Income Tax Appellate Tribunal - Jaipur
Vijay Solvex Limited, Alwar vs Assessee on 4 October, 2016
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IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
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BEFORE: SHRI VIKRAM SINGH YADAV, AM & SHRI LALIET KUMAR, JM
M.A. No. 119 /JP/2016
(Arising out of ITA Nos. 642/JP/2014)
fu/kZkj.k o"kZ@Assessment Year : 2011-12
M/s Vijay Solvex Ltd., cuke A.C.I.T.,
Swami Dayanand Marg, Vs. Circle-2,
Alwar. Alwar.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACV 6864 A
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj ls@ Assessee by : Shri P.C. Parwal (CA)
jktLo dh vksj ls@ Revenue by : Shri Raj Mehra (JCIT)
lquokbZ dh rkjh[k@ Date of Hearing : 16/09/2016
mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 04/10/2016
vkns'k@ ORDER
PER: LALIET KUMAR, J.M. The assessee has filed the present Misc. application on 25/07/2016 against the order of the ITAT, Jaipur Bench, Jaipur dated 18/03/2016 passed in ITA No. 642/JP/2013 for A.Y. 2011-12 in respect of ground No. 4, wherein it is alleged that the following mistake, which are apparent on record, were crept in the order:-
2 MA 118/JP/2016_ Vijay Solvex Vs ACIT
1. The applicant begs to submit that the order, giving rise to the present Miscellaneous Application was passed on 18.03.2016.
2. The applicant in Ground No. 4 has challenged the disallowance of Rs.48,27,399/- u/s 14A of the Income Tax Act, 1961. This disallowance made as per Rule 8D comprises of Rs. 40,47,504/- on account of interest and Rs.7,79,895/- on account of other expenses.
3. In the course of hearing, it was submitted that the share capital and reserve and surplus of the assessee as on 31.03.2011 is Rs.6667.06 lacs whereas the investment in shares is of Rs.1811.94 lacs. The source of investment in shares is out of the non-interest bearing funds of Rs.6667.06 lacs. AO has not established that borrowed funds is utilized for investment in shares and the reliance was placed on various cases where it was held that if there are funds available both interest free and borrowed, the presumption is that investment is out of interest free funds and therefore the disallowance of interest made by AO and confirmed by CIT(A) is not as per law. Further reference was made to the decision of Hon'ble ITAT in assessee's own case for A.Y. 10-11 in ITA No. 109/JP/14 dated 11.01.2016 wherein it was held that even if the interest free funds are available with the assessee, disallowance u/s 14A can be made as the management as well as staff and other office facilities are used for making 3 MA 118/JP/2016_ Vijay Solvex Vs ACIT investment in shares and on that account disallowance of Rs. 5 lacs was confirmed against the disallowance of interest of Rs.23,84,269/- made by the AO under Rule 8D.
4. Hon'ble ITAT in deciding this issue at Para 13.3 at Page 16 referred to the judgment of Supreme Court in case of Hero Cycles Pvt. Ltd. Vs. CIT 63 taxman. com 308/ 379 ITR 347 and observed that in their view assessee may be having reserves/surplus/share capital but what is required by the AO was whether on the date of making the investment in shares, there was a credit balance in the account of the assessee from where investment was made. Assessee has not provided date-wise availability of interest free funds and therefore the matter was set aside to the AO with the direction to the assessee to furnish date wise availability of interest free fund when investment is made in the shares and if the assessee fails to prove such availability of interest free funds, then the order of AO shall be final.
5. In giving the above direction, the following mistakes apparent on record has crept in the order of Hon'ble ITAT:-
(i) The Hon'ble ITAT has not considered its decision in assessee's own case in ITA No. 109/JP/14 for A.Y. 10-
11 dated 11.01.2016 in which a finding is given that where assessee has mixed funds, presumption for interest free fund is applicable in case of assessee but 4 MA 118/JP/2016_ Vijay Solvex Vs ACIT considering that there is involvement of management, staff and other office facilities, the disallowance u/s 14A on this account is restricted to Rs. 5 lacs by deleting the disallowance made by the AO on account of interest. Not considering the decision of the coordinate bench in assessee's own case having same members is a mistake apparent on record as held by Supreme Court in case of Honda Siel Power Products Ltd. Vs. CIT 295 ITR 0466.
(ii) The Hon'ble ITAT has relied on the decision of Supreme Court in case of Hero Cycles Ltd. (supra). This decision is neither referred by the assessee nor referred by the departmental representative. Therefore, the order of Hon'ble ITAT based on this decision which is not argued before it is a mistake apparent on record as held by Hon'ble Jaipur Tribunal in case of Late Smt. Radha Devi Agarwal Vs. ITO order dt. 08.07.2011 in MA No. 16/JP/11 arising out of ITA No. 465/JP/10 (copy enclosed).
(iii) The above decision of Supreme Court is in context of allowance of interest u/s 36(1)(iii) and not with reference to section 14A. Further in this decision the facts as found by the CIT(A) with reference to loans given to its own directors was that when the loan was given there was a credit balance in the account of the assessee from where the loan was given and 5 MA 118/JP/2016_ Vijay Solvex Vs ACIT therefore the interest liability of the assessee towards bank on the borrowing had no bearings because otherwise, assessee had sufficient funds of its own which the assessee could have advanced and it was for the AO to establish the nexus between the borrowings and advancing to prove that expenditure was for non-business purpose which the AO failed to do. On the above finding of fact, Hon'ble Supreme court in last Para of its order observed that "insofar as the loans to Directors are concerned, it could not be disputed by the Revenue that the assessee had a credit balance in the Bank account when the said advance of Rs. 34 lakhs was given. Remarkably, as observed by the CIT (Appeal) in his order, the company had reserve/surplus to the tune of almost 15 crores and, therefore, the assessee company could in any case, utilize those funds for giving advance to its Directors." From these findings of the Supreme Court, it can be noted that even in this decision, it is held that if the assessee has reserve and surplus, then it could utilize those funds for giving interest free advances or at lower interest rate to its directors. No express finding is given in this decision by the Hon'ble Court that assessee is to prove nexus of the advance given to its directors out of interest free fund rather it can be so presumed if it has sufficient reserve and surplus. Thus, this decision rather favours the 6 MA 118/JP/2016_ Vijay Solvex Vs ACIT assessee in as much as assessee has reserves/surplus/share capital of Rs.6667.06 lacs against investment in shares of Rs. 1811.94 lacs. Having not considered this finding of the Hon'ble Court, a mistake apparent on record has crept in the order of Hon'ble ITAT.
Since the above mistakes are apparent on record, it is requested to suitably modify Para 13.3 of the order."
2. The ld. AR of the assessee has drawn our attention to the order passed by the Tribunal for the assessment year 2010-11 in the case of assessee, submitting that the Tribunal has not followed the earlier order passed by the Tribunal in the case of the assessee itself, therefore, order of the Tribunal is required to be recalled and modified. The relevant paragraph of the order of the Tribunal for A.Y. 2010-11, paragraph No. 19 is reproduced hereinbelow for the sake of clarity.
"19. We have heard the rival contentions of both the parties and perused the material available on the record. It is undisputed fact that the assessee has reserved and surplus share capital to the extent of Rs.5888.76 lacs. The assessee has mixed fund, the presumption for interest free fund is also applicable in the case of assessee but following the various decisions on this issue, Section 14A read with Rule 8D becomes redundant. It is also a fact 7 MA 118/JP/2016_ Vijay Solvex Vs ACIT that the management as well as staff and other office facilities available with the assessee are used for making investment in shares, therefore, it cannot be ruled out that no income can be generated without any expenditure. The quantum may be variance and depend on investment made by the assessee. Therefore, we , in the interest of justice, uphold the disallowance U/s 14A at Rs. 5 lacs against the disallowance confirmed by the ld CIT(A) at Rs. 23,84,269/-. Accordingly, we allow this ground of appeal partly."
3. On the other hand, the ld. DR has submitted that the Tribunal in its earlier order for A.Y. 2010-11, has not laid down any law and has merely disallowed Rs. 5.00 lacs on lump sum basis and therefore, the said order was on peculiar facts of the case and therefore, cannot be relied upon for adjudication of the earlier assessment year 2009-10.
Moreover, it was also pointed out by the ld. DR that the Bench constituting the same Members have decided both the appeals and it is presumed that the Bench was conscious of its earlier order and moreover the present order has remanded the matter to AO for verifying the facts in accordance with law of the land. It was also pointed out that this Tribunal while deciding the appeal, though has referred to the judgment in the case of Hero cycles Pvt. Ltd. Vs CIT 63 8 MA 118/JP/2016_ Vijay Solvex Vs ACIT taxman.com 308 but said judgment has not been followed by the bench and the Bench has merely remanded back the matter for verification of the various facts as pointed out by the Assessing Officer and reasserted by the Tribunal.
4. We have heard the rival contentions of both the parties and perused the material available on the record. The Third Member in the case of Deepak Dalela Vs. ITO (2014) 43 taxman.com 96 has held as under:-
"6. I have carefully considered the arguments of both the sides and perused the material placed before me. Let us first consider the ratio laid down in the two decisions relied upon by the learned counsel.
7. In the case of Honda Siel Power Products Ltd. (supra), the ITAT had allowed the assessee's miscellaneous application on the ground that a decision of a Coordinate bench of the ITAT was referred by the assessee at the time of hearing but the same had escaped its attention. The department preferred appeal to the High Court and the Hon'ble High Court set aside the order of the ITAT holding that the power to rectify any mistake was not equivalent to power to review or recalling the order sought to be rectified. On appeal to Supreme Court, the Hon'ble Apex Court held as under:--
"Held, reversing the decision of the High Court, that in allowing the rectification application the Tribunal gave a finding that the earlier decision of a co-ordinate Bench was cited before it but through oversight it had missed the judgment while dismissing the appeal filed by the assessee on the question of admissibility/allowability of the claim of the assessee for enhanced depreciation under section 43A. One of the important reasons for giving the power of rectification to the Tribunal under section 254(2) was to see that no prejudice was 9 MA 118/JP/2016_ Vijay Solvex Vs ACIT caused to either of the parties appearing before it. The rule of precedent was an important aspect of certainty in the rule of law, and prejudice had resulted to the assessee since the precedent had not been considered by the Tribunal. The Tribunal was justified in rectifying the mistake on record."
8. In the case of Indenture Growth & Securities Ltd. (supra), the ITAT passed the order relying on its own decision in another case without giving any opportunity to the assessee to deal with the said decision. The miscellaneous application filed by the assessee was dismissed by the ITAT. On a writ petition by the assessee, Hon'ble Bombay High Court held as under:--
"Held, allowing the petition, that it could not be laid down as an inflexible proposition of law that an order of remand on a miscellaneous application under section 254(2) would be warranted merely because the Tribunal had relied upon a judgment which was not cited by either party before it. In each case, ft was for the court to consider as to whether a prima facie or arguable distinction had been made and which should have been considered by the Tribunal. The distinguishing features in the case of Khandwala Finance Limited which had been pointed out by the assessee were sufficient to hold that an opportunity should be granted to the petitioner to place its case on the applicability or otherwise of the decision in Khandwala Finance Limited before the Tribunal. Therefore the appeal and the cross-objections were to be restored for fresh consideration on the merits before the Tribunal."
9. Now, let us examine the facts of the assessee's case in the light of above decisions of Hon'ble Apex Court and Hon'ble Bombay High Court. In this case, the ITAT has relied upon a plethora of decisions of the ITAT, various High Courts and Hon'ble Apex Court from page Nos.10 to 21 of the order. Admittedly, those decisions were not cited and argued upon by either side at the time of hearing before the ITAT.
10. In the case of Inventure Growth & Securities Ltd. (supra), Hon'ble Bombay High Court has set aside the decision of ITAT because the ITAT has relied upon a decision while passing the order without giving an opportunity to the assessee to deal with such decision. Though Hon'ble 10 MA 118/JP/2016_ Vijay Solvex Vs ACIT Jurisdictional High Court, while setting aside the matter, has held that "it could not be laid down as an inflexible proposition of law that an order of remand on a miscellaneous application under section 254(2) would be warranted merely because the Tribunal had relied upon a judgment which was not cited by either party before it In each case, it was for the court to consider as to whether a prima facie or arguable distinction had been made and which should have been considered by the Tribunal.", in the case under consideration before me, I find that as many as 22 cases of various Benches of ITAT, various High Courts and Hon'ble Apex Court have been relied upon and considered by the ITAT. In my opinion, when the Bench proposes to rely upon such large number of decisions, it would certainly be expected from it to confront the parties with those decisions and give an opportunity to them to give their comments on those decisions. As per the ratio of above decision of Hon'ble Bombay High Court, if the decision relied upon by the ITAT without giving opportunity to the parties has identical facts, then, perhaps, there may not be any requirement of recalling the order of ITAT for giving opportunity of being heard. However, when such large number of decisions are relied upon by the ITAT without confronting the same to the parties, it is not even the case of the Revenue that the facts in all the cases were identical to the facts in the present case.
11. Hon'ble Apex Court in the case of Honda Siel Power Products Ltd.
(supra) has upheld the order of the ITAT recalling its own decision where the decision of Coordinate Bench referred to by the assessee had escaped to be considered. While doing so, their Lordships at page 473 held "'Rule of precedent' is an important aspect of legal certainty in rule of law. That principle is not obliterated by section 254(2) of the Income-tax Act, 1961. When prejudice results from an order attributable to the Tribunal's mistake, error or omission, then it is the duty of the Tribunal to set it right" In my opinion, similar to the rule of precedent, the rule of natural justice is an important aspect of dispensation of justice. In my opinion, when large number of decisions are relied upon by the ITAT without giving opportunity to the parties to put forth their views on those decisions, it is violation of rule of natural justice and, since, due to such violation the prejudice is caused to the 11 MA 118/JP/2016_ Vijay Solvex Vs ACIT assessee, it is the duty of the Tribunal to set it right by recalling its order.
12. I also find that the ITAT, in its order at page 7 paragraph 4.1, has discussed the decision of ITAT in the case of Gems Paradise (supra). Paragraph 5 of such decision was with regard to rejection of books of account. In paragraph 6, the ITAT upheld the finding of the CIT(A) applying the gross profit rate on the declared sales. However, in the present case, though the ITAT has relied upon the above decision for rejection of books of account but had upheld the order of the learned CIT(A) disallowing 25% of the purchases instead of applying gross profit rate on sales of the assessee. Therefore, while one part of the order of the ITAT in the case of Gems Paradise (supra) was considered, but, the other part was not considered, for which no specific reason is given in the order of the ITAT.
13. In view of the above factual position and the ratio laid down by the Hon'ble Apex Court in its decision in the case of Honda Siel Power Products Ltd. (supra) and by Hon'ble Bombay High Court in its decision in the case of Inventure Growth & Securities Ltd. (supra), I agree with the proposed order of learned Judicial Member and, accordingly, hold that the miscellaneous application of the assessee is liable to be allowed by recalling the order of the Tribunal."
5. The facts of present case before us is almost similar to the case decided by the Third Member, therefore, in our view, the ground No. 4 is required to be reheard and decide by the Bench afresh after giving opportunities to the parties on the following aspect.
(i) The effect of the judgment of the Hon'ble Supreme Court in the case of Hero cycles Pvt. Ltd. Vs. CIT (supra) and the observation made therein on the present case.
12 MA 118/JP/2016_ Vijay Solvex Vs ACIT
(ii) The effect of the earlier lump sum disallowance made by the Tribunal for the assessment year 2010-11.
In the light of the above, this Misc. application is disposed off and the matter is directed to be put up before the regular hearing for deciding ground No. 4 only on 06/10/2016.
5. This Misc. application is disposed off.
Order pronounced in the open court on 04/10/2016.
Sd/- Sd/-
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(VIKRAM SINGH YADAV) (Laliet Kumar)
ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member
Tk;iqj@Jaipur
fnukad@Dated:- 04th October, 2016
*Ranjan
vkns'k dh izfrfyfi vxzsf'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- M/s Vijay Solvex Ltd., Alwar.
2. izR;FkhZ@ The Respondent- The A.C.I.T., Circle-2, Alwar.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr¼vihy½@The CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur
6. xkMZ QkbZy@ Guard File (MA No. 119/JP/2016) vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar