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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: SHRI SHAILENDRA KUMAR YADAV, JM & SHRI RAJESH KUMAR, AM
आयकर अपीऱीय अधिकरण, म ुंबई न्यायपीठ “ई” म ुंबई IN THE INCOME TAX APPELLATE TRIBUNAL “E” BENCH, MUMBAI BEFORE SHRI SHAILENDRA KUMAR YADAV, JM AND SHRI RAJESH KUMAR, AM आयकर अपीऱ सं./I.T.A. No.5674/Mum/2012 and ITA No.7562/Mum/2013 (ननधधारण वषा / Assessment Years : 2009-10 and 2010-11) M/s Sundial Investments Pvt. बनधम/ The Asstt. Commissioner of Ltd, Income Tax-circle 3(3), Vs. 127 Jolly Maker Chambers, Mumbai. Nariman Points, Mumbai-400021 स्थधयी ऱेखध सं./ PAN : AAACS9845C अपीऱार्थी ओर से / Assessee by Shri Anuj Kishnadwalla प्रत्यर्थी की ओर से/Revenue by Shri Love Kumar सुनवाई की तारीख / Date of Hearing : 20.6.2016 घोषणा की तारीख /Date of Pronouncement :30.06.2016 आदेश / O R D E R PER RAJESH KUMAR, A. M: These appeals are filed by the assessee and directed against the two separate orders of ld.CIT(A) dated 15.5.2012 and 21.10.2013 and they pertain to the assessment years 2009-10 and 2010-11. Since, the issues involved in these appeals are identical / inter-connected, therefore, for the sake of convenience, they are clubbed together, heard together and disposed of by this consolidated order. Appeal wise adjudication is given in the succeeding paragraphs.
2 5674/Mum/2012 7562/Mum/2013 First we will take up the appeal bearing No.I.T.A. No.7562/Mum/2013. 2.
The brief facts of the case are that the assessee filed its return of income for the assessment year 2010-11 by way of e-filing on 28.9.2010 declaring a total income of Rs.56,94,390/- which was subsequently revised on 20.8.2011 for claiming TDS on interest . The said return was processed under section 143(1) of the Income Tax Act, 1961. Thereafter the case of the assessee was selected for scrutiny and the statutory notices u/s 143(2) and 142(1) were issued and served upon the assessee. During the course of assessment proceedings, the assessee filed revised statement before the AO dated 28.1.2013, wherein the assessee disallowed the amount of Rs.17,941/- being expenses relating to the exempt income u/s 14A and also disallowed an amount of Rs.43,82,895/- from the business income on the ground that the said interest was incurred for loan availed and utilised for acquisition of movable property and claimed the same against the house property income. However, the AO relying on the decision of Hon’ble Supreme Court in the case of Goetze India Ltd reported in 284 ITR 323(SC) rejected the claim of the assessee on the ground that mere filing of the revised statement of income was not sufficient and the same was not filed by way of revised return and therefore not acceptable. Finally, the AO after considering the submissions of the assessee from time to time framed the assessment u/s 143(3) of the Act vide Order dated 13.2.2013 by assessing
3 5674/Mum/2012 7562/Mum/2013 the income of the assessee at Rs.1,00,85,805/- by making various disallowances under the normal provisions of the Act and Rs.1,05,06,468/- under the special provisions of section 115JB of the Act as given in the para 7 of the assessment order. The main disallowance made by the AO was under section 14A of the Act of Rs.43,91,414/- besides rejecting the claim of the assessee in respect of interest on acquisition of immovable property.
The issue raised in ground no.1 before us is with regard to the dismissal of claim of the assessee by CIT(A) of Rs.43,82,895/- on account of interest incurred towards the loan used for the purchase/acquisition of property by not giving any directions to AO to allow such interest from “Income from house property”. The AO rejected the claim of the assessee made during the assessment proceedings by following the decision of the Hon’ble Apex Court in the case of Goetze India Ltd(supra) that the claim was not by filing revised return, therefore, mere filing the revised computation of income would not entitle the assessee to the said deduction of interest. The issue was taken by the assessee before the First Appellate Authority who after considering the submissions of the assessee dismissed the appeal of the assessee by observing and holding as under : “5. Ground Nos. 1 & 2 The appellant vide its letter dated 14/06/2012 filed a revised statement of total income before the AO during the course of assessment proceedings. In the said revised statement, the assessee had disallowed an amount of Rs.17,941/- being the expenses relating to
4 5674/Mum/2012 7562/Mum/2013 exempt income u/ s. 14A. Apart from it, it has disallowed an amount of Rs.43,82,895/- from the business income being the expenditure relating to acquisition of immovable property and claimed the same against House Property Income. The AO has rightly come to a finding that the deduction of interest claimed in respect of House Property Income is not acceptable as the assessee has not made such claim by filing the revised return. It has been held in Goetze (India)Ltd vs. CIT (2006) 284 ITR 323, (SC) that there is no provision under the Income-Tax Act, 1961, allowing the assessee to modify a return without filing the revised return and therefore, no deduction can be claimed at the assessment stage. In view of the above, the action of the AD in this regard is upheld. Therefore, there is no merit in the above ground of the appellant and the same is dismissed.”
The ld. Counsel of the assessee argued before us that the ld.CIT(A) has wrongly rejected the claim of the assessee qua allowing the interest of Rs.43,82,895/- from income of property under the head income from house property which relates to borrowed funds used for acquisition of property. The ld. Counsel placed strong reliance on the decision of the Jurisdictional High Court in the case of CIT V/s Pruthivi Brokers and Shareholders Pvt.Ltd. reported in (2012) 349 ITR 336 (Bom). The ld. Counsel further submitted that the decision of the Apex court in the case of Goetze India Ltd(supra) was not applicable to the appellate authority and the appellant authority have power to admit and consider the claim not made in the return of income. The ld. Counsel finally prayed that the assessee be allowed deduction of interest of Rs.43,82,895/- from the income from the house property by setting aside the order of ld.CIT(A) and directing the AO to this effect.
5 5674/Mum/2012 7562/Mum/2013 6. The ld.DR, on the other hand, relied on the orders of authorities below and strongly supported the orders of lower authorities.
We have considered the rival contentions and perused the materials placed before us including the orders of authorities below and case law relied upon by the ld.AR. We find that the assessee has made special ground before the ld.CIT(A) to allow the interest on borrowed funds used for acquisition of property from the income of house property. However, the claim of the assessee was rejected by the ld.CIT(A) by upholding the action of the AO for the reason that new claim cannot be admitted except through revised return by relying on the decision in the case of Goetze India Ltd(supra). We find merits in the submission of the ld.AR that the ratio laid down in the case of Goetze India Ltd(supra) is not applicable to the appellate authority and appellate authority can entertain the legitimate claim of the assessee. The appellate authority has power and discretion to permit such additional claim to be raised and have jurisdiction to deal with not only additional grounds which were filed on account of change of circumstances of law but also additional grounds which were available in the return so filed. The Hon’ble jurisdictional High Court in the case of Pruthivi Brokers and Shareholders Pvt.Ltd.(supra), the appellant sought to raise following question of law:
6 5674/Mum/2012 7562/Mum/2013 “ The appellant seeks to raise the following questions of law : (A) Whether, an assessee can amend a return filed by him for making additional claim for deduction other than filing a Revised Return? (B) Whether, on the facts and circumstances of the case, the Hon'ble Income Tax Appellate Tribunal, in law, was right in holding that a claim of deduction not made in the original return and not supported by a revised return, is admissible? (C) Whether, on the facts and in the circumstances of the case, the Hon'ble Tribunal, in law, was right in not appreciating the fact that the AO has no power to entertain a claim made by an assessee after filing a original return otherwise than by filing a revised return”
The question that arose in the above appeal before the Hon’ble High Court is CIT(A) and ITAT had jurisdiction to consider under the additional claim /deduction subsequently raised before AO which through inadvertence was not claimed in the original return of income filed by the assessee. The question is answered affirmative in several judgment. The Courts further held that even assuming that the AO is not entitled to the give deduction on the basis of letter requesting the amendment to the return filed, the appellate authority are entitled to consider the claim by adjudicating the same. In view of the ratio laid down in the above said judgment, we set aside the finding of the ld.CIT(A) on this issue and direct the AO to allow the claim of the assessee on account of interest of Rs.43,82,895/- from the income of house property. Accordingly, ground no.1 is allowed.
7 5674/Mum/2012 7562/Mum/2013 8. Grounds No.2,3,4 and 5 relates to confirmation of disallowance made u/s 14A r.w.rule 8D of the Rules.
During the course of assessment proceedings, the AO found that the assessee has claimed dividend income of Rs.16,01,752/- which was exempt under section 10(34) of the Act. The AO served show cause notice to the assessee to show as to why the provisions of section 14A r.w.r.8D should not be invoked to work out the disallowance of expenses attributable to earning of exempt income. In response, vide letter dated 28.1.2013, the assessee worked out interest amounting to Rs.17,941/- being expenses incurred for earning exempt income by filing revised statement/computation of income. The AO finally recomputed the disallowance under rule 8D at Rs.43,91,414/- as under : I Expenses directly attributable to exempt income (Demat Charges) Rs.8,025 II Formula : A X B / C Rs.40,78,588 A: Expenses not directly related to exempt income (interest) i.e. 10976445 B: Average value of investment on the opening and. closing day of the previous year r.e. (56964926 + 64955529)/2 = 60960227 C: Average value of assets on the opening and closing day of the previous year i.e. (148731557 + 179385205) / 2 = 164058381 10976445 X 60960227 = 4078588 164058381 III 0.5% of average value of investment on the opening and closing Rs.3,04,801/- day of the previous year i.e. 0.5% of B = 304801 Aggregate of I + 11 + III Rs.43,91,414
8 5674/Mum/2012 7562/Mum/2013 10. The ld. CIT(A) after considering the submissions of the assessee dismissed the appeal of the assessee by upholding the action of the AO by observing as under : “Ground Nos. 3, 4 & 5 The above grounds are taken together as they address a common theme. The assessee has claimed dividend income of Rs.16,01,752/- as exempt u/s 10 (34). During the course of assessment proceedings, the AO had asked the assessee to furnish details of expenses incurred for earning exempt income and also show-cause as to why the expenses incurred and claimed in respect of exempt income should not be disallowed as per the provisions of section 14A r.w.r. 8D of the IT. Rules 1962. In response to it, the assessee worked out an amount of Rs.17,941/- vide its letter dated 28/01/2013 being the expenses incurred for earning such income and accordingly filed a revised statement of total income disallowing the expenditure u/s 14A. A perusal of the balance sheet as on 31/3/2010 shows that the appellant had share holders funds of Rs.66,875,561/- and loan funds of Rs.99,976,159/-. It has made investments at cost of Rs. 1,07,579,358/-. The Hon'ble Bombay High Court in the case of Godrej & Boyce Mfg. Co. Ltd. vs. DCIT (2010) 328 ITR 81 (Born) held at para 71 that "The fact that the assessee has utilised its own funds in making the investments would not be dispositive of the question as to whether the assessee had incurred expenditure in relation to the earning of such income. Even if the assessee has utilized its own funds for making investments which have resulted in income which does not form part of the total income under the Act, the expenditure which is incurred in the earning of that income would have to be disallowed. This is exactly a matter which the Assessing Officer has to determine. Whether or not any expenditure was incurred by the assessee in relation to the earning of non- taxable income falls in the domain of the Assessing Officer." It has been held in Maxopp Investment Ltd. vs. CIT (2012) 247 CTR 162 (Delhi) (HC) that "The argument that if the dominant and main objective of the expenditure was not the earning of 'exempt income' then, the expenditure cannot be disallowed u/s.14A, is not acceptable. The expression 'in relation to' cannot be given a narrow meaning and
9 5674/Mum/2012 7562/Mum/2013 simply means 'in connection with' or 'pertaining to'. If the expenditure has a relation or connection with or pertains to exempt income, it cannot be allowed as a deduction even if it otherwise qualifies under the other provisions of the Act In view of the above, the disallowance of Rs.43,91,414/- made by the AO under rule 8D is confirmed". 11. The ld.counsel for the assessee submitted before us that the disallowance as calculated by the AO and upheld by the ld. CIT(A) is incorrect in view of the fact that the assessee’s own funds comprising of capital reserve balance in the current account were for more than the investments and were used for the purpose of acquisition of investments and borrowed funds were not used for the investments and therefore no disallowance on account of interest under rules 8D 2(ii) was called for.
The ld.Counsel for the assessee relied on the decision of the Bombay High Court in the case of CIT vs. Reliance Utilities (Bombay High Court) reported in 313 ITR 340 (Bom) in support of his arguments. The ld. Counsel further alternatively submitted that the disallowance under rule 8D 2(ii) be calculated with reference to net interest paid of Rs.4,87,193/- and not gross amount of interest of Rs.1,09,76,745/-. Finally, the ld.counsel submitted before us that the disallowance as made by the AO be ordered to be deleted in view of the above submissions by the assessee by setting aside the order of ld.CIT(A) and directing the AO to delete the addition.
10 5674/Mum/2012 7562/Mum/2013 13. On the other hand, the ld.DR heavily relied on the orders of authorities below.
We have carefully considered the submissions of both parties, perused the material placed before us including the orders of authorities below and case law relied upon by the ld.AR. We find that the assessee’s own funds were more than the investments and therefore there is merit in the submissions of the ld. AR of the assessee that the assessee’s own funds was invested in the tax free income yielding investments and consequently, the disallowance as made by the AO was wrong and against the provisions of the Act. Further the case of the assessee find strong support from the decision in the case of CIT vs. Reliance Utilities (Bombay High Court). We are in agreement that if both the interest free funds and interest bearing funds are available then it should be presumed that the assessee has made investment out of interest free funds. We, therefore, following the ratio laid down by the Hon’ble Jurisdictional High Court in the case of CIT vs. Reliance Utilities (Bombay High Court) (supra) set aside the order of ld.CIT(A) and restore back the issue to the file of the AO for fresh decision after providing necessary and reasonable opportunity of being heard to the assessee.
11 5674/Mum/2012 7562/Mum/2013 15. The issue raised in ground No.6 remaining grounds is consequential one and therefore whatever disallowance worked out would be added to the book profit u/s 115JB of the Act. I.T.A. No.5674/Mum/2012 16. We have already decided a similar issue under identical facts in ITA No.7562/Mum/2013 assessment year 2010-11 and therefore our decisions in ITA No 5674/Mum/2012 AY 2010-11 would mutatis mutandis apply to this appeal as well and accordingly appeal filed by the assessee is allowed. 17. In result the appeals of the assessee are partly allowed for statistical purposes. Order pronounced in the open court on 30.6.2016. Sd sd (SHAILENDRA KUMAR YADAV) (RAJESH KUMAR) न्यधनयक सदस्य / JUDICIAL MEMBER ऱेखध सदस्य / ACCOUNTANT MEMBER म ंबई MUMBAI; ददनधंक DATED : 30 .6.2016 Sr.PS:SRL: आदेश की प्रनिलऱपऩ अग्रेपषि/Copy of the Order forwarded to : अपीऱाथी / The Appellant 1. प्रत्यथी / The Respondent 2. आयकर आयुक्त(अपीऱ) / The CIT(A) 3. आयकर आयुक्त / CIT – concerned 4. ववभागीय प्रतततनधि, आयकर अपीऱीय अधिकरण, मुंबई / DR, ITAT, Mumbai 5. गार्ड फाईऱ / Guard File 6. आदेशधन सधर/ BY ORDER, True copy उऩ/सहधयक ऩंजीकधर (Dy./Asstt. Registrar) आयकर अऩीऱीय अधधकरण, मुंबई / ITAT, Mumbai