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Income Tax Appellate Tribunal, MUMBAI BENCH “E”, MUMBAI
Before: SHRI G.S. PANNU & SHRI PAWAN SINGH
PER G.S. PANNU, AM :
Since the captioned appeals relate to the same assessee and involve certain common issues, they have been clubbed and heard together and a consolidated order is being passed for the sake of convenience and brevity.
First, we may take-up the appeal of the assessee for Assessment Year 2004-05 in ITA No. 4045/Mum/2011 which is directed against the order of the CIT(A)-7, Mumbai dated 10.03.2011, pertaining to the Assessment Year 2004-05, which in turn has arisen from the order passed by the Assessing Officer dated 30.12.2009 under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short ‘the Act’).
In this appeal, assessee has raised the following Grounds of appeal :-
“1.(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing officer to re-open the assessment u/s.147 of the Income Tax Act, 1961 in the appellant's case and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961 and the Rules made thereunder.
3 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India (b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in holding that the reassessment opened u/s. 147 is legal and valid.
2(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in upholding the action of the learned Assessing Officer in reducing Provision for bad and doubtful debts allowable under section 36(1)(viia)(c) from the profits derived from business of long term finance operations for the purpose of computing deduction u/s. 36(1)(viii) and thereby erred in confirming the action of the learned Assessing Officer in disallowing the appellant's claim of deduction made u/s. 36(1)(viii) of the Income Tax Act, 1961 to the extent of Rs.48,41,44,154/-.
(b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) ought to have held that the under section 36(1)(viia)(c) in respect of the provision made by the appellant towards bad and doubtful debts is independent and distinct as the same is based on parameter of total income. Therefore, the learned Commissioner of Income Tax (Appeals) erred in holding the reduction of deduction allowable u/s. 36(1)(viia)(c) from profits derived from business of long term finance operation while computing deduction u/s. 36(1)(viii) for which the base is business profits.
On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) ought to have held that the statutory deduction u/s. 36(1)(viii) should be calculated on the eligible business income before deduction of amount allowable under that section and thereby erred in confirming the computation of deduction u/s. 36(1)(viii) as done by the learned Assessing Officer by grossing up the rate i.e 40/140 of profits derived from business of long term financing operations computed under the head “Profits and gains of business and profession” and doing so without assigning any reasons is wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961 and the Rules made thereunder;
On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in rejecting the contention of the appellant that no interest is leviable u/s 234D on the refund amount granted pursuant to the order giving effect to learned Commissioner of Income Tax (Appeal)’s order and the
4 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961 and the Rules made thereunder.”
The first substantive issue in this appeal is contained in Ground of appeal no. 2 whereby assessee seeks to assail the action of CIT(A) in upholding the reduction of assessee’s claim for deduction u/s 36(1)(viii) of the Act. Notably, assessee was eligible for the benefits u/s 36(1)(viia)(c) as well as Sec. 36(1)(viii) of the Act. In the original assessment finalised u/s 143(3) of the Act dated 28.08.2006, the deduction u/s 36(1)(viii) of the Act was allowed at Rs.95,38,49,717/-, as claimed by the assessee. In the impugned assessment finalised u/s 147/148 r.w.s. 143(3) of the Act, the Assessing Officer took the stand that deduction u/s 36(1)(viii) of the Act allowed in the original assessment was in excess of the amount permissible in law. Firstly, as per the Assessing Officer, while computing the profits derived from business of long term finance for the purposes of computing deduction u/s 36(1)(viii) of the Act, the deduction allowable u/s 36(1)(viia)(c) of the Act towards Provision for bad and doubtful debts was liable to be reduced. Secondly, as per the Assessing Officer, the manner of computing deduction u/s 36(1)(viii) of the Act accepted at the time of original assessment was wrong; and, such dispute is manifested in Ground of appeal no. 3 before us.
Insofar as the first aspect is concerned, the stand of the assessee is that deduction u/s 36(1)(viia)(c) of the Act is admissible from the total income of the assessee whereas deduction u/s 36(1)(viii) of the Act is allowable with reference to the eligible business only, i.e., income derived
5 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India from the business of long term finance computed under the head ‘Profits and Gains of Business or Profession’. As the business income of the assessee would include income from long term lending activity, thus, for the purpose of u/s 36(1)(viii) of the Act, only a sub-set of the entire set of business income would be eligible for computation whereas for the purpose of claim u/s 36(1)(viia)(c) of the Act, the total income is required to be considered. In this context, the appellant sought to justify its claim of deduction u/s 36(1)(viii) of the Act on pro rata income from business of long term financing before reducing the deduction admissible u/s 36(1)(viia)(c) of the Act. In this manner, before the lower authorities, assessee had sought to defend the deduction allowable u/s 36(1)(viii) of the Act as made in the original assessment. The Assessing Officer as well as the CIT(A) have not concurred with the assessee on this aspect as, according to them, the respective provisions were clear and the deduction u/s 36(1)(viii) of the Act has to be calculated after reducing the deduction allowable u/s 36(1)(viia)(c) of the Act from the profits eligible for the benefits of u/s 36(1)(viii) of the Act.
In this background, assessee is in appeal before us. Ostensibly, the dispute raised before us stems from the interplay between the provisions of Sec. 36(1)(viia)(c) of the Act vis-a-vis Sec. 36(1)(viii) of the Act. At the time of hearing, the learned representative for the assessee has taken us through the history of assessment on this aspect. Firstly, it is pointed out that similar issue cropped-up in Assessment Year 2010-11 and the CIT(A) allowed the stand of assessee, which has since been accepted by the Revenue as no appeal was filed before the Tribunal. Subsequently, in Assessment Year 2011-12, when similar issue travelled to the CIT(A), assessee’s claim was
6 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India allowed following the decision of CIT(A) in the earlier Assessment Year of 2010-11. The order passed by the CIT(A) for Assessment Year 2011-12 was carried in appeal before the Tribunal by the Revenue, but no Ground was raised against the decision of the CIT(A) on this point. Insofar as Assessment Years 2014-15 and 2015-16 are concerned, the learned representative pointed out that the stand of the assessee has been accepted at the level of the Assessing Officer itself in assessments finalised u/s 143(3) of the Act dated 30.12.2016 and 09.03.2017 respectively. The aforestated factual matrix brought out by the assessee has not been disputed by the Revenue before us.
The history of the dispute clearly bring out that the stand of the assessee has been accepted by the Revenue inasmuch as the decisions of the CIT(A) for Assessment Years 2010-11 and 2011-12 have been accepted, and for the two assessment years of 2014-15 and 2015-16, even the assessing authority has accepted the position. Though, the principle of res judicata is not applicable to income-tax proceedings, yet, it is a trite law that consistency and uniformity in approach on an issue which permeates in more than one assessment year deserves to be ensured by the income-tax authorities. In this context, one may gainfully refer to the parity of reasoning laid down by the Hon'ble Supreme Court in the case of Radhasoami Satsang, Saomi vs CIT, 193 ITR 321 (SC). Thus, without dilating further on the rival stands, and with a view to ensuring consistency and uniformity in approach on the same issue for different assessment years, we deem it fit and proper to uphold the stand of the assessee on this aspect. Thus, Ground of appeal no. 2 is hereby allowed.
7 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India
The next Ground of appeal relates to the manner of computing the deduction u/s 36(1)(viii) of the Act. In this context, the grievance of the assessee is that the Assessing Officer erred in allowing the deduction by grossing-up the profit derived from long term financing operations, i.e. after making deduction under the said clause. As per the assessee, deduction u/s 36(1)(viii) of the Act is to be calculated on the eligible business income without reducing the amount allowable under that section. In this context, it was a common point between the parties that similar issue was before the Hon'ble Supreme Court in the case of CIT vs Kerala State Ind. Development Corporation, 233 ITR 197 (SC) wherein the issue has been decided in favour of the assessee. In terms of the said decision, the Assessing Officer is directed to calculate the deduction allowed u/s 36(1)(viii) of the Act on the total income before deduction of the amount allowable under the section. Thus, on this aspect, assessee succeeds.
Since assessee has succeeded on both the substantive issues raised in appeal, the other Ground relating to the validity of proceedings initiated u/s 147/148 of the Act is rendered academic and is not being adjudicated for the present.
In this manner, appeal of the assessee is hereby allowed as above.
Now, we may take-up the appeal of assessee in ITA No. 4047/Mum/2011, which is directed against the order of the CIT(A)-7, Mumbai dated 10.03.2011, pertaining to the Assessment Year 2006-07,
8 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India which in turn has arisen from the order passed by the Assessing Officer dated 25.09.2008 under section 143(3) of the Act. In this appeal, the assessee has raised the following Grounds of appeal :-
“1(a) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs.60,79,790/-, being proportionate amortised amount of lease premium paid to Mumbai Metropolitan Regional Development Authority in respect of leasehold land and the reasons assigned by him for doing so are wrong and contrary to the facts and circumstances of the case, the provisions of the Income Tax Act, 1961, and the Rules made thereunder.
(b) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in not appreciating that the lease premium paid was nothing but lease rent paid in advance as it is paid only for use of land during lease period and that no capital asset would remain with the appellant at the end of the lease period and the reasons assigned by him for rejecting the claim are wrong and contrary to the facts and circumstances of the case, the provisions of the Income Tax Act, 1961, and the Rules made thereunder.
(c) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in not appreciating that the annual rent payable by the appellant is nominal/concessional as compared to market rate of rent which was much higher as per evidence submitted by the appellant and the reasons assigned by him for rejecting the claim are wrong and contrary to the facts and circumstances of the case, the provisions of the Income Tax Act, 1961, and the Rules made thereunder.
(d) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in not appreciating that the amortisation of such premium is allowable under generally accepted principles of accounting and the reasons advanced for 'rejecting the same are wrong and, contrary to the facts and circumstances of the case, the provisions of the Income tax Act, 1961, and the Rules made thereunder.
9 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India 2(a) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance of Rs.16,56,73,690/- u/s 14A and the reasons assigned by him for doing so are wrong and contrary to the facts and circumstances of the case, the provisions of the Income Tax Act, 1961 and the Rules made thereunder.
(b) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in not appreciating that the disallowance amounting to Rs.16,56,73,690/- wrongly offered in the return of income on ad-hoc basis being highly exaggerated and unreasonable was rightly withdrawn during the assessment proceedings.
(c) The learned Commissioner of Income Tax (Appeals) ought to have held that no disallowance whatsoever was warranted u/s. 14A on the facts of the appellant's case even if the appellant has wrongly offered disallowance u/s. 14A in the return of income.
(d) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) ought to have not confirmed the disallowance of Rs.16,56,73,690/- u/s. 14A irrespective of the fact that the appellant had offered the disallowance in the computation of total income in light of the following:
(i) the proposition laid down in Circular No.14(XL-35) dated 11.04.1955 of the Central Board of Direct Taxes and
(ii) the principles laid down in National Thermal Power Corporation vs. CIT (229 ITR 383) (SC).
(e) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) ought to have accepted the alternative without prejudice working disallowance made by the appellant amounting to Rs.23,03,353/- u/s. 14A in light of the following:
(i) the disallowance redetermined is based on the reasonable proposition of the establishment expenses;
10 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India (ii) the disallowance is based on scientific basis having regard to number of personnels involved in investment department and proportionate establishment expenses in the ratio of the total number of employees of the appellant company and (iii) the revised working of disallowance u/s. 14A is a correct claim having regards to the accounts of the appellant.
3(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) ought to have allowed the deduction for contribution to Credit Guarantee Fund Trust for Micro and Small Enterprise (CGTMSE) amounting to Rs.50,00,00,000/- and the reasons assigned for not doing so are wrong and contrary to the provisions of the Income Tax Act, 1961, and the Rules made thereunder.
(b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) ought to have allowed the deduction of Rs.50,00,00,000 irrespective of the fact that the appellant had not made any such claim of deduction for contribution to CGTMSE in the Return of Income in light of:
(i) the proposition laid down in National Thermal Power Corporation vs. CIT (229 ITR 383) (SC); (ii) the principles laid down in Circular No.14(XL-35) dated 11-4-1955 of the Central Board of Direct Taxes; (iii) the principle laid down in Commissioner of Income-tax v. Chandulal Keshavlal & Co. [1960] 38 ITR 601 (SC) and (iv) the principle laid down in Kedarnath Jute Mfg. Co. Ltd., 82 ITR 363 (S.C.), Sutlej Cotton Mills Ltd., 116 ITR 1 (S.C.), Fort Properties P. Ltd., 208 ITR 232 (Bom.) and Tuticorin Alkali Chemicals & Fertilizers Ltd., 227 ITR 172 (S.C.) wherein it has been held that deductions/allowances are to be made as per provisions of law and not as per entries in the books of account of the assessee.”
Insofar as the Ground of appeal no. 1 is concerned, the same relates to the deduction on account of amortisation of amount of lease premium paid to MMRDA of Rs.60,79,790/- in respect of leasehold land. The Assessing
11 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India Officer as well as the CIT(A) have rejected the claim of assessee based on their respective stands in the past years.
Before us, the learned representative for the assessee pointed out that in the earlier years, identical issue has been decided by the Tribunal against the assessee and the matter is pending before the Hon'ble High Court of Bombay. At the time of hearing, a Declaration u/s 158A(1) of the Act in the prescribed Form no. 8 has been filed claiming that identical question of law is pending before the Hon'ble High Court for Assessment Year 2004-05 and it is canvassed that if the Assessing Officer was to apply the final decision on the question of law referred in the earlier year, then, assessee would not prefer further appeal before the Hon'ble High Court on this aspect in this year.
The ld. DR had no objection to the application made by the assessee in terms of Sec. 158A(1) of the Act.
We have carefully considered the rival submissions. Ostensibly, having regard to the precedents in assessee’s own case, the lease premium paid by assessee to MMRDA in respect of leasehold land cannot be allowed as a revenue expenditure and accordingly, the issue is decided against the assessee. Before parting, we may refer to the Declaration filed by the assessee before us in terms of Sec. 158A(1) of the Act. In this context, the learned representative pointed out that in Assessment Year 2004-05, the Hon'ble High Court vide its order in ITA No. 792/2012 dated 18.03.2013 has admitted the following question of law :-
12 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India
“a) Whether on the facts and in the circumstances of the case and in law the amount paid by the appellant to MMRDA as “lease premium” constituted revenue expenditure and the appellant was entitled to claim a proportionate part of the said “premium” as a deduction in the current assessment year?”
It is, therefore, canvassed that the issue in the instant appeal is similar to the question of law admitted by the Hon'ble High Court for Assessment Year 2004-05 in assessee’s own case, as above. While we uphold the disallowance as made by the lower authorities in view of the precedents, at the same time, the Assessing Officer is directed to apply in this year the final decision on the question of law pending before the Hon'ble High Court in assessee’s own case for Assessment Year 2004-05 above, as and when it reaches finality. With the said remarks, the Ground of appeal no. 1 is decided against the assessee.
Insofar as the Ground of appeal no. 2 is concerned, the dispute relates to the disallowance made by income-tax authorities u/s 14A of the Act. In this context, the Assessing Officer noted that assessee had earned Dividend income of Rs.4.57 crores and Long Term Capital Gain of Rs.44.66 crores, which was exempt u/s 10(34) and 10(38) of the Act respectively. In the return of income initially filed, assessee did not disallow any expenditure as being incurred in relation to earning of the exempt income, as required by Sec. 14A of the Act. In para 8 of the assessment order, the Assessing Officer notes that a revised computation of income was filed by the assessee on 26.08.2008, wherein, inter-alia, an amount of Rs.16,56,73,690/- was suo moto disallowed, being expenditure in respect of exemption claimed with
13 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India respect to income from infrastructure activity u/s 10(23G) of the Act. The Assessing Officer, in para 6 of the assessment order, however, noted the stand of the assessee that no expenditure has been incurred to earn the exempt dividend income, which he rejected. The Assessing Officer applied Rule 8D of the Income Tax Rules, 1962 (in short ‘the Rules’) and accordingly, computed the disallowance of Rs.5,64,66,105/-, which comprised of disallowance of interest expenditure of Rs.4,69,58,242/- in terms of Rule 8D(2)(ii) of the Rules and of Rs.95,07,863/- representing overheads expense in terms of Rule 8D(2)(iii) of the Rules. The said disallowance was carried in appeal before the CIT(A). The CIT(A) noted that the suo moto disallowance made by the assessee u/s 14A of the Act was Rs.16,56,77,690/- and, therefore, there was no justification for the Assessing Officer to compute a further disallowance of Rs.5,64,66,105/- and add it to the returned income. Not being satisfied with the decision of the CIT(A), assessee is in further appeal before us.
Before us, the learned representative pointed out that though disallowance of Rs.16,56,77,690/- was made by the assessee in the revised return of income filed on 26.02.2008 in the context of the income exempt u/s 10(23G) of the Act, but in the course of hearing before the CIT(A), assessee had worked out a revised working of disallowance u/s 14A of the Act, a copy of which has been placed at page 75 of the Paper Book. It has been pointed out that as per the said working, the disallowance u/s 14A of the Act qua the overheads worked out to Rs.23,03,353/- and that the same be accepted. It is averred that the working so made is based on a reasonable appropriation of the establishment expenses and is done on a
14 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India scientific basis having regard to the number of employees involved in the investment department and the total establishment expense incurred. Justifying the revised working, the learned representative pointed out that in Assessment Year 2004-05 a similar situation prevailed inasmuch as suo moto disallowance was made by the assessee in the return of income and the CIT(A) accepted the revised working of the disallowance, which was equal to 5% of the dividend income. The learned representative pointed out such a decision of the CIT(A) has been accepted by the Revenue and no appeal was preferred on this count. It was, therefore, contended that the disallowance be restricted to the level of disallowance accepted by the Revenue in Assessment Year 2004-05.
On the other hand, the ld. DR has primarily relied upon the reasoning taken by the CIT(A) to the effect that the amount of Rs.16,56,77,690/- has been worked out by the assessee suo moto in its revised return of income and is, therefore, liable to be disallowed.
We have carefully considered the rival submissions. Sec. 14A of the Act prescribes that no deduction shall be allowed in respect of an expenditure incurred by the assessee in relation to an income which does not form part of the total income under the Act. The dispute before us stems from the suo moto disallowance of Rs.16,56,77,690/- made by the assessee in its revised return of income. However, in para 8.2 of the assessment order, it is noted by the Assessing Officer that assessee claimed during the assessment proceedings that such disallowance should not be made for the reason that there was no specific nexus between the
15 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India expenditure incurred and the exempt income. The Assessing Officer and thereafter the CIT(A) have sustained the disallowance at Rs.16,56,77,690/- primarily on the ground that the same was suo moto made by the assessee- bank. In our considered opinion, the plea of the assessee to examine the efficacy of the disallowance has been wrongly rejected by both the authorities below. This is especially so if we consider the assessment position of Assessment Year 2004-05 wherein, under similar circumstances, the decision of CIT(A) in restricting the disallowance to 5% of the exempt income has been accepted by the Assessing Officer as no appeal is stated to have been filed against such a decision. Therefore, considering all these aspects, we deem it fit and proper to set-aside the order of CIT(A) and direct the Assessing Officer to evaluate the plea of assessee afresh and, in any case, the disallowance, if any, retained by him shall not exceed 5% of the exempt income, as was the position in Assessment Year 2004-05. Needless to mention, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and only thereafter pass a speaking order on this limited aspect. Thus, on this aspect, assessee succeeds for statistical purposes.
Insofar as Ground of appeal no. 3 is concerned, the same relates to assessee’s claim for deduction of a sum of Rs.50 crores representing contribution to Credit Guarantee Fund Trust for Micro and Small Enterprises, which has been disallowed by the lower authorities. In this context, the relevant facts are that the said claim was not made in the return of income, but it was made in the course of assessment proceedings through a revised computation of income. The Assessing Officer has discussed the issue in
16 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India para 7 of the assessment order. Firstly, the Assessing Officer found that the amount was not debited in the Profit & Loss Account; Secondly, he noted that the contribution made to Credit Guarantee Fund Trust could not be taken as an expenditure incurred in the course of normal business activity of the assessee because the impugned contribution was on account of directions from the Government; Thirdly, according to him, the claim could not be entertained at this stage inasmuch as the same was not made by way of a revised return of income. When the matter was carried by the assessee in appeal before the CIT(A), it was canvassed that it was only out of inadvertence that the claim was not made in the return of income. According to the assessee, it was a financial institution set-up under the SIDBI Act, 1989 for promotion and development of micro, small and medium enterprises and in pursuance to that, it made contribution to the impugned Trust, which was set-up by the Government of India and the assessee jointly. The assessee also asserted that it would make no difference to the claim for deductibility u/s 37(1) of the Act if the amount was not debited to the Profit & Loss Account and that, in any case, the said amount was debited to the Profit & Loss Account in the previous year relevant to the Assessment Year 2008-09 and in such a year, no deduction was claimed by the assessee.
The CIT(A) has proceeded to affirm the action of the Assessing Officer primarily on the ground that it was a fresh claim, not made through the return of income; and, it was also not shown as an expenditure by way of a debit in the Profit & Loss Account. Against such a decision, assessee is in further appeal before us.
17 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India 22. The learned representative pointed out that similar claim came up for consideration before the Tribunal in Assessment Year 2004-05 vide ITA Nos. 7143 & 6771/Mum/2008 dated 15.02.2012. In Assessment Year 2004-05, the said claim was admitted as an Additional Ground of appeal and the matter was remitted back to the file of the Assessing Officer. The learned representative pointed out that in the order giving effect to the order of the Tribunal passed by the Assessing Officer on 01.06.2012, copy of which has been placed at page 277 of the Paper Book, such a claim has been accepted and allowed by the Assessing Officer. Even in the subsequent years from Assessment Year 2008-09 onwards, the said claim is being allowed by the assessing authority itself. In this manner, the assessee has sought to justify its claim for deduction of the said expenditure.
On the other hand, the ld. DR has defended the orders of the authorities below on this aspect.
We have carefully considered the rival submissions. Ostensibly, the claim for deduction of contribution made to Credit Guarantee Fund Trust was not made by the assessee in the return of income filed. So, however, it is not a case where the Assessing Officer was not aware of the claim inasmuch as the claim was indeed set-up in the course of the assessment proceedings itself. Thus, it is not a case where the Assessing Officer did not have an opportunity to examine the claim put forth by the assessee. The Assessing Officer as well as the CIT(A) have referred to the judgment of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. vs CIT, 284 ITR 323 (SC) to point out that a fresh claim could not have been entertained
18 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India otherwise than by filing a revised return of income. Pertinently, the judgment of the Hon'ble Supreme Court in the case of Goetze (India) Ltd. (supra) does not seek to disentitle an appellate authority to admit a fresh claim provided it involves a point of law, and the relevant facts are available on record. Considered in this light, so far as the instant case is concerned, not only were the relevant facts available at the time of the appellate proceedings before the CIT(A), but were also before the Assessing Officer at the stage of assessment itself. Therefore, in our view, the lower authorities have erred in not entertaining the claim of the assessee under a misconception. Before us, assessee has referred to the position in Assessment Year 2004-05 where similar claim stands accepted by the Assessing Officer himself in the order passed u/s 250 of the Act dated 01.06.2012 (supra). Therefore, considering the entirety of facts and circumstances of the case, we find enough justification to accept the plea of the assessee for allowing deduction of Rs.50 crores representing contribution made to Credit Guarantee Fund Trust for Micro and Small Enterprises. Accordingly, order of the CIT(A) is set-aside and the Assessing Officer is directed to allow the claim, as above. Thus, assessee succeeds on this aspect.
In the result, appeal of the assessee is partly allowed, as above.
Now, we may take up the appeal of Revenue in ITA No. 4219/Mum/2011. In this appeal, although Revenue has raised two Grounds of appeal, but the solitary issues relates to the assessee’s claim for write-off of bad debts amounting to Rs.4,85,02,847/-. The Assessing Officer disallowed the claim of assessee primarily on the ground that it related to
19 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India business activity of the earlier years when the income of the assessee was otherwise exempt from tax. We find that the CIT(A) has allowed the claim following his decision in assessee’s own case in the earlier assessment years. Against such a decision, Revenue is in appeal before us.
Before us, the ld. DR quite fairly conceded to the position brought out by the respondent-assessee, which is to the effect that the said issue stands covered against the Revenue in view of the judgment of the Hon'ble Bombay High Court in assessee’s own case for Assessment Year 2003-04 being ITA No. 2108/2010 dated 12.09.2012. The learned representative for the respondent-assessee pointed out that the said dispute came-up for the first time in Assessment Year 2002-03 wherein the Tribunal vide its combined order in ITA Nos. 3407 & 3408/Mum/2006 dated 15.07.2009 allowed the claim of the assessee. The said decision has since been approved by the Hon'ble Bombay High Court vide its order for Assessment Year 2003-04 dated 12.09.2012 (supra).
In view of the aforesaid, we hereby affirm the decision of CIT(A) and Revenue fails in its appeal.
Insofar as appeals being ITA No. 4220/Mum/2011 & 4462/Mum/2012 pertaining to Assessment Years 2007-08 and 2008-09 are concerned, the issues involved are identical to that considered by us in ITA No. 4219/Mum/2011 in the earlier paras, therefore, our decision therein shall apply mutatis mutandis to the said appeals also.
20 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India 30. Now, we may take-up the appeal of assessee in ITA No. 4048/Mum/2011, which is directed against the order of the CIT(A)-7, Mumbai dated 10.03.2011, pertaining to the Assessment Year 2007-08, which in turn has arisen from the order passed by the Assessing Officer dated 30.12.2009 under section 143(3) of the Act. In this appeal, the assessee has raised the following Grounds of appeal :-
“1(a) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in upholding the disallowance of Rs.60,79,761/-, being proportionate amortised amount of lease premium paid to Mumbai Metropolitan Regional Development Authority in respect of leasehold land and the reasons assigned by him for doing so are wrong and contrary to the facts and circumstances of the case, the provisions of the Income Tax Act, 1961, and the Rules made thereunder.
(b) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in not appreciating that the lease premium paid was nothing but lease rent paid in advance as it is paid only for use of land during lease period and no capital asset would remain with the appellant at the end of the lease period and the reasons assigned by him for rejecting the claim are wrong and contrary to the facts and circumstances of the case, the provisions of the Income Tax Act, 1961, and the Rules made thereunder.
(c) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in not appreciating that the annual ground rent payable by the appellant is nominal/concessional as compared to market rate of rent which was much higher as per evidence submitted by the appellant and the reasons assigned by him for rejecting the claim are wrong and contrary to the facts and circumstances of the case, the provisions of the Income Tax Act, 1961, and the Rules made thereunder.
(d) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in not appreciating that the
21 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India amortisation of such premium is allowable under generally accepted principles of accounting and the reasons advanced for rejecting the same are wrong and contrary to the facts and circumstances of the case, the provisions of the Income tax Act, 1961, and the Rules made thereunder.
2(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in upholding the action of the learned Assessing Officer in reducing Provision for bad and doubtful debts allowable under section 36(1)(viia)(c) from the profits derived from business of long term finance operations for the purpose of computing deduction u/s. 36(1)(viii) and thereby erred in confirming the action of the learned Assessing Officer in disallowing the appellant's claim of deduction made u/s. 36(1)(viii) of the Income Tax Act, 1961 to the extent of Rs.21,72,99,623/-.
(b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) ought to have held that the deduction under section 36(1)(viia)(c) in respect of the provision made by the appellant towards bad and doubtful debts is independent and distinct as the same is based on parameter of total income. Therefore, the learned Commissioner of Income Tax (Appeals) erred in holding the reduction of deduction allowable u/s. 36(1)(viia)(c) from profits derived from business of long term finance operation while computing deduction u/s. 36(1)(viii) for which the base is business profits.
3(a). On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in directing the learned Assessing Officer to make disallowance u/s.14A, by re-computing / estimating the expenses attributable to the earning of exempt income as per the method adopted by the assessee in AY2006-07 and earlier years and the reasons assigned by him for doing so are wrong and contrary to the facts and circumstances of the case, the provisions of the Income Tax Act, 1961 and the Rules made thereunder.
(b) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in not appreciating that the disallowances u/s. 14A wrongly offered in the return of income of earlier years on ad-hoc basis being highly exaggerated and unreasonable were
22 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India rightly withdrawn during the assessment proceedings / appellate proceedings of respective years.
(c) The learned Commissioner of Income Tax (Appeals) ought to have held that no disallowance whatsoever was warranted u/s. 14A on the facts of the appellant's case even if the appellant has wrongly offered disallowance u/s. 14A in the return of income of earlier years.
(d) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) ought to have accepted the alternative without prejudice working disallowance made by the appellant amounting to Rs.40,33,387/- u/s. 14A in light of the following:
(i) the disallowance redetermined is based on the reasonable proposition of the establishment expenses; (ii) the disallowance is based on scientific basis having regard to number of personnels involved in investment department and proportionate establishment expenses in the ratio of the total number of employees of the appellant company and (iii) the working of disallowance u/s. 14A is a correct claim having regards to the accounts of the appellant.
4.(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in not allowing the deduction for contribution to Credit Guarantee Fund Trust for Micro and Small Enterprise (CGTMSE) Rs.32,99,95,750/- and the reasons assigned for doing so are wrong and contrary to the provisions of the Income Tax Act, 1961, and the Rules made thereunder.
(b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) ought to have allowed the deduction of Rs.32,99,95,750/- in light of the following: (i) that the contribution is deductible being expenditure incurred for meeting the objects of the business of the appellant, (ii) the principle laid down in Commissioner of Income-tax v. Chandulal Keshavlal & Co. [1960] 38 ITR 601 (SC) and
23 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India (iii) the principle laid down in Kedarnath Jute Mfg. Co. Ltd., 82 ITR 363 (S.C.), Sutlej Cotton Mills Ltd., 116 ITR 1 (S.C.), Fort Properties P. Ltd., 208 ITR 232 (Bom.) and Tuticorin Alkali Chemicals & Fertilizers Ltd., 227 ITR 172 (S.C.) wherein it has been held that deductions/allowances are to be made as per provisions of law and not as per entries in the books of account of the assessee.
On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) ought to have held that interest cannot be levied u/s. 234C as there was no shortfall in payment of advance tax by the appellant in any of the four installments and not doing so is wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961 and the Rules made thereunder.”
Insofar as the dispute in Ground of appeal no. 1 is concerned, it is similar to Ground of appeal no. 1 dealt with by us in the appeal of the assessee for Assessment Year 2006-07 vide ITA No. 4047/Mum/2011 in the earlier paras. For the reasons assigned earlier, the assessee’s claim for proportionate amortisation of lease premium paid to MMRDA in respect of leasehold land is dismissed. In this year also, as in the earlier Assessment Year of 2006-07, a Declaration u/s 158A(1) of the Act in the prescribed Form no. 8 has been filed contending that identical question of law is pending before the Hon'ble Bombay High Court for Assessment Year 2004-05. Considering the same, while we uphold the disallowance as made by the lower authorities in view of the precedent, following the Declaration filed by the assessee u/s 158A(1) of the Act, the Assessing Officer is directed to apply the final decision on the question of law pending before the Hon'ble High Court in assessee’s own case for Assessment Year 2004-05, as and when it reaches finality. Thus, with these remarks, the Ground of appeal no. 1 raised by the assessee is dismissed.
24 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India
Insofar as Ground of appeal no. 2 is concerned, the dispute therein is similar to Ground of appeal no. 2 dealt with by us in the earlier part of this order in assessee’s appeal for Assessment Year 2004-05 vide ITA No. 4045/Mum/2011. Since the facts and circumstances are similar, following our earlier decision, assessee’s claim for calculating the deduction eligible u/s 36(1)(viii) of the Act without reducing the profits derived from the business of long term financing operations by the amount of Provision for bad and doubtful debts allowable u/s 36(1)(viia)(c) of the Act, is upheld. Thus, on this aspect, assessee succeeds.
Ground of appeal no. 3 is with regard to disallowance of Rs.5,64,81,040/- made by the Assessing Officer u/s 14A of the Act by applying the computation formula provided in Rule 8D of the Rules. The Assessing Officer noted that though in the year under consideration assessee had earned income by way of Dividends and Long Term Capital Gain, which was exempt to the extent of Rs.44,16,76,565/-, the assessee had not disallowed any expenditure related to the earning of such income as required by Sec. 14A of the Act. The Assessing Officer applied the provisions of Rule 8D of the Rules and calculated the disallowance u/s 14A of the Act at Rs.5,64,81,040/-. When the matter was taken-up before the CIT(A), assessee made varied submissions. The CIT(A) found that in the absence of assessee having come forward with any reasonable method for determining the expenditure attributable to earning of exempt income, the mechanism of Rule 8D of the Rules could be considered as a reasonable method for computation of disallowance. However, he noticed that the formula for
25 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India disallowance put forward by the assessee in the earlier years was found to be reasonable and that there was no reason to deviate from that in the year under consideration also. Accordingly, he directed the Assessing Officer to recompute/estimate the expenditure attributable to earning of exempt income as per the method adopted by the assessee in Assessment Year 2006-07 and earlier years. Not being satisfied with the order of CIT(A), assessee is in further appeal before us.
Before us, the learned representative for the assessee pointed out that before the CIT(A), assessee had made a working of disallowance contemplated u/s 14A of the Act, a copy of which has been placed at page 71 of the Paper Book. It is canvassed that in terms of the said working, disallowance u/s 14A of the Act qua the overheads/administrative expenditure works out to Rs.40,33,387/- and the basis of working is similar to the position canvassed by assessee in Assessment Year 2006-07. Apart therefrom, the learned representative made arguments which were similar to those made before us in relation to Ground of appeal no. 2 in Assessment Year 2006-07 in ITA No. 4047/Mum/2011, which has been dealt with by us in the earlier paras.
On the other hand, the ld. DR defended the direction of the CIT(A) remitting the matter to the file of the Assessing Officer to estimate the disallowance in terms of the method adopted by the assessee in Assessment Year 2006-07.
26 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India 36. Having considered the rival stands, we find that the quantum of disallowance required to be made in terms of Sec. 14A of the Act needs to be adjudicated in the light of our decision on this point in the appeal of the assessee for Assessment Year 2006-07 in the earlier paras. No doubt, in Assessment Year 2006-07, there was a suo moto disallowance made by the assessee which is not the case in the instant year. However, we deem it fit and proper to affirm the decision of the CIT(A) in remitting the matter back to the file of Assessing Officer for reworking/estimating the disallowance u/s 14A of the Act with a modification that the Assessing Officer shall take into consideration our directions for Assessment Year 2006-07 and thereafter recompute the disallowance u/s 14A of the Act, if any. Needless to mention, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and only thereafter pass a speaking order on this limited aspect. Thus, on this aspect, assessee succeeds for statistical purposes.
Ground of appeal no. 4 relates to assessee’s claim for deduction of Rs.32,99,95,750/- representing contribution to Credit Guarantee Fund Trust for Micro and Small Enterprises. A similar claim has been dealt with by us in the appeal of the assessee for Assessment Year 2006-07 vide Ground of appeal no. 3. Following our decision therein, in this year too, the claim of assessee is allowed as the facts and circumstances remain the same. Thus, on this aspect, assessee succeeds.
The last Ground in this appeal is against the interest levied u/s 234C of the Act. On this aspect, the plea of assessee is that there was no shortfall in payment of advance tax in any of the four instalments and, therefore,
27 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India interest has been wrongly charged u/s 234C of the Act. According to the learned representative, a mistake has occurred on account of the fact that the levy of interest has been calculated by taking into consideration ‘assessed tax’ instead of ‘tax due on the returned income’. On this aspect, we deem it fit and proper to restore the matter back to the file of the Assessing Officer, who shall verify the factual aspects and thereafter charge interest u/s 234C of the Act if so permissible as per law and pass a speaking order in this regard. Thus, on this aspect, assessee succeeds for statistical purposes.
In the result, appeal of the assessee is partly allowed.
Now, we may take-up the appeal of assessee in ITA No. 3708/Mum/2012, which is directed against the order of the CIT(A)-7, Mumbai dated 24.02.2012, pertaining to the Assessment Year 2008-09, which in turn has arisen from the order passed by the Assessing Officer dated 30.12.2010 under section 143(3) of the Act. In this appeal, the assessee has raised the following Grounds of appeal :-
“1(a) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in upholding the disallowance of Rs.60,79,783/-, being proportionate amortised amount of lease premium paid to Mumbai Metropolitan Region Development Authority in respect of leasehold land and the reasons assigned by him for doing so are wrong and contrary to the facts and circumstances of the case, the provisions of the Income Tax Act, 1961, and the Rules made thereunder.
(b) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in not appreciating that the lease premium paid was nothing but lease rent paid in advance as it is paid only for use of land during lease period and no capital asset would remain with the appellant at the end of the lease period and the reasons assigned
28 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India
by him for rejecting the claim are wrong and contrary to the facts and circumstances of the case, the provisions of the Income Tax Act,1961, and the Rules made thereunder.
(c) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in not appreciating that the annual ground rent payable by the appellant is nominal/concessional as compared to market rate of rent which was much higher as per evidence submitted by the appellant and the reasons assigned by him for rejecting the claim are wrong and contrary to the facts and circumstances of the case, the provisions of the Income Tax Act, 1961, and the Rules made thereunder.
(d) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in not appreciating that the amortisation of such premium is allowable under generally accepted principles of accounting and the reasons advanced for rejecting the same are wrong and contrary to the facts and circumstances of the case, the provisions of the Income tax Act, 1961, and the Rules made thereunder.
2(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in upholding the action of the learned Assessing Officer in reducing Provision for bad and doubtful debts allowable under section 36(1)(viia)(c) from the profits derived from business of long term finance operations for the purpose of computing deduction u/s.36(1)(viii) and thereby erred in confirming the action of the learned Assessing Officer in disallowing the appellant's claim of deduction made u/s. 36(1)(viii) of the Income Tax Act, 1961 to the extent of Rs.15,60,84,343/-.
(b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) ought to have held that the deduction under section 36(1)(viia)(c) in respect of the provision made by the appellant towards bad and doubtful debts is independent and distinct as the same is based on parameter of total income. Therefore, the learned Commissioner of Income Tax (Appeals) erred in upholding the action of the learned Assessing Officer in reducing the deduction allowable u/s. 36(1)(viia)(c) from profits derived from business of long term finance operation while computing deduction u/s. 36(1)(viii) for which the base is business profits.
3(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance made by the learned Assessing officer of sum of Rs.2,02,65,825/- by invoking rule 8D r.w.s 14A(2) as against Rs.21,69,490/- determined by the appellant, being incurred in relation to earning of
29 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India exempt income and the reasons assigned for doing so are wrong and contrary to the facts and circumstances of the case, provisions of Income Tax Act, 1961, and Rules made thereunder.
(b) On the facts and in the circumstances of the case and in law, there being no satisfaction recorded by the learned Assessing Officer regarding the incorrectness of the claim of the appellant, the Hon'ble Commissioner of Income Tax (Appeals) erred in confirming the disallowance made by the learned Assessing officer of sum of Rs.2,02,65,825/- by invoking rule 8D r.w.s 14A(2) as against Rs.21,69,490/- determined by the appellant.”
Insofar as the dispute in Ground of appeal no. 1 is concerned, it is similar to Ground of appeal no. 1 dealt with by us in the appeal of the assessee for Assessment Year 2006-07 vide ITA No. 4047/Mum/2011 in the earlier paras. For the reasons assigned earlier, the assessee’s claim for proportionate amortisation of lease premium paid to MMRDA in respect of leasehold land is dismissed. In this year also, as in the earlier Assessment Year of 2006-07, a Declaration u/s 158A(1) of the Act in the prescribed Form no. 8 has been filed contending that identical question of law is pending before the Hon'ble Bombay High Court for Assessment Year 2004-05. Considering the same, while we uphold the disallowance as made by the lower authorities in view of the precedent, following the Declaration filed by the assessee u/s 158A(1) of the Act, the Assessing Officer is directed to apply the final decision on the question of law pending before the Hon'ble High Court in assessee’s own case for Assessment Year 2004-05, as and when it reaches finality. Thus, with these remarks, the Ground of appeal no. 1 raised by the assessee is dismissed.
Insofar as Ground of appeal no. 2 is concerned, the dispute therein is similar to Ground of appeal no. 2 dealt with by us in the earlier part of this order in assessee’s appeal for Assessment Year 2004-05 vide ITA No.
30 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India 4045/Mum/2011. Since the facts and circumstances are similar, following our earlier decision, assessee’s claim for calculating the deduction eligible u/s 36(1)(viii) of the Act without reducing the profits derived from the business of long term financing operations by the amount of Provision for bad and doubtful debts allowable u/s 36(1)(viia)(c) of the Act, is upheld. Thus, on this aspect, assessee succeeds.
Insofar as Ground of appeal no. 3 is concerned, the grievance of the assessee is that the CIT(A) erred in confirming the disallowance made by the Assessing Officer u/s 14A of the Act at Rs.2,02,65,825/- by applying Rule 8D of the Rules as against disallowance of Rs.21,69,490/- worked out by the assessee. In brief, the relevant facts are that assessee had declared exempt income of Rs.92,36,20,023/- and had suo moto disallowed proportionate amount of Rs.21,69,490/- out of establishment expenditure in terms of Sec. 14A of the Act. The Assessing Officer, however, applied Rule 8D(2)(iii) of the Rules and determined the disallowance out of administrative/overhead expenditure at Rs.2,02,65,825/- for the purposes of Sec. 14A of the Act thereby resulting in an enhanced disallowance of Rs.1,80,96,335/-. The said enhancement in the disallowance made by the Assessing Officer was challenged in appeal before the CIT(A). Before the CIT(A), assessee asserted that there was no specific costs incurred in relation to earning of the exempt income and that the proportionate administrative and other expenses disallowed by assessee for the purposes of Sec. 14A of the Act was quite justified. It was explained that the disallowance of Rs.21,69,490/- made by the assessee was based on proportionate establishment expenditure worked out by applying the ratio of the number of employees in the Investment
31 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India Department to the total number of employees in the assessee-company. It was canvassed by the assessee that the provisions of Rule 8D of the Rules could not be mechanically applied by the Assessing Officer without pointing out the incorrectness in the claim of the assessee. The CIT(A), however, was of the view that application of Rule 8D(2)(iii) of the Rules for the purposes of disallowance out of administrative expenses was justified. Accordingly, he affirmed the disallowance u/s 14A of the Act enhanced by the Assessing Officer. Not being satisfied with the order of the CIT(A), assessee is in further appeal before us.
Before us, the solitary plea raised by the assessee is that the necessary satisfaction contemplated u/s 14A(2) of the Act has not been recorded by the Assessing Officer before applying Rule 8D(2)(iii) of the Rules to calculate the disallowance u/s 14A of the Act. The learned representative pointed out that the satisfaction contemplated u/s 14A(2) of the Act is mandatory and that the application of Rule 8D(2)(iii) of the Rules is not automatic for the purposes of computing the disallowance u/s 14A of the Act.
On the other hand, the ld. DR has defended the orders of the lower authorities in this regard. In this context, reference has been made to the discussion by the CIT(A) in para 8.3 of his order wherein it is stated that the fact of suo moto disallowance by the assessee itself shows that the disallowance u/s 14A of the Act was merited and, therefore, the action of Assessing Officer to apply Rule 8D(2)(iii) of the Rules in order to compute the disallowance is justified.
32 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India 46. We have carefully considered the rival submissions. In this case, the dispute between the assessee and the Revenue pertains to the quantification of disallowance envisaged u/s 14A of the Act. Pertinently, Sec. 14A of the Act prescribes that no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to an exempted income, i.e., an income which does not form part of the total income under the Act. Sec. 14A(2) of the Act empowers the Assessing Officer to determine the amount of expenditure incurred in relation to the exempt income in accordance with such method as may be prescribed, which is contained in Rule 8D of the Rules. In the present case, the Assessing Officer has applied Rule 8D(2)(iii) of the Rules to determine the amount of such administrative/overhead expenditure. However, the case set-up by the assessee is that resort to Rule 8D(2)(iii) of the Rules by the Assessing Officer is circumscribed by a caveat in Sec. 14A(2) of the Act itself. The phraseology of Sec. 14A(2) of the Act itself prescribes that resort to Rule 8D of the Rules can be made only if the Assessing Officer is not satisfied with the correctness of the claim of assessee in respect of such expenditure, having regard to the accounts of the assessee. Notably, in the present case, assessee has made a suo moto disallowance of Rs.21,69,490/- out of proportionate establishment expenditure. Before the lower authorities as well as before us, assessee has referred to the basis of such calculation and pointed out that the proportionate cost of employees working in the Investment Department to the total number of employees of the assessee-company has formed the basis for such calculation. We find that what is contemplated u/s 14A(2) of the Act is that the Assessing Officer has to record his satisfaction with respect to the incorrectness or otherwise of the claim made by the assessee
33 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India before applying Rule 8D(2)(iii) of the Rules; and, such satisfaction has to be arrived at, having regard to the accounts of the assessee. We have perused the assessment order and find that such an approach is conspicuous by its absence and the Assessing Officer has proceeded to determine the disallowance in terms of Rule 8D(2)(iii) of the Rules in a mechanical fashion. Moreover, the order of CIT(A) suggests that according to him the factum of suo moto disallowance made by the assessee is enough a cause to empower the Assessing Officer to resort to Rule 8D of the Rules. In our view, the said reasoning weighing with the CIT(A) is contrary to the stated legal position inasmuch as the satisfaction contemplated u/s 14A(2) of the Act is not only in a situation where the assessee claims no expenditure having been incurred in relation to exempt income, but also where a particular quantum of expense is claimed to have been incurred in relation to the exempt income. The aforesaid understanding of the mechanics of Sec. 14A of the Act is clear from the reading of Sub-section (2) & (3) thereof and also from the judgment of the Hon'ble Delhi High Court in the case of Maxopp Investment Ltd., 347 ITR 272 (Delhi) and also the judgment of the Hon'ble Supreme Court in the case of Godrej & Boyce Mfg. Co. Ltd., [2017] 81 taxmann.com 111 (SC), which has approved the judgment of the Hon'ble Bombay High Court reported in the case of Godrej & Boyce Mfg. Co. Ltd., 328 ITR 81 (Bom) on the aspect of recording of satisfaction contemplated in Sec. 14A(2) of the Act. The Assessing Officer ought to have recorded his satisfaction in an objective manner as to why the expenditure determined by the assessee as being incurred in relation to the exempt income is incorrect, having regard to the accounts of the assessee. In the absence of such a satisfaction, the Assessing Officer could not have straightaway resorted to
34 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India Rule 8D(2)(iii) of the Rules in order to compute the disallowance u/s 14A of the Act. Moreover, we find that the assessee has explained the basis of computing the disallowance of Rs.21,69,490/- before the Assessing Officer as well as the CIT(A), and we do not find any reasons advanced by them to doubt its veracity. Therefore, considered in this light, in our view, resort to Rule 8D of the Rules made by the Assessing Officer to enhance the disallowance u/s 14A of the Act is not merited in the instant case. Thus, the enhancement of disallowance made u/s 14A of the Act by the Assessing Officer by a sum of Rs.1,80,96,335/- is not tenable and is hereby directed to be deleted.
In the result, appeal of the assessee is partly allowed.
Resultantly, whereas the appeal of assessee for Assessment Year 2004-05 is allowed, those for Assessment Years 2006-07, 2007-08 and 2008- 09 are partly allowed and all the appeals of the Revenue are dismissed.
Order pronounced in the open court on 23rd March, 2018
Sd/- Sd/- (PAWAN SINGH) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Date : 23rd March, 2018
*SSL*
35 ITA Nos. 4045, 4047, 4048, 4219 & 4220/M/2011 & 3708 & 4462/M/2012 Small Industries Development Bank of India
Copy to : 1) The Appellant 2) The Respondent 3) The CIT(A) concerned 4) The CIT concerned 5) The D.R, “E” Bench, Mumbai 6) Guard file By Order
Dy./Asstt. Registrar I.T.A.T, Mumbai