TATA STEEL LTD,MUMBAI vs. ITO 2(2)(2), MUMBAI

3. For these and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the A.O restored.”

2. Briefly stated, the facts of the case are that the assessee which is an Investment & Finance company had e-filed its return of income on 27.09.2010, declaring an income of Rs. 6,86,028/-. The return of income filed by the assessee was processed as such under Sec. 143(1) of the ‘Act’. The case of the assessee was thereafter taken up for scrutiny assessment under Sec. 143(2). The A.O vide his order passed under Sec. 143(3), dated. 10.12.2012, had inter alia made the following disallowances/additions in the hands of the assessee: S.No. Particulars Amount 1. Disallowance under Sec. 14A Rs. 1,38,37,713/- 2. Addition on account of suppression of income under the head ‘Income Rs. 2,80,000/- from house property’.

The A.O thereafter proceeded with and assessed the income of the assessee at Rs. 123,13,79,142/- under the normal provisions. The A.O further while framing the assessment had increased the ‘book profit’ under Sec. 115JB by the amount of disallowance of Rs. 1,38,37,713/- and worked out the adjusted ‘book profit’ at an amount of Rs. 268,14,28,982/-.

ITO 2(2)(2), Mumbai vs. M/s Kalimati Investment Co. Ltd –A.Y. 2010-11 & 2011-12 Tata Steel Ltd. vs. ITO, 2(2)(2) - A.Y. 2010-11 5 4. The revenue being aggrieved with the order of the CIT(A), to the extent the latter had set aside the disallowances and allowed relief to the assessee, had therein carried the matter in appeal before us.

ITO 2(2)(2), Mumbai vs. M/s Kalimati Investment Co. Ltd –A.Y. 2010-11 & 2011-12 Tata Steel Ltd. vs. ITO, 2(2)(2) - A.Y. 2010-11 7 “3. The issue raised in this ground no. 1 of appeal is that the annual value of the property was determined by the A.O on the basis of rent received and notional interest on the interest free security received from the tenant. The ld. A.O determined the ALV of the said property at Rs. 1,50,000/- per month. The municipal rateable value of the said flat was Rs. 12,26,300/-. The CIT(A) while relying upon the decision of the Tribunal in the own case of the assessee for earlier assessment year deleted the addition by observing as under:- „I have considered the facts of the case. The assesses owns property being flat no. 4C at 23, Prithviraj Road, New Delhi. The said flat was given on lease to parent company, Tata Steel Ltd. since March, 1994, The assessee has received rent of Rs. 7,20,000/- from the tenant and also interest free deposits of Rs. 75,00,000/-. The AO has taken into account notional interest on interest free deposit and has adopted ALV for Rs. 18,00,000/- u/s 23(1)(a) of thre I.T Act. On the identical facts, the Hon‟ble ITAT , Mumbai in – AY 2004-05, ITA NO. 2553/Mum/2011- AY. 2006-07 combined order dated 09/05/201 has held that the municipal value should b taken as ALV with out deduction of any municipal taxes which were borne by the tenant. During the year, municipal value of the property is Rs. 12,26,300/-. Respectfully following the above order of the ITAT, the A.O is directed to take Rs. 12,26,300/- as ALV subject to standard statutory deduction but not allowing any further deduction towards Municipal Taxes which were paid by the tenant and not by the assessee. Thus, this ground is partly allowed.‟ ITO 2(2)(2), Mumbai vs. M/s Kalimati Investment Co. Ltd –A.Y. 2010-11 & 2011-12 Tata Steel Ltd. vs. ITO, 2(2)(2) - A.Y. 2010-11 8 4. We further find that the assessee case is covered in its own case by the jurisdictional High Court in the Assessment Year 2004-05 and 2006 and 2007-08 in 1238 and 1239 respectively. Thus, we find no infirmity in the order passed by the CIT(A) and uphold the same. In view of the above the ground no. 1 is dismissed.”

ITO 2(2)(2), Mumbai vs. M/s Kalimati Investment Co. Ltd –A.Y. 2010-11 & 2011-12 Tata Steel Ltd. vs. ITO, 2(2)(2) - A.Y. 2010-11 9 8. The ld. D.R adverted to the disallowance made by the A.O under Sec. 14A r.w Rule 8D, which on appeal had however been set aside by the CIT(A). It was submitted by the ld. D.R that the assessee who had earned dividend (exempt income) of Rs. 21,55,64,945/-, had suo motto offered a disallowance of Rs. 21,69,240/- under Sec. 14A in its return of income. The A.O observing that the disallowance was not properly computed by the assessee, therefore, worked out the same as per Rule 8D at Rs. 1,60,07,133/- [i.e (i). Rs. 15,41,787/- demat charges, as per clause 8D(i); and (ii). Rs. 1,44,65,346/- i.e 0.5% of the average investment as per clause 8D(2)(iii) ]. Thus, the A.O after reducing the suo motto disallowance of Rs. 21,69,240/-, added back the balance disallowance of Rs. 1,38,37,713/- [i.e Rs. 1,60,07,133/- (-) Rs. 21,69,240/-] to the total income of the assessee. The assessee assailed the disallowance made by the A.O before the CIT(A). We find that the CIT(A) observed that the plea of the assessee before him was that the disallowance contemplated under Sec.14A was to be restricted to the total expenditure of Rs. 21,69,420/- debited by the assessee in its Profit & loss account. We find that the CIT(A) observed that there was no dispute as regards the computation of disallowance as per Rule 8D, but the issue involved therein was that the disallowance was liable to be restricted to the extent of the total expenditure debited in the profit & loss account, as under: S.No. Particulars Amount 1. Opening Stock in trade Rs. 1,62,95,071 2. Diminution in value of investment Rs. 999 3. General Office Expenses Rs. 15,93,333 4. Auditors remuneration Rs. 2,60,811 5. Director’s fees Rs. 48,000 6. Depreciation Rs. 81,497 ITO 2(2)(2), Mumbai vs. M/s Kalimati Investment Co. Ltd –A.Y. 2010-11 & 2011-12 Tata Steel Ltd. vs. ITO, 2(2)(2) - A.Y. 2010-11 10 7. Professional fees Rs. 2,76,276 Total Rs. 1,85,46,987 We find, that the CIT(A) while deliberating on the disallowance under Sec. 14A r.w Rule 8D, accepted the contention of the assessee that while working out the amounts debited in the Profit & loss account [relatable to exempted income and corresponding investments], the Opening ‘Stock in trade’ shown at Rs. 1,62,95,071/- was to be excluded. The CIT(A) further accepted the claim of the assessee that the depreciation (Rs. 81,497) and diminution in value of investment (Rs. 999/-) were also to be excluded from the total expenses. Thus, the CIT(A) in the backdrop of the fact that the assessee had on suo motto basis offered a disallowance of Rs. 21,69,420/- under Sec. 14A , viz. (i). General office expenses (Rs. 15,93,333/-); (ii). Auditors remuneration (Rs. 2,60,811/-); (iii). Directors fees (Rs. 48,000/-; and (iv). Professional fees (Rs. 2,67,276/-), in its return of income, therefore, concluded that the administrative expenses computed at 0.5% of the average investment was liable to be limited to Rs. 21,69,420/-, as against the amount of Rs. 1,44,65,347/- computed by the A.O as per Rule 8D(2)(iii). However, the CIT(A) being of the view that the assessee had failed to substantiate that the demat charges (Rs. 15,41,788/-) were included in the General Office Expense (Rs. 15,93,333/-), therefore, declined to accept the said contention of the assessee and made a separate disallowance in respect of the demat charges (Rs. 15,41,788/-) in the hands of the assessee. Thus, the CIT(A) on the basis of his aforesaid observations worked out the disallowance under Sec. 14A at Rs. 37,11,208/- (i.e Rs. 15,41.788/- + Rs. 21,69,420/-) as against the disallowance of Rs. 1,60,07,133/- made by the A.O. The revenue being aggrieved with the reducing of the further disallowance of Rs.1,38,37,713/- made by the A.O u/s 14A to an amount of Rs. 15,41,788/- by the CIT(A), with a consequential relief of Rs.

ITO 2(2)(2), Mumbai vs. M/s Kalimati Investment Co. Ltd –A.Y. 2010-11 & 2011-12 Tata Steel Ltd. vs. ITO, 2(2)(2) - A.Y. 2010-11 11 1,22,95,925/- [i.e Rs. 1,38,37,713 (-) Rs. 15,41,788/-] to the assessee, had thus carried the matter in appeal before us.

ITO 2(2)(2), Mumbai vs. M/s Kalimati Investment Co. Ltd –A.Y. 2010-11 & 2011-12 Tata Steel Ltd. vs. ITO, 2(2)(2) - A.Y. 2010-11 12 10. We have heard the authorised representatives for both the parties, perused the orders of the lower authorities and the material produced before us. We find that the present issue before us had earlier too came up before the Tribunal in the appeal of the revenue, in the assesses own case for A.Y. 2009-10, viz. DCIT Vs. M/s Tata Steel Ltd. (Successor to M/s Kalimati Investment Co. Ltd.), dated. 31.07.2015, in wherein it was observed by us as under: “5. The ground no. 2 is against the disallowance of Rs. 1,33,57,138/- under section 14A r.w rule 8D by the AO. The CIT(A) restricted the disallowance to Rs. 4,77,399/- by observing: „I have carefully considered the facts of the case. The assessee has shown dividend income of Rs. 20,82,32,286/-. The assessee has debited the total expenditure of Rs. 4,77,399/- to P & loss account which has been disallowed u/s 14A of the Act. However, the AO has increased this disallowance, which exceeded to the total expenditure debited in the P & loss account. It has been held by the Hon‟ble Delhi ITAT in the case of Gillette Group India (P) Ltd. Vs. ACIT (2012) 22 Taxmann.co.61 (Delhi-Trib) that disallowance u/s 14A cannot exceed the expenditure actually claimed by the assessee.‟ 6. The revenue relied upon the order of the A.O whereas the assessee vehemently argued that the case is covered by the decision of the Delhi bench of the Tribunal in the case of “Gillette Group India (P) Ltd. Vs. ACIT “(2012) 22 Taxmann.co.61 (Del- Trib). We have considered the rival arguments and found that the CIT(A) has rightly restricted the disallowance to Rs. 4,77,399/- as the disallowance can not exceed the total expenses claimed in the Profit & loss Account by the assessee and thus we find no ITO 2(2)(2), Mumbai vs. M/s Kalimati Investment Co. Ltd –A.Y. 2010-11 & 2011-12 Tata Steel Ltd. vs. ITO, 2(2)(2) - A.Y. 2010-11 13 infirmity in the order of CIT(A) and therefore the ground no. 2 is dismissed.”

No. 2 (i) & (ii) raised by the revenue before us.

12. We find that the A.O while framing the assessment had increased the ‘book profit’ under Sec. 115JB by the amount of disallowance of Rs. 1,38,37,713/- that was made by the A.O under Sec. 14A. The assessee had assailed the raising of the ‘book profit’ under Sec. 115JB before the CIT(A). It was averred before the CIT(A) that the ‘book profit’ for computing the tax liability of the assessee as per the MAT provisions contemplated under Sec. 115JB, was not liable to be raised by the notional component of such disallowance. The CIT(A) observed that as the disallowance under Sec. 14A was already restricted by him to the extent of the actual expenses debited in the Profit & loss account, he therefore directed the A.O to increase the ‘book profit’ only to the extent of disallowance of Rs. 37,11,208/- sustained by him in the hands of the assessee under Sec. 14A. We find that as the assessee in its appeal, viz. A.Y. 2010-11 had assailed the direction of the CIT(A) that the ‘book profit’ be enhanced by an amount of Rs. 37,11,208/-(supra), therefore, the adjudication of the present issue, emerging from Ground of appeal No. 2(iii) of the revenues appeal will be taken up while adjudicating the same in the course of disposing of the appeal of the assessee.

13. The appeal of the revenue is dismissed in terms of our aforesaid observations. A.Y. 2010-11

14. We shall now take up the appeal of the assessee for A.Y. 2010-

11. The assessee assailing the order of the CIT(A) had raised before us the following grounds of appeal :

ITO 2(2)(2), Mumbai vs. M/s Kalimati Investment Co. Ltd –A.Y. 2010-11 & 2011-12 Tata Steel Ltd. vs. ITO, 2(2)(2) - A.Y. 2010-11 15 “ The Learned Commissioner of Income-tax (Appeals) [“Ld. CIT(A)”] erred in adopting the Municipal Rateable Value of Rs. 12,26,300 as the Annual Value of the Appellants property at New Delhi and thereby , in increasing by an amount of Rs. 1,96,000/- , the amount of Rs. 6,86,000/- returned under the head “Income from house property” by the Appellant.

3. The Ld. CIT(A) erred in directing that the Assessing Officer‟s enhancement of the Book Profit under Section 115JB be limited to the “actual expenses debited to the P & L A/C.” The Appellant submits that the Ld. CIT(A) ought to have held that no part of the amount disallowed under Section 14A was liable to be added in computing the Book Profit under Section 115JB.”

No. 1 is dismissed.

16. The assessee had further assailed before us the order of the CIT(A), on the ground that he had failed to appreciate that as the ‘demat charges’ of Rs. 15,41,788/- were already included in the ITO 2(2)(2), Mumbai vs. M/s Kalimati Investment Co. Ltd –A.Y. 2010-11 & 2011-12 Tata Steel Ltd. vs. ITO, 2(2)(2) - A.Y. 2010-11 17 amount of ‘General office expenses’ of Rs. 15,93,333/- (which had already been offered by the assessee for disallowance under Sec. 14A in its return of income), therefore, no separate addition of the same was called for while computing of the disallowance under Sec. 14A by the CIT(A). The ld. A.R submitted that the CIT(A) while recasting the amount liable for disallowance under Sec.14A, thus, wrongly made a separate addition of the ‘demat charges’ of Rs. 15,41,788/- in the hands of the assessee. It was averred by the ld. A.R that the observations of the CIT(A) that the assessee had failed to place on record any evidence which could go to prove that the ‘demat charges’ of Rs. 15,41,788/- were included in the ‘General office expenses’ of Rs. 15,93,333/- were not only perverse, but rather contrary to the material available on record. Alternatively, it was submitted by the ld. A.R that the making a separate disallowance under Sec. 14A of Rs. 15,41,788/- by the CIT(A), had as a matter of fact led to enhancement of income of the assessee, without putting him to notice and affording any reasonable opportunity of being heard to him, which thus on the said count too could not be sustained.

No. 2 raised by the assessee before us is allowed.

18. The assessee had further assailed the order of the CIT(A), on the ground that the latter had erred in directing the A.O to enhance the ‘book profit’ under Sec. 115JB to the extent actual expenditure of Rs. 37,11,208/-(supra) was incurred by the assessee in earning of the dividend income. We find that the A.O while framing the assessment had made a further disallowance of Rs. 1,38,37,713/- under Sec. 14A. The A.O while passing the assessment order had enhanced the ‘book ITO 2(2)(2), Mumbai vs. M/s Kalimati Investment Co. Ltd –A.Y. 2010-11 & 2011-12 Tata Steel Ltd. vs. ITO, 2(2)(2) - A.Y. 2010-11 19 profit’ for computing the tax liability under Sec. 115JB by the aforesaid amount of disallowance of Rs. 1,38,37,713/- and had worked out the Adjusted ‘book profit’ at an amount of Rs. 2,68,14,28,982/-. The assessee assailed the enhancing of the ‘book profit’ by the amount of disallowance under Sec. 14A by the A.O. The CIT(A) while disposing of the appeal of the assessee had restricted the disallowance under Sec. 14A to an amount of Rs. 37,11,208/-. The CIT(A) while adjudicating the ground of appeal of the assessee that the A.O had erred in raising the ‘book profit’ under Sec. 115JB by the amount of disallowance made by the A.O under Sec. 14A, therein observed that now when the disallowance under Sec. 14A had been restricted by him to the amount of actual expenditure of Rs. 37,11,208/- which was incurred by the assessee in earning of the exempt income, therefore, directed the A.O to restrict the raising of the ‘book profit’ to the said extent.

19. The ld. A.R for the assessee submitted that the issue that the ‘book profit’ for computing the tax liability under Sec. 115JB was not to be increased by the amount of disallowance made under Sec. 14A, stands settled as on date by the order of the ‘Special bench’ of the Tribunal in the case of ACIT Vs. Vireet Investment Pvt. Ltd. (ITA No. 502/Del/2012 & CO No. 68/Del/2012; dated. 16.06.2017(SB). We have perused the order of the ‘Special bench’ of the Tribunal passed in the case of Vireet Investment Pvt. Ltd. (supra). We find that the Tribunal in the aforesaid case had held at Page 48 – Para 6.22, as under: “6.22. In view of above discussion, we answer the question referred to us in favour of assessee by holding that the computation under clause (f) of Explanation 1 to Section 115JB(2) , is to be made without resorting to the computation as ITO 2(2)(2), Mumbai vs. M/s Kalimati Investment Co. Ltd –A.Y. 2010-11 & 2011-12 Tata Steel Ltd. vs. ITO, 2(2)(2) - A.Y. 2010-11 20 contemplated u/s 14A read with Rule 8D of the Income-tax Rules, 1962.” We have perused the aforesaid order of the ‘Special bench’ of the Tribunal and are of the considered view, that as held therein, the A.O while computing the ‘book profit’ under Sec. 115JB cannot make any adjustment in respect of the disallowance made under Sec. 14A in the hands of the assessee. We thus, are of the considered view that the A.O while computing the ‘book profit’ under Sec. 115JB cannot make any adjustment as regards the disallowance made in the hands of the assessee under Sec. 14A. We thus, in the backdrop of the aforesaid order of the ‘Special bench’ of the tribunal, direct the A.O to modify the computing of the ‘book profit’ under Sec. 115JB and delete the adjustment of Rs. 37,11,208/- as was directed by the CIT(A) to be made in respect of the disallowance made under Sec. 14A in the hands of the assessee. We thus set aside the order of the CIT(A), to the extent he had directed the A.O to increase the ‘book profit’ by the amount of the disallowance of Rs. 37,11,208/- made by him under Sec. 14A. The Ground of appeal

No. 3 raised by the assessee is allowed.

20. The appeal of the assessee is partly allowed in terms of our aforesaid observations. A.Y. 2011-12

21. We shall now take up the appeal of the revenue for A.Y. 2011-12. The revenue assailing the order of the CIT(A) had raised before us the following grounds of appeal:

ITO 2(2)(2), Mumbai vs. M/s Kalimati Investment Co. Ltd –A.Y. 2010-11 & 2011-12 Tata Steel Ltd. vs. ITO, 2(2)(2) - A.Y. 2010-11 21 “On the facts and in circumstances of the case and in law, the learned CIT(A) has erred in allowing relief to the assessee to the extent impugned in the grounds enumerated below:

1. 1. The order of the CIT(A) is opposed to the law and facts of the case.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance u/s 14A r.w Rule 8D to amounts debited to P & L account ignoring the fact that Rule 8D is applicable from FY 2007-08.

3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in restricting the disallowance made by the AO adopting method of calculation provided in Rule 8D thereby overlooking the crucial fact that this method of calculation has been prescribed by the statute and held as reasonable method by the Hon‟ble Bombay High Court in Godrej & Boyce Mfg. Co. Ltd. 328 ITR 81 (Bom).

4. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in directing the AO to restrict the disallowance u/s 14A to the extent of Rs. 4,59,196/- for the purpose of computation u/s 115JB of the I.T Act without appreciating that as per Explanation 1 to Section 115JB of the I.T Act, an amount disallowed u/s 14A is to be considered as expenditure incurred for earning tax free dividend income and the same has to be added back /increased to the book profit u/s 115JB of the I.T Act.”

22. Briefly stated, the facts of the case are that the assessee company had e-filed its return of income on 21.09.2011, declaring an income of Rs. 44,31,117/-. The case of the assessee was thereafter taken up for scrutiny assessment under Sec. 143(2). The A.O vide his order passed under Sec. 143(3), dated. 05.03.2014, had inter alia ITO 2(2)(2), Mumbai vs. M/s Kalimati Investment Co. Ltd –A.Y. 2010-11 & 2011-12 Tata Steel Ltd. vs. ITO, 2(2)(2) - A.Y. 2010-11 22 made a disallowance of Rs. 1,56,91,134/- under Sec. 14A r.w Rule 8D, as against the disallowance of Rs. 4,59,196/- that was suo motto offered by the assessee in its return of income. The A.O thereafter proceeded with and assessed the income of the assessee at Rs. 1,98,49,470/- under the normal provisions. Still further, the A.O while framing the assessment also enhanced the ‘book profit’ under Sec. 115JB by the amount of further disallowance of Rs. 1,52,31,938/- made under Sec. 14A, and thus computed the ‘book profit’ for Sec. 115JB at an amount of Rs. 2,03,43,873/-.

ITO 2(2)(2), Mumbai vs. M/s Kalimati Investment Co. Ltd –A.Y. 2010-11 & 2011-12 Tata Steel Ltd. vs. ITO, 2(2)(2) - A.Y. 2010-11 23 25. The revenue being aggrieved with the order of the CIT(A) had carried the matter in appeal before us. The ld. A.R submitted that the ‘Grounds of appeal

No. 1 to 3’ raised by the assessee in the present appeal, viz. were identical to those as were there before the Tribunal in the ‘Grounds of appeal No. 2(i) & 2(ii)’ in the appeal of the revenue for the immediate preceding year, viz. ITA No. 4015/Mum/2014 for A.Y. 2010-11. The said factual position was not controverted by the ld. D.R. Thus, as the ‘Grounds of appeal No. 1 to 3’ involved in the present appeal are identical to those raised before us by the revenue vide its ‘Grounds of appeal No. 2(i) & 2(ii)’ in its appeal in the case of the assessee for the immediate preceding year, viz. A.Y. 2010-11, in ITA No. 4015/Mum/2014, therefore, our order passed while disposing of the ‘Grounds of appeal No.2(i) & 2(ii)’ in the appeal of the revenue for A.Y. 2010-11, shall apply mutatis mutandis for disposing of the ‘Grounds of appeal No. 1 to 3’ raised by the assessee in the present appeal, viz. ITA No. 4982/Mum/2015. The Grounds of appeal No. 1 to 3 raised by the revenue before us are dismissed in terms of our aforesaid observations.

26. The revenue had further assailed before us the direction of the CIT(A) that the ‘book profit’ under Sec. 115JB was to be raised by the disallowance under Sec. 14A only to the extent of Rs. 4,59,196/- which was sustained by the CIT(A). We find that as the issue involved in the present case stands settled by the order of the ‘Special bench’ of the Tribunal in the case of ACIT Vs. Vireet Investment Pvt. Ltd. (ITA No. 502/Del/2012 & CO No. 68/Del/2012; dated. 16.06.2017(SB), therefore, in all fairness we restore the issue to the file of the A.Op with a direction to recompute the ‘book profit’ in terms of the order of the ‘Special bench’ of the Tribunal in the case of Vireet Investments Pvt. Ltd. (supra). The Ground of appeal No. 4 is allowed for statistical purposes in terms of our aforesaid directions.