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Income Tax Appellate Tribunal, DELHI
Before: SH. ANIL CHATURVEDI & SH. AMIT SHUKLA
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH ‘F’, NEW DELHI BEFORE SH. ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SH. AMIT SHUKLA, JUDICIAL MEMBER (THROUGH VIDEO CONFERENCING) Assessment Year : 2013-14 Zila Sahkari Bank Ltd., Vs. DCIT Moti Bagh, Bulandshahr Circle Uttar Pradesh Bulansahr PAN : AAAAZ 0005 B (APPELLANT) (RESPONDENT) Assessee by Shri Premjit Singh Kashyap, C.A. Revenue by Shri Govind Singhal, Sr. DR Date of hearing: 17/02/2021 Date of Pronouncement: 17/02/2021 ORDER PER ANIL CHATURVEDI, AM:
This appeal filed by the assessee is directed against the order dated 30.10.2017 of the Commissioner of Income Tax (Appeals)- Aligarh relating to Assessment Year 2013-14.
The relevant facts as culled from the material on records are as under :
Zila Sahkari Bank Ltd vs. DCIT A.Y. 2013-14 2 3. Assessee is a society which is stated to be engaged in the business of banking activities. Assessee electronically filed its return of income on 30.09.2013 declaring total income of Rs.1,22,162,250/-. Thereafter assessee filed revised return of income on 22.09.2014 revising the total income to Rs.1,68,46,110/-. The case was selected for scrutiny and thereafter assessment was framed under section 143(3) vide order dated 23.03.2016 and the total income was determined at Rs.1,73,42,640/-. Aggrieved by the order of AO, assessee carried the matter before the CIT(A) who vide order dated in 30.10.2017 in Appeal No.06/2016-17/GZB/Aligarh granted partial relief to the assessee. Aggrieved by the order of CIT(A), assessee is now before us and has raised the following grounds of appeals: “1. Because the assessment order is arbitrary, without enquiry surmisical, speculative against law and facts of case.
2. Because the addition of Rs.496529.00 u/s 14A is wrong as the assessee has not incurred any expenditure for earning of dividend income.
3. Because the appellant very modesty prays to reserve his right to add, amend or modify the grounds of appeal.”
4. Before us, at the outset, Learned AR submitted that the sole controversy that requires adjudication is with respect to the disallowance u/s 14A of the Act.
During the course of assessment proceedings, AO on perusing the Profit and Loss account and Balance Sheet noticed that assessee had investment of Rs.1,01,13,000/- and had not Zila Sahkari Bank Ltd vs. DCIT A.Y. 2013-14 3 made any disallowance under section 14A. The assessee was asked to explain as to why the expenditure in relation to earning/intended earning of exempted income not be disallowed under section 14A r.w.r 8D of the Income-Tax Rules. The submissions made by the assessee was not found acceptable to the AO. AO thereafter, following the methodology prescribed under Rule 8D of the I. T. Rules worked out aggregate disallowance u/s 14A at Rs.4,96,529/- [comprising of Rs.4,45,964/- being interest disallowance under Rule 8D(2)(ii) and Rs.50,565/- on account of indirect expenses under Rule 8D(2)(iii)]. Aggrieved by the order of AO, assessee carried the matter before the CIT(A) who upheld the order of AO. Aggrieved by the order of CIT(A), assessee is now before us.
Before us, Learned AR reiterated the submissions made before the lower authorities and further pointing to the copy of Balance Sheet as on 31.03.2013 submitted that the interest free funds available with the assessee in the form of Share Capital are Rs.21.04 crores (rounded off) and of Reserves and Surplus of Rs.38.18 crores (rounded off) thus having interest free funds aggregating to Rs.59.23 crores which are much more then the investment of Rs. 1.01 crore. He therefore submitted that in such a situation it is to be presumed that the investments are out of interest free funds and not borrowed funds and therefore no disallowance of interest under Rule 8D(2)(ii) is called for. He thereafter submitted that if at all any disallowance is to be made,
Zila Sahkari Bank Ltd vs. DCIT A.Y. 2013-14 4 it is to be restricted to the disallowance under Rule 8D(2)(iii) amounting to Rs.50,565/-. He further submitted that no disallowance u/s 14A has been made in earlier years. He therefore submitted that the disallowance made by the AO to be deleted.
Learned DR on the other hand supported the order of lower authorities and further submitted that on the plea of the assessee that since no disallowance has been made in the earlier year no disallowance in the year is called for, it is a settled law that the principles of res judicata is not applicable to income tax proceedings and therefore each year being an independent year, assessment of income has to be made in each year independently. He further submitted that no submissions were made by the assessee before the lower authorities about the availability of interest free funds being more than the investments. He therefore submitted that in such a situation the matter be remitted back to the AO to re-examine the issue.
We have heard the rival submissions and perused the materials on record. The issue in the present ground is with respect to disallowance under Section 14A read with Rule 8D of the Rules.
In the present case, we find that total disallowance u/s 14A of Rs.4,96,529/- comprises of two parts namely, Rs.4,45,964/- on account of interest under Rule 8D(2)(ii) and indirect expenses
Zila Sahkari Bank Ltd vs. DCIT A.Y. 2013-14 5 of Rs.50,565/- under Rule 8D(2)(iii). As far as the disallowance of interest expenses under Rule 8D(2)(ii) of interest is concerned, from the copy of Balance Sheet placed by the assessee in the paper book (a copy of which is also stated to have been filed before AO), we find that the interest free funds of the assessee in the form of Share Capital and Reserves and Surplus as on 31.03.2013 are in the region of Rs.59 crores as against the investments of around Rs.1 crore meaning thereby that the interest free funds are more than the investments. On the issue of presumptions that when interest free funds available with the assessee are in excess of investments and then the investments are presumed to be out of interest free funds, we find that Hon’ble Bombay High Court in the case of HDFC vs. DCIT reported in (2016) 383 ITR 529 has observed as under: “15. It is clear that for the first time in the case of HDFC Bank Ltd. (Supra) that this Court took a view that the presumption which has been laid down in Reliance Utilities and Power Ltd. (Supra) with regard to investment in tax free securities coming out of assessee’s own funds in case the same are in excess of the investments made in the securities (notwithstanding the fact that the assessee concerned may also have taken some funds on interest) applies, when applying Section 14A of the Act. Thus, the decision of this Court in HDFC Bank Ltd.(Supra) for the first time on 23rd July, 2014 has settled the issue by holding that the test of presumption as held by this Court in Reliance Utilities and Power Ltd. (Supra) while considering Section 36(1)(iii) of the Act would apply while considering the application of Section 14A of the Act. The aforesaid decision of this Court in HDFC Bank Ltd. (Supra) on the above issue has also been accepted by the Revenue, inasmuch as even though they have filed an appeal to the Supreme Court against that order on the other issue therein, viz., broken period interest, no appeal has been preferred by the Revenue on the issue of invoking the principles laid down in Reliance Utilities and Power Ltd. (Supra) in its application to Section 14A of the Act. Therefore, Zila Sahkari Bank Ltd vs. DCIT A.Y. 2013-14 6 the issue which arose for consideration before the Tribunal had not been decided by this Court in Godrej and Boyce Manufacturing Co. Ltd. (Supra). It arose and was so decided for the first time by this Court in HDFC Bank Ltd. (Supra). Thus, there is no conflict as sought to be made out by the impugned order. Thus, impugned order has proceeded on a fundamentally erroneous basis as the ratio decidendi of the order in Godrej and Boyce manufacturing Co. Ltd. (Supra) had nothing to do with the rest of presumption canvassed by the petitioner before the Tribunal on the basis of the ratio of the decision of this Court in HDFC Bank Ltd. (Supra).
At the hearing Mr. Suresh Kumar, Learned Counsel for the Revenue urged that on the facts of this case no fault can be found with the order of the Tribunal. It is submitted that, the petitioner was not able to establish before the Assessing Officer and the CIT(A) that the amounts invested in the interest free securities came out of interest free funds available with the petitioner. In that view of the matter, it is submitted by him that the order of this Court in HDFC Bank Ltd. (Supra) would not apply to the facts of the present case. We are unable to understand the above submission. The Assessing Officer passed the Assessment order on 22nd December, 2010 under section 143(3) of the Act. The CIT(A) passed an order on 21st November, 2011 dismissing the petitioner’s appeal. On both the dates, when the orders were passed by the Assessing Officer and CIT(A), the authorities did not have the benefit of the order of this Court in HDFC Bank Ltd. (Supra) rendered on 23rd July, 2014. Once the issue is settled by the decision of this Court in HDFC Bank Ltd. (Supra), there is now no need for the assessee to establish with evidence that the amounts which has been invested in the tax free securities have come out of interest free funds available with it. This is because once the assessee is possessed of interest free funds sufficient to make the investment in tax free securities, it is presumed that it has been paid for out of the interest free funds. Consequently, we do not find any merit in the above submission made at the hearing on behalf of the Revenue. ”
In light of the decision of Hon’ble Bombay High Court noted hereinabove, we are of the view that no disallowance of interest under Rule 8D(2)(ii) of the Act of Rs.4,45,964/- is called for in the present case. As far as the disallowance under Rule 8D(2)(iii) of Zila Sahkari Bank Ltd vs. DCIT A.Y. 2013-14 7 the Act of Rs.50,565/- is concerned, before us, Learned AR fairly admitted that the maximum disallowance can be to the extent worked out under Rule 8D(2)(iii). We therefore, uphold the action of AO as far as the disallowance of Rs.50,565/- under Rule 8D(2)(iii) is concerned. Thus the ground of appeal of the assessee is partly allowed
In the result, appeal of the assessee is partly allowed.
Order pronounced in the open court on 17.02.2021