Income Tax Appellate Tribunal - Mumbai
Tejaskiran Pharmachem Industries ... vs Dcit Cir 8(3), Mumbai on 13 December, 2017
IN THE INCOME TAX APPELLATE TRIBUNAL " E" BENCH, MUMBAI
BEFORE SRI MAHAVIR SINGH, JM AND SRI RAJESH KUMAR, AM
ITA No. 3307/Mum/2014
(A.Y. 2010-11)
Tejaskiran Pharmachem The Deputy Commissioner
Industries Pvt. Ltd. of Income Tax, Circle 8(3),
F.P. 145, Ram Mandir Road, Vs. Mumbai
Vile Parle (East),
Mumbai-400 057
Appellant .. Respondent
PAN No. AAACT1461B
Assessee by : Anuj Kisnadwala, AR
Revenue by : V. Justin, DR
Date of hearing: 11-12-2017 Date of pronouncement : 13-12-2017
ORDER
PER MAHAVIR SINGH, JM:
This appeal by the Assessee is arising out of the order of Commissioner of Income Tax (Appeals)-18, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-18/IT-41/DCIT-8(3)/13-14 dated 11-04-2014. The Assessment was framed by the Deputy Commissioner of Income Tax, Circle 8(3), Mumbai (in short DCIT) for the assessment year 2010-11 vide order dated 06-03-2013 under section 143(3) of the Income Tax Act, 1961(hereinafter 'the Act').
2. The only issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing expenses relatable to exempt income by invoking the provisions of section 14A of the Act 2 ITA No. 3307/ Mum/2014 read with Rule 8D of the Income Tax Rules (hereinafter the 'Rules') amounting to ₹ 1,00,53,364/-.
3. Briefly stated facts are that the assessee is engaged in the business of investment and finance. During the year under consideration the assessee suo moto made a disallowance of a sum of ₹ 37,38,476/- under section 14A of the Act while computing his income. The AO while framing the assessment worked out disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules (hereinafter the 'Rules') of ₹ 1,00,53,364/-, which comprises interest of ₹ 39,92,828/- under Rule 8D(2)(ii) and administrative expense at ₹ 60,55,550/- i.e. 0.5% of average value of investment under Rule 8D(2)(iii) of the Rules. The CIT(A) restricted the disallowance by netting of interest expenses i.e. he has consider net interest of ₹ 34,05,831/- being (₹ 80,68,847- ₹ 20,71,233 - ₹ 25,91,783). This netting was allowed by CIT(A) on the basis of remand report of the AO dated 25-10-2013. Aggrieved now, assessee is in second appeal before Tribunal
4. We have heard the rival contentions and gone through the facts and circumstances of the case. Before us, the learned Counsel for the assessee stated that no disallowance under Rule 8D(2)(ii) on account of interest should be made as assessee's own funds are enough to cover up the value of investment as is evident from the balance sheet enclosed with the submissions. The learned Counsel for the assessee referred to the actual figures of own funds which are at ₹ 142.78 crores i.e. share capital plus reserves and surplus as against the investment in shares at ₹ 121.31 crores. For this the learned Counsel for the assessee stated that the AO has simply invoked rule 8D of the rules and no nexus between interest bearing funds invested in interest free instrument yielding exempt income and hence, in view of the presumption as held by Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Limited 366 ITR 505 and CIT vs Reliance Utilities 313 ITR 340, it is presumed that the assessee has made investment out of its own funds which are sufficient to cover the value of investment, in that case, no disallowance of interest is required to be made under section 14A of the Act read with Rule 8D(2)(ii) of the Rules. When this was confronted to the learned Sr. Departmental 3 ITA No. 3307/ Mum/2014 Representative, he fairly conceded the position. As the issue is squarely covered in favour of the assessee, respectfully following the Hon'ble Bombay High Court in the case of HDFC Bank (supra), we allow this issue of assessee's appeal.
5. With regard to the administrative expenses, the learned Counsel for the assessee stated that as per Schedule N of the balance sheet, there are other expenses debited to the profit and loss account and out of which expenditure on account of interest is at ₹ 34,05,831/- and other expenses are merely at ₹ 3,32,645/-. In view of the above, it was stated that once interest of disallowance is deleted, administrative expenses remains at ₹ 3,32,645/- for which assessee itself has disallowed as sum of ₹ 37,38,476/-. On this, the learned Counsel for the assessee stated that this disallowance by assessee i.e. suo moto disallowance at ₹ 37,38,476/- need not be made because there is no other expenses except a sum of ₹ 3,32,645/-. The learned Counsel for the assessee stated that at the best, the other expenses of ₹ 3,32,645/- can be disallowed. When a query was put to the learned Counsel that once the assessee itself has disallowed the sum of ₹ 37,38,476/-, Ld Counsel narrated that there is no estoppel against law and the income wrongly declared under wrong notion or under mistaken notion can be deleted. For this he relied on the co-ordinate Bench decision of this Tribunal in the case of Tata Industries Ltd. Vs. ITO in ITA No. 4894/Mum/2008 for AY 2004-05 vide order dated 22-07-2016, wherein it is held as under: -
"30. So far as the contention that the assessee itself has offered disallowance in the return of income more than the exempt income earned is concerned, the ld. AR has relied upon various case laws as mentioned in the written submissions dated 21.06.2016 to stress the point that even if the assessee under a mistake or misconception has over assessed itself in the return of income, the Tribunal can give relief to the assessee to the extent the assessee is over assessed and direct the lower 4 ITA No. 3307/ Mum/2014 authorities to tax the assessee as per the provisions of law. We find that in the case of "National Thermal Power Co. Ltd." vs. CIT" 229 ITR 383, the facts before the Hon'ble Supreme Court were that the assessee in that case offered the interest amount for taxation and the assessment was completed on that basis. Before the Ld. CIT (A), the assessee though had taken a number of grounds of appeal; however, the inclusion of the said amount of interest was not challenged. The inclusion of the said amount of interest was not objected to even in the grounds of appeal as originally filed before the Tribunal. However, the assessee by way of subsequent letter raised the additional ground in relation to the said inclusion of interest into the income of the assessee. In the above circumstances, the question before the Hon'ble Supreme Court was "Where on the facts found by the authorities below a question of law arises (though not raised before the authorities) which bears on the tax liability of the assessee, whether the Tribunal has jurisdiction to examine the same?"
The Hon'ble Supreme Court while answering the said question observed that under section 254 of the Income Tax Act, the power of the Tribunal in dealing with the appeals is expressed in the widest possible terms; the power of the Tribunal under section 254 is not restricted only to decide the grounds which arise from the order of the Commissioner of Income Tax (Appeals); that both the assessee as well as the department have a right to file an appeal/cross objection before the Tribunal and the Tribunal is not prevented from considering questions of law arising 5 ITA No. 3307/ Mum/2014 in assessment proceedings although not raised earlier. While answering the question in affirmative, the Hon'ble Supreme Court concluded that the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee.
The full bench of the Hon'ble Bombay High Court in the cases of "Ahmedabad Electricity Company Ltd. vs. CIT" and "Godavari Sugar Mills Ltd. vs. CIT" by way of a common order dated 30.04.1992 (1993) 199 ITR 351 has observed that the basic purpose of an appeal procedure in an income tax matter is to ascertain the correct tax liability of the assessee in accordance with law. Therefore, at both the stages, either by the Appellate Assistant Commissioner or before the Appellate Tribunal, the appellate authority can consider the proceedings before it and the material on record before it for the purpose of determining the correct tax liability of the assessee. The Hon'ble Bombay High Court in the case of "CIT vs. Pruthvi Brokers and Shareholders Pvt. Ltd." (2012) 349 ITR 336 (Bom.) has observed that the assessee is entitled to raise not merely additional legal submissions before the appellate authorities, but is also entitled to raise additional clams before them. The appellate authorities have jurisdiction to deal not merely with additional grounds, which became available on account of change of circumstances or law, but with additional grounds which were available when the return was filed. The words 'could not have been raised' must be construed liberally and not strictly. There may be 6 ITA No. 3307/ Mum/2014 several factors justifying the raising of a new plea in an appeal and each case must be considered on its own facts. The co-ordinate bench of the Tribunal in the case of "Shri Chandrashekhar Bahirwani" ITA No.7810/M/2010 and 6599/M/2011 vide order dated 17.06.2015 while deciding the question as to whether the income cannot be assessed less than the returned income has observed as under:
"5. Now coming to the finding of the Ld. CIT(A), that income cannot be assessed less than the returned income, the Ld. A.R. of the assessee has submitted before us that the action of the Ld. CIT(A) in rejecting the claim of the assessee on this ground was not justified. He has further relied upon the decision of the Hon'ble Gujarat High Court in the case of "Gujarat Gas Ltd. vs. JCIT"
(2000) 245 ITR 84. In the said case, the words of the Circular No.549, para 5.12, dt. 31st October, 1989, providing that the assessed income under section 143(3) shall not be less than the returned income was considered by the Hon'ble High Court and it was held that as per proviso to section 119 of the Act, the Board cannot issue instructions to the Income Tax Authority to make a particular assessment or to dispose of a particular case in a particular manner as well as not to interfere with the discretion of the Commissioner in exercise of his appellate functions. It was further held that the AO, while exercising his quasi judicial powers, was not bound by the said circular and 7 ITA No. 3307/ Mum/2014 should have exercised his powers independently. The Hon'ble High Court, therefore, directed the AO to make the assessment without keeping in mind the said circular. It may be further observed that the Hon'ble Bombay High Court in the case of 'Pruthvi Brokers & Shareholders Pvt. Ltd.' ITA No.3908 of 2010 decided on 21.06.12, while relying upon the various decisions of the Hon'ble Supreme Court and other Hon'ble High Courts has held that even if a claim is not made before the AO, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim is not barred. The Hon'ble High Court has further observed that the decision of the Hon'ble Supreme Court in the case of 'Goetze (India) Limited v. CIT' (2006) 157 Taxman 1, relating to the restriction of making the claim through a revised return was limited to the powers of the Assessing Authority and the said judgment does not impinge on the power or negate the powers of the appellate authorities to entertain such claim by way of additional ground. Even otherwise, the Ld. CIT(A) ought to have considered the claim of the assessee in exercise of his appellate jurisdiction under section 250 of the Act. Moreover, if the assessee is, otherwise, entitled to a claim of deduction but due to his ignorance or for some other reason could not claim the same in the return of income, but has raised his 8 ITA No. 3307/ Mum/2014 claim before the appellate authority, the appellate authority should have looked into the same. The assessee cannot be burdened with the taxes which he otherwise is not liable to pay under the law. Even a duty has also been cast upon the Income Tax Authorities to charge the legitimate tax from the tax payers. They are not there to punish the tax payers for their bonafide mistakes. In view of our above observations, it is held that the assessee is not liable to pay Capital Gains Tax, though originally he had subjected himself to the said tax as per his return of income. The AO is directed to process the claim of refund in this respect as per provisions of the law."
6. We agree with the above judgement of Co-ordinate Bench in the case of Tata Industries Ltd.(supra) and accordingly, we restrict the disallowance at ₹ 3,32,645/- being administrative expense under Rule 8D(2)(iii) of the Income Tax Rules. We direct the AO accordingly. The appeal of the assessee is partly allowed.
7. In the result, the appeal of assessee is partly allowed.
Order pronounced in the open court on 13-12-2017.
Sd/- Sd/-
(RAJESH KUMAR) (MAHAVIR SINGH)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Dated: 13-12-2017
Sudip Sarkar /Sr.PS
9
ITA No. 3307/ Mum/2014
Copy of the Order forwarded to:
1. The Appellant
2. The Respondent.
3. The CIT (A), Mumbai.
4. CIT
5. DR, ITAT, Mumbai BY ORDER,
6. Guard file.
//True Copy//
Assistant Registrar
ITAT, MUMBAI