Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, MUMBAI BENCH “J”, MUMBAI
Before: SHRI G.S.PANNU& SHRI SANJAY GARG.
ORDER PER G.S.PANNU,A.M: The captioned appeal filed by the Revenue pertaining to assessment year 2007-08 is directed against an order passed by CIT(A)- 14, Mumbai dated 15/09/2014, which in turn arises out of an order passed by the Assessing Officer under section 143(3) r.w.s. 147 of the Income Tax Act, 1961 (in short ‘the Act’) dated 13/01/2014.
In this appeal, the Revenue has raised the following Grounds of appeal:-
(Assessment Year : 2007-08) 1. "Whether on the facts and in the circumstances of the case and in law the Ld CIT(A) erred in deleting the interest expenditure disallowance of Rs. 47,50,382/-, towards earning exempt income"
2. "Whether on the facts and in the circumstances of the case and in law the Ld CIT(A) is justified in holding that the disallowance u/s 14A cannot be computed by applying Rule 80 by relying on the judgment of Bombay High Court in the case of M/s Godrej & Boyce Mfg. Ltd. vs. DClT(2010) 3281TR 81 (Bom) without appreciating the fact that the Revenue has challenged the said decision and filed SLP"
“Whether on the facts and in the circumstances of the case and in law, the CIT(A) erred in allowing the appeal of the assessee by stating that decision is in line with decisions of higher appellate authorities and failed to appreciate that Rule 80 is a machinery/ procedural prescribing mechanism for computing quantum of expenditure relatable to earning exempt income for the purpose of disallowances under Section 14A of the Income Tax Act ?"
4. "Whether on the facts and in the circumstances of the case and in law, the Id CIT(A) erred in misinterpreting the provisions of sub section 2 and sub section 3 of Section 14A of the Act, inserted by the Finance Act, 2006 with effect from April 1, 2007, would apply prospectively to all pending proceedings ?"
"Whether on the facts and in the circumstances of the case and in law the Id CIT(A) erred in not appreciating that Rule 80 as inserted by Income Tax (Fifth Amendment) Rules, 2007, with effect from March 2007, was procedural in nature and hence would apply retrospectively to all pending proceedings ?"
6. "Whether on the facts and in the circumstances of the case and in law, the Id ClT(A) erred in not appreciating that the disallowance as computed under Section 14A was in term of the formula prescribed in Rule 80 of the Income Tax Rules, 1962?"
3. At the time of hearing, the background of the case was explained as follows. That the impugned proceedings relate to a disallowance determined under section 14A of the Act in pursuance to the order of the Tribunal in dated 7/9/2012, whereby the original disallowance made by the Assessing Officer was set aside. The Assessing Officer had made the disallowance under section 14A of the (Assessment Year : 2007-08) Act with respect to the element of interest expenditure based on the ratio of loans to total funds. This approach was based on the formula adopted in the preceding assessment year 2006-07. In assessment year 2006-07 also the Tribunal had remanded the issue back to the file of the Assessing Officer. In this manner, the Assessing Officer in the impugned order worked out the disallowance under |section 14A of the Act at Rs.47,50,382/-, after considering the suo-motu disallowance worked out by the assessee. The CIT(A) however, deleted the addition on the ground that the total shareholder funds of the assessee as on 31/3/2002 exceeded the investments. According to the CIT(A), in view of the aforesaid directions of the Tribunal, no disallowance out of interest expenditure could be made under section 14A of the Act.
At the time of hearing, the Ld. Departmental Representative pointed out that assessee had wrongly asserted before the CIT(A) that the Assessing Officer had not given effect to the order of the Tribunal on a similar issue for the immediately preceding assessment year of 2006-07, whereas the Tribunal had passed the order for the instant assessment year i.e. 2007-08 by relying on its earlier decision in assessment year 2006-07. The Ld. Departmental Representative furnished copy of the order passed by the Assessing Officer for assessment year 2006-07 dated 25/03/2013 under section 143(3) r.w.s. 254 of the Act giving effect to the order of the Tribunal. The Ld. Departmental Representative has pointed out that in this order the Assessing Officer has retained the disallowance out of interest expenditure under section 14A of the Act. It was, therefore, contended
(Assessment Year : 2007-08) that the CIT(A) has proceeded on a mistaken footing in order to delete the impugned addition.
5. On the other hand, Ld. Representative for the assessee pointed out that assessee was not aware of the order passed by the Assessing Officer for assessment year 2006-07 and that assessee company would take separate steps for the same. Be that as it may, the plea of the assessee is that in any case, disallowance out of interest expenditure in terms of section 14A of the Act is not merited because all the investments are made in group companies and, further that the same were made out of internal accruals and non-interest bearing funds. The Ld. Representative for the assessee pointed out that the strategic investments are liable to be excluded for the purposes of computing the disallowance under section 14A of the Act, and even on this count disallowance out of the interest expenditure was not merited. On this plea, Ld. Representative for the assessee submitted that the matter may be verified by the Assessing Officer, inasmuch as, assessee had already canvassed such a position in the course of the original assessment proceedings under section 143(3) of the Act dated 15/12/2009.
In view of the aforesaid, we deem it fit and proper to set-aside the matter back to the file of the Assessing Officer to verify the plea of the assessee that the investments have been made in the group concerns as strategic investments and if it is so found, then the same shall be excluded for the purposes of computing disallowance out of interest expenditure under section 14A of the Act. The aforesaid is in (Assessment Year : 2007-08) line with the judgment of Hon'ble Delhi High Court in the case of Oriental Structural Engineers (P) Ltd., 35 Taxmann.com 210; order of Chennai Bench of Tribunal in the case of EIH Associated Hotels Ltd. (ITA No. 1503/Mds/2012 dated 17.7.2013); order of Mumbai Bench of Tribunal in the case of M/s. JM Financial Ltd. (ITA No. 4521/Mum/2012 dated 26.3.2014); and, order of Delhi Bench of Tribunal in the case of Interglobe Enterprises Ltd. (ITA Nos. 1362 & 1032/Del/2013 dated 4.4.2014). Needless to mention, in the ensuing proceedings, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and thereafter, he shall decide the issue afresh in accordance with law.
In the result, appeal of the Revenue is allowed for statistical purposes. Order pronounced in the open court on 13/07/2016 Sd/- Sd/- (SANJAY GARG) (G.S. PANNU) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai, Dated /07/2016 Vm, Sr. PS