Income Tax Appellate Tribunal - Ahmedabad
The Dcit., Circle-1(1)(1), Ahmedabad vs M/S,.Arvind Brands & Retail Ltd. , ... on 27 September, 2023
आयकर अपीलीय अधिकरण, अहमदाबाद नयायपीी
IN THE INCOME TAX APPELLATE TRIBUNAL,
'' C'' BENCH, AHMEDABAD
BEFORE Ms. SUCHITRA KAMBLE, JUDICIAL MEMBER
And
SHRI WASEEM AHMED, ACCOUNTANT MEMBER
आयकर अपील सं./ITA No. 475/AHD/2020
With
C.O. No. 34/Ahd/2022
धििाधरण वरध/Asstt. Year: 2016-17
D.C.I.T, M/s Arvind Brands & Retail Limited,
Circle-1(1)(1), Vs. Arvind Mills Premises,
Ahmedabad. Naroda Road,
Ahmedabad.
PAN: AALCS3536P
(Applicant) (Respondent)
Revenue by : Shri Kamlesh Makwana, Sr. DR
Assessee by : Shri Biren Shah, AR
सुिवाई की तारीख/Date of Hearing : 14/09/2023
घोरणा की तारीख /Date of Pronouncement: 27/09/2023
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal and CO have been filed at the instance of the Revenue and the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-1, Ahmedabad, dated 09/07/2020 (in short "Ld. CIT(A)") arising in the matter of assessment order passed under s. 143(3) of the Income Tax Act 1961 (here-in-after referred to as "the Act"). The assessee has filed the ITA no.475/AHD/2020 With C.O.No.34/Ahd/2022 A.Y. 2016-17 2 Cross Objection in the Revenue's appeal bearing ITA No. 475/Ahd/2020 for the Assessment Year 2016-2017.
2. The only issue raised by the revenue is that the learned CIT(A) erred in deleting the disallowance made under section 14A of the Act for Rs. 6,98,72,289/- and adjustment made in the book profit on basis of such disallowance.
3. The necessary facts are that the assessee is a public company, and its case has been selected for scrutiny under CASS. The AO during the assessment proceedings found that the assessee has made investment in shares and securities which can yield exempted income. Thus, the question was raised regarding the disallowance to be attracted under section 14A of the Act r.w.r. 8D of Income Tax Rule.
3.1 The assessee replied that during the year it has not earned any exempted income. However, the amount of Rs. 43,33,650/- has been disallowed under section 14A of the Act on suo-moto. Therefore, no further disallowance is required to be made.
3.2 However, the AO found that suo-moto disallowance made by the assessee is not in accordance with rule 8D of the Income Tax Rule. Thus, the AO worked out the amount of disallowance as per rule 8D of the Income tax rule at Rs. 7,42,05,939/- and made net addition to the income of the assessee for Rs. 6,98,72,289/- only after giving credit of suo moto disallowance. The AO also made an addition in books profit calculated under section 115JB of the Act by the amount of addition made to the total income of the assessee.
4. The aggrieved assessee preferred an appeal before the leaned CIT(A) who deleted the addition made by the AO by observing as under:
ITA no.475/AHD/2020 With C.O.No.34/Ahd/2022 A.Y. 2016-17 3 (1)Decision of Gujarat High Court in case of CIT v. Corrtech Energy Pvt. Ltd. [45 Taxmann.com 116] "[Vide Para 3].....The Id. AR submitted that this finding of Id. CIT(A) is containing to the law settled by various judicial pronouncements. We have given our thoughtful consideration to the facts and the decision relied upon by the Id. AR. The Hon'ble Punjab & Haryana High Court in the case of CIT v. Winsome Textile Industries Ltd.
[2009] 319 ITR 204 has hold that in the present case, admittedly, the appellant did not make any claim for exemption. In such a situation, section 14A could have no application, in this case also, the appellant has not claimed any exempt income in this year. Therefore, respectfully following the judgement of Hon'ble High Court of Punjab & Haryana in the case of Winsome Textile Industries Ltd. (supra), we hereby allow this ground and direct the AO to delete the addition. Therefore, ground No. 1 to1.2 raised by the appellant in its cross-objection is allowed."
(ii)Decision of Hon'ble Supreme Court of India in case of PCIT Vs Oil Industry Development Board [2019] 103 taxmann.com 326 Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income (Applicability of) In course of appellate proceedings, Tribunal held that in absence of any exempt income, disallowance under section 14-A of any amount was not permissible - High Court upheld order passed by Tribunal Whether, on facts. SLP filed against decision of High Court was to be dismissed - Held, yes [Para 3] [In favour of assessee]
(iii) Decision of Hon'ble Supreme Court of India in the case of PCIT Vs. GVK Project and Technical Services Ltd. [2019] 106 taxmann.com 181 "Section 14A of the Income-tax Act, 1961- Expenditure incurred in relation to income not includible in total income (Applicability of) Assessment year 2013-14 In course of assessment, Assessing Officer proceeded to calculate disallowance under section 14A on basis of investments made by assessee Tribunal opined that in absence of any exempt income reported by assessee, disallowance could not be made under section 14A Tribunal thus deleted disallowance made by Assessing Officer High Court uphold Tribunal's order - Whether, on facts, SLP filed against order of High Court was to be dismissed Held, yes [Para 1] [In favour of assessee]"
(iv) Decision of Madras High Court in case of Commissioner of Income Tax, v/s.
Chettinad Logistics (P.) Ltd [2017] 80 taxmann.com 221 Section 14A of the Income-tax Act, 1961, read with rule 8D of the Income-tax Rules, 1962- Expenditure incurred in relation to income not includible in total income (General principle) - Assessment year 2011-12 Whether section 14A can only be triggered, if, assessee seeks to square off expenditure against income which does not form part of total income under Act; rule 8D only provides for a method to determine amount of expenditure incurred in relation to income, which does not form part of total income of assessee and it cannot go beyond what is provided in section 14A - Held yes - Whether where no exempt. income i.e., dividend, was earned in relevant ITA no.475/AHD/2020 With C.O.No.34/Ahd/2022 A.Y. 2016-17 4 assessment year by assessee, section 14A could not be invoked Held yes [Para 8] [Matter remanded] The SLP filed by Revenue against the said decision is dismissed by Supreme Court on 02/07/2018 [2018] 95 taxmann.com 250 (SC).
Thus following the decisions rendered by Hon'ble Supreme Court and Jurisdictional High Court which are binding in case of Appellant as well as undisputed fact that appellant has not earned any exempt income in year under consideration , disallowance of Rs.6,98,72,289/- made under the provisions of section 14A r.w.r 8D is deleted. Even on this ground, disallowance u/s 14A made by AO while computing book profit u/s 115JB is also deleted.
4.7 Further during the course of appellate Proceedings, the Appellant has made additional claim that it has not earned any exempt income and accordingly no disallowance is required to be made u/s 14A of the Act. While filing Return of Income the Appellant has made disallowance of Rs.43,33,650/- towards expenditure incurred in respect of earning exempt income and accordingly the Appellant requested to reduce returned income by such disallowance made u/s 14A of the act. This contention of appellant cannot be accepted for the reason that appellant has identified certain expenditure debited in Profit & loss account as specifically attributable to earning of exempt income hence such disallowance cannot be held to be incorrect even appellant has not earned any exempt income.
4.8 Thus disallowance u/s 14A of the Act amounting to Rs.6,98,72,289/- is hereby deleted. Thus, ground no 7 relating to additional claim is rejected and other grounds of appeal relevant to disallowance u/s 14A are allowed.
5. Being aggrieved by the order of the learned CIT(A), the revenue is in appeal before us against the deleting of addition made by the AO whereas the assessee is in cross objection against the finding of the ld. CIT-A for not allowing the alternate appeal of the assessee to reduce the income by the amount of suo moto disallowance. The ground of objection filed by the assessee in CO No. 34/Ahd/2022 reads as under:
In law and on the facts and in the circumstances Ld.CIT(A) has erred in confirming suo- motu disallowance of Rs.43,33,650/- u/s. 14A while filing return of income, though no exempt income was earned during the year under consideration.
6. At the outset, we note that there was a delay in filing the CO by the assessee for 769 days. As per the assessee out of 769 days, the delay of 571 days pertains to the period when the Hon'ble Supreme Court has extended the time to file the appeal against the order of the concern authority on account of Covid in SUO Motu Writ Petition © No. 3 of 2020. Thus, the effective delay is 198 days ITA no.475/AHD/2020 With C.O.No.34/Ahd/2022 A.Y. 2016-17 5 only. It was further submitted by the assessee that the person who was handling the appeal matters was suffering from the covid and therefore, he could not hand over the appeal papers to the concerned chartered accountant. Therefore, the delay of 198 days is attributed to the ill-health of the staff. Nevertheless, the learned AR before us contended that the assessee has a fair chance to succeed in its case and therefore a meritorious case should not be rejected due to technical lapses. On the other hand, the learned DR did not raise any serious objection on the condonation of the delay in filing the appeal by the assessee. Considering the outbreak of the covid and meritorious case of the assessee, we are inclined to condone the delay in filing the CO by the assessee and accordingly, proceed to adjudicate the issue on merit.
7. The learned DR before us contended that the disallowance under the provisions of section 14A of the Act has to be made even in the absence of exempted income earned by the assessee in the year under consideration.
8. On the other hand, the learned AR before us contended that there cannot be any disallowance under the provisions of section 14A of the Act in the absence of exempted income. Likewise, the disallowance made by the assessee suo-moto should also be allowed as deduction.
9. Both the learned DR and the AR before us vehemently supported the order of the authorities below the extent favourable to them.
10. We have heard the rival contentions of both the parties and perused the materials available on record. From the order of the authorities below, it is undisputed that no exempt income was earned by the assessee in the year under consideration. Thus, the question arises whether the provision of section 14A of the Act can be invoked in the absence of exempted income. This question has been answered by the several Hon'ble High Courts including the Jurisdictional High ITA no.475/AHD/2020 With C.O.No.34/Ahd/2022 A.Y. 2016-17 6 court of the Gujarat in the case of CIT vs. Corrtech Energy Private Limited reported in 45 taxmann.com 116. The Hon'ble Gujarat High Court in the above- mentioned case held that the provision of section 14A of the Act cannot be applied in the absence of any exempted income. The relevant observation of the Hon'ble Court reads as under:
Section 14A(1) provides that for the purpose of computing total income under chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the instant case, the Tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the Tribunal held that disallowance under section 14A could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed that where the assessee did not make any claim for exemption, section 14A could have no application.
10.1 Respectfully following the order of the Jurisdictional High Court as mentioned above, we hold that no disallowance under the provision of section 14A of the Act is required to made in the case of present assessee as no exempt income was earned/claimed during the year under consideration. Thus, no disallowance under section 14A of the Act was required to be made in the case of the assessee. Nevertheless, the assessee on suo-moto basis has made disallowance of Rs. 43,33,650/- under the provisions of section 14A of the Act.
Now the question arises, whether the assessee can claim the benefit of the disallowance made by the assessee in the income tax return before the judicial forum. It is the trite law that the income tax has to be levied on the income which is determined under the provisions of the Act. The assessee for any reason has offered any income which was not chargeable to tax, the revenue is not expected to deny the benefit to the assessee for which it was entitled. Thus, in our considered opinion the assessee cannot be deprived from the benefits provided under the provisions of law more particularly in a situation where the proceedings of the assessee for the year under consideration were pending before the higher authorities on same issues. In view of the above and after considering the facts in totality, we hold that the disallowance under section 14A read with rule 8D of ITA no.475/AHD/2020 With C.O.No.34/Ahd/2022 A.Y. 2016-17 7 Income Tax Rule was not warranted and assessee is entitled to the benefit of suo moto disallowances made by it.
10.2 Now coming to the issue of adjustment in book profit under section 115JB of the Act. The provision explanation 1(f) to subsection 2 of section 115JB states that the amount book profit shall be increased by the amount of expenditure relatable to exempted income. However, there is no exempt income claimed by the assessee during the year under consideration. Therefore, in our considered opinion in the absence of exempted income, no adjustment can be made under explanation 1(f) to section 115JB(2) of the Act. In holding so, we draw support and guidance from the order of coordinate bench of Delhi Tribunal in case of Minda Sai Ltd vs. ITO reported in 89 taxmann.316 where it was held as under:
24. In our considered view, the plea of the learned counsel is indeed well taken. The assessee may have accepted the disallowance under section 14A but once it is a settled legal position, in the light of the law laid down by Hon'ble jurisdictional High Court, that there cannot be any disallowance under section 14A unless there is corresponding exempt income and the assessee has no such exempt income, adjustment under clause (f) of Explanation to section 115JB(2) cannot indeed be made. The adjustment has to meet the tests of law and what cannot be considered to be 'expenditure relatable to exempt income' under the law, cannot be subjected to the adjustment either. There is no estoppel against the law. The mere fact that the assessee has accepted this disallowance affects that disallowance only and nothing more than that; it does not clothe such an adjustment, in computation of book profit under section 115JB, with legality. There is no dispute that there is no corresponding tax exempt income. Therefore, the adjustment in question is indeed unsustainable in law.
10.3 Likewise, we also find that Ahmedabad Tribunal in the identical facts and circumstances in the case of M/s Aura Securities Private Ltd versus ITO in ITA No. 532/AHD/2020 vide order dated 15 July 2022 has decided the issue in favour of the assessee. The relevant extract of the order is reproduced as under:
4. We have heard the arguments of both the sides and also perused the relevant material available on record. As agreed by the learned representatives of both the sides, the solitary issue involved in this appeal of the assessee is squarely covered by the decision of Coordinate Bench of this Tribunal rendered in the case of DCIT Vs. Greenland Infracoii Pvt. Ltd, vide its order dated 14.11.2018 passed in ITA Nos. 2039 and 2040/Ahd/2016 wherein a similar issue has been decided by the Tribunal in favour of the assessee vide paragraph Nos. 8 to 10 which read as under:-
ITA no.475/AHD/2020 With C.O.No.34/Ahd/2022 A.Y. 2016-17 8 "8. We shall now turn to the second issue raised on behalf of the Revenue regarding propriety of the action of the CIT(A) in granting relief on Hie disallowance (suo moto made by tin.' assesses) beyond the. return of income and in the absence of air,/ formal revised return. The' CIT(A) has discussed this aspect in very great detail in para 2.5 to 2.2S of its order. We fire not inclined lo reiterate the findings of the. CIT(A). However, we fully endorse the observations of the CIT(A) which essentially holds that the mistake or inadvertence on the part of the assessed whereby an income not taxable has been wrongly offered for tax, will not operate as tiny kind of estoppel against the assessee and regardless of whether the revised return was filed or not. Once the assessee is in a position to show that it has been over assessed under the provisions of the Act even on account of assessee's own mistake or otherwise, the Revenue is under duty to assess correct income.
9. It is trite that the authorities under the Act are under sacrosanct obligation to act in accordance, with law. Tax can be collected only as provided under the Act.
If an assessee, under a mistake, mis-conception or not being properly instructed, is over assessed, the authorities under the Act are required to ensure that only legitimate tax dues are collected. Thus is the view which flaws front innumerable judgments including C1T vs. Shelly Products (2003) 261 1TR 367 (SC), 5. R. Koshli vs. GIT (2005) 276 1TR 365 (Guj), Ester Industries vs. C1T (2009) 185 TAX MAN 266 (Delhi) and CIT vs. Pruthvi Brokers & Shareholders (P.) Ltd. [2012] 349 11 R 336 (Bom). The essence of these decisions tire that mere admission on the part of the assesssee with respect to an addition/disallowance- in its original return or in revised return would not ipso bar an assessee front claiming an expense or disputing an addition if it is otherwise permissible wider law. It is thus well settled that if u particular income is not taxable under the Act, it can not be taxed on the basis of estoppel or can/ other equitable doctrine. The Revenue authorities cannot enforce untenable actions of the assessee against it which led to declaration of income of higher amount incorrectly. It is tints open to assess?? to show that it was over assessed in correctly owing lo its own mistake.
10. So viewed, we do not see any potency in the argument laid on behalf of the Revenue that the CIT(A) allegedly committed error in granting total relief in the mutter of disallowance under S.14A of the Act. In our considered view, the action of the CIT(A) in granting relief under s.~14A of the Acton account suo moto disallowance by the assesses and thereby granting relief higher than claimed in the return of income cannot defaulted in law."
5. As the issue involved in the present case as well as all the materials facts relevant thereto are similar to the case of Greenland Infrco P. Ltd. (supra), we respectfully follow the decision rendered by the Co-ordinate Bench of this Tribunal in the said case and delete the disallowance of Rs.68,06,152/- made by the Assessing Officer and confirmed by the learned CIT(A).
10.4 In view of the above detailed discussion, the ground of appeal of the revenue is hereby dismissed whereas ground of objection of the assessee is hereby allowed.
ITA no.475/AHD/2020 With C.O.No.34/Ahd/2022 A.Y. 2016-17 9
11. In the result appeal of the revenue is dismissed and CO of the assessee is allowed.
Order pronounced in the Court on 27/09/2023 at Ahmedabad.
Sd/- Sd/-
(SUCHITRA KAMBLE) (WASEEM AHMED)
JUDICIAL MEMBER ACCOUNTANT MEMBER
(True Copy)
Ahmedabad; Dated 27/09/2023
Manish