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Income Tax Appellate Tribunal, ‘ D’ BENCH : CHENNAI
Before: SHRI ABRAHAM P GEORGE & SHRI DUVVURU RL REDDY
आदेश / O R D E R PER ABRAHAM P GEORGE, ACCOUNTANT MEMBER
These are appeals filed by the assessee directed against the separate orders of the Commissioner of Income-tax (Appeals)-5, Chennai dated 07.02.2017 for assessment years 2010-11 and 2011-12. & 1081/Mds./2017 :- 2 -:
Authorised Representative of assessee submitted that there is one common issue in both the appeals, which is on a disallowance u/s.14A of the Income Tax Act, 1961 (in short ‘the Act’ ) read with Rule-8D of Income Tax Rules,1961 (in short ‘the Rule’). Apart from this common issue, the ld.A.R submitted that there is one more issue for assessment year 2011-12, which was on a disallowance of claim of `2,45,44,677/-, u/s.35AD of the Act.
On the first common issue, the ld.A.R submitted that he was pressing only grounds Nos.3, 8, 10 & 11. As per ld.A.R, by virtue of Special Bench decision of Tribunal in the case of ACIT Vs. Vireet Investment (P.) Ltd., (ITA No.502/Del./2012 andC.O. No.68/Del./2014 dated 16.06.2017), only those investments, which yielded exempted income could be considered for disallowance u/s.14A of the Act. The ld.A.R also placed reliance on the judgement of Delhi High Court in the case of CIT Vs.Oriental Structural Engineers (P.) Ltd., reported in 374 ITR 108. Ld. Counsel for the assessee fairly pointed out that this was one of the issues on which the assessee had sought settlement before the Income-tax Settlement Commission, Chennai. However, according to him, the Settlement Commission in its first order u/s.245D(1) dated 02.01.2017, had taken note of assessee’s appeal before the Ld.CIT(A) on the very same issue. As per ld.A.R, for assessment year 2010-11 assessee had itself offered `27,95,820/- and for assessment year & 1081/Mds./2017 :- 3 -:
2011-12, offered `17,34,415/-, as the expenditure incurred for earning exempt income. As per the ld.A.R, the Settlement Commission had not adjudicated on this issue since assessee had filed appeal before the Ld.CIT(A).
3.1 Vis-à-vis the claim u/s.35AD of the Act, which is relevant only for assessment year 2011-12, submission of the ld.A.R was that this issue was also a part of the items considered by the Settlement Commission. As per the ld.A.R, in the second order dated 17.02.2017 passed u/s.245D(2C) by the Settlement Commission, they had alluded to this issue also. However, as per the ld.A.R, the appeal of the assessee was confined to expenditure of `1,08,40,807/- and `48,18,041/-,incurred for two hospitals which were denied deduction u/s.35AD of the Act for a reason that these were incurred after commencement of the operations. Contentions of ld.A.R was that Settlement Commission was seized only on the allowability of that part of the deduction u/s.35AD which was denied for want of bills and supporting evidence. As per ld.A.R, these amounts related to Hospital at Secunderabad and at Karaikudi respectively. Contention of the ld.A.R was that Sec.35AD did not limit the claim of expenditure incurred during relevant previous year in any manner.. According to him, proviso to Sec.35AD(1) of the Act applied only when the twin conditions set out therein were both satisfied. Further, according to & 1081/Mds./2017 :- 4 -: him, unless both these conditions were satisfied, proviso had no applicability, and expenditure incurred even after commencement of operations had to be allowed.
Per contra, the Ld.DR submitted that the order dated 17.02.2017 passed u/s.245D(2C) of the Act and order dated 02.01.2017 passed u/s.245D(1) of the Act, by the Income-tax Settlement Commission were not available before the Ld.CIT(A) while he disposed off the appeals filed by the assessee. According to him, contention of the assessee that part of disallowances under sections14A & 35AD of the Act assailed before the Tribunal were not considered by the Settlement Commission, was not before the Ld.CIT(A) when he disposed off these appeals. According to him, it was necessary for Ld.CIT(A), to adjudicate first whether the appeals were maintainable since assessee had moved the Settlement Commission. Hence, as per ld.A.R, the matter required a fresh look by Ld.CIT(A).
We have heard the rival submissions and perused the material on record. What the assessee say before us is that disallowance u/s.14A of the Act was not an issue which was considered by the Settlement Commission, and hence, it had preferred the appeal before the Ld.CIT(A).
However, the Settlement Commission in its order dated 02.01.2017 u/s.245D(1) had noted as under at paragraph No.5.3.4 to 5.3.6:- & 1081/Mds./2017 :- 5 -:
“5.3.4. For the assessment year 2010-11, the AO disallowed a sum of Rs.2,58,78,585/- u/s.14A r.w.Rule 8D being ½% of investments yielding exempt income. The appeal of the Appellant is stated to be pending before the CIT(A). In the application, the appellant offered Rs.27,95,820/- as income based on its computation relying on certain decisions of Hon’ble ITAT of various Benches. 5.3.5 For the A.Ys. 2011-12 and 2012-13, similarly, the disallowance by A.O. amounted to Rs.1O,41,31,9281- and Rs.11,93,43,722/- respectively u/s 14A r.w. Rule 8D and the appeal of the Applicant is pending before the CIT(Appeals). However, the Applicant adopted its own method of computation relying on various decisions of its benches and admitted additional income of Rs.17,34,415/- for A.Y. 2011-12 and Rs.72,86,9041- for A.Y. 2012-13 as its income under this head. 5.3.6 For the A.Ys. 2013-14 to 2016-17 , the Applicant surrendered additional incom as detailed below u/s 14A r.w. Rule ED by adopting its own rtiethod of computation based on certain judicial pronouncements of Hon’ble ITAT: (i) A.Y. 2013-14 - Rs. 74,57,707/- (ii) A.Y. 2014-15 - Rs.2,44,27,825/- (ix) A.Y.2015-16 - Rs. 17,25,135/- (x) A.Y. 2016-17 - Rs. 77,17,157/-
For the A.Ys. 2013-14 to 2016-17, the Applicant declared additional income u/s 14A r.w. Rule 8D as mentioned in the above table, While computing the said disallowance, it excluded from value of average investment, a value of investment from which no exempt income was earned and value of investment In group companies based on certain decisions. The Applicant relied on the following decisions: (I) Sarabhat Holdings Pvt.Ltd. v ACIT [2014] 40 CCH Ô1O1. (Ahd.Trib)
& 1081/Mds./2017 :- 6 -:
(Ii) REI Agro Ltd vbCIT 014] 160 TTJ 0107 (Kol) (lii) ElH Associated Hotels Ltd V DCIT 2013 (9) TMI 604 — ITAT Chennai (Iv) CIT v Oriental Structural Engineers Pvt. Ltd. in / 2012— Delhi HC (v) JM FinanciaI Ltd v ACIT In ITA No. 4521 / Mum / 2012 — Mumbai ITAT (vi) DCIT v Redlgton India Ltd In ITA No.959 / Mds / 2015 — Chennai ITAT”
Vis-à-vis the claim u/s.35AD of the Act, what was stated by the Settlement Commission at paragraph No.2.5.8 of its order passed on 17.02.2017u/s.245D(2C) of the Act, read as under:-
2.5.8 The Applicant has admitted additional income u/s 35AD for A.Ys. 2011-12 to 2016-17 since the supporting vouchers were not available to settle the issue. The PCIT has stated that in the absence of details of such expenses, it is not possible to comment on the adequacy and correctness of such disclosure on this account. The Applicant has claimed that certain expenses forming part of the deduction have not been disallowed and added back as income because they are admissible as per the provisions of Sec.35AD(1) of the LT. Act. Additionally it was claimed by the Applicant that as per proviso to Sec.35AD(1), expenditure incurred prior to commencement be allowed in the year of commencement. The PCIT has stated that there is necessity to verify these claims.
In the first order dated 02.01.2017 of the Settlement Commission, the settlement application of the assessee was allowed to be proceeded with. In its order dated 17.02.2017, it had held the application filed by the assessee as “not invalid”. It has not been disputed that the Settlement Commission orders were not available & 1081/Mds./2017 :- 7 -:
with the Ld.CIT(A) while he disposed off these appeals. In the interest of justice, we are of the opinion that both these appeals have to be looked afresh by the Ld.CIT(A) after considering the application made by the assessee to the Settlement Commission and its pursuant orders. Assessee is free to raise any plea and arguments before the Ld.CIT(A) on these aspects. We, therefore, set aside the orders of Ld.CIT(A) and remit both the appeals back to his file for consideration afresh in accordance with law.
In the result, both the appeals of the assessee are allowed for statistical purposes Order pronounced on 07th February, 2018, at Chennai.