Income Tax Appellate Tribunal - Chandigarh
M/S Anand Concast Ltd., Ludhiana vs Dcit, C-5, Ludhiana on 8 February, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH 'A', CHANDIGARH
BEFORE MS.DIVA SINGH, JUDICIAL MEMBER AND
MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No.1317/Chd/2017
(A.Y : 2014-15)
M/s Anand Concast Ltd. DCIT, Circle-5,
Giaspura Road, Vs. Ludhiana
Ludhiana
PAN : AABCA 2453 M
(Appellant) (Respondent)
Appellant by : Shri Subhash Agarwal
Respondent by : Smt. Chander Kamte, DR
Date of hearing : 08.01.2018
Date of Pronouncement : 08.02.2018
ORDER
PER: ANNAPURNA GUPTA, A.M.:
This appeal had been filed by the assessee against the order of Commissioner of Income Tax( appeal)-2, Ludhiana, dated 31/07/2017 and pertains to assessment year 2014-15.
2. The sole issue in the present appeal pertains to disallowance made under section 14A of the Income Tax Act,1961, read with rule 8D of the Income Tax Rules, 1962.
3. Brief facts leading to the present appeal are that during assessment proceedings the assessee had submitted to the A.O that it had incorrectly made disallowance of Rs. 8,59,664/- under section 14A of the 2 Act, suo moto, in the return of income filed by it. It was submitted that the said disallowance had been calculated without taking into consideration its own interest free funds and considering which the disallowance should be restricted to Rs. 1,95,143/-. A revised calculation of the disallowance was filed by the assessee during assessment proceedings. However the A.O. rejected the contention of the assessee and did not restrict the disallowance u/s 14A to Rs. 1,95,143/-
4. Aggrieved by the same the assessee filed appeal before the Ld. CIT( appeal). Detailed submissions were made to the CIT (appeal) by the assessee contending that no disallowance of interest under section 14A r.w.r 8D(2)(ii) was warranted since the assessee had sufficient interest free own funds in the form of capital and reserves for the purpose of making investment in shares, mutual funds and parternship firms which interalia had earned exempt income. Detail submitting facts and figures in support of the above contention were also filed, which are reproduced at page 4 of the CIT(appeals) order. The assessee contented that it was only the disallowance of other expenses calculated as per rule 8D(2)(iii), amounting to Rs. 1,95,143/-, which were liable to be disallowed. The Ld. CIT (appeal), after considering the assesses submission, rejected the same holding that while making the disallowance under section 14A of the Act the assessee had itself presumed that the impugned investments yielding exempt income had been made out 3 of borrowed/mixed funds. The Ld. CIT( appeal) also held that identical disallowance made in earlier years in the case of the assessee had been upheld. The appeal filed by the assessee was therefore dismissed. Aggrieved by the same the assessee has come up in appeal before us raising the following grounds:
" 1 . T h a t t h e l e a r n e d C IT ( A ) h a s e r r e d i n c o n f i r m i n g t h e d i s a l l o wa n c e o f s u m o f R s . 8 , 5 9 , 6 6 4 / - u / s 1 4 A r . w. r 8D(Rs.1,09,279/- under rule 8D(2)(ii) and Rs.7,50,385/- under rule 8D(2)(iii) ignoring the submiss ions of the appellant made bef ore him and also bef ore the AO. 2 . T h a t t h e c o n f i r m a t i o n o f d i s a l l o wa n c e o f R s . 8 , 5 9 , 6 6 4 / - is against the law and f acts of the case."
5. During the course of hearing before us Ld. Counsel for the assessee reiterated the contentions made before the lower authorities that no disallowance on account of interest as per rule 8D(2)(ii) was warranted since the entire investments had been made out of own interest free funds of the assessee. Ld counsel for the assessee drew our attention to the quantum of interest free funds available with it as outlined in a chart produced before us as under:
"Disallowance u/s 14A/ Rule 8D(2)(iii) and 8D(2)(ni) by AO and confirmed by CIT(A-) 8D(2)(ii) Rs. 1,09,279/-
8D(2)(iii) Rs. 7,50,385/-
Total Rs. 8,59,664/-
Availability of own funds
31.03.2013 31.03.2014
Capital 21,00,000/- 21,00,000/-
4
Reserves 28,38,74,601/- 30,58,42,246/-
Income as per P&L Account 3,63,89,093/- 3,69,49,131/-
Claim of depreciation 9,74,471/- 11,02,471/-
Total 32,33,38,165/- 34,59,93,848/-
Investments
Investment in Equity and 3,47,18,549/- 4,09,27,951/-
instruments
Investment in Mutual Funds 9,15,54,154/- 8,21,55,812/-
Investment in partnership 4,78,441/- 5,03,18,955/-
firms
Total 12,67,51,144/- 17,34,02,718/-
Since the availability of own funds is much more than the investment, no disallowance u/s 14A / Rule 8D(2)(ii) is called for. Correct disallowance u/s 14A / Rule 8D Investment in shares and mutual funds and partnership concern on which exempt income earned.
31.03.2013 31.03.2014 Investment in shares 4,16,77,303/- 3,63,79,759/- and mutual funds Investment in partnership 4,78,442/- 5,18,955/-
firms Total 4,21,55,745/- 3,68,98,718/- Average Rs. 3,95,27,230/- Disallowance @ .50% Rs. 1,97,636/- 6. Ld counsel for the assessee further stated that identical issue in earlier years in the case of the
assessee, had been decided by the I.T.A.T. restoring the matter to the A.O to verify the factual contention of the 5 assessee of availability of enough own funds and to thereafter adjudicate the issue in accordance with law.
7. The Ld. DR on the other hand contended that the disallowance of interest as per rule 8D(2)(ii) was mandatory once the AO was not satisfied with the correctness of the claim of the assessee in respect to expenditure incurred in relation to exempt income.Ld.DR contended that Rule 8D(2) was mandatory and had to be invoked to determine the quantum of expenditure relatable to earning of exempt income. Ld.DR placed reliance on the following decisions in support of her contention:
i) Punjab Tractors Limited v/s CIT in I.T.A no. 458 of 2015 dated 03/02/2017 (P&H)
ii) Avons Cycles limited v/s CIT in I.T.A no. 227 of 2013 dated 20/08/2014 (P&H)
iii) India Bulls Financial Services Ltd.vs DCIT ,ITA No.470 of of 2016 dated 21/11/16 (Delhi)
8. Ld. DR also contended that there is no requirement of the A.O. to expressly record his satisfaction in this regard. Reliance was placed on the decision of the Hon'ble Delhi High Court in the case of India Bulls (supra) and the decision of the Punjab and Haryana high Court in the case Punjab Tractors (Supra).
9. We have heard the contentions of both the parties and perused the orders of the authorities below as well as the decisions relied upon by both the parties. The issue in the present appeal pertains to confirming the disallowance of a sum of Rs.8,59,664/- u/s 14A r.w.s. 6
8D (Rs.1,09,279/- under Rule 8D(2)(ii)) and Rs.7,50,385/- under Rule 8D(2)(iii) as against the restriction of the addition to Rs.1,95,143/- claimed by the assessee. The said disallowance was upheld, we find p r i m a r i l y f o r t h e r e a s o n t h a t i t h a d b e e n m a d e s u o mo t o by the assessee itself in its return of income and therefore, it was held by the authorities below that the contentions of the assessee that the aforesaid disallowance was unwarranted, in view of the fact that it had own interest free funds for making the impugned investments, thus not warranting any disallowance on account of interest, merited no consideration, since the assessee itself had presumed that the investment had been made out of the borrowed funds. Thus it was the s u o - mo t o a c t o f d i s a l l o w a n c e m a d e b y t h e a s s e s s e e w h i c h was the reason for upholding the same.
10. We do not agree with the same.It is well settled, having been decided on a number of occasions by the Hon'ble Supreme Court and many other Courts of our country, that the object of the income tax proceeding is to determine the taxable income of the assessee and tax payable thereon fairly and as per law only. Article 265 of the Constitution of India also provides in express terms that no tax can be collected without the authority of law. Moreover, even the Central Board of Revenue now called as the Central Board of Direct Taxes had issued a circular in 1955, guiding Assessing Officer's that they should assess the taxable income and compute tax 7 liability of the taxpayers in accordance with law only and should not take undue advantage of the ignorance of the assessees. Therefore any claim of the assessee should be decided on the touchstone of law and not on the basis of claim made by the assessee. The Hon'ble Supreme Court in the case of Kedarnath Jute Manufacturing Co. Ltd. vs. CIT, 82 ITR 363 (SC) has observed that whether the assessee is entitled to a particular deduction or not will depend on the provisions of law relating thereto and not the view which the assessee may take. Similarly in the case of CIT vs. India Discount Co. Ltd., 75 ITR 191 (SC), it was observed by the Hon'ble Supreme Court that it is well established that a receipt which in law cannot be regarded as income cannot become so merely because the assessee wrongly credited it to the profit and loss account. Thus, in our considered view, if the assessee is able to show that the disallowance made by it had been wrongly made, then the assessee has a legal right to resile from its return so long as he is able to demonstrate that the disallowance was not in accordance with law and requisite facts in this regard are placed on record.
11. In view of the above, we reject the contention of the Revenue that the disallowance made by the assessee suo moto could not be now altered since it had been estimated by the assessee itself in the first place.The contention of the Revenue that while making the disallowance u/s 14A ,the assessee itself had presumed 8 that the investments had been made out of borrowed funds is also rejected since this relates to the facts of the case which cannot be presumed but have to be clearly brought out and with the assessee presenting a different set of facts during assessment proceedings , it is the duty of the tax authorities to look into and establish the facts of the case first and thereafter decide the issue as per law, rather than assuming the facts.
12. Having said so, we find that the assessee has contended that in view of sufficient own funds available with it, no disallowance on account of interest u/s 8D(2)(ii) was warranted since the presumption in the said fact situation is that the investment, earning exempt income, had been made out of the said own funds. Reliance has been placed on the decision of the jurisdictional High Court in the case of CIT vs Max India Ltd. in ITA No 186 of 2013 (O&M) dt 6-9-16 and also the decision of the I.T.A.T. Chandigarh Bench in the case of the assessee for earlier years wherein the matter was remitted for reconsideration after accepting the afore- stated proposition of law. We find merit in this contention of the ld. Counsel of the assessee and are in agreement with the ld. Counsel for the assessee that the jurisdictional High Court in the case of the Max India Ltd.(supra)has held that in the fact situation of the assessee having enough own funds, no disallowance on account of interest u/s 14A is warranted. Moreover, we find that even the ld. DR has not disputed this 9 proposition of law.Also, we find, the ITAT in the case of the assessee for earlier years ,has after accepting this proposition of law ,remitted the issue to the lower authorities for verifying the facts. Since in the present case also the facts relevant to the said proposition, about the availability of enough interest free funds and their deployment in the impugned investments, have not been examined by the authorities below, having decided the issue solely on the basis of the act of the assessee of having made suo moto disallowance, we, therefore consider it fit to restore the issue to the CIT(A) to verify the facts of the case and thereafter decide the issue in accordance with law.
13. As for the contention of the ld. DR that Rule 8D of the Income Tax Rules 1962,specifying the manner of computing the disallowance u/s 14A , is automatically invoked once the AO is satisfied about the incorrectness of the claim of the assessee of the quantum of disallowance u/s 14A, we find that the ld. DR has referred to decision of the Jurisdictional High Court in the case of Punjab Tractors Limited (Supra) and the decision of the Hon'ble Delhi High Court in the case of India Bulls Financial Services Ltd. (Supra) in this regard. On going through the orders of the authorities below, we find that this aspect of existence of satisfaction of the Assessing Officer viz-a-viz the disallowance made u/s 14A has been raised for the first time before us and has never been considered or dealt 10 with by the authorities below. For this reason also, we consider it fit to restore the issue back to file of the CIT(A) to decide the same afresh in accordance with law after considering all aspects relating to the issue and giving due opportunity of hearing to the assessee in this regard.
14. In the result, appeal of the assessee stands allowed for statistical purposes.
O r d e r p r on o u n c ed i n t h e o p e n cou r t .
Sd/- Sd/-
(DIVA SINGH) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 8 t h February, 2018
Aks/
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT
5. The DR
Assistant Registrar,
ITAT, Chandigarh