Income Tax Appellate Tribunal - Mumbai
Mentor Capital Ltd, Mumbai vs Dcit Cen Cir 3(3), Mumbai on 6 February, 2019
IN THE INCOME-TAX APPELLATE TRIBUNAL "G" BENCH MUMBAI
BEFORE SHRI PAWAN SINGH, JUDICIAL MEMBER AND
SHRI MANOJ KUMAR AGGARWAL, ACCOUNTANT MEMBER
ITA No.3749/Mum/2017 (Assessment Year 2012-13)
Mentor Capital Limited DCIT, CC-3(4)
713, Raheja Centre, Free Press Aayakar Bhavan,
Journal Marg, Nariman Point, M.K. Road,
Mumbai-400018.
Vs. Mumbai-400018.
PAN: AACCP7995G
Appellant Respondent
Appellant by : Shri N. R. Singh (AR)
Respondent by : Chaudhary Arun Kumar
Singh (DR)
Date of Hearing : 31.01.2019
Date of Pronouncement : 06.02.2019
ORDER UNDER SECTION 254(1)OF INCOME TAX ACT
PER PAWAN SINGH, JUDICIAL MEMBER;
1. This appeal by assessee under section 253 of the Income-Tax Act (the Act) is directed against the order of ld. Commissioner of Income-Tax-51, Mumbai (the ld. CIT(A) dated 27.02.2017 for Assessment Year 2012-13.
The assessee has raised the following grounds of appeal:
1.1 The learned Commissioner of Income fax (Appeals) erred in confirming the disallowance made under Section 14A read with Rule 8D by the Assessing Officer on the ground that the Appellant could not establish the entire investments has been made out of own funds.
1.2 The Commissioner of Income Tax (Appeals) erred in relying on the decision of M/s. Godrej and Boyce Manufacturing Company Limited (321 ITR 81) ITA No. 3749/Mum/2017- Mentor Capital Limited 1.3 The learned Commissioner of Income Tax (Appeals) was incorrect in not following the decisions in i. Commissioner of Income Tax Vs Pruthvi Brokers and Shareholders P Limited (2012) 349 ITR 0336 ii. Jurisdiction ITAT decisions of the Assessee for the Assessment Years 2008, 2009 to 2011 in 27A No. 194 to 196/M 2015 and 7512/M/2014.
2. The learned Commissioner of Income Tax (Appeals) was not justified in rejecting the claim of the Appellant that no disallowance under Section 14A is called for in as much as the interest free funds were in excess in the investments yielding tax free income.
3. The learned Commissioner of Income Tax (Appeals) was wrong in rejecting the claim of the Appellant that expenses which have already been disallowed in the computation of income should not be considered for apportionment.
2. Brief facts of the case are that the assessee-company is engaged in the business of investment and trading in shares and securities, filed its return of income for Assessment Year 2012-13 on 26.09.2012 declaring loss of Rs.
13.76 Crore (Approx). The return of income was selected for scrutiny and the assessment was completed under section 143(3) on 27.03.2015. The Assessing Officer while making the assessment noted that the assessee received dividend of Rs. 3.86 Crore which is claimed exempted by assessee.
The assessee has offered suo motu disallowance of Rs. 5.42 Crore under section 14A. The Assessing Officer on his observation that assessee has made investment of Rs. 334.85 Crore (Approx) on 31.03.2012 asked the assessee to explain as to why the expenditure under section 14A should not be computed in accordance with Rule 8D. The assessee furnished its reply.
2 ITA No. 3749/Mum/2017- Mentor Capital LimitedAfter considering the reply of assessee the Assessing Officer concluded that the assessee has incurred interest expenses of Rs. 8.13 crore and the investment is made out of consolidated funds which include borrowed funds. The assessing officer made disallowance of Rs. 6,09,26,350/- by invoking the formulae prescribed under Rule 8D. And by allowing set off of suo motu disallowance of Rs. 5,42,26,210/-, the balance of Rs.
76,00,140/- was further added to the disallowance under section 14A. On appeal before the ld. CIT(A), the action of Assessing Officer was upheld.
Thus, further aggrieved by the order of ld. CIT(A), the assessee has filed the present appeal before us.
3. We have heard the submission of ld. Authorized Representative (AR) of the assessee and ld. Departmental Representative (DR) for the revenue and perused the material available on record. The ld. AR of the assessee submits that initially the return was processed under section 143(1) by intimation dated 28.10.2013. The assessee filed revised return of income on 31.03.2014 declaring loss of Rs. 17.79 Crore. In the revised return, the suo moto disallowance under section 14A was revised to Rs. 1,20,68,640/-. The Assessing Officer while completing the assessment rejected the revised return on the ground that intimation under section 143(1)(a) was passed before filing revised return and therefore revised return was invalid. During the assessment, the assessee made detailed explanation to the show-cause notice issued for disallowance under section 14A vide details dated 3 ITA No. 3749/Mum/2017- Mentor Capital Limited 22.01.2015 and furnished incremental cash flow statement, balance-sheet with the computation of Net interest free fund and thus established that interest free fund of the assessee was in far excess of making investment in yielding tax free income. The Assessing Officer not accepted the claim of assessee and rejected the assessee's computation. The Assessing Officer without going through the statement furnished by the assessee concluded that assessee has not established that borrowed fund have not been utilized for investment and disallowed interest applying Rule 8D. The ld. CIT(A), though concluded that the revised return filed by assessee was valid, however, the disallowance made by Assessing Officer was confirmed with his observation that the assessee could not established that entire investment is made out of own fund. The ld. CIT(A) failed to consider the order passed by Tribunal in ITA No. 7408/Mum/2014 and ITA No. 194 to 196/Mum/2015 dated 03.08.2016 for Assessment Year 2008-09 to 2011-12.
The ld. AR of the assessee further submits that the own fund of the assessee are far excess of the investment and the details were furnished before the Assessing Officer as well as before the ld. CIT(A). In support of his submission, the ld. AR of the assessee relied upon the decision Hon'ble Bombay High Court in HDFC Bank 949 taxmann.com 335). The ld. AR of the assessee further submits that by following the decision of Tribunal, the ld. CIT(A) allowed the appeal of the assessee for Assessment Year 2013-14 & 2014-15.
4 ITA No. 3749/Mum/2017- Mentor Capital Limited4. On the other hand, the ld. DR for the Revenue supported the order of lower authorities. The ld. DR further submits that the assessee filed revised return after intimation under section 143(1). The ld. AR of the assessee further submits that the assessee failed to furnish before the lower authorities that the reserve fund available with the assessee are in far excess to the investment made by assessee for earning tax free income.
5. We have considered the rival submission of the parties and have gone through the orders of authorities below. The Assessing Officer made disallowance holding that the assessee could not established that entire investment had been made out of own funds. Further, the assessee could not established the basis of disallowance under section 14A, thereby the Assessing Officer invoke the provision of Rule 8D and made disallowance of Rs. 6,09,26,350/-.
6. Before the ld. CIT(A), the assessee raised the ground that Assessing Officer erred in rejecting the return filed under section 139(5) within a period of one year from the end of relevant Financial Year. Similarly, the assessee also raised the ground against the disallowance under section 14A. The ld.
CIT(A) allowed the ground of the assessee that assessee filed revised return of income in accordance with the provision of section 139(5) of the Act and treated the revised return as valid return. However, the ld. CIT(A) confirmed the action of Assessing Officer on taking view that the assessee 5 ITA No. 3749/Mum/2017- Mentor Capital Limited could not established that entire investment has been made out of own funds, thereby confirmed the action of Assessing Officer.
7. Before us, the ld. AR of the assessee vehemently submitted that ld. CIT(A) by following the decision of Tribunal for Assessment Year 2008-09 to 2011-12 in ITA No. 7408/Mum/2014 for Assessment Year 2010-11 and ITA No. 194 to 196/Mum/15 and ITA No. 7512/Mum/2014 for Assessment Year 2008-09 to 2011-12, the ld CIT(A) in subsequent assessment year 2013-14 and 2014-15 allowed the relief to the assessee vide order dated 18.12.2017. We have noted that the co-ordinate bench of Tribunal in assessee's own case in ITA No. 7408/Mum/2014 for Assessment Year 2010-11 and ITA No. 194 to 196/Mum/15 and ITA No. 7512/Mum/2014 for Assessment Year 2008-09 to 2011-12 almost on identical grounds, passed the following order:
"35. We have considered the rival contentions and carefully gone through the orders of the authorities below. We had also deliberated on the judicial pronouncement referred by lower authorities in their respective orders as well as cited by ld. AR and ld. DR during the course of hearing before us, in the context of factual matrix of the instant case. We had also perused the balance sheet and cash flow statement placed on record so as to work out interest free fund available with the assessee for making investment in tax free securities. In respect of assessment years 2008-09, 2009-10 and 2011-12, we found that the assessee has interest free funds in excess of investments yielding tax free income as demonstrated by the assessee by the networth method as well as the incremental cash flow method during assessment proceedings and this was reiterated in appellate proceedings before the CIT(A). In respect of assessment year 2010-11, we found that the observations made by the AO is contrary to 6 ITA No. 3749/Mum/2017- Mentor Capital Limited facts and the details filed during assessment which clearly indicated availability of interest free funds invested in shares and securities. On 22.03.2013 a detailed note as to why no disallowance is required under section 14A was filed by assessee before the AO, wherein it was brought to the attention of the AO that following the net-worth method, the interest free funds were in excess of the book value of the investments and further a statement for the Financial Years 2007-08, 2008-09 and 2009-10 showing the incremental cash flows with respect to interest free funds and investments yielding exempt income was also submitted. The AO failed to consider the same and passed an order. We also found that the matter was again brought to the attention of the CIT(A) and submissions were made. However, the CIT(A) has also brushed aside the correct facts on record and without adjudicating on the submissions filed, dismissed the appeal and confirmed the addition. The fact that interest free funds are in excess of investments yielding exempt income has been established before the AO based on the materials filed with the return of Income and in fact has been accepted by the AO in three assessment years and reiterated before the CIT(A). The issue that no disallowance may be made under section 14A, if the interest free funds are in excess of investments yielding exempt income is settled by the jurisdictional High Court decisions in the case of HDFC Bank 49 taxmann.com 335 and 67 Taxmann.com 42 and Reliance Utilities 313 ITR 340 and by the decision of the Gujarat High Court in CIT Vs UTI Bank (2013), 32 Taxmann.com 370 etc.
36. The assessee had suo moto disallowed interest u/s.14A of the Act in the computation of income out of abundant caution. The assessee during the proceedings u/s.143(3) had made a claim before the AO that own funds being more than tax free investments, the disallowance u/s.14A be deleted. Under these circumstances the AO is bound to assess the correct income and for this purpose, the AO should grant reliefs/refunds suo moto or can do so on being pointed out by the assessee in the course of assessment proceedings for which the assessee has not filed revised return any claim in the return.
37. The Mumbai Tribunal in the case of Chicago Pneumatic India Ltd vs. DCIT (15 SOT 252) after considering the decision of Apex Court in the case of Goetze (India) Ltd. 284 ITR 323 has held that the AO is bound to assess the 7 ITA No. 3749/Mum/2017- Mentor Capital Limited correct income and for this purpose, the AO may grant reliefs/refunds suo moto or can do so on being pointed out by the assessee in the course of assessment proceedings for which the assessee has not filed revised return.
38. The Mumbai Tribunal while rendering the decision also recognized the fact that in case like that of assessee it leads to a situation which results in undue hard ship to the assessee. The Tribunal further relied on the Circulars issued by the CBDT especially Circular No. 14 (XL-35) dated 11-4-1955. In the said Circular the CBDT has directed the officers to draw the attention of the assessees in respect of any refunds or reliefs to which they are eligible, which they have not claimed for some reason or the other. The Tribunal held that if a circular is issued directing the assessing authorities to grant reliefs/refunds while completing the assessment proceedings, even though such circular may be at variance with the law, as pronounced by the Supreme Court, yet the same would be binding on the subordinate income-tax authorities. Therefore, circulars of same nature which have been already issued would not become irrelevant or can be ignored. The relevant observations of Tribunal are reproduced as under:
"It is well-settled that the onus lies on the assessee to make right claim and such claim must be made within the framework of provisions of the Act. However, this situation may result into genuine hardship to the assessees, as the assessees would be left with the option only to proceed u/s. 264, that too in case they have not gone into appeal before the Commissioner (Appeals) on the same issue or the Commissioner (Appeals) has not admitted those issues. Other' option would be to approach the CBDT u/s. 119 for getting the specific relief Both these options involve time as well as engagement of other administrative authorities, which can be otherwise devoted to other important issues. Therefore, one has to look into the duties of the AO rather than the powers of the AO, because the Government is entitled to collect only the tax legitimately due to it, otherwise the tax not so collected would be violative of the article 265 of the Constitution. The CBDT as back as in the year 1955 issued Circular No. 14 (XL-35), dated 11-4-1955 as to what should be a departmental attitude towards refund and reliefs to the assessees. In this circular, the CBDT has recognized the fact that responsibility for claiming refunds and reliefs rests with the assessees; even then the CBDT has directed the officers to draw the attention of the assessees in respect of any refunds or reliefs to which they are eligible, which they have not claimed for some reason or the other. Further, the Board also issued Circular No. F. 81127/65-iT(B), dated 18-5-1965 defining the duties of the PROs in providing assistance to the public. in this circular, the CBDT has also advised the PRO to visit the 8 ITA No. 3749/Mum/2017- Mentor Capital Limited Government/commercial establishments to provide them assistance in filing correct returns and making eligible claims. These circulars issued by the CBDT almost 4-5 decades before cast a duty on the AO to collect only the legitimate tax. It is a settled position that the Circulars issued by the Board are binding on the subordinate income-tax authorities and if the CBDT issues directions which are beneficial to the assessees, although the same may not be directly in consonance with the provisions of law, even then these instructions have to be given effect to and adhered to by the concerned authorities. Thus, there is a strong case for reciprocity to be shown by the revenue authorities while completing assessments and to avoid administrative hardships to the assessee. The CBDT is the Apex body for tax administration and it can also issue directions which are for the benefit of the assessee's, though such directions may not be in consonance with the provisions of law; hence, if circular is issued directing the assessing authorities to grant reliefs/refunds while completing the assessment proceedings, even though such circular may be at variance with the law, as pronounced by the Supreme Court, yet the same would be binding on the subordinate income-tax authorities. Therefore. circulars of same nature which have been already issued would not become irrelevant or can be ignored. Admittedly, the circular issued in the year 1955 has not been withdrawn; hence, it has got binding force on the subordinate authorities even as on date. Accordingly, the AO is bound to assess the correct income and for this purpose, the AO may grant reliefs/refunds suo moto or can do so on being pointed out by the assessee in the course of assessment proceedings for which the assessee has not filed revised return. Therefore, the Commissioner (Appeals), having coterminus powers with the powers of the AO and the fact that appellate proceedings are the continuation of original proceedings, should have entertained the claim of the assessee and allowed, if other conditions of the provisions of the law were satisfied. Therefore, the Commissioner (Appeals) was to be directed to consider the claim of the assessee at the revised figures on merits and decide the same according to the provisions of sections 80HH and 80-I. (Emphasis Supplied).
Further, the Hon'ble Gujarat High Court in the case of Choksi Metal Refinery Vs.CIT (107 ITR 63) also relied on the Circular 14 (XL-35) and held that the AO is duty bound to point out any relief available to the assessee under the Act even though it is not claimed by the assessee.
39. The jurisdictional High Court in the case of CIT Vs. Reliance Utilities & Power Ltd., 313 ITR 340 has laid down the following principle :-
"If there are funds available both, interest free and over draft and/or loans are taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds are sufficient to meet the investments."9 ITA No. 3749/Mum/2017- Mentor Capital Limited
40. Hon'ble Bombay High Court in the case of CIT Vs. Pruthvi Brokers & Shareholders Pvt. Ltd. (349 ITR 336) has held as under:
"We find well founded, Mr. Mistri's submission that even assuming that the Assessing: Officer is not entitled to grant a deduction On the basis of a letter requesting an amendment to the return filed, the appellate authorities are entitled to consider the claim and to adjudicate the same. (para 9) .
It is also important to note that in the appeal filed by the appellant before the Tribunal, there is no challenge to the CIT(A) having entertained the respondent's claim for deduction on the ground that the appellate authority had no jurisdiction to do so. Even if such a contention had been raised, it would make no difference. (para 11) The underlined observations in the above passage do not curtail the ambit of the jurisdiction of the appellate authorities stipulated earlier. They do not restrict the new/additional grounds that may be taken by the assessee before the appellate authorities to those that were not available when the return was filed or even when the assessment order was made. The sentence read as a whole entitles an assessee to raise new grounds/make additional claims "if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order made .... "
"or"
if "the ground became available on account of change of circumstances or law" .... (para 17) The appellate authorities, therefore, 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 first part viz "if the ground so raised could not have been raised at that particular stage when the return was filed or when the assessment order was made ... " clearly relate to cases where the ground was available when the return was filed and the assessment order was made but "could not have been raised" at that stage. The words are "could not have been raised" and not "were not in existence". Grounds which were not in existence when the return was filed or when the assessment order was made fall within the second category viz. where "the ground became available on account of change of circumstances or law. "(para 18) The words "could not have been raised" must, therefore, be construed liberally and not strictly. (para 19) "It is indeed a question of exercise of discretion whether or not to allow an assessee to raise a claim which was not raised when the return was filed 10 ITA No. 3749/Mum/2017- Mentor Capital Limited or the assessment order was made. As held by the Supreme Court there may be several factors justifying the raising of a new plea in appeal and each case must be considered on its own facts. However, such cases include those, where the ground though available when the return was filed or the assessment order was made, was not taken or raised for may consider valid. In other words, the jurisdiction of the appellate authorities to consider a fresh or new ground or claim is not restricted to cases where such a ground did not exist when the return was filed and the assessment order was made. (para 20) In the decision of Pruthvi (supra), the AO rejected the claim for deduction made by the Assessee in the course of the assessment on the ground that it was not claimed in the ROI. Before CIT(A), the assessee argued that CIT(A) had powers to consider the claim of the Assessee. In that case, CIT(A) examined the issue and allowed the deduction claimed. In the Department's appeal Hon'ble ITAT noted that the Assessee had relied on NTPC and other cases on the powers of the Appellate authorities and dismissed the appeal after considering the claim. Thus, in Pruthvi's case there was a claim before the AO as well as an independent claim before the appellate authorities, viz: CIT(A) and ITAT. Thus, while in Goetze (supra), the claim was only before the AO, in Pruthvi (supra), there was a claim before the AO as well as the Appellate authorities.
41. In Pruthvi's case, Hon'ble High Court interpreted the power of Hon'ble ITAT to include a power to entertain a claim for the first time based in a judicial decision given while the appeal is pending before ITA T. Hon'bIe High Court heavily relied on the decisions of the Apex Court in Jute Corporation of India Ltd. (187 ITR 688) and NTPC (supra) to decide on the powers of the Appellate Authorities. On page 349 of the Report, Hon'bIe High Court has referred to Goetze (supra) and has observed that in the case before Hon'ble Supreme Court, there was no claim before the appellate authorities and that the jurisdiction of the appellate authorities has not been negated in Goetze (supra).
42. The assessee, based on the Judgment of the Hon'ble Bombay High Court in the case of Reliance Utilities (supra) and also the decision of in the case of HDFC Bank (supra) has raised such claim before the Income-tax Authorities that no disallowance u/ s 14A of the Act be made if investments are made from own funds. Thus, the additional claim made by the assessee is fully covered by Pruthvi (supra); it is not restricted by Goetze(supra).
11 ITA No. 3749/Mum/2017- Mentor Capital Limited43. Further, in the case of National Thermal Power Co. Ltd. v. CIT (229 ITR 383) (SC) wherein the assessee had offered interest income earned on idle funds to tax, but later, based on the judicial pronouncements of the Special Benches of the Tribunal, learnt that the interest earned on funds before setting up the business is not taxable as income but is to be reduced from the capital cost. On learning this legal position, the assessee raised additional grounds before the Tribunal which, the Tribunal declined to entertain. Thus, in the above case, the Hon'bIe Supreme Court held as under:
"We reframe the question which arises for our consideration in order to bring out the point which requires determination more clearly. It is as follows:
"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?"
Under section 254 of the Income-tax Act, the Appellate Tribunal may, after giving both the parties to tlie appeal an opportunity of being heard, pass such orders thereon as it thinks fit. The power of the Tribunal in dealing with appeals is thus expressed in the widest possible terms. The purpose of the assessment proceedings before the taxing authorities is to assess correctly the tax liability of an assessee in accordance with law. If, for example, as a result of a judicial decision given while the appeal is pending before the Tribunal, it is found that a non-taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising that question before the Tribunal (or the first time, so long as the relevant facts are on record in respect of that item. We do not see any reason to restrict the power of the Tribunal under section 254 only to decide the grounds which arise from the order of the Commissioner of Income-tax (Appeals). Both the assessee as well as the Department have a right to file an appeal/cross- objections before the Tribunal. We fail to see why the Tribunal should be prevented from considering questions of law arising in assessment proceedings although not raised earlier.
The view that the Tribunal is confined only to issues arising out of the appeal before the Commissioner of Income-tax (Appeals) takes too narrow a view of the powers of the Appellate Tribunal (vide, e.g., CIT v. [1981] 128 ITR 388 (Delhi), CIT v. Karamchand] ITR 25 (Cuj) and CIT v. Cellulose products of India Ltd. (1985) 151 ITR 99 (Guj) [FB]). Undoubtedly, the tribunal will have the discretion to allow or not allow a new ground to be raised. But where the Tribunal is only required to consider a question of law arising from the facts which are not on record in the assessment proceedings we fial to see why such a quewtino 12 ITA No. 3749/Mum/2017- Mentor Capital Limited sh9ould not be allowed to be raised when it is necessary to consider that question in order to correctly assess the tax liability of an assessee.
The reframed question, therefore, is answered in the affirmative i.e. 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. We remand the proceedings to the Tribunal for considering of the new grounds raised by the assessee on the merits."
44. Further, placing reliance on the decision of National Thermal Power Co. Ltd. (supra), similar view was taken by the Honble Delhi High Court in the case of CIT v. Jai Parabolic Springs Ltd. (306 ITR 42), wherein the assessee had claimed 1/5th of the expenditure in the return of income treating the balance as a deferred revenue expenditure and later, by way of an additional ground had claimed the entire expenditure as an allowable deduction. The CIT(A) allowed the assessee's claim and on department's appeal, the Tribunal restored the matter back to the file of AO. Thereafter, the AO did not allow the assessee's claim as it was not made in the return. Both the CIT(A) and Tribunal held that the claim was allowable and allowed the same. Aggrieved thereby, the revenue filed an appeal before the Hon'ble Delhi High Court wherein it was held as under:
"Section 254 of the Act says that the Appellate Tribunal may, after giving both the parties to the appeal an opportunity of being heard, pass such orders thereon as it thinks fit. (para 13) In Goetze (India) Ltd. v. CIT [2006) 284 ITR 3231 (SC), wherein deduction claimed by way of a letter before Assessing Officer, was disallowed on the ground that there was no provision under the Act to make amendment in the return without filing a revised return. Appeal to the Supreme Court, as the decision was upheld by the Tribunal and the High Court, was dismissed making clear that the decision was limited to the power of assessing authority to entertain claim for deduction otherwise than by revised return, and did not impinge on the power of Tribunal. (para 17) it is very clear that there is no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arises in the matter and for the just decision of the case." (para 19) Thus, in view of above judicial pronouncements, it is a settled legal position that the Appellate Authorities have the powers to consider an additional claim made by the Appellant during the course of assessment proceedings other than by filing a revised return.13 ITA No. 3749/Mum/2017- Mentor Capital Limited
45. Reliance is also placed on the decision of the Hon/ble Mumbai Tribunal in the case of M/s First Advantage P. Ltd. v. ACIT (ITA No. 9088/Mum/2010) wherein, placing reliance on National Thermal Power Co. Ltd (supra), the Tribunal has held as under:
"lt is true that the Hon'ble Bombay HighCourt in the case of Pruthvi Brokers & Shareholders Pot. Ltd. (supra) followed Hon'ble Supreme Court judgment in Goetze indiai supra) to reiterate that Assessing Officer cannot entertain claim in the absence of revised return. However, relying on the case of National Thermal Power Company Ltd. Vs. CIT (229 ITR
383) it was held that appellate authorities have jurisdiction to entertain the new claim provided that the facts are available on the record. In this case, the assessee made the claim before the Assessing Officer about the taxability of Foreign Exchange Gain on loan obtained for acquisition of capital assets. The Assessing Officer ignored the provisions of Section 43A which is very specific with reference to changes in rate of exchange of currency when an assessee has acquired any assets. Thus, there is merit in the assessee's contentions. However, since the claim was not examined by Assessing Officer in its correct prospective, we direct the Assessing Officer-to consider the claim after examining whether the amount can be considered as capital in nature, so as to adjust in the Block of Assets. He was also directed to keep in mind the stand taken by the Assessing Officer in the Assessment Year 2009-10 where it seems the loss on Foreign Exchange Loan was disallowed, in order to have consistency on the issue. Therefore, the claim is accepted and the issue in this ground is restored the file of Assessing Officer to consider on its merits."
46. The same view has also been held by the Hon'ble Mumbai Tribunal, in the case of ADIT v. Credit Lyonnais (28 taxmann.com 91), the relevant extract of which is as under:
"The only distinguishing feature which weighed with the Id. ClT(A) for not accepting the assessee's claim in this regard is that the assessee voluntarily offered such amount for taxation. The Hon'ble Bombay High Court in the case of CIT v. Pruthvi Brokers & Shareholders [2012] 23 iaxmann.com 23/208 Taxmann 498 (Bom.) has held that the assessee is entitled to raise before the appellate authorities an additional claim which was not made in the return filed by it. Even though the assessee initially voluntarily offered an income under some misconception, that cannot be a reason to put such amount to tax if it later on turns out to be not chargeable to tax."
47. Reliance can also be placed on the decision of the Hon'ble Delhi Tribunal in the case of Solaris Bio Chemicals Ltd. v. DCIT (25 taxmann.com
182) wherein it was held as under:
14 ITA No. 3749/Mum/2017- Mentor Capital Limited"Further, in 'Goetze (India) Ltd. (supra), undeniably, the decision rendered was only in respect of a new claim made in the assessment and not in respect of modification of claim. ln r Hero Honda Finlease Ltd. (supra), the assessee had claimed higher depreciation @ 40% during the assessment proceedings, as against @ 20% in the tax audit report. The Tribunal held that the claim of higher depreciation in the assessment proceedings could not be termed as a new claim and that Goetze (India) Ltd. (supra) was only in respect of a new claim made in the assessment proceedings and not modification of claim. Then, in 'Ramco International' (supra), it has been held that where, during the assessment proceedings, the assessee had not made any fresh claim and had duly furnished the documents and submitted Form No. 10CCB for claim u/s 80IB of the Act, no revised return was required to be filed; .
In keeping with the aforesaid decisions, here also, on facts, it is held that since the assessee had only sought to claim a higher rate of depreciation, no revised return of income was required to be filed and that being so, 'Goetze (India) Ltd. (supra) is not applicable at all and it has been wrongly applied by the authorities below."
48. Further, reliance can be placed on the recent decision of the Mumbai Tribunal in the case of ITO v. Idea Cellular Ltd. (ITA No. 3493/Mum/2008) wherein it was held as under:
"The restriction on the jurisdiction for entertaining a fresh claim otherwise than a revised return is applicable only of the AO and not of the appellate authorities. There is no fetter on the power and jurisdiction of the appellate authorities to entertain a fresh claim if no new facts are required to be investigated to adjudicate such fresh claim.
So far as the admissibility of the fresh claim first time before the appellate authority is concerned, we find that an identical issue was before the Hon'ble Supreme Court in the case of National Thermal Power Corporation Ltd. Vs. CIT (supra). The issue in the said case emerged from the fact that the assessee offered an amount to tax in the return of income which was not taxable as income. The inclusion of the said amount was not objected by the assessee even before the CIT(A) and only after filing appeal before the Tribunal the assessee raised a ground by way of forwarding a letter. In those facts, Hon'ble Supreme Court has held that when it is found that non taxable item is taxed or a permissible deduction is denied, we do not see any reason why the assessee should be prevented from raising the question before the "Tribunal first time so long as relevant facts are on record in respect of that item. We have already reproduced the relevant finding of the Hon'ble Supreme Court in the foregoing paras while discussing the ground no. 2. It is clear from the decision of Hon 'ble Supreme Court that when a claim which is otherwise allowable /permissible but was not allowed as the assessee did not claim 15 ITA No. 3749/Mum/2017- Mentor Capital Limited the same in the return of income, there is nothing under law to prevent the assessee to raise such claim before the appellate authorities if the facts relating to such new claim are already on record and do not require any investigation. Accordingly in the (acts and circumstances of the case when the denial of claim by CIT(A) is not on the ground that it is not allowable but [or want of such claim be[ore the AD and further on merits this issue is covered bl{ the series of decisions as relied upon by the assessee then we are of the view that the CIT(A) has committed an error in not admitting the additional ground raised by the assessee. Hence this ground stands admitted."
To summarize, the assessee had claimed before the AO that if own funds are more than the tax free investments, then the presumption can be drawn that investments are made from own funds. Further, independent of that claim the assessee has claimed before CIT(A) as well as before us that, based on legal position, no interest disallowance can be made u/s.14A when sufficient interest free funds are available with assessee.
49. Article 265 of the Constitution in unmistakable terms provides that no tax shall be levied or collected except by authority of law and therefore the Hon'ble Supreme Court has held that the purpose of assessment proceedings is to assess correctly the tax and consequently, the Tribunal has the power to grant relief if it is found that a non-taxable item is taxed or a permissible deduction is denied and thus an assessed income can be lesser than the returned income. Hence, in the present case, it is permissible for the Hon'ble Tribunal to consider assessee's claim for not making any disallowance of interest u/s.14A since interest free funds are more than investment, notwithstanding the assessee having offered a disallowance under Section 14A in its return of income which was calculated on the basis of the method adopted by the Department in the earlier years.
50. In case of Birmala L. Mehta - 299 ITR , the Hon'ble Bombay High Court held as under :-
"Article 265 of the Constitution of India unmistakable terms provides that no tax shall be levied or collected except by authority of law. Acquiescence cannot take away from a party the relief that he is entitled to where the tax is levied or collected without authority of law."16 ITA No. 3749/Mum/2017- Mentor Capital Limited
In case of Balmukund Acharya - 310 ITR 310 the Hon'ble High Court held that;
In this case, the Bombay High Court applied the decision of Nirmala L. Mehta and at page 318 in paragraph 32 observed as follows: "Tax can be collected only as provided under the Act. If any assessee, under a mistake, misconceptions or on not being properly instructed is over assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected."
(vi) Guharat Gas vs. JCIT - 245 ITR 84 (Gujarat High Court) In this case, the Gujarat High Court held that an assessed income can be less than the returned income under the provisions of the Income-tax Act and therefore a contrary CBDT Circular was not in accordance with law.
(vii) Chandrashekhar Baharwani vs. ACIT (ITA Nos.7810/M/2010) (Mumbai Tribunal) In this case, the Mumbai Bench followed the above decisions of the Bombay High Court and of the Gujarat High Court. The Tribunal granted a relief in respect of Capital Gains which were inadvertently included in the return. The Tribunal observed as follows:
"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 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."
51. So far as the contention that the assessee itself has offered disallowance in the return of income is concerned, the Id. AR has relied upon various case laws 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 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 17 ITA No. 3749/Mum/2017- Mentor Capital Limited 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 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.
52. 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 (Born.) 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 18 ITA No. 3749/Mum/2017- Mentor Capital Limited 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 several factors justifying the raising of a new plea in an appeal and each case must be considered on its own facts.
53. 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 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, 19 ITA No. 3749/Mum/2017- Mentor Capital Limited 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 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."
54. Respectfully following the above decisions of higher courts and that of co-ordinate benches of the tribunal, we direct the AO to delete the disallowance of interest u/s.14A and restrict the disallowance of common expenses to the extent of 0.05% of average investment.
55 Respectfully following the decision of Hon'ble Jurisdictional High Court in the case of HDFC Bank and Reliance Utility, and also decision of Gujarat High Court in the case of UTI Bank. We do not find any merit for disallowance of interest u/s 14A r.w.r. 8D, in so far as assessee was having sufficient interest free funds available with it as per the balance sheet and the incremental cash flow statement placed on record. Accordingly, we direct the AO to delete the disallowance made in respect of the interest expenses while computing disallowance u/s 14A r.w.r 8D.
56. In view of the above, we direct the AO not to disallow any interest expenditure so incurred and restrict the disallowance in respect of administrative expenses to the ½ percent of average investment, we direct accordingly."
8. We have further seen that by following the decision of Tribunal for Assessment Year 2008-09 to 2011-12 in ITA No. 7408/Mum/2014 for Assessment Year 2010-11 and ITA No. 194 to 196/Mum/15 and ITA No. 7512/Mum/2014 for Assessment Year 2008-09 to 2011-12, the ld CIT(A) in subsequent assessment year 2013-14 and 2014-15 allowed the similar relief 20 ITA No. 3749/Mum/2017- Mentor Capital Limited to the assessee vide order dated 18.12.2017. Therefore, considering the decision of co-ordinate bench of Tribunal on identical grounds of appeal in earlier years, we principally inclined that no interest disallowance under Rule 8D2(ii) is warranted against the assessee, so far as disallowance under Rule 8D2(iii) is concerned, we direct the Assessing Officer to verify the fact and re-compute the disallowance @ 0.5% of average value of investment by following the decision of Tribunal in assessee's own case for earlier years as refereed above and the order of CIT(A)-51 for Assessment Year 2013-14 & 2014-15. In the result the grounds of appeal raised by the assessee are allowed for statistical purpose.
9. In the result, appeal of the assessee is allowed for statistical purpose.
Order pronounced in the open court on 06/02/2019.
Sd/ Sd/-
MANOJ KUMAR AGGARWAL PAWAN SINGH
ACCOUNTANT MEMBER JUDICIAL MEMBER
Mumbai, Date: 06.02.2019
SK
Copy of the Order forwarded to :
1. Assessee
2. Respondent
3. The concerned CIT(A)
4. The concerned CIT
5. DR "G" Bench, ITAT, Mumbai
6. Guard File
BY ORDER,
Dy./Asst. Registrar
ITAT, Mumbai
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