against the assessee by the decision of Hon'ble Apex Court in the case of Maxopp Investment Ltd.(Civil Appeal Nos. 104-109 OF 2015 and others dated 12.2.2018). Learned Departmental Representative further submitted that disallowance should not be restricted to the extent of exempt income. For this purpose he referred to the decision of ITAT Amritsar Bench in the case of in the case of Lally Motor India Pvt. Ltd. vide order dated 12.4.2018.
Upon careful consideration we find that assessee’s claim of relief from disallowance under section 14A for strategic investment is liable to be rejected on the touchstone of Hon'ble Apex Court decision in the case of Maxopp Investment Ltd. (supra). As regards other direction that disallowance under section 14A should not exceed the exempt income and that for the purpose of computation of disallowance only those investments should be considered which have yielded exempt income, we find that the same is duly sustainable on the touchstone of Hon'ble Delhi High Court decision in the case of Cheminvest Ltd. (supra) and Hon'ble Bombay High Court decision in the case
6 M/s. Skill Infrastructure Ltd. of Delite Enterprise (supra) and Ballarpur Industries Ltd. and Special Bench ITAT decision in the case of Vireet Investment.
The decision referred by learned Departmental Representative is not applicable on the facts of this case. Hence, qua these issues we uphold the order of learned CIT(A).
In the result, appeals filed by the Revenue stand dismissed.
Issue in assessee’s appeal :- 13. As regards the issue of disallowance under section 14A for strategic investment and others, we have upheld the order of learned CIT(A) in Revenues appeal as above. Hence, assessee’s ground on these issues of disallowance under section 14A is dismissed.
As regards the issue of set off of carry forward of speculative loss is concerned, we note that this issue is arising in A.Y. 2010-11 and 2011-12.
Brief facts on this issue are as under :- “During the course of assessment proceedings, on this issue, the Ld. AO has held as under:-
During the year the assessee has earned income from speculative business of Rs. 3,35,42,277/-. The assessee has claimed that the net profit derived from the said speculative business of Rs. 3,35,42,277/- should be set off against carried forward speculative business loss of AY 2005-06 since they are speculative in nature by virtue of explanation to section 73 of the IT Act. The relevant extract of the submission made by the assessee is reproduced here under:
"The claim for set off of carried forward share trading losses of Rs. 3,38,72,6251- against share trading income stand supported- by the CBDT Circular No. 23D of 1960 dated 12.09.1960, where the board opined as under:
"Point (v) Speculation loss, if any, carried forward from the earlier years or the speculation loss, if any, in a year should first be adjusted against speculation profits of the particular year before allowing any other loss to be adjusted against those profits.
7 M/s. Skill Infrastructure Ltd.
Board's decision- The suggestion is acceptable. For the purpose of set off under section 10 and 24(1), the speculation loss if any year should first be set off against the speculation profits of that year and the remaining amount of speculation profits, if any, should be first utilized for setting off of any loss of that year from other sources. For the purpose of section 24(2), the Income Tax Officer (now Assessing Officer) may allow the assessee:
(i) Either to first set off the speculation losses carried forward from-an earlier year against the speculation profits of the current year and then to set off the current year's speculation profits; (ii) Or to first set off the current year's losses from non- speculation business and other sources against the current year's speculation profits and then set off the carried forward speculation losses of the earlier year against the remaining part, if any, of the current year's speculation profits, whichever is advantageous to the assessee."
On verification of records, it is noticed that assessee has filed an appeal to ITAT, on 08.06.2012, for AY 2005-06, on this issue. This being subjudice issue depending upon the outcome of the appeal of AY 2005- 06, set off brought forward losses of Rs. 3,35,42,2771- against the current year speculative income cannot be allowed and hence the same has been added back to the income of the assessee."
Upon assessee’s appeal learned CIT(A) noted that assessee’s submissions as under : a) The Ld. AO has not allowed set off of carried forward deemed speculative loss of AY 2005-06, amounting to Rs. 3.35 crores against share trading income of Rs. 3.35 crores of the current year. The profit of Rs. 3.35 crore has arisen on the grounds of revaluation of the shares at "Mark to Market" held as stock-in-trade by the assessee. The assessee has been following the method of valuation of closing stock of shares at cost or market, whichever is lower. The Bombay High court in the case of Prasad Agents P Ltd reported in 226 CTR 13 has held that even shares in stock at the close of the accounting year resulting in Profit and loss and such profit or loss u/s 28(1) is speculation profit or loss by virtue of proviso to section 73 of the Income Tax Act. b. The issue is identical to AY 2007-08 and the appellant has placed reliance on the written submission submitted during the appellate proceedings for AY 2007-08.
8 M/s. Skill Infrastructure Ltd. c. The speculative loss of AY 2005-06 is available for set off in AY 2010- 11 and the limitation of 4 years does not apply in this case, since the loss pertains to AY 2005-06, which could be carried forward for 8 years, whereas the amendment for 4 year was brought by the Finance Act, 2005, w.e.f. 01.04.2006. In support of its contention the appellant has placed reliance on the Special Bench, Mumbai ITAT in the case of Kotak Mahindra Capital Co. Ltd vs. ACIT reported in 18 ITR 213, wherein while deciding the issue of c/f & set off of Long Term Capital Loss pertaining to AY 2001-02 against Short Term Capital Loss of AY 2003-04 read with the amendment brought in w.e.f AY 2003-04 has held that a right to set off is a vested right & cannot be affected by amendment. The Hon'ble Mumbai Tribunal relied on the decision of the Supreme Court rendered in 166 ITR 102, wherein, it was held that a vested right cannot be affected by an amendment. d. Without prejudice to the above, the appellant has submitted that set off of share trading loss as determined in AY 2009-10, wherein, share trading loss for AY 2009-10 stands determined at Rs. 1,18,88,8967- should also be considered.
Considering the above learned CIT(A) by an elaborate order rejected the assessee’s contention is by holding as under :-
“6.4.1 I have considered the submissions of the appellant and perused the materials available on record. The appellant has requested to allow the set off of unabsorbed deemed speculative losses of AY 2005- 06 amounting to Rs. 3,35,42,277/- against current years deemed speculative income of Rs. 3,35,42,277/- by virtue of explanation to section 73 of the Income Tax Act. The assessee’s main contentions are that in AY 2005-06, the Ld. AO has determined the deemed speculation loss under the provisions of Explanation to section 73 of the Act which was confirmed by the Ld. CIT(A). However, the Ld. AO has not allowed the claim of set off such deemed speculation loss pertaining to AY 2005- 06 against the deemed speculative profit as per the provisions of Explanation to sec 73 of the Act, on the ground that the appellant for AY 2005-06 has filed the appeal before the Hon'ble ITAT and the same is pending for adjudication. The appellant has also submitted though the provisions of sec 73 of the Act has been amended by the Finance Act 2005, w.e.f 01.04.2006, whereby the speculation Joss can be carried forward for 4 years only as against 8 years prior to said amendment, the same is not applicable in relation to deemed speculation loss for AY 2005-06, as the appellant had got vested right and hence in its case the speculation loss of AY 2005-06 can be carried forward and set off against speculative profit for AY 2010-11. In support of its contention the appellant has placed reliance on the decision of the Hon'bfe ITAT,
9 M/s. Skill Infrastructure Ltd.
Mumbai Special Bench in the case of Kotak Mahindra Capital Co. Ltd (supra). The contentions of the appellant have been considered carefully. The provisions of sec 73(4) of the Act stipulates as under.
(4) No loss shall be carried forward under this section for more than [four] assessment years immediately succeeding the assessment year for which the loss was first computed.
6.4.2 From the above referred provisions of sec 73(4) of the Act it is unambiguous that the speculation loss can be carried forward only for four assessment years immediately succeeding the assessment year for which the loss was first computed. The usages of word "shall" make if mandatory and does not leave any doubt. The appellant's contention that it has acquired "vested right" and hence in respect of speculative loss determined in AY 2005-06 will not be governed by the amended provisions of sec 73(4) of the Act is devoid of merits as the concept of absolute "vested right" is alien to statutory provisions. The Legislature has got power to impair, imperil or even to take away vested rights by making express provisions. The Hon'ble Kerala High Court in the case of CIT vs. A.N. Habeeb reported in 137 Taxman 24 has held as under.
"The Legislature has got the power to impair, imperil or even to take away vested rights by making express provisions in that regard is not of all in dispute. The difficulty arises only when there are no express provisions impairing, imperiling or taking away such vested rights. In such coses, the attempt is to find out whether the legislature by necessary intendment had impaired, imperiled or taken away such vested rights. This has to be gathered after examining the relevant provisions of the Act by which court fee on appeals is levied."
The amendment brought in sec 73(4) of the Act by the Finance Act, 2005 w.e.f 01.04.2006 is clear and unambiguous. The legislature has reduced the time period for which speculative loss can be carried forward by making provision in that regard.
6.4.3 The appellant's reliance on the decision of the Hon'ble ITAT, Mumbai Special Bench in the case of Kotak Mahindra Capital Co. Ltd vs. ACIT (supra) is misplaced as the facts and law adjudicated therein was entirely different. In the said case the Hon'ble Tribunal has considered the language of the provisions of sec 74(1 J of the Act, wherein carry forward of loss incurred under the head capital gain is governed. The provisions of sec 74(1) as amended by the Finance Act 2002, w.e.f 01.04.2003 stipulates as under.
"Losses under the head "Capitol gains"
10 M/s. Skill Infrastructure Ltd.
Where in respect of any assessment year, the net result of the computation under the head "Capital gains" is a loss to the assessee, the whole loss shall, subject to the other provisions of this Chapter, be carried forward to the following assessment year, and (a) in so far as such loss relates to a short-term capital asset, it shall be set off against income, if any, under the head "Capital gains" assessable for that assessment year in respect of any other capital asset; (b) in so far as such loss relates to a long-term capital asset, it shall be set off against income, if any, under the head "Capital gains" assessable for that assessment year in respect of any other capital asset not being a short-term capital asset; (c) if the loss cannot be wholly so set off, the amount of loss not so set off shall be carried forward to the following assessment year and so on;"
The Hon'ble ITAT Special Bench considered the words "is", "carried forward" and "cannot be" appearing in the above referred provisions and held that the same are used in present tense and hence refers to the long term capital loss of the current year. In view of the same it was further held that the provisions of sec 74(1) as substituted w.e.f 01.04.2003 are applicable to the long term capital loss of AY 2003-04 onwards and not to the long term capital loss relating to the period prior to AY 2003-04. The phraseology used in the provisions under consideration, i.e. sec 73(4) of the Act is entirely different and hence the law laid down by the Hon'ble ITAT Special Bench in above referred case is not applicable in the present case.
6.4.4 The issue under consideration is squarely covered by the decision of the Hon'ble Supreme Court in the case of Reliance Jute & Industries Ltd vs. CIT reported in 2 Taxman 417, wherein the assessee had contended that by virtue of section 24(2)(iii) of the IT Act 1922, as it stood before its amendment with effect from 01.04.1957, the assessee had acquired a vested right to have the unabsorbed loss carried forward from year to year until it was completely set off, and the subsequent amendment limiting the period for carrying forward the loss to eight years could not divest the assessee of the vested rights which has thus accrued to him. It was also argued that the amendment effected in 1957 is not retrospective in operation. The Hon'ble Supreme Court negated the assessee's contention and held as under.
"6. The assessee claims a vested right under section 24(2)(iii) as it stood before its amendment in 1957, to have the unabsorbed loss of 1950-51 carried forward from year to year until the loss is 11 M/s. Skill Infrastructure Ltd. completely absorbed. The claim is based on a misconception of the fundamental basis underlying every income- tax assessment. It is a cardinal principle of the tax law that the law to be applied is that in force in the assessment year unless otherwise provided expressly or by necessary implication - CIT v. Isthmian Steamship Lines [1951] 20 ITR 572 and Karimtharuvi Tea Estate Ltd. v. State of Kerala [1966] 60 ITR 262. On that principle, it is abundantly clear that when an assessment for the assessment year 1960-61 is to be made and section 24(2) is invoked, it is section 24(2) as in force in that assessment year which has to be applied. That is the provision as amended by the Finance (No.2) Act, 1957. There is no question of the assessee possessing any vested right under the law as it stood before the amendment. The assessment for one assessment year cannot, in the absence of a contrary provision, be affected by the law in force in another assessment year. A right claimed by an assessee under the law in force in a particular assessment year is ordinarily available only in relation to a proceeding pertaining to that year. Therefore, inasmuch as the provisions of section 24(2), as amended in 1957, govern the assessment for the assessment year 1960-61, the High Court is right in affirming that the unabsorbed loss of Rs. 15,50,189 of the assessment year 1950-51 cannot be carried forward for more than eight years, and consequently cannot be set off against the business income of the assessment year 1960-61.
It is pointed out that the AAC mentioned- in his order for the assessment year 1959-60 that the unabsorbed loss of Rs. 15,50,189 should be carried forward. That direction has meaning only if the law in force in the, assessment year 1960-61 permits the unabsorbed loss to be carried forward into the assessment of that year. The direction by the AAC assumes that the law permits the unabsorbed loss to be carried forward into future years, but as we have seen that is not the law and, therefore, the assessee can derive no advantage from that direction."
In view of the above discussed law laid down by the Hon'ble Supreme Court, I am of the considered opinion that in the present case the amended provisions of sec 73(4) of the Act are applicable. Since the provisions of sec 3(4) of the Act mandates that speculative loss shall not be carry forward for more than four assessment years immediately succeeding the assessment year for which the loss was first computed, so the speculative loss computed in AY 2005-06 could be carried forward upto AY 2009-10 and not beyond the same. The present assessment year is AY 2010-11 and hence the speculative loss of AY 2005-06 cannot be carried forward to the present assessment year.
12 M/s. Skill Infrastructure Ltd.
In view of the above discussion the disallowance of claim of the appellant of carry forward of speculative loss of AY 2005-06 at Rs. 3,35,42,277/- is CONFIRMED. During the course of appellate proceedings, the appellant has made alternate submissions that the speculative loss determined in AY 2009-10 at Rs. 1,18,88,8967- should be allowed to be carried forward and set off against speculative income of current assessment year. No such claim was made before the Ld. AO during the course of assessment proceedings. However, the same is a matter of factual verification. Hence, the Ld. AO is directed to verify the records and allow the speculative loss of AY 2009-10 to be carried forward as per law.”
Against the above order assessee is in appeal before us.
Upon careful consideration, we find that learned CIT(A) has passed an elaborate and reasonable order. The case laws relied upon by learned CIT(A) are germane and duly support the case of the Revenue. In these circumstance, we do not find any fallacy in the order of learned CIT(A). Hence, we uphold the order of learned CIT(A).
In the result, appeals filed by the assessee stand dismissed. Order has been pronounced in the Court on 1.4.2019.