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Income Tax Appellate Tribunal, “C”, BENCH KOLKATA
Before: SHRI A.T.VARKEY, JM &DR. A.L.SAINI, AM
The captioned two cross appeals filed by the Assessee and Revenue pertaining to assessment year 2010-11, are directed against an order passed by the TCG Facilities Management Services Pvt. Ltd. Assessment Year:2010-11 learned Commissioner of Income Tax (Appeals)-2, Kolkata (in short the ld. CIT(A)], which in turn arises out of an assessment order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961 ( in short the ‘Act’) dated 30.03.2013.
The grievances raised by the assessee in 2010-11,are as follows:
That on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in dismissing the additional grounds, raised before him with regard to suo moto disallowance of interest and consultancy charges of Rs. 49,76,484/- inadvertently made by the assessee company, under misconception of law, while filing the return of income for the assessment year 2010-11.
2. That, on the facts and in the circumstances of the case and in law, the ld. CIT(A) erred in rejecting to admit the aforesaid additional ground, raised before him and thereupon dismissing the same by alleging that the same did not arise from the impugned assessment order dated 30.03.2013 passed under section 143(3) of the Act, although admittedly the relevant facts were borne out of the records of assessment.
That the appellant craves leave to add, alter or withdraw any ground or grounds of appeal at or before the hearing of the appeal.
3. We have heard both the parties and perused the material available on record, we note that the assessee has raised, first time, an additional ground before the ld. CIT(A) in respect of disallowance of interest and consultancy charges of Rs. 49,76,484/-. We note that the ld. CIT(A) dismissed the additional grounds, raised before him with regard to suo moto disallowance of interest and consultancy charges of Rs.49,76,484/- inadvertently made by the assessee company, under misconception of law, while filing the return of income for the assessment year 2010-11. On this issue, during the appellate proceedings, the assessee furnished the following written submissions before the ld CIT(A), which are given below: “7. The appellant has filed a petition for admission of additional grounds during the course of this hearing. These grounds have inadvertently not been taken by the appellant while filing the appeal on 30.04.2013. The Additional Grounds raised by the Appellant are as follows: Page | 2
TCG Facilities Management Services Pvt. Ltd. Assessment Year:2010-11 i) That the disallowance of interest and consultancy charges of Rs. 49,76,484/-, while filing return of income of the Assessee for the assessment year 2010-11, was made under misconception of law and the same was an allowable expenditure while computing the total assessable income of the assessee company for the assessment year 2010-11. ii) That the learned Assessing Officer erred in disallowing the sum of Rs. 49,76,484/- being interest on loans borrowed by the assessee company and consultancy charged paid by the assessee company for the purposes of its business.
7.1. The appellant company while filing the return of income has added back a sum of Rs. 49,76,484/- as it was under the mistaken belief that the said sum being interest paid on borrowed funds and consultancy charges should be capitalized to the cost of investment of unquoted shares. The said belief of the assessee was due to its ignorance and misconception of law. As per Accounting standards 16, the investment is shares made by the Appellant company does not fall under the definition of a ‘qualifying asset’ under AS-16, so the cost need not be capitalized and should be allowed as a business expenses. A copy of AS-16 is enclosed for your kind perusal.
7.2. Reliance in this connection is placed on decision of the Hon’ble High Court of Calcutta in the case of SAIL DSP VR Employees Association 1998 vs. Union of India (2003) 128 Taxman 704 (Calcutta) wherein the Hon’ble Court has observed as under: “……………. What is not otherwise taxable cannot become taxable because of admission of the assessee. Nor there can be any waiver of the right otherwise admissible to the assessee in law. The chargeability is not dependent on the admission of or waiver by the assessee. Chargeability is dependent on the charging section, which needs to be strictly construed. Referring to the decision in CIT vs. Bhaskar Mitter [1994] 73 Taxman 437 (Cal) at p. 442 (paragraph 8), we had occasion to so hold in the decision in Maynak Poddar (HUF) v. WTO [IT Appeal No. 84 of1998, dated 24-2- 2003]." The SLP filed by the department was rejected / dismissed by the Hon'ble Supreme Court On the basis of the aforesaid decision of the jurisdictional High Court, it is submitted that the disallowance made by the assessee due the ignorance and misconception of law cannot be charged to tax in any scenario whatsoever.
7.3 The allegation of the AO that the said amount of Rs.49,76,484/- was suo moto disallowed by the assessee under section 14A is totally wrong and contrary to the facts of the case. The said investments were made in earlier year by the appellant company in fellow subsidiaries/sister concerns namely TCC Software Parks Pvt Ltd and Bengal Intelligent Parks Private Limited for the purposes of commercial expediency. The reasons for investment in these companies has already been stated in our submission to ground No.2 herein above. Therefore there should be a proximate relationship between the expenditure and the income which does not form part of the total income. In the case in hand the assessee has claimed that no expenditure has been incurred for earning the exempt income , therefore, it was incumbent on the Assessing Officer to find out as to whether the assessee has incurred any expenditure in relation to income Page | 3
TCG Facilities Management Services Pvt. Ltd. Assessment Year:2010-11 which does not form part of the total income and if so to quantify the expenditure of disallowance. The Assessing Officer has not brought on record any fact or material to show that any expenditure has been incurred on the activity which has resulted into both taxable and non-taxable income. Therefore, in our view when the assessee has prima facie brought out a case that no expenditure has been incurred for earning the income which does not form part of the total income then in the absence of any finding that expenditure has been incurred for earning the exempt income the provisions of section 14A cannot be applied. Accordingly we delete the addition/ disallowance made by Assessing Officer u/s 14A r.w. Rule 8D. In view of the above discussion and facts and circumstances of the case we agree with the view taken by this Tribunal in the above stated cases and accordingly hold that the assessee has brought out a case to show that no expenditure has been incurred for maintaining the 98% of the investment made in the subsidiary companies, therefore, in the absence of any finding that any expenditure has been incurred for earning the exempt income, the disallowance made by the Assessing Officer is not justified, accordingly the same is deleted. In the result, the appeal of the assessee is allowed.
7.4 The Appellant Company was in the business of Building and asset maintenance services in commercial buildings and the fellow subsidiary companies in which the Appellant made its investment, were engaged in the business of development of real estate properties, thus the investment made by the Appellant was strategic in nature to procure business from the properties developed by these companies.
7.5 The Appellant Company most respectfully submits that investment in fellow subsidiary companies/Sister Concerns is for commercial expediency and no disallowance of interest on borrowed funds for such investment could be disallowed. In support of the aforesaid contention the Appellant Company refers to and relies on the judgment of Hon'ble Supreme Court in the case of S. A. Builders Ltd. vs. CIT(A), Chandigarh [2007] 158 TAXMAN 74 (SC) equivalent to 288 ITR 1 (SC). The Hon'ble Supreme Court held that the interest borrowed for investment in subsidiary or sister concern is allowable deduction under section 36(1)(iii) of the Act and 37(1)of the Act.
7.7 In view of the above, the suo moto disallowance of Rs. 49,76,484/- made by the Appellant be allowed as these cannot be capitalized and are in the nature of business expenses.”
4. After going through the above submissions of the assessee, the ld CIT(A) noted as follows:
“I have considered the additional ground of appeal and submissions of the authorized representative of the appellant as well as the assessment order framed in the light of the materials available on record before the Assessing Officer during the assessment proceedings. I have come to the conclusion that the additional ground of appeal as raised by the AR of the assessee is not arises out Page | 4
TCG Facilities Management Services Pvt. Ltd. Assessment Year:2010-11 of the impugned assessment order. In view of above, the additional grounds of appeal as raised by the AR of the assessee is rejected. This grounds of appeal is dismissed.”
5. We note that theld CIT(A) dismissed the additional ground raised by the assessee merely on the reason that additional ground raised by the assessee does not arise out of the impugned assessment order. We note that it is well-settled principle of law that there is no estoppel against law and in this regard reliance is placed on the decision of the Hon`ble jurisdictional High Court of Calcutta in the case of MAYNAK PODDAR (HUF) vs. WEALTH TAX OFFICER (2003) 262 ITR 0633, wherein it was held:
....... An assessee is liable to pay tax only upon such income as can be in law included in his total income and which can he lawfully assessed under the Act. The law empowers the ITO to assess the income of an assessee according to law and determine the tax payable thereon. In doing so, he cannot assess an assessee on an amount, which is not taxable in law, even if the same, is shown by an assessee. There is no estoppel by conduct against law nor is there any waiver of the legal right as much as the legal liability to be assessed otherwise than according to the mandate of the law (sic). It is always open to an assessee to take the plea that the figure, though shown in his return of total income, is not taxable in law. ........
Hence, that there is no estoppel against law, the assessee can raise additional grounds before the appellate authorities.
We note that Hon`ble Supreme Court in the case of National Thermal Power Co.Ltd, 229 ITR 383 (SC) held that the purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction denied, in that situation the assessee may raise that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. The powers of the Tribunal under section 254 of the Act are not restricted only to decide the grounds which arise from the order of the CIT(A). The relevant observations of the Hon`ble Supreme Court in the case of National Thermal Power Co.Ltd (Supra) are given below for ready reference:
TCG Facilities Management Services Pvt. Ltd. Assessment Year:2010-11 “3. Under s. 254 of the IT Act the Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceeings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal for the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under s. 254 only to decide the grounds which arise from the order of the CIT(A). Both the assessee as well as the Department have a right to file an appeal/cross-objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.
In the case of Jute Corporation of India Ltd. vs. CIT (1990) 88 CTR (SC) 66 : (1991) 187 ITR 688 (SC) : TC 7R.343, this Court, while dealing with the powers of the AAC observed that an appellate authority has all the powers which the original authority may have in deciding the question before it subject to the restrictions or limitations, if any, prescribed by the statutory provisions. In the absence of any statutory provision, the appellate authority is vested with all the plenary powers which the subordinate authority may have in the matter. There is no good reason to justify curtailment of the power of the AAC in entertaining an additional ground raised by the assessee in seeking modification of the order of assessment passed by the ITO. This Court further observed that there may be several factors justifying the raising of a new plea in an appeal and each case has to be considered on its own facts. The AAC must be satisfied that the ground raised was bona fide and that the same could not have been raised earlier for good reasons. the AAC should exercise his discretion in permitting or not permitting the assessee to raise an additional ground in accordance with law and reason. The same observations would apply to appeals before the Tribunal also.”
Thus, the assessee can raise additional ground/ a new issue before the Tribunal first time in view of the settled position of law and principles laid down by the Hon`ble Supreme Court in the case of National Thermal Power Co. Ltd (supra).
We note that what is not otherwise taxable cannot become taxable because of admission of the assessee. Nor there can be any waiver of the right otherwise admissible to the assessee in law. The chargeability is not dependent on the admission of or waiver by the assessee. Chargeability is dependent on the charging section, which needs to be strictly construed. For this, we rely on the judgment of Page | 6
TCG Facilities Management Services Pvt. Ltd. Assessment Year:2010-11 theHon’ble High Court of Calcutta in the case of SAIL DSP VR Employees Association 1998 vs. Union of India (2003) 128 Taxman 704 (Calcutta).
Therefore, we remit the issue back to the file of Assessing Officer to examine whether the interest and consultancy charges of Rs. 49,76,484/- is capital expenditure or revenue expenditure and adjudicate the issue in accordance with law. Statistical purposes, the appeal of the assessee is treated to be allowed.
Now we shall take Revenue’s appeal in for assessment year 2010-11.
The grievance raised by the Revenue are as follows: • That in the facts and circumstances of the case the ld. CIT(A) has erred in law by upholding the deletion of additions u/s 14A for Rs. 75,22,404/- for Rs. 3,61,39,555/- on account of ‘Reimbursement of expenses’ for Rs. 36,75,348/- on account of ‘security deposit received in 2009-10’ for Rs. 18,18,782/- on account of ‘Advance maintenance charges received – relating to subsequent year & for Rs. 8,89,559/- on account of ‘Maintenance charges taken in P & L A/c in F.Y. 2008-09 but TDS deducted in this year and thereby holding that the AO was not justified in making the disallowance as whatever expenses claimed by the appellant are already disallowed by the AO separately. • That in the facts and circumstances of the case the ld. CIT(A) has failed to appreciate the fact that before proceeding for disallowance the AO has conducted necessary examination and ground work, which are evident from the recordings of note-sheet. • That the department craves leave to add, modify or alter any of the ground(s) of appeal and/or adduce additional evidence at the time of hearing of the case.
The brief facts qua the issue are that during the assessment proceedings, the AO examined the 26AS statement (AIR details) and noticed the assessee company has received total income of Rs. 21,07,89,434/- as per 26AS. The Assessee was asked to explain whether these transactions were reflected in the accounts and asked to reconcile the income as per the TDS certificate claimed by the assessee in the income tax and an amount reflected in the profit and loss account.
TCG Facilities Management Services Pvt. Ltd. Assessment Year:2010-11 In response, the assessee prepared the reconciliation and submitted the above details before AO. On perusal of the said reconciliation it was noticed by the AOthat the assessee has deducted following income from the gross amount (maintenance charges as per the TDS certificate) to arrive at maintenance income as per profit and loss account. Particulars Amount 1. Reimbursement of expenses Rs. 3,61,39,555/- 2. Security deposit received in 2009-10 relating to subsequent year Rs. 36,75,348/- 3.Advance Maintenance Charges received this year relating to Rs. 18,18,782/- subsequent year 4. Maintenance charges of F.Y. 2008-09 taken in P & L a/c in F.Y. Rs. 8,89,559/- 2008-09 but TDS deducted by the party this year Total deduction as stated above Rs. 4,25,23,244/- In respect of point no. 1 reimbursement of expenses, the assessee was asked to clarify why these reimbursements of expenses were not offered to tax when TDS on the same has been claimed in the return. The assessee was further requested to produce the details and supporting of reimbursement of expenses and how the same has been dealt in the books of account and to clarify, whether reimbursement of expenses were already claimed as expenditure or not. The assessee failed to submit any explanation or evidence in support of his disclosure. Therefore, the reimbursement of expenses amounting to Rs. 3,61,39,555/- was treated as the undisclosed income of the assessee and added to the income of the assessee.
In respect of point no.2 Security deposit and in point no.3 Advance Maintenance Charges relating to subsequent years, the AO noticed that the assessee has claimed credit of TDS on the security deposits and advance maintenance charges relating to subsequent years, the respective income of which was not offered to tax in the current year. As the assessee has claimed the credit of TDS during the year, the respective income should also be chargeable to tax in the same year. So the amount of Rs.36,75,348/- and Rs.18,18,782/- were added by AO in the income of the assessee.
TCG Facilities Management Services Pvt. Ltd. Assessment Year:2010-11 10. In respect of point no. 4 Maintenance Charges of previous years of Rs.8,89,559/-. The AO noticed that the assessee has claimed credit of TDS on the maintenance charges of FY 2008-09 taken in profit and loss account in FY 2008- 09 but TDS deducted by the party in the current year, the respective income of this was not offered to tax in the current year. As the assessee has claimed the credit of TDS during the year, the respective income should also be chargeable to tax in the same year and so the amount of Rs.8,89,559/- was added by AO in the income of the assessee.
This way, the total disallowance made by AO came to the tune of Rs. Rs.4,25,23,244/-(Rs.3,61,39,555+Rs. 36,75,348+ Rs.18,18,782+ Rs.8,89,559)] and additions u/s 14A for Rs. 75,22,404/-
Aggrieved by the addition made by the AO, the assessee carried the matter in appeal before the ld. CIT(A) who has deleted all the additions made by the AO. Aggrieved by the order of the ld. CIT(A), the revenue is in appeal before us.
We have heard both the parties and perused the material available on record. Before us, the ld. DR for the Revenue has primarily reiterated the stands taken by the Assessing Officer which we have already noted in our earlier para and the same is not being repeated for the sake of brevity. On the other hand, the ld. Counsel for the assessee has defended the order of the ld. CIT(A). We note that during the course of scrutiny proceedings, the assessee had submitted the reconciliation of its accounts with that of the 26AS statement(AIR details). The Assessee Company provides common area maintenance services to the tenants of the properties located at Bengal Intelligent Park, Kolkata, First Technology Park,Bangalore and First Software Park, Chennai. However, the Assessing Officer without considering the submissions, details and evidences submitted by the Assessee, made the following additions/disallowances. Particulars Amount (Rs.) Reimbursement of expenses 3,61,39,555/- Security Deposit for subsequent years received in Financial year 2009-10 36,75,348/- Advance maintenance charges for subsequent years received in Financial 18,18,782/- Page | 9
TCG Facilities Management Services Pvt. Ltd. Assessment Year:2010-11 year 2009-10 Maintenance charges of Financial Year 2008-09 which was admittedly 8,89,559/- charged to tax in Financial Year 2008-09, TDS of which was deducted by the client in current financial year i.e. 2009-10 Total 4,25,23,444/- We note that during the appellate proceedings, the matter was referred told AO for remand report. The ld AO vide his letter dated 16.02.2016 stated that these above noted additions, made by the AO in the assessment order deserved to be sustained. The assessee during the appellate proceedings, was asked to file his reply on the report of the AO and the assessee stated that no opportunity was given by the AO while sending the remand report.The Matter was again refered to AO vide letter dated 12.05.2016 and the AO again vide his report dated 25.05.2016 has again stated that:"the details filed by the assesse have been perused and it was tallied with the accounts for the year ending on 31.03.2010. No such account heads as claimed by the assesse has been noted. Therefore, the reply of the assessee is not tenable and hereby rejected….. Therefore, the disallowance made in the assessment deserved to be sustained."
We note that the Assessing officer again sent his remand report, vide his letter dated 31.05.2016 and stated asunder:- “As regards to disallowance on account of reimbursement of expenses of Rs. 3,61,39,555/- the AO has stated that : “The details submitted by the assessee in course of the appeal proceedings have been perused and examined with reference to reconciliation statement as well as the audited financial accounts for the year ending on 31.03.2010. It is seen that the assessee has netted off fuel expenditure with the reimbursement received from the tenants and the netted figure has been included as other income by the assessee company.”
We note that as regards to Security Deposit of Rs.36,75,348/- and advance maintenance charges of Rs.18,18,782/- received in 2009-10, relating to subsequent years, the AO has stated that :- " explanation of the assessee was examined with reference to the agreement, ledger account of TCS and also the audited accounts. It is seen that the assessee has shown the respective amounts of adjustments against the aforesaid security deposits as its income in respective assessment year." Page | 10
TCG Facilities Management Services Pvt. Ltd. Assessment Year:2010-11 As regards to addition of Rs 18,18,782/- the AO has stated that:"On examination of the statements submitted by the assessee company it is seen that M/s Hewellett Packard Global Soft Led. deducted TDS in the month of March,2010 against maintenance charges of Rs. 9,98, 631/- inclusive of service tax of Rs.93,254/- for the month of April, 2010. This amount of maintenance charges received by the assessee company has been included in the total income of the assessee company for the FY 2010-11 and has been assessed as such in the assessment year 2011- 12.”
We note that Global e-Business Operation Pvt. Ltd. deducted TDS in the month of March 2010 against maintenance charges of Rs.8,20,251/- inclusive of service tax of Rs. 78,16/- for the month of April, 2010. This amount of maintenance charges received by the assessee company has been included in the total income of the assessee company for the FY 2010-11 and has been assessed as such in the assessment year 2011- 12.
As regard additions u/s 14A for Rs. 75,22,404/-, is concerned, we note that the ld CIT(A) deleted the addition observing that there was no exempt incomehence no disallowance is required. We also rely on the judgment of the Hon`ble High Court of Delhi, in the case of CIT Vs. Holcim India Pvt. Ltd, in wherein it was held that since the assessee does not earn dividend income therefore no disallowance is warranted under section 14A of the Act. Hence, we confirm the order passed by ld CIT(A).
We note that as regards to Maintenance charges of F.Y. 2008-09 taken in the Profit and Loss account in F.Y.2008-09 but TDS deducted by the party this year on Rs.8,89,559/-, the AO has stated that: "A sum of Rs.8,89,559/- was included in the total income of the assessee. The assessee has submitted that the said income was offered to tax as income for the assessment year 2009-10. The submissions of the assessee has been examined with reference to the audited financial statement for the FY 2008-09 and it has been found that the aforesaid sum of Rs.8,89,559/-
TCG Facilities Management Services Pvt. Ltd. Assessment Year:2010-11 was included in the income for the FY 2008-09 and also included as income of the assessee in assessment Year 2009-10 on the basis of TDS in the FY 2009-10."
We note that ld CIT(A) after taking into account the remand report dated 31.05.2016 referred above, deleted the addition. We note that where the commissioner (appeals) on the basis of the remand report of the assessing officer, allowed the claim of the assessee, the Revenue is not entitled to maintain an appeal before the Tribunal against the said order of Commissioner (appeals), for that, we rely on the judgment of the Hon`ble High Court of Madras in the case of Smt.B.jayalakshmi Vs. ACIT (2018) 96 taxmann.com 486 (mad).That being so, we decline to interfere in the order passed by the ld. CIT(A) on this issue, his order on this issue is hereby upheld and the grounds of appeal raised by the revenue are dismissed.
In the result, the appeal of the assessee is allowed for statistical purpose and the appeal of the revenue is dismissed.
Order pronounced in the Court on 03.05.2019