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Income Tax Appellate Tribunal, F Bench, Mumbai
Before: Shri Jason P. Boaz & Shri Sandeep Gosain
This appeal by the assessee is directed against the order of the CIT(A)- 9, Mumbai dated 01.10.2014 for A.Y. 2008-09.
The facts of the case, briefly, are as under: - 2.1 The assessee, a company engaged in business as dealers in chemical products, filed its return of income for A.Y. 2008-09 on 29.09.2008 declaring total income at NIL. The assessment was completed under section 143(3) of the Income Tax Act, 1961 (in short, 'the Act') vide order dated 24.12.2010 wherein the total income under normal provisions was determined at Nil and ‘Book Profits’ under section 115JB of the Act was computed at `18,23,82,120/-. 2.2 Reassessment proceedings were taken up by the AO on the ground that the assessee had stated that no specific expenditure is incurred for earning of the exempt income under section 14A of the Act and notice under section 148 of the Act dated 26.02.2013 was issued to the assessee. In response, the assessee vide letter dated 23.09.2013 submitted that the M/s. Futura Polyesters Ltd. original return of income filed on 29.09.2008 be treated as filed in response to notice under section 148 of the Act. In assessment proceedings, the assessee’s submissions, that investments made by them are out of surplus funds and that they had disallowed 2% of the salary of the person who was maintain the investments, did not find favour with the AO, as he was of the view that all expenses connected with the exempt income have to be disallowed as per law whether they are direct or indirect, fixed or variable, managerial or financial. In that view of the matter, the AO worked out the disallowance under section 14A r.w. Rule 8D at `1,04,71,000/-. The reassessment order was completed under section 143(3) r.w.s. 147 of the Act vide order dated 31.10.2013.
Aggrieved by the reassessment order dated 31.10.2013 for A.Y. 2008-09, the assessee preferred this appeal before the Tribunal raising the following grounds: - “
1. The Commissioner of Income Tax (Appeals) erred in reopening the assessment u/s. 148 of the Income Tax Act, 1961.
2. The Commissioner of Income Tax (Appeals) erred in confirming the action of the Assessing Officer of disallowing Rs.1,04,71,000/- under section 14A of the Income Tax Act, 1961.”
4. The case was fixed for hearing on number of dates, but on each of these dates when the case was called, none was present for the assessee. Even issue of notices by RPAD did not elicit any response from the assessee. On 26.10.2016 also when this case was called for hearing, none was present for the assessee but the learned D.R. for Revenue was present and ready to present Revenue’s side of the case. In the circumstances as enumerated above we are of the opinion that the assessee is not interested in pursuing this appeal seriously and therefore proceed to dispose off this appeal with the assistance of the learned D.R. for Revenue and the material on record.
5. In the grounds (supra), the assessee has challenged both the re- opening of the assessment and the disallowance under section 14A r.w. Rule 8D of the Income Tax Rules, 1962 (in short ‘the Rules’) which were upheld by the learned CIT(A) in the impugned order.
M/s. Futura Polyesters Ltd. 6.1 We have heard the learned D.R. for Revenue at length in support of the impugned order. According to the learned D.R. all contentions of the assessee raised in respect of the reopening of the assessment for A.Y. 2008- 09 and in respect of the disallowance under section 14A r.w. Rule 8D have been addressed by the authorities below and nothing has been brought on record by the assessee in this appeal to controvert the findings of the learned CIT(A). We have perused the impugned order and that of the AO. The learned CIT(A) has considered the assessee’s submissions on the issue raised before him, which are also subject matter of the appeal before us, and held as under: - “4.1 The LAR argued that the LAO has erred on the facts and circumstances of the case. The written submission made by the LAR may be extracted as under: Ground No 1 and Additional Ground: The Assessing Officer erred in disallowing Rs.1,04,71,000/- Under Section 14A of the 1ncome Tax Act, 1961. We are a Public Limited Listed Company engaged in the business of manufacturing polyesters fibers and Preforms. During the year, we had earned an exempt dividend income of Rs.3,35,291/-. 1n terms of Section 14A of the Act, we had disallowed a sum of Rs.10819/- u/s 14A of the Act. This disallowance was offered by us in the return of income and the same after being examined by the Assessing Officer was disallowed in the Assessment made u/s 143(3) of the Act. The A.O. has now reopened the assessment u/s 148 on the ground that we had stated that no expenditure is incurred for earning the exempt income. This fact is totally contrary to his own admission in the reasons given that we had disallowed an amount of Rs 10891/- u/s 14A of the Act. On page 3 in Para 5.3, the A.O. stated that we had not disclosed full and true material facts necessary for the Assessment. This again is factually incorrect as the disallowance was made in the Return of Income and the same is specifically disallowed in the Assessment Order. We enclose herewith the copy of the Computation of Income and the Assessment Order u/s 143(3) of the Act, to prove that full disclosure was made in respect of the disallowance We submit that a mere change of opinion cannot lead to re- opening of Assessment as laid down by the Supreme Court in the case of CIT Vs. Kelvinator India Ltd 187 Taxman 312, CIT Vs. Bhanji Lalji 79 ITR 582 (SC) and ITO Vs. Nawambir Barkatally Khan Bahadur reported in 97 ITR 239 (SC).
M/s. Futura Polyesters Ltd. The Judicial decisions cited by the A.O. on page no 4 of the Assessment Order are not applicable in the facts of our case, because the A.O. had examined the disallowance u/s 14A and disallowed the same. In this connection, we rely on the Supreme Court decision of Calcutta Discount Company Limited Vs. ITO 41 ITR 191. We also rely on the decision of the Bombay High Court in the case of Hindustan Lever Limited Vs. R.B. Wadkar reported in 268 ITR 332 which has held that the A.O. must disclose as to which material fact has not been disclosed by the Assessee fully and truly. In respect of decisions cited on Page 5 of the order, the same are not applicable to our case as in our case (he disallowance has been made with the full knowledge of the A.O. This is not the case of escaped Assessment. We submit that what is stated in the last Para of the Assessment Order is not relevant in our case. We are a manufacturing Company and the Investments made by us are out of the surplus funds ill order to comply with the provisions of Section 58A of the Company's Act,1950. Thus we have no other investments and accordingly we had taken 2% of the salary of the person who was maintaining the Investments. The case Law relied upon by the A.O. in Para 6 of the Assessment order deals with the disallowance 1115 14A. In the facts of our case, the dispute is not regarding the disallowance u/s 14A but it is regarding the quantum. The A.O. has nowhere recorded his satisfaction in regard to the incorrectness of our claim. We submit that this recording of satisfaction is a condition precedent as laid down by the Bombay High Court in the case of Godrej & Boyce Vs. DC1T reported in 328 ITR Page 81. This fact has also been accepted by the A.O. on Page 8 Para 6.6(4) of his order. In view of the above, the action of the A.O. in invoking Rule 8(D) in the facts of our case, is uncalled for and needs to be deleted and the disallowance of Rs. 10891/- needs to be confirmed." 4.2 He argued for relief. DECISION : 5. 5.1 I have carefully and dispassionately considered the facts and circumstances of the case, statement of facts, relevant assessment order, written submission, relied upon case laws and the arguments made by the LAR before the undersigned. Ground No.1 After considering the rival submissions, I do not agree with the contention of the appellant that re-assessment proceedings u/s.148 in its case are barred by limitation due to the proviso of sec. 147 of I.T. Act. It is noted that though the appellant has claimed that the details of expenses disallowable u/s.14A of the I.T. Act during the M/s. Futura Polyesters Ltd. year were available in the records of the A.O., but it is worth noting that during the original assessment at no point of time this issue was examined by the A.O. In the case of M/s. Consolidated Photo & Finvest Ltd., (281 ITR 394) after considering the various decisions of Hon'ble Apex Court on this issue, Hon'ble Delhi High Court held that when in the original assessment the A.O. has not applied his mind and he has not taken a conscious decision on a particular matter, then it cannot be said that it is a case of mere change in opinion for reopening the case. In the instant case it is noted that the issue of disallowance u/s.14A of the I.T. Act was never discussed in the original assessment because neither the appellant suo-moto disclosed this fact in a clear manner nor the A.O. could touch this issue. Therefore, under these circumstances it appears that it is not a case where reopening of assessment can be held as a mere change of opinion. Under these circumstances, the reopening of the assessment appears to be justified. Ground No.2 is regarding disallowance u/s.14A. After considering the rival submissions, it is noted that it is an undisputed fact in the instant case that the appellant has made huge investment in shares and mutual funds and earned substantial income from dividend which are exempt from tax, therefore I agree with the finding of the A.O. that the assessee would have definitely incurred expenditure in earning of exempt income because the man power as well as infrastructure and common pool of funds of the appellant company was utilized for earning of the exempt Income. Under these circumstances, disallowance u/s. 14 A is justified. From A.Y 2008-09 provisions of Rule 8D are also applicable in all such cases where it is not practically possible to exactly segregate the expenses incurred in relation to earning of exempt income, like the case of the appellant. The Hon'ble Bombay High Court in the case of M/s. Godrej & Boyce Ltd., (2010) 328 ITR 81 has upheld the applicability of Rule 8D in such cases. Therefore, the disallowance made by the A.O u/s. 14 A by invoking the provisions of rule 8 D in the instant case is justified, hence the same is confirmed. As regards the claim of the appellant that the matters of investment were dealt by a staff that too as a part time work for which 2% salary was disallowed, I do not agree with this plea because when segregation of expenses for earning of exempt and taxable income is not possible then the A.O. has to take all the expenses including the remuneration of manpower etc. also because in common pool it is not exactly possible to pin point as to which expense pertains for earning of exempt income and how much. It is for such scenario Rule 8D(iii) was introduced in the statute. Under these circumstances, the disallowance made by the AO is confirmed.” 6.2 Before us also, except for raising the grounds of appeal (supra), nothing has been urged before us to controvert the findings rendered by the learned CIT(A) in the impugned order, after consideration of the assessee’s submissions, on both the issues of reopening of the assessment proceedings