Income Tax Appellate Tribunal - Ahmedabad
Shah Bhagwandas K.Choksi, Surat vs Department Of Income Tax on 19 September, 2014
IN THE INCOME TAX APPELLATE TRIBUNAL " A " BENCH, AHMEDABAD
(BEFORE SHRI ANIL CHATURVEDI, A.M. & SHRI KUL BHARAT, J.M)
I.T. A. No.777/AHD/2011 & C.O. No.93/AHD/2011
(Assessment Year:2007-08)
The Dy. Commissioner of V/S M/s. Shah Bhagwandas K.
Income-tax, Circle-9, Surat Choksi, 1/1236-37, Nanavat
Main Road, Surat.
(Appellant) (Respondent)
M/s. Shah Bhagwandas K. V/S The Dy. Commissioner of
Choksi, 1/1236-37, Nanavat Income-tax, Circle-9, Surat
Main Road, Surat.
(Appellant) (Respondent)
PAN: AAKFS5275K
Appellant by : Shri B.L. Yadav, Sr. D.R.
Respondent by : Shri S.N. Soparkar with Urvashi
Shodhan, A.R.
(आदेश )/ORDER
Date of hearing :09-09-2014 Date of Pronouncement : 19 -09-2014 PER SHRI ANIL CHATURVEDI,A.M.
1. This appeal is filed by the Revenue is against the order of CIT(A)- V, Surat dated 30.11.2010 for A.Y. 2007-08 and Assessee has also filed C.O.
2. The facts as culled out from the material on record are as under.
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3. Assessee is a partnership firm stated to be deriving income from business of Gold and Silver, having dividend income and income from mutual fund. Assessee filed its return of income for A.Y. 2007-08 on 30.08.2007 declaring total income of Rs. 6,52,683/-. The case was selected for scrutiny and thereafter the assessment was framed u/s. 143(3) vide order dated 29.12.2009 and total income was determined at Rs. 15,30,438. Aggrieved by the order of A.O, Assessee carried the matter before CIT(A). CIT(A) vide order dated 30.11.2010 allowed the appeal of the Assessee. Aggrieved by the order CIT(A), Revenue is now in appeal before us and has raised the following grounds:-
1. On the facts and in the circumstances of the case and in law, the ld. CIT (A) has erred in reducing the disallowance u/s 14A from Rs.5,93,079/- to Rs.1,00,576/- by stating that net expenses should be taken to compute the said disallowance as provided in rule 8D despite the fact that there is no such mention to adopt net expenditure.
2. On the facts and in the circumstances of the case and in law, the ld. CIT (A) has erred in allowing fresh claim of interest expenses of Rs.l1,24,065/-made by the assessee voluntary added back by the assessee in the computation of income filed despite the fact that the assessee failed to prove the said expenses with supporting evidences before the A.O. during the assessment proceedings.
3. On the facts and in the circumstances of the case and in law, the ld. CIT (A) has erred in allowing fresh claim of interest expenses of Rs.l1,24,065/- made by the assessee voluntary added back by the assessee in the computation of income filed after relying upon additional evidence without calling for a remand report in contravention of Rule 46A .
4. 1st ground is with respect to reducing the disallowance u/s 14A.
5. During the course of assessment proceedings, A.O noticed that Assessee has earned tax free income in the form of dividend from mutual fund. He also noticed that Assessee had interest expenses of Rs. 29,84,999/- which it had netted against the interest income of Rs. 26,71,158/- and had shown the net interest expenses of Rs. 3,85,252/-. During the course of assessment proceedings, Assessee was asked to explain as to why no disallowance u/s 14A be made in response to which Assessee submitted that according to its calculations, the disallowance of 14A after considering the interest expenses at Rs. 3,84,252/-
worked out to Rs. 1,00,576/-. A.O was however of the view that disallowance u/s 14A has to be worked out on the basis of gross interest of Rs. 29,84,999/-. He accordingly worked out the disallowance u/s 14A as per the provisions of Rule 6D of the ITAT Rules and determined the disallowance u/s 14A at Rs. 5,93,079/-.
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Aggrieved by the order of A.O, Assessee carried the matter before CIT(A). CIT(A) granted substantial relief to the Assessee by holding as under:-
6.2. So far as the computation of disallowance U/S.14A as per Rule 8D given by the A.O. in the assessment order is concerned, I do not agree due to the following reasons :
i. The provisions of Rule 8D (2)(ii) is silent about the expenditure to be taken so far as gross or net is concerned. Hence, the decision of ITAT, Ahmedabad quoted by the A.R. in the case of Mira Industries 87 ITD 475 becomes relevant in deciding the issue in question. The relevant para of the decision given in context of deduction u/s 801 is reproduced as under for the sake of clarity: "The interest payment & interest received are two different transactions and merely because the assessee paid interest cannot be a ground for holding that receipt is income derived from Industrial undertaking. However, to arrive at the income derived from the Industrial undertaking the interest which is paid for earning this income has to be excluded. We therefore, direct the A.O. to exclude only net interest income from the profits and gains shown in the P&L a/c to arrive at the income derived from Industrial undertaking".
From the above decision it can be reasonably inferred that the interest received by the assessee cannot be isolated from the interest paid by him. If there is no direct nexus between these two funds, the net result of income and expenditure will have to be taken for the purpose of computing any allowable deduction/ exemption unless and until otherwise is expressly provided in the statute. In this case there is no such express provision in the Act or Rule which makes it mandatory to take gross expenditure for computation of disallowance u/s 14A in such a situation.
ii. The interest received has already been offered for taxation. If the gross interest expenditure is taken, there will be a sort of double taxation to the extent of disallowance made u/s 14A as submitted by the appellant.
iii. Rule 8D was notified on 24.03.2008 and is held to be applicable from A.Y 2008-09. The Rule has no applicability to earlier assessment year / years. In absence of Rule 8D, disallowance is to be made on some reasonable basis as held in the case of Godrej & Boyce by Hon'ble Bombay HC . If, therefore, having regards to facts and details including proportion of tax free investment to other assets, proportion of exempt income to total income, nexus of borrowed funds, etc., it may be possible to rework disallowance on reasonable basis instead of strict formula of Rule 8D.
Hence in view of the above facts and position of law, I am of the opinion that in computing the disallowance under Rule 8D the net interest expenditure should be taken, not the gross interest as taken by the A.O. Accordingly, the A.O. is directed to disallow only Rs. 1,00,576/- under Rule 8D r.w.s. 14A. Therefore, this ground of appeal is allowed.
6. Aggrieved by the order CIT(A), Revenue is now in appeal before us.
7. Before us, ld. D.R submitted that Assessee has not established any nexus between the interest expenditure and interest income and in such a situation the A.O was fully justified in considering the gross interest for working out the disallowance u/s 14A. He thus supported the order of A.O. ld. A.R. on the other hand reiterated the submissions made before A.O and CIT(A). He further submitted that the Assessee had paid interest of Rs. 29.85 lacs and had received interest of RS. 26.71 lacs and the net amount of Rs. 3.13 lacs were debited to the Profit and Loss account. He further submitted that the only the net interest has to be considered for working out the disallowance u/s 14A and for which he
4 ITA No 777 & CO 93/AHD/2011 . A.Y. 2007-08 relied on the decision of Hon'ble Gujarat High Court in the case of CIT vs. Nirma Ltd Tax Appeal NO. 810/AHD/2013 order dated 20.07.2014. The Decision of Ahmedabad Tribunal in the case of Karnawati Petro Chem (P) Ltd. ITA No. 2228/AHD/2012 order dated 05.07.2013 and the decision of Mumbai Tribunal in the case of Morgan Stanley (Ind) Securities vs. ACIT ITA No. 5072/Mum/2005 order dated 13th April, 2011. He also placed on record the copy of the afoesaid decisions. He further submitted that for the assessment year under consideration the provisions of Rule 8D were not applicable. He thus supported the order of CIT(A).
8. We have heard the rival submissions and perused the material on record. Theissue in the present ground is about the disallowance u/s 14A. It is an undisputed fact that Assessee has debited net interest in its Profit and Loss account. The contention of the Revenue is that gross interest as to be considered for working out disallowance u/s. 14A as against the net interest considered by Assessee. We find that an identical issue was before Hon'ble Bombay Tribunal in the case of Morgan Stanley (Ind) Securities (supra). The Hon'ble Co-ordinate Bench of Tribunal upheld the contention of the Assessee by holding that since the amount of interest debited to the Profit and Loss account was on net basis the disallowance of interest should also be made only with reference to the net interest. Before us, Revenue has not brought any contrary decision in its support for the proposition that gross interest has to be considered for the purpsoe of working out disallowance u/s 14A. Further it is a fact that for the year under consideration, the method prescribed by Rule 8D of the I.T. Rules for the working of disallowance u/s 14A is not applicable and therefore the disallowance has to be made on a reasonable basis as held by Hon'ble High Court in the case of Godrej and Boyce (supra). In such circumstances and in view of the decision in the case of Morgan Stanley (supra) and in view of the fact that CIT(A) has upheld the disallowance u/s 14A at Rs. 1,00,576/- we find no reason to interfere with the order or CIT(A) and thus this ground of Revenue is dismissed.
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9. 2 & 3 ground are interconnected and therefore considered together. It is with respect to allowing of claim of interest expenses of RS. 11,24,065/-.
10. During the course of assessment proceedings, A.O noticed that in the computation of income, Assessee had voluntarily added back interest expense of Rs. 11,25,065/- to its income. The Assessee was asked to file the details of interest expenses to which Assessee interalia submitted that the addition made to the computation of total income was on account of voluntary disallowance made u/s 14A. It was further submitted that the voluntary disallowance u/s 14A was incorrect and as per the correct computation , the disallowance should be considered at Rs. 1,00,576/- and therefore the excess disallowance made by the Assessee should be rolled over. The submission of the Assessee was not found acceptable to the A.O as he was of the view that Assessee had itself done the computation of disallowance and that Assessee has to prove its claim of the expense to be genuine. A.O was further of the view that if the claim of the Assessee was allowed the result will be that the income of the Assessee will be reduced and will be below the income shown in the return of income. He accordingly rejected the claim of the Assessee. Aggrieved by the order of A.O, Assessee carried the matter before CIT(A). CIT(A) after considering the decisions of various High Courts, allowed the claim of the Assessee by holding as under:-
From the above decisions it can be safely inferred that merely because the assessee has wrongly disallowed a certain amount does not mean that the correct disallowance should not be made on the pretext that if it is allowed the assessed income will be lower than the returned income. Further the claim of the appellant is not a fresh one; hence, there was no necessity to file a revised return also. The A.O. was very much within his jurisdiction to entertain the claim of the appellant during the assessment proceedings.
Hence, in the view of the above facts and legal position arising out of various decisions quoted above , the assessee's claim with regard to wrongly disallowed ( by the appellant itself ) interest in the computation of income, is very much allowable. Accordingly the A.O is directed to reduce the total income by an amount of Rs. 11,24,065/- which represents the wrong disallowance of interest made by the appellant in the computation of its income filed along with the return of income.
11. Aggrieved by the order CIT(A), Revenue is now in appeal before us.
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12. Before us ld. D.R. supported the order of A.O and further submitted that Assessee has not proved the claim of expenses. He further submitted that in view of the decision of Hon'ble Apex Court in the case of Goetze India vs. CIT (2006) 284 ITR 323 (SC), Assessee cannot make a claim by way of application but has to file a revised return. He therefore submitted that by not filing revised return of income, the claim of the Assessee cannot be allowed and the claim was therefore rightly rejected by the A.O. He also placed reliance on the decisions in the case of Kerala State Co-op. Agricultural Rural Development Bank Ltd. vs. ACIT (2011) 10 Taxman.com. 145 (Cochin). Orissa Rural Housing Development Corporation Ltd. vs. ACIT (2012) 17 Taxman.com. (Orissa) and the decision in the case of DCIT vs. Rajasthan State Mines and Minerals Ltd. (2012) 25 Taxman.com. 11 (Jaipur).
13. The ld. A.R. on the other hand reiterated the submissions made before CIT(A) and further submitted that the decision of Hon'ble Supreme Court in the case of Goetze India relied upon by the Revenue was confined to the power of Assessing Officer and had recognized the power of CIT(A) and Tribunal to entertain a new claim for the first time though not made before the A.O. He further submitted that Hon'ble Gujarat High Court in the case of CIT vs. Mitesh Impex (2014) 14 Taxman.com 13 (Guj) has held that if a claim though available in law has not made either inadvertently or on account of erroneous belief of complex legal position, such claim cannot be shut out for all times to come merely because it is raised for the first time before the Appellate Authority without resorting to revising the return before the A.O. He thus supported the order of CIT(A).
14. We have heard the rival submissions and perused the material on record. We find that CIT(A) while allowing the claim of the Assessee has given a finding that the claim of Assessee was not a fresh one and hence there was no necessity of filing a revised return. CIT(A) further relying on the various decisions of High Courts has allowed the claim of the Assessee. Before us Revenue has neither 7 ITA No 777 & CO 93/AHD/2011 . A.Y. 2007-08 brought any material on record to controvert the finding of CIT(A) nor has placed any binding contrary decision in its support. Further the case laws relied by the ld. D.R. are distinguishable on facts. In view of the aforesaid facts, we find no reason to interfere with the order of CIT(A) and thus these grounds of Revenue are dismissed.
15. In the result, the appeal of the Revenue is dismissed.
16. Now we take up C.O of the Assessee in CO No. 93/AHD/2011
17. The grounds raised by C.O reads as under:-
1. On the facts and in the circumstances of the case and in law, the learned CIT (Appleal's) has erred in taxing short term capital gain of Rs.2,84,676/- at a special rate when the appellant had loss of Rs.
86130/- which will arise after appeal effect is given to the appellate order and has therefore erred in taxing whole of short term capital gain at a special rate.
18. During the course of assessment proceedings, A.O noticed that Assessee had claimed exempt income of RS. 15,72,682/- which included Rs. 2,84,676/- earned on sale/purchase of units of mutual fund which was not eligible for exemption as it was not dividend and the same was therefore not exempt. On pointing out the same, Assessee admitted the mistake and therefore the exempt income was considered at RS. 12,88,006/- and the balance amount of Rs. 2,84,076/- was held to be taxable as short term capital gain by the A.O. CIT(A) in appeal held that the short term capital gain should be charged to tax at special rate and not at normal rate. Before us, ld. A.R. submitted that Assessee also had loss of Rs. 86,130/- which should have been adjusted against the short term capital gain and only the net short term capital gain should have to be taxed. He fairly conceded that for the factual verification of the working of taxable gain the matter may be sent to A.O. Ld. D.R. on the other hand no objection if the matter was remitted to the file of A.O for verification of the facts.
19. We have heard the rival submissions and perused the material on record. Before us, It is assessee's submission that Assessee also has capital loss of Rs.
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86,130/- which should have been adjusted against the short term capital gain of Rs. 2,84,676/- earned by the Assessee and only the net short term capital gain should be taxed. Before us no details of the short term loss has been filed by the Assessee. Further before allowing the netting off of loss, the factual aspect needs examination and we therefore remit the issue to the file of A.O to verify the factual aspect and thereafter decide the issue in accordance with law. Assessee is also required to furnish the required details promptly before A.O. Needless to state, A.O shall grant adequate opportunity of hearing to the Assessee.
20. In the result, this ground of Cross Objection is allowed.
21. In the result, the appeal of the Revenue is dismissed and C.O of the Assessee is allowed.
Order pronounced in Open Court on 19 - 09 - 2014.
Sd/- Sd/-
(KUL BHARAT) (ANIL CHATURVEDI)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad. TRUE COPY
Rajesh
Copy of the Order forwarded to:-
1. The Appellant.
2. The Respondent.
3. The CIT (Appeals) -
4. The CIT concerned.
5. The DR., ITAT, Ahmedabad.
6. Guard File.
By ORDER
Deputy/Asstt.Registrar
ITAT,Ahmedabad