Income Tax Appellate Tribunal - Mumbai
Gic Housing Finance Ltd, Mumbai vs Assessee on 13 February, 2015
जी"
जी यायपीठ मुब
आयकर अपीलीय अिधकरण "जी ं ई म ।
IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI BENCH "G", MUMBAI
ी आर.
आर. सी.
सी. शमा , लेखा सद य एवं
ी िववेक वमा , याियक सद य के सम ।
BEFORE SHRI R.C. SHARMA, ACCOUNTANT MEMBER
AND SHRI VIVEK VARMA, JUDICIAL MEMBER
ITA No. : 6795/Mum/2012
(Assessment year: 2004-05)
ITA No. : 6796/Mum/2012
(Assessment year: 2005-06)
ITA No. : 6797/Mum/2012
(Assessment year: 2009-10)
M/s GIC Housing Finance Ltd, Vs Asst. Commissioner of Income
Universal Insurance Bldg, 3rd Floor, Tax,(OSD) Range 2(1),
Sir P M Road, Fort, Room No. 545, 5th Floor,
Mumbai -400 001 Aayakar Bhavan, New Marine Lines,
ःथयी लेखा सं.:PAN: AAACG 2755 R Mumbai -400 020
अपीलाथ (Appellant) ू!यथ (Respondent)
अपीलाथ "क और से : ी िनतेश जोिश
Appellant by Shri Nitesh Joshi
ू!यथ "क और से : ी पवन कु मार बीरला
Respondent by Shri Pavan Kumar Beerla
सुनवाई क& तार(ख /Date of Hearing : 19-11-2014
घोषणा क& तार(ख /Date of Pronouncement : 13-02-2015
आदेश
ORDER
ी िववेक वमा , या स:
स:
PER VIVEK VARMA, JM:
The appeals have been filed against the orders of CIT(A)-4, Mumbai, dated 18.09.2012.
2. Since the issues raised in the appeals are common, we are disposing off the appeals through this common & consolidated order for the sake of convenience and brevity.
2M/s GIC Housing Finance Ltd ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 ITA No. 6795/Mum/2012 : Asst Year 2004-05 :
3. The following grounds have been raised:
1. On the facts and circumstances of the case and in law, the Commissioner of Income Tax - Appeals-4 Mumbai erred in confirming the action of the Assessing Officer in the re-opening of the assessment though no fresh material has been brought on record. 1.1. On the facts and circumstances of the case and in law, the Commissioner of Income Tax - Appeal -4 Mumbai erred in confirming the action of the Assessing Officer in reopening of the assessment, beyond 4 years but within 6 years after the original assessment under section 143(3) of the Income tax Act, 1961 was completed on the issue which was already dealt with in the proper manner in the original assessment.
1.2 On the facts and circumstances of the case and in law the Commissioner of Income Tax, Appeal-4 Mumbai erred in confirming the additions made on account of interest on the Non Performing Assets amounting to Rs.27,41,505/-
under the provisions contained in section 43D of the Income tax Act, 1961 read with Rule 6EB of the Income tax Rules 1962.
1.3 Your appellant craves leave to add, to modify or delete all or any of the above grounds".
4. The facts are that the assessee is carrying on the business of providing long term hosing finance and also maintaining investment portfolio. The regular assessment was framed u/s 143(3) vide order dated 12.10.2006. The AO while processing the assessment for assessment year 2008-09, reopened the assessment for the current year by the issue of notice u/s 148 on 02.03.2011, which was received by the assessee on 09.03.2011. The reasons as recorded by the AO are, "Reasons for Re-opening the assessment in the case Of M/s GIC Housing Finance Limited Assessment Year: 2004-05 During the course of assessee for AY 2008-09 it is seen that the assessee has been offering income in respect of Non-Performing Assets on receipt basis considering, the period prescribed under Rule 6EB as six -months whereas the rule provides that in case of Non-Performing Assets, the income up in two years has to be taken on accrual basis and beyond two years on receipt basis.
The case of the assessee for AY 2004-05 was 3 M/s GIC Housing Finance Ltd ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 scrutinized u/s.N3(3) of the T. T Act and on perusal of the record, it is seen that assessee has wrongly worked out the Income taxable under Rule 6EB which is actually pertaining to Period of six months. Thus apparently, the income of such Non-Performing Assets for further one and halt years has not been considered by the assessee in its details filed under Rule 6EB. Therefore, the income escaped is in excess of Rs. 1.00 lac for relevant assessment year.
In view of the above, I have reason to believe that income chargeable to tax has escaped assessment for AY. 2004-05 by reason of the failure on part of the assessee to disclose fully and truly all material facts necessary for assessment and also by the reason of understatement of income.
Hence, necessary permission to issue notice u/s 148 per provision of Section 151(2) is sought to issue notice u/s 148 of the I.T. Act, for AY 2004-05 in the above mentioned case.
X DCIT 2 (1), MUMBAI"
5. The assessee informed the AO that the issue was called for by the AO in the questionnaire dated 31.07.2006, vide pt. no. 7, which read, "7. Detailed note on accounting policies clearly indicating the methods of Revenue Recognition and booking of expenses if any specific method of accounting policy is being followed, furnish a detailed note."
6. Prior to this, assessee's detailed note was given to the AO, the assessee correspondingly gave appropriate reply vide letter dated 05.10.2005 and a note explaining the treatment of NPAs.
7. The AO considered the note explaining the assessee position on the issue decided not to interfere with the working as shown by the assessee.
8. The AO considered the note explaining the assessee's position on the issue, decided not to interfere with the working as shown by the assessee.
4M/s GIC Housing Finance Ltd ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012
9. The AO, while deciding the issue in asst. year 2008-09, took it up as a reason for reopening the assessment, as mentioned earlier, after four years.
10. The AR submitted that since the reason as recorded and communicated to the assessee, fell within the proviso to section
147. The AR submitted that since the issue was considered by the AO in regular assessment proceeding of the assessment was bad in law.
11. The AR, therefore submitted that the revenue authorities erred in proceeding to reopen the assessment framed u/s 143(3).
12. The DR primarily relied on the orders of the revenue authorities.
13. We have heard the arguments and have pursued the papers filed by the assessee during the course of regular assessment proceedings as well as in the current proceedings.
14. It is undeniable fact that the issue was raised by the AO in the original/regular assessment proceedings and was dealt with by the AO.
15. This is evident from the note as filed by the assessee as well as the specific query raised by the AO in the questionnaire.
16. In this circumstance, the fact that the current AO proceeded to reopen the assessment on the issue already dealt with by the AO in regular assessment, clearly falls within the expression, "change of opinion", which was dealt with by the Hon'ble Delhi High Court in the case of CIT vs Kelvinator of India in 256 ITR 1 (Delhi-FB), and accepted by the Hon'ble Supreme Court in 320 ITR 561(SC).
5M/s GIC Housing Finance Ltd ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012
17. Nowhere in the reasons do we find that in the reopened proceedings, the AO had unearthed anything which was materially concealed by the assessee. The ground for reopening after four years and after completion of regular assessment u/s 143(3), the department has to prove that in the intervening period, they were able to generate something, which was not described by the assessee either in its return or explanation. This fact has not been broken by the revenue authorities. Hon'ble Bombay High Court in the case of Sitara Dramond Pvt Ltd vs ITO, reported in 358 ITR 429, held that the department has to bring out something to prove that any particular of income was concealed.
18. In fact, we find that even in the accounts, as submitted along with the ROI, all details had been disclosed.
19. In such a circumstance, we are of the opinion that the reassessment proceedings are bad in law. We, therefore, cancel the notice u/s 148 dated 02.03.2011 and as a consequence, all consequential proceeding are annulled.
20. Ground no. 1 & 1.1 are allowed.
21. Ground no. 1.2 becomes academic.
22. As a result, the appeal for assessment year 2004-05 is allowed.
ITA No. 6796/Mum/2012 : Asst Year 2005-06 :23. The following grounds have been raised:
1. On the facts and circumstances of the case and in law, the Commissioner of Income Tax - Appeals-4 Mumbai erred in confirming the action of the Assessing Officer in the re-opening of the assessment though no fresh material has been brought on record.6
M/s GIC Housing Finance Ltd ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 1.1. On the facts and circumstances of the case and in law, the Commissioner of Income Tax - Appeal -4 Mumbai erred in confirming the action of the Assessing Officer in reopening of the assessment, beyond 4 years but within 6 years after the original assessment under section 143(3) of the Income tax Act, 1961 was completed on the issue which was already dealt with in the proper manner in the original assessment.
1.2 On the facts and circumstances of the case and in law the Commissioner of Income Tax, Appeal-4 Mumbai erred in confirming the additions made on account of interest on the Non Performing Assets amounting to Rs. 1,52,25,856/- under the provisions contained in section 43D of the Income tax Act, 1961 read with Rule 6EB of the Income tax Rules 1962.
1.3 Your appellant craves leave to add, to modify or delete all or any of the above grounds".
24. We find that the reopening has been done on identical facts as in assessment year 2004-05, wherein we have cancelled the notice u/s 148, thereby annulling all consequential proceedings.
25. Since the issue, reasons are the same and action u/s 148 is taken after four years and after regular assessment proceedings u/s 143(3), the reassessment proceedings have been held to be bad in law. We, therefore, following our order in assessment year 2004-05, cancel the notice u/s 148 and as a consequence all the proceedings are annulled.
26. Ground no. 1 & 1.1 are allowed.
27. Ground no. 1.2 becomes academic.
ITA No. 6797/Mum/2012 : Asst Year 2009-10 :28. The following grounds have been raised:
"1 On the facts and circumstances of the case and in law, the learned Commissioner of Income Tax, Appeal-4 Mumbai erred in confirming the additions made the Assessing Officer on account of expenditure incurred by way of interest under section 14A of the Income Tax Act, 1961 amounting to Rs. 1,13,18,201/- in relation to exempt income, without appreciating the facts and the submission made during the course of the 7 M/s GIC Housing Finance Ltd ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 assessment/appeal proceedings.
1.1 The appellant craves to leave, to add, to modify or delete the above ground of appeal".
29. The facts are that the ROI, the assessee declared dividend income of Rs. 47,96,265/-, which was claimed as exempt.
30. The AO in the assessment order u/s 143(3), made a disallowance of Rs. 1,13,18,201/- as computed under Rule 8D.
31. The assessee approached the CIT(A) before whom the submissions were reiterated and it was further submitted that, "As already mentioned, the main activity of the Appellant is to carry on the business of providing long term housing finance. Investment activity is an ancillary activity which is undertaken by the Appellant as ancillary to the main business in terms of which the surplus funds arising from the principal business activity are invested. The investments stated above were not made during the previous year ended 31.03.2009 nor were any borrowed funds of the previous year relevant to the Assessment Year under appeal were utilized for the purpose of making the investments.
The Appellant also submits that no specific expenditure has been incurred which can be directly or indirectly attributable for earning such income. (A) Expenses attributable to exempt income aggregating to Rs 1,13,18,2011-:
To justify that section 14A of the Act should not be enforced in the Appellants case, we would like to draw your attention to Sub section (1) of section 14/1 oft ho Act for your reference.
"For the purpose of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to in corn e, which does not form part of the total income under this Act".
You will appreciate that it is only the expenditure which is incurred in relation to the income which is exempt that can be brought within the ambit of Section 14A of the Act. The word fin relation to' signifies that there has to be a direct nexus/relation between the expenditure and the income, which is exempt. Unless the expenditure which has been incurred, can be correlated with the exempt income, the expenditure cannot be disallowed. This principal is also brought out by the 'Notes on Clause 11' to the Finance Bill 2001 and the Memorandum explaining the provisions in the Finance Bill 2001, which is when the said section 1424 was introduced in the Act.
8M/s GIC Housing Finance Ltd ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 The same are reproduced hereunder for your ready reference. NOTES ON CLA USES "Clause 11 seeks to insert a new section 14.4 in the Income Tax Act relating to expenditure incurred in relation to in corn e not includible in the total income. The new section seeks to provide that no deduction shall be made in respect of expenditure incurred by the assessee in relation to income, which does not form part of the total income under the Act. This amendment will take effect retrospectively from 1st April, 1962 and will, accordingly, apply in relation to the assessment year 1962-63 and subsequent years".
MEMORANDUM EXPLAINING THE PRO VISION OF SECTION 14A OF THE INCOME TAX ACT No deduction for expenditure incurred in respect of exempt in corn e against taxable income.
"Certain incomes are not includible while computing the total income, as these are exempt under various provisions of the Act. There have been cases where deductions have been claimed in respect of such exempt income. This in effect means that the tax incentive given by way of exemptions to certain categories of' income is being used to reduce also the tax payable on the non- exempt income by debiting the expenses incurred to earn the exempt income against taxable income. This is against the basic principles of taxation whereby only the net income i.e. gross income minus the expenditure is taxed. On the same analogy, the exemption is also in respect of the net income. Expenses incurred can be allowed only to the extent they are relatable to the earning of taxable income.
It is proposed to insert a new section 14A so as to clarify the intention of the Legislature since the inception of the Income tax Act, 1961 that no deduction shall be made in respect of any expenditure incurred by the assessee in relation to income, which does not form part of the total income under the Income tax Act.
The proposed amendment will take effect retrospectively from 1st April 1962 and will accordingly, apply in relation to the assessment year 1962-63 and subsequent assessment years".
Proviso to section 14A of the Act states, "Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. (Inserted by the Finance Act, 200 w.r.e.f. 11.5.2001). The Appellant submits that the pro visions of section 14A read with Rule 8D of the Income Tax Rules, 1962 ('the Rules) have to be applied in accordance with the facts and circumstances of the case and not in a straight jacketed formula driven manner. The disallowance under section 14A of the Act, must be computed in each case according to the stated facts.
9M/s GIC Housing Finance Ltd ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 The Appellant requests you to peruse the findings of the Assessing officer, which are at para 4.1 to para 4.4. of the assessment order which is in appeal before you. Specifically at para 4.3 there was no categorical findings as to how the submission made by the Appellant is incorrect. The Assessing Officer, even failed to correlate the facts with regard to borrowed funds of the previous year, relevant to the assessment year in appeal, that any of such borrowed funds were used for the purpose of making investments in the previous year and also to arrive about the interest if any paid on such funds which were used for making the investments. The appellant submits that, they have utilized completely the borrowed funds for providing loans to then' customers for house building activities and left with no funds for using the same for making any in vestments during the previous year relevant to the assessment year in appeal. Further, lenders always put a stiff conditions in their sanction memo that the end use of the funds borrowed is for the purpose of business only and not for any non business purposes.
Further, the appellant submits that, on the review of the financials for the said year, it will be abundantly clear that there were no new investments made during the previous year and that investments shown as per the audited accounts were all made during the earlier periods; the income if any earned from such investments were also offered to tax, in those periods when they were liable to tax. Also, the provisions of section 14A of the Act have to be applied on year to year basis for the expenditure if any incurred and the same read with rule 8D could not be considered on an assumption basis. The above principles have been well settled in the following judicial pronouncements Auchtel Products Ltd., Vs. ACIT (2012) 22 Taxmann.com 99 (ITAT Mumbai) Balarampur Chini Mills Ltd, Vs. DCIT (2012) Taxmann.com 117 (ITAT Kol) ACIT Vs. Punjab State Co-op Marketing (ITAT handigarh) As the Appellant, has not utilized any borrowed funds during the previous year relevant to the assessment year under appeal, no part of the interest paid on burro wed funds, which were used only for the purpose of business, would form part of the calculations as per the provisions contained in Rule 8D of the Rules 1962. In view of the facts, stated above the Appellant requests you to delete the additions made on account of interest considered by the Assessing Officer, while computing the expenditures incurred in relation to the exempt income. The Appellant requests you to consider the above facts, before you frame the appellate order."
32. The CIT(A), after considering the above facts, held, 10 M/s GIC Housing Finance Ltd ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012 "6. I have considered the facts of the case and submissions of the assessee. Hon'ble Bombay High Court has held in the case of Godrej & Boyce Mfg. Co. Ltd. vs. CIT 328 ITR 81 that Rule 8D is applicable from A.Y. 08-09 and, therefore, A.O. has correctly applied Rule 8D because certain portion of expenses relates to the exempt income which needs to be apportioned. Assessee has claimed that it has surplus funds which have been invested and no borrowed funds have been used for investment from which exempt income is received. It is also claimed that the investments are very old and at that time also there was surplus funds available with the assessee and therefore, no interest is disallowable under Rule 8D. The assessee has not shown any direct nexus between its own funds and the investment, in such assets, from which exempt income is generated, whereas, A.O. has also not shown any nexus between borrowed funds and exempt income generating investment, but assessee has used a single account in which old funds and borrowed funds are deposited and all expenses and investments are made from the same account and, therefore, no co-relation could be shown by the assessee or the A.O., but the claim of the assessee is on overall availability of funds and investment made. Therefore, in such a situation Rule 8D will apply for disallowance on account of interest also because it is presumed that proportionate borrowed funds have been used for investment from which exempt income is generated and, therefore, the disallowance is confirmed and the ground of appeal is rejected".
33. The CIT(A), therefore, rejected the appeal as filed by the assessee.
34. Against this order of the CIT(A), the assessee is now before the ITAT.
36. Before us, the AR submitted that the issue has been restored to the file of the AO to ascertain the fact, as to when the investments were made and whether any investments, giving tax free income in assessment year 2008-09.
35. The AR submitted that for the sake of consistency, the issue be restored to the AO in the current year as well.
11M/s GIC Housing Finance Ltd ITA 6795/M/2012 ITA 6796/M/2012 ITA 6797/M/2012
36. The DR did not object to the submission made by the AR, keeping in view the decision taken by the coordinate Bench in the assessment year 2008-09.
37. After hearing the parties and on going through the order of the coordinate Bench in the case of the assessee in preceding year, we are of the opinion, that a consistent view taken by the revenue authorities on the submissions made by the assessee involving the factual aspects.
40. We, therefore, set aside the order of the CIT(A) and restore the issue to the AO with a direction to verify and examine the necessary facts.
41. As a result, the appeal is treated as allowed for statistical purposes.
To sum-up:
Assessee's appeal in ITA 6795 of 2012 stands allowed Assessee's appeal in ITA 6796 of 2012 stands allowed Assessee's appeal in ITA 6797of 2012 stands allowed for statistical purposes.
Order pronounced in the open Court on 13th February, 2015.
(आर.
आर. सी.
सी. शमा ) (िववेक वमा )
Sd/- Sd/-
लेखा सदःय याईक सदःय
(R C SHARMA) (VIVEK VARMA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 13th February, 2015
ूित/Copy to:-
1) अपीलाथ /The Appellant.
12
M/s GIC Housing Finance Ltd
ITA 6795/M/2012
ITA 6796/M/2012
ITA 6797/M/2012
2) ू!यथ /The Respondent.
3) The CIT(A)-4, Mumbai.
4) The CIT -Concerned_____, Mumbai.
5) 0वभागीय ूितिनिध "जी", आयकर अपीलीय अिधकरण, मुब ं ई/ The D.R. "G" Bench, Mumbai.
6) गाड4 फाईल Copy to Guard File.
आदे शानुसार/By Order / / True Copy / / उप/सहायक पंजीकार आयकर अपीलीय अिधकरण, मुबं ई Dy./Asstt. Registrar I.T.A.T., Mumbai च हान व.िन.स * *Chavan, Sr.PS