M/S. RELIGARE ENTERPRISE LTD.,NOIDA vs. DCIT, NEW DELHI

IN THE INCOME TAX APPELLATE TRIBUNAL (DELHI BENCH ‘F’ : NEW DELHI) SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER and SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.5116/Del./2016 (ASSESSMENT YEAR : 2011-12) M/s. Religare Enterprise Limited, vs. DCIT, Circle 15 (1), D3, P3B, District Centre, Saket, (now DCIT, Circle 21(1)), New Delhi – 110 017. New Delhi.

(PAN : AAACV5888N) (APPELLANT) (RESPONDENT)

ASSESSEE BY : Shri Rohit Jain, Advocate REVENUE BY : Ms. Princy Singla, Sr. DR Date of Hearing : 04.05.2023 Date of Order : 10.05.2023

ORDER PER SHAMIM YAHYA, ACCOUNTANT MEMBER : This appeal filed by the assessee is arising out of the order of ld. CIT (Appeals)-7, New Delhi dated 19.07.2016 pertaining to AY 2011-12. 2. The grounds of appeal taken by the assessee read as under :- “1. That the Commissioner of Income Tax (Appeals) ("CIT(A)") erred on facts and in law in confirming the additional disallowance to the extent of Rs.8,06,55,141 made by the assessing officer ("the AO") under section 14A of the Income Tax Act, 1961, ("the Act"), read with Rule 8D of the Income Tax Rules, 1962, ("the Rules"). 2. That the CIT(A) erred on facts and in law in not appreciating that the disallowance under section 14A of the Act

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calculated by the Appellant under Rule 8D(2)(iii) of the Income Tax Rules has to be restricted to Rs.5,99,78,528 since out of total expenditure of Rs.172,17,92,861 charged by the Appellant to the its profit and loss account for the year ended 31.03.2011 the expenditure aggregating to Rs.166,18,14,333 is either directly related to earning of taxable income or has already been disallowed under section 37 of the Act while computing taxable Income.

2.2 That the CIT(A) erred on facts and in law in not appreciating that the excess disallowance of Rs.8,06,55,141 over and above the suo-moto disallowance of Rs.5,99,78,528 calculated by appellant under Rule 8D(2)(iii) has resulted in disallowance of expenditure which has even not been claimed / charged to profit and loss account.”

additional / modified grounds of appeal which read as under:-

“3. That on facts and circumstances of the case,' the disallowance of Rs.25,58,86,229 (including suo-motu disallowance) computed/ made under section 14A of the Act read with Rule 8D of the Rules is erroneous.

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grounds of appeal submitted by the ld. Counsel of the assessee read as

under :-

“During the year under consideration, the applicant received dividend income aggregating to Rs.29,85,42,129 from investments made in Religare Finvest Ltd., Religare Securities Ltd. and Karnataka Bank Ltd., which was claimed exempt under section 10(34) of the Act. The applicant, erroneously made, a suo-motu disallowance of Rs.17 ,21,80,860 under section 14A of the Act, even considering investments which did not result in any exempt income.

The assessing officer, in the assessment order dated 30.03.2014, made additional disallowance of Rs.8,37,05,369 under section 14A of the Act, by applying provisions of Rule 8D of the Rules, over and above the suo-motu disallowance offered to tax by the applicant in the computation of income. The assessing officer calculate~ the aforesaid disallowance after considering 0.5% of the average of all investments as appearing in the balance sheet as on 31.03.2010 and 31.03.2011.

On appeal, the CIT(A) allowed relief of Rs.30,50,228, being one investment made in Religare Global Asset Management Inc, USA, and the balance addition was sustained, which has been challenged before this Hon'ble Tribunal vide the captioned appeal.

By way of the aforementioned additional and/or modified grounds, the applicant seeks to raise, inter alia, following legal contentions concerning computation of disallowance under section 14A of the Act read with Rule 8D of the Rules [including rule 8D(2)(i) and 8D(2)(iii)]:

(a) Disallowance (both interest and administrative expenditure) should be computed only qua the investment which actually yielded exempt income during the year under consideration [refer ACB India Ltd. v. ACIT: 374 ITR 108 (Del), PCIT v. Caraf Builders & Constructions (P.) Ltd: 261 Taxman 47 (Del), REI Agro Ltd vs. DCIT: 144 ITD 141(Kol.), ACIT v. Vireet Investments Pvt. Ltd.: 165 ITD 27 (Del Trib.) (SB)], Religare Enterprises Ltd. v. DCIT: 1549/De1l2014 (Del Trib.)];

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(b) Disallowance under section 14A of the Act read with Rule 8D of the Rules should, in any case, be directed to be restricted to actual expenditure incurred and claimed as deduction;

(c) Depreciation should not be considered while considering the expenditure incurred [refer Special Bench decision in the case of Vishnu Anant Mahajan v. ACIT: 137 ITD 189 (Ahm Trib.)(SB)).

Pertinently, the applicant had, under a misconception of law and on the basis of legal precedents available at the time of filing return, made higher suo-motu disallowance, by considering/including investment not yielding exempt income and depreciation as part of administrative expenditure. However, the applicant has now been legally advised and accordingly, the aforesaid legal claims relating to computation of disallowance under section l4A of the Act read with Rule 8D of the Rules are sought to be raised.

The applicant is further advised that there is no estoppel against law. Accordingly, the applicant can, notwithstanding suo-motu disallowance made, raise ground seeking correct computation of disallowance under section 14A of the Act [refer NTPC: 229 ITR 383 (SC), CIT vs. Bharat General Reinsurance Co. Ltd.: 81 ITR 303 (Del.), SAIL DSP VR Employees Association 1998 V. UOI : 262 ITR 638 (Cal.), Pt. Sheo Nath Prasad Sharma vs. CIT: 66 ITR 647 (All), Indo Java & Co. vs. ITO: 30 ITD 161 (Del SB)].

It is pertinent to mention here that similar grounds were raised and allowed in the case of appellant/ applicant itself for preceding assessment year 2009-10 in ITA No.1549/Del/2014.

In the light of the aforesaid, the additional and/or modified grounds of appeal are being raised. The aforesaid additional and/or modified grounds, it is submitted, raises purely legal issues, and facts in relation thereto are already on record; no fresh investigation into facts is called for. The additional and/or modified grounds of appeal are being raised on being recently advised of the correct legal position and the omission to raise the aforesaid grounds earlier was neither willful nor unreasonable.

Reference in this regard may be made to the decision in the case of Assam Company (India) Ltd. vs. CIT: 256 ITR 423 (Gau) wherein it was held that a respondent, even if has not filed an appeal or cross objection, can raise additional ground of appeal before the Tribunal, which may not necessarily be arising from the order appealed

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against, provided it is a pure question of law, for which facts are on record. The High Court held that there are no restrictions in the inherent powers of the Tribunal to entertain and answer such question of law. It was also held, that since the objective of the income-tax assessment is to determine the correct tax liability of an assessee, it is incumbent on the Tribunal to adjudicate such question of law.

In the aforesaid decision, the assessee as a respondent to appeal filed by the department raised an additional claim, which was neither made in the return of income, nor was arising from the order of CIT(A), for the first time before the Tribunal. The Tribunal denied such additional claim/ground of the assessee on the ground that same could not be raised for the first time before the Tribunal as a Respondent. On further appeal, the High Court reversed the findings of the Tribunal on the aforesaid issue. The relevant observations of the High court to this effect are as under:

“….. Whether or not the applicant-company can be permitted to raise that plea only on the ground that it had not preferred any appeal or cross-objection against the order of the Commissioner of Income-tax (Appeals) is the question which now engages the attention of this court. It need not be over- emphasized that the Appellate Tribunal Rules framed by the Tribunal in exercise of its power under section 255(5) of the Act are wholly for the purpose of regulating its own procedure and the procedure of the Benches of the Tribunal. The rules therefore embody the principles of procedure to be followed by the Tribunal and its Benches for the discharge of its functions. The scheme of the Rules read as a whole does not suggest that the Rules in any way have the effect of curtailing or circumscribing the power, authority and jurisdiction of the Tribunal in dealing with matters at its disposal. We have not been able to read any prohibition in the rules totally precluding the Tribunal from considering any ground beyond those mentioned in the memorandum of appeal filed by a party. whether the assessee or the Department, in the absence of an appeal or cross-objection by the other side projecting the new ground. It is a settled principle of law that procedural law is the hand maid of justice and has to be so interpreted to advance the cause of justice and not to thwart it. Considering the language used in section 254(1) of the Act conferring powers on the Tribunal which is in the widest possible terms, we feel guided in this

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regard by the emphatic observations of the apex court contained in its decision of National Thermal Power Co. Ltd. v. CIT [l998] 229 ITR 383. We have also taken note o(the observations of the apex court to the effect that the purpose of the assessment proceeding before the taxing authority is to assess correctly the tax liability of an assessee in accordance with law. We consider it to be a solemn duty of the taxing authorities to correctly assess the tax liability of an assessee by duly following the relevant provision of law and therefore do not countenance an inflexible, and mechanical adherence to the law of procedure and in the process deny an assessee a benefit to which it is otherwise entitled in law. In our considered opinion, that could not have been the purpose of framing the Appellate Tribunal Rules. There cannot be any estoppel against law .....

We are therefore not in favour of granting such a primacy to the rules of procedure so as to wipe off a substantial right otherwise available to the assessee in law. We find this view of ours also reinforced by the language of rule 11 which does not require the Tribunal to be confined to the grounds set forth in the memorandum of appeal or taken by leave of the Tribunal provided the party who may be affected thereby had sufficient opportunity of being heard on that ground. In taking this view, we are conscious about the observations of the Madras High Court and the Calcutta High Court made in the decisions relied upon by learned counsel for the Revenue but we are, in the facts and circumstances of the case, persuaded to accept the observations of the apex court made in this regard in the case of National Thermal Power Co. Ltd. [1998] 229 ITR 383. We are therefore of the view that it is permissible on the part of the Tribunal to entertain a ground beyond those incorporated in the memorandum of appeal though the party urging the said ground had neither appealed before it nor had filed a cross-objection in the appeal filed by the other party. We must however hasten to add that in order to enable either the assessee or the Department to urge a ground in the appeal filed by the other side, the relevant facts on which such ground is to be founded should be available on record. In the absence of such primary facts, in our opinion, neither the assessee nor the Department can be permitted to urge any ground other than those which are incorporated in the memorandum of appeal filed by the other party. In other words, if the assessee or the Department, without filing any appeal or a cross-objection seeks to urge a ground other than

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the grounds incorporated in the memorandum of appeal filed by the other side, the evidentiary facts in support of new ground must be available on record. For the view that we have taken as above, we hold that the Tribunal erred in not considering the contention of the assessee-applicant company that the warehouse charges was covered by sub-clause (iv) of section 35B(J )(b) of the Act only on the ground that the applicant-company had not filed any appeal or cross-objection. We therefore answer the question referred in the affirmative and remand the proceeding to the Tribunal (or consideration of the said contention of the applicant-assessee on merits "(emphasis supplied)” The Delhi High Court in the case of K.C. Khazanchi v. ITAT: C.W. No. 2164/99 held that "even if due to inadvertence assessee could not urge the additional point it wanted to urge in appeal, the Tribunal ought to have granted the permission especially when the appeal is yet to be heard and finally decided." In view of the aforesaid legal position, it is respectfully submitted that since in the present case, the additional and! or grounds raised involves a purely legal issue and facts in relation to the same are already available on record, the applicant should not be precluded from raising the ground at this stage. Prayer In the aforesaid circumstances, in view of the decision of the Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT: 229 ITR 383 and the discretion vested in your Honours under Rule 11 of the Income Tax Appellate Tribunal Rules, 1963, the additional and/ or modified grounds of appeal call for being admitted and adjudicated on merits.”

that the assessee is now raising ground challenging the disallowance

which has been made by the assessee itself. Assessee has made suo moto

disallowance of Rs.17,21,80,860/- under section 14A of the Income-tax

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Act, 1961 (for short 'the Act'). Now, the assessee submits that this was wrongly done. This aspect was not before the authorities below. Assessee has made various submissions with regard to the aforesaid

additional/modified grounds which need adjudication with reference to the assessee’s records. Hence, in the interest of justice, we remit the issue raised to the file of AO. AO is directed to consider the grounds and

various propositions given by the ld. Counsel of the assessee as per law. Needless to add, assessee should be given an opportunity of being heard. 6. In the result, the appeal of the assessee is allowed for statistical purposes. Order pronounced in the open court on this day of 10th May, 2023.

Sd/- sd/- (ANUBHAV SHARMA) (SHAMIM YAHYA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated the 10th day of May, 2023 TS Copy forwarded to: 1.Appellant 2.Respondent 3.CIT 4.CIT (A)-7, New Delhi. 5.CIT(ITAT), New Delhi. AR, ITAT NEW DELHI.