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Income Tax Appellate Tribunal, “E” Bench, Mumbai
Before: Shri B.R. Baskaran (AM)& Shri Pawan Singh (JM)
IN THE INCOME TAX APPELLATE TRIBUNAL “E” Bench, Mumbai Before Shri B.R. Baskaran (AM)& Shri Pawan Singh (JM)
I.T.A. No. 5327/Mum/2015 (Assessment Year 2012-13)
DCIT-14(3)(2) M/s. Sundaram Aayakar Bhavan Vs. Multipap Limited R.No. 455 5/6, Papa Industrial M.K. Road Estate, Suren Road Mumbai-400 020. Andheri East Mumbai-400 093. (Appellant) (Respondent)
C.O. No. 272/Mum/2017 (Assessment Year 2012-13)
M/s. Sundaram DCIT-14(3)(2) Multipap Limited Vs. Aayakar Bhavan 5/6, Papa Industrial R.No. 455 Estate, Suren Road M.K. Road Andheri East Mumbai-400 020. Mumbai-400 093. (Appellant) (Respondent)
PAN : AADCS7829K
Assessee by Shri Vijay Mehta Department by Shri Suman Kumar Date of Hearing 16.04.2018 Date of Pronouncement 20.04.2018
O R D E R Per B.R. Baskaran (AM) :-
The appeal filed by the Revenue and the cross objection filed by the assessee are directed against the order dated 6.8.2015 passed by the learned CIT(A)-22, Mumbai and they relate to A.Y. 2012-13. The issue urged by both parties relates to disallowance made u/s. 14A of the I.T. Act.
The assessee is engaged in the business of manufacture of exercise books, paper and stationery items. During the year under consideration, the assessee declared dividend income of ` 7,500/- and offered the same for taxation. The assessee was showing investment of ` 490.50 lakhs and `.
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1500.50 lakhs as at the beginning and end of the year respectively. The assessee disallowed a sum of ` 4,97,500/-u/s. 14A of the Act. The Assessing Officer noticed that the assessee has offered dividend income of ` 7,500/- received from a co-operative bank to taxation. However the AO considered the dividend income as exempt and accordingly granted exemption. He further took the view that the disallowance u/s. 14A of the Act has to be made in accordance with rule 8D of the I.T. Rules. Accordingly, he worked out disallowance out of interest expenditure at ` 49.94 lakhs and disallowance out of expenses at ` 4.98 lakhs. Accordingly he enhanced the disallowance u/s 14A by Rs.49.94 lakhs.
In the appellate proceedings, the learned CIT(A) noticed that the own funds available with the assessee are in far excess of value of investments made by the assessee. Accordingly, by following the decision rendered by Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. (313 ITR 340), the learned CIT(A) deleted the disallowance made out of interest expenditure. However, he sustained the disallowance made out of administrative expenses under rule 8D(2)(iii) of the I.T. Rules, since the assessee itself has disallowed the same.
The revenue is aggrieved by the decision of the learned CIT(A) in deleting the disallowance made out of interest expenditure.
The assessee has filed the cross objection on the ground that no disallowance u/s. 14A of the Act is called for, since the assessee has not received any exempt income. Accordingly it is prayed in the Cross objection that the voluntary disallowance made by the assessee is liable to be deleted, as the same is against the provisions of the Act.
We shall now first take up the appeal filed by the Revenue.
We noticed from the balance sheet filed by the assessee that own funds available with the assessee stands at ` 10566.84 lakhs and ` 11170.97 lakhs
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as at the beginning and end of the year under consideration respectively. Investments as at the beginning of the year stand at ` 490.50 lakhs and at the end of the year stands at ` 1500.50 lakhs. Admittedly, the own funds available with the assessee is in far excess of the value of investments and hence, by applying the ratio laid down by Hon'ble Bombay High Court in the case of HDFC Bank Ltd. (366 ITR 505), no disallowance is called for out of interest expenditure. Accordingly, we uphold the view taken by the learned CIT(A).
We shall now take up the cross objection filed by the assessee. It is barred by limitation by 186 days. The Learned AR submitted that the assessee had made suo moto disallowance u/s. 14A of the Act. The assessee has, in fact, received dividend income of ` 7,500/- from a cooperative bank and the same is not exempt. However, the Assessing Officer treated the same as exempt income and accordingly completed the assessment. Subsequently, the Assessing Officer has passed a rectification order on 29.4.2015, wherein he has brought the above said amount of ` 7,500/- to tax. Accordingly, learned AR submitted that the assessee did not receive any exempt income during the year under consideration.
The Learned AR further submitted that the law relating to the disallowance u/s. 14A of the Act was not clear when the assessee filed its return of income. The law is being made clear over the period by the decisions rendered by various Courts. When the appeal filed by the Revenue was discussed with the Counsel, it was explained to the assessee that there was no requirement to make any disallowance u/s. 14A of the Act as the assessee has not received any dividend income and the law in this regard has been explained in various decisions rendered by Hon'ble High Courts. Accordingly, the assessee was advised to file Cross objection. Accordingly, the cross objection was filed by the assessee with a delay of 186 days. The Learned AR further submitted that an identical issue of condoning delay in filing the cross objection on the advice received subsequently was considered by the Coordinate Bench in the case of M/s. DBS Bank Ltd. Vs. Dy.DIT (CO No.
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189/Mum/2013 dated 15.6.2016) and the Coordinate Bench has condoned the delay.
Learned DR, on the contrary, strongly objected to the plea of the assessee to condone the delay.
We have heard the rival submissions on this preliminary issue and perused the record. We noticed that an identical issue relating to condoning delay in filing the cross objection, which was filed belated after the advice received from other counsel was considered by the Coordinate Bench in the case of DBS Bank Ltd. (supra) and the delay was condoned with following observations :-
2.2.3 We have heard the rival contentions of both the parties and perused and carefully considered the material on record. Admittedly, there was a delay of 285 days in filing the CO before the Tribunal. The Hon'ble Apex Court in the case of Collector, Land Acquisition vs. MST Katiji (167 ITR 471) (SC) while laying down the principles for considering matters of condonation of delay in filing appeals has stated that substantial justice should prevail over technical considerations. The Hon'ble Court also explained that 'everyday's delay must of explained' does not mean that a pedantic approach should be taken. The doctrine must be applied in a natural, common sense and pragmatic manner. Considering the aforesaid principles, it is seen from the details submitted in the affidavit that while having a conference with the Sr. Counsel in preparation for Revenue's appeal, it was realized that the assessee as per the order of the ITAT in ITA No. 5272 to 5274/Mum/2001 dated 18.04.2007, the assessee was entitled to claim expenditure from the date of setting up of the business which precedes the date of commencement; whereas as per the impugned order, the learned CIT(A) allowed the assessee's claim for expenditure only from the date of commencement of business which is in contravention of the Tribunal's order (supra) and the CO was filed immediately thereafter. Considering the aforesaid principles laid down by the Hon'ble Apex Court (supra) and the facts of the case on hand we find that there has been no malafide or intentional failure on the part of the assessee, who on realization and appropriate advice by the Counsel has proceeded to file the CO. In these circumstances, we are of the considered view that if the delay of 285 days is condoned there will be no loss to Revenue as legitimate taxes payable in accordance with law alone would be collected. Further, if the delay in filing the CO is not condoned, then the assessee could be put to great hardship.
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2.2.4 In view of the discussion of the facts and circumstances of the case (supra), we are of the view that in the interest of equity and justice this is a fit case for condonation of delay of 285 days in filing the CO for A.Y. 1995-96 and condone the said delay and admit the CO for hearing and adjudication.
Accordingly, following the above said order of the Tribunal and also in order to render substantial justice to the assessee, we condone the delay and admit the cross objection.
The Learned AR submitted that the plea of the assessee in cross objection is that no disallowance u/s. 14A of the Act is required to be made, since the assessee has not received any exempt dividend income. He submitted that the prayer of the assessee is supported by the decisions rendered by different High Courts as detailed below:- 1. PCIT vs. Ballarpur Industries Limited [ITA No. 51 of 2016 (Bombay High Court)] 2. M/s Redington India Ltd v. Addl. CIT [392 ITR 633 (Mad)] 3. Cheminvest Ltd. v. CIT [281 CTR 447 (Del)] 4. CIT v. Shivam Motors (P) Ltd. [272 CTR 277 (All)] 5. CIT v. Corrtech Energy (P) Ltd. [272 CTR 262 (Guj)] 6. CIT v. Lakhani Marketing Incl. [272 CTR 265 (P&H)] 7. CIT v. Holcim India (P) Ltd, [272 CTR 282 (Del)] 8. CIT v. Winsome Textile Industries Ltd. (319 ITR 204 P&H) 9. CIT v. Delite Enterprises [ITA No. 110 of 2009 (Bombay High Court)]
He submitted that an identical issue was considered by Hon'ble Hon'ble Jurisdictional Bombay High Court in the case of Principal CIT Vs. Ballarpur Industries Limited (supra), wherein Hon'ble Bombay High Court noticed that the Tribunal has followed the decision rendered by Hon'ble Delhi High Court in the case of Cheminvest Ltd. (supra), wherein it was held that no disallowance is required to be made u/s. 14A of the Act if there was no exempt income. The Hon'ble Bombay High Court did not admit the appeal of the Revenue by observing that the issue urged by the Revenue does not give rise to any substantial question of law. He submitted that the view so expressed by Hon'ble Bombay High Court is binding on the assessee as well as the revenue. The Learned AR accordingly, submitted that suo-moto disallowance made by
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the assessee is also liable to be deleted as no disallowance u/s. 14A is required to be made in the absence of any exempt income.
The Ld D.R, on the contrary, submitted that the assessee has made disallowance suo-moto and the relief, if granted, the assessed income would go below returned income.
The Ld A.R, in the rejoinder, submitted that an identical issue was considered by the Co-ordinate bench in the case of Tata Industries Ltd (2016)(181 TTJ 600) and it was held that the assessing officer is entitled to collect only legitimate tax from the assessee and hence the assessed income may go below the returned income, if the disallowance has been made by the assessee under misconception of law.
We have heard rival contention on this issue and perused the record. Various decisions relied upon by the assessee bring out the proposition that no disallowance u/s 14A is required to be made if there was no exempt income. Admittedly, the assessee did not receive any exempt income during the year under consideration and hence the provisions of sec. 14A shall not be applicable as per various decisions relied upon by the assessee. Accordingly, there is merit in the plea of the assessee that the voluntary disallowance made by the assessee under misconception of law cannot be used against the assessee in order to sustain a disallowance, which is not permissible in law.
The voluntary disallowance made by the assessee u/s 14A of the Act, if deleted, then the assessed income may go below the returned income. The question as to whether such course of action is permissible or not, was examined by the co-ordinate bench in the case of Tata Industries Ltd (supra). The relevant observations made by the Tribunal on this issue are extracted below for the sake of convenience:-
“30. So far as the contention that the assessee itself has offered disallowance in the return of income more than the exempt income earned is concerned, the ld. AR has relied upon various case laws as mentioned
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in the written submissions dated 21.06.2016 to stress the point that even if the assessee under a mistake or misconception has over assessed itself in the return of income, the Tribunal can give relief to the assessee to the extent the assessee is over assessed and direct the lower authorities to tax the assessee as per the provisions of law. We find that in the case of "National Thermal Power Co. Ltd." vs. CIT" 229 ITR 383, the facts before the Hon'ble Supreme Court were that the assessee in that case offered the interest amount for taxation and the assessment was completed on that basis. Before the Ld. CIT (A), the assessee though had taken a number of grounds of appeal; however, the inclusion of the said amount of interest was not challenged. The inclusion of the said amount of interest was not objected to even in the grounds of appeal as originally filed before the Tribunal. However, the assessee by way of subsequent letter raised the additional ground in relation to the said inclusion of interest into the income of the assessee. In the above circumstances, the question before the Hon'ble Supreme Court was "Where on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same?" The Hon'ble Supreme Court while answering the said question observed that under section 254 of the Income Tax Act, the power of the Tribunal in dealing with the appeals is expressed in the widest possible terms; the power of the Tribunal under section 254 is not restricted only to decide the grounds which arise from the order of the Commissioner of Income Tax (Appeals); that both the assessee as well as the department have a right to file an appeal/cross objection before the Tribunal and the Tribunal is not prevented from considering questions of law arising in assessment proceedings although not raised earlier. While answering the question in affirmative, the Hon'ble Supreme Court concluded that the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee.
The full bench of the Hon'ble Bombay High Court in the cases of "Ahmedabad Electricity Company Ltd. vs. CIT" and "Godavari Sugar Mills Ltd. vs. CIT" by way of a common order dated 30.04.1992 (1993) 199 ITR 351 has observed that the basic purpose of an appeal procedure in an income tax matter is to ascertain the correct tax liability of the assessee in accordance with law. Therefore, at both the stages, either by the Appellate Assistant Commissioner or before the Appellate Tribunal, the appellate authority can consider the proceedings before it and the material on record before it for the purpose of determining the correct tax liability of the assessee. The Hon'ble Bombay High Court in the case of "CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd." (2012) 349 ITR 336 (Bom.) has observed that the assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional clams before them. The appellate authorities have jurisdiction to
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deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The words 'could not have been raised' must be construed liberally and not strictly. There may be several factors justifying the raising of a new plea in an appeal and each case must be considered on its own facts. The co-ordinate bench of the Tribunal in the case of "Shri Chandrashekhar Bahirwani" ITA No.7810/M/2010 and 6599/M/2011 vide order dated 17.06.2015 while deciding the question as to whether the income cannot be assessed less than the returned income has observed as under:
"5. Now coming to the finding of the Ld. CIT(A), that income cannot be assessed less than the returned income, the Ld. A.R. of the assessee has submitted before us that the action of the Ld. CIT(A) in rejecting the claim of the assessee on this ground was not justified. He has further relied upon the decision of the Hon'ble Gujarat High Court in the case of "Gujarat Gas Ltd. vs. JCIT" (2000) 245 ITR 84. In the said case, the words of the Circular No.549, para 5.12, dt. 31st October, 1989, providing that the assessed income under section 143(3) shall not be less than the returned income was considered by the Hon'ble High Court and it was held that as per proviso to section 119 of the Act, the Board cannot issue instructions to the Income Tax Authority to make a particular assessment or to dispose of a particular case in a particular manner as well as not to interfere with the discretion of the Commissioner in exercise of his appellate functions. It was further held that the AO, while exercising his quasi judicial powers, was not bound by the said circular and should have exercised his powers independently. The Hon'ble High Court, therefore, directed the AO to make the assessment without keeping in mind the said circular. It may be further observed that the Hon'ble Bombay High Court in the case of 'Pruthvi Brokers & Shareholders Pvt. Ltd.' ITA No.3908 of 2010 decided on 21.06.12, while relying upon the various decisions of the Hon'ble Supreme Court and other Hon'ble High Courts has held that even if a claim is not made before the AO, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim is not barred. The Hon'ble High Court has further observed that the decision of the Hon'ble Supreme Court in the case of 'Goetze (India) Limited v. CIT' (2006) 157 Taxman 1, relating to the restriction of making the claim through a revised return was limited to the powers of the Assessing Authority and the said judgment does not impinge on the power or negate the powers of the appellate authorities to entertain such claim by way of additional ground. Even otherwise, the Ld. CIT(A) ought to have considered the claim of the assessee in exercise of his appellate jurisdiction under section 250 of the Act. Moreover, if the assessee is, otherwise, entitled to a claim of deduction but due to his ignorance or for some
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other reason could not claim the same in the return of income, but has raised his claim before the appellate authority, the appellate authority should have looked into the same. The assessee cannot be burdened with the taxes which he otherwise is not liable to pay under the law. Even a duty has also been cast upon the Income Tax Authorities to charge the legitimate tax from the tax payers. They are not there to punish the tax payers for their bonafide mistakes. In view of our above observations, it is held that the assessee is not liable to pay Capital Gains Tax, though originally he had subjected himself to the said tax as per his return of income. The AO is directed to process the claim of refund in this respect as per provisions of the law."
Respectfully following the above decisions of higher courts and that of co-ordinate benches of the tribunal, we direct the AO to restrict the disallowance u/s 14A to the extent of exempt income earned by the assessee during the year.”
We notice that the co-ordinate bench, in the case of Shri Chandrashekar Bahirwani (supra) has expressed the view that :
“The assessee cannot be burdened with the taxes which he otherwise is not liable to pay under the law. Even a duty has also been cast upon the IT authorities to charge the legitimate tax from the taxpayers. They are not there to punish the taxpayers for their bonafide mistakes.”
We notice that the above said decision has been followed in the case of Tata Industries Ltd (supra) by the co-ordinate bench in order to reject the contention that the reduction of disallowance voluntarily made by the assessee u/s 14A will make the assessed income go below the returned income.
In the instant case also, the assessee has made voluntary disallowance u/s 14A of the Act even though it did not receive any dividend income. As per the decisions rendered by various courts, no disallowance is required to be made in the absence of exempt income. Hence the assessee has filed CO with the plea to delete the voluntarily disallowance made by it, which is supported by various decisions referred above. Accordingly we allow the CO filed by the assessee. The relief granted to the assessee in CO may reduce the assessed income, which may also go below the returned income. This issue, i.e, whether the assessed income can go below the returned income (which was
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urged by Ld DR), has been examined and decided in favour of the assessee by the co-ordinate bench in the case of Tata Industries Ltd (supra), which has followed the decision rendered by another co-ordinate bench in the case of Shri Chandrashekhar Bahirwani (supra). Consistent with the view taken in the above said decisions rendered by the co-ordinate benches, we reject the contentions of the Ld D.R. Accordingly we direct the assessing officer to exclude the disallowance voluntarily made by the assessee also u/s 14A of the Act.
In the result, the appeal of the revenue is dismissed and the cross objection filed by the assessee is allowed.
Order has been pronounced in the Court on 20.04.2018.
Sd/- Sd/- (PAWAN SINGH) (B.R.BASKARAN) JUDICIAL MEMBER ACCOUNTANT MEMBER
Mumbai; Dated : 20/04/2018 Copy of the Order forwarded to : 1. The Appellant 2. The Respondent 3. The CIT(A) 4. CIT 5. DR, ITAT, Mumbai 6. Guard File. BY ORDER, //True Copy// Senior Private Secretary PS ITAT, Mumbai