2021 (7) TMI 212 - AT - Income Tax

Tax Appeals: Revised Claims Allowed, Section 14A Disallowance Vacated, Appellate Authority Upheld

The Tribunal allowed the appeals for A.Y. 2013-14 and A.Y. 2014-15, directing the A.O to give effect to revised claims and rectify errors. The judgments ... Disallowance u/s 14A r.w.r. 8D - assessee had offered a suo motto disallowance - assessee while computing the disallowance under Sec. 14A had excluded the investment made in its subsidiary company - HELD THAT:- Hon’ble High Court of Bombay in the case of Pruthvi Brokers & Shareholders (Pvt). Ltd. [2012 (7) TMI 158 - BOMBAY HIGH COURT] and that of the Hon’ble High Court of Madras in the case of Abhinitha Foundations (Pvt.) Ltd. [2017 (6) TMI 604 - MADRAS HIGH COURT] we are of the considered view, that now when the CIT(A) relying on the judgment in the case of HDFC Bank Ltd [2016 (3) TMI 755 - BOMBAY HIGH COURT] had principally concurred with the assessee that as the interest-free funds available with it were more than the investments made in securities which have yielded exempt income, therefore, it had to be presumed that such investments were made out of the interest free funds, and thus, there was no justification on his part in sustaining any part of the disallowance relatable to the interest expenditure unde Sec. 14A r.w Rule 8D(2)(ii). We, thus, in the backdrop of the admitted fact that the assessee had significant interest-free funds to make the investments in the exempt income yielding securities, thus, are of the considered view that no part of the interest expenditure could have been disallowed under Sec. 14A r.w. Rule 8D(2)(ii). Accordingly, in the backdrop of our aforesaid deliberations we vacate the disallowance of the interest expenditure under Sec. 14A r.w Rule 8D(2)(ii) that was offered by the assessee in its return of income. Grounds of appeal nos. 1 to 3 are allowed in terms of our aforesaid observations. Fresh claim raised by an assessee before the appellate authorities - Revised claim of Deduction u/s 36(1)(vii) - Deduction would be the actual bad debts written off over and above the ‘opening balance’ of the provision for bad and doubtful debts u/s 36(1)(viia) - HELD THAT:- In order to drive home our view that a ‘fresh claim’ can be raised by an assessee before the appellate authorities, as long as the same arises from the facts borne on record, we draw support from the judgment of the Hon’ble High Court of Bombay in the case of CIT Vs. Pruthvi Brokers & Shareholders (P) Ltd. [2012 (7) TMI 158 - BOMBAY HIGH COURT] and Abhinitha Foundations (Pvt.) Ltd. [2017 (6) TMI 604 - MADRAS HIGH COURT] The observation of the CIT(A) that the amount of deduction u/s 36(1)(vii) would be the actual bad debts written off over and above the “opening balance” of the provision for bad and doubtful debts account created under Sec. 36(1)(viia) of the Act had not been assailed before us by the revenue, and thus, the same had attained finality. However, for the sake of completeness and in order to dispel all doubts, we may herein observe that the said claim of the assessee is duly supported by the CBDT Circular No. 17/2008, dated 26.11.2008; and the judgment of the Hon’ble High Court of Gujarat in the case of CIT Vs. UTI Bank Ltd., 2013, [2013 (1) TMI 209 - GUJARAT HIGH COURT] Accordingly, in the backdrop of our aforesaid deliberations, we herein direct the A.O to allow the assessee’s revised claim for deduction u/s 36(1)(vii) r.w.s 36(1)(viia) of the Act. Additional ground of appeal - As the assessee by raising the aforesaid “additional ground of appeal” has sought our indulgence for adjudicating an issue involving purely a question of law based on the facts available on record, we, thus, admit the same. Education Cess” or any “other cess” viz. the Secondary and Higher Education Cess as disallowable expenditure u/s 40(a)(ii) - HELD THAT:- As in the case of Sesa Gold Limited [2020 (3) TMI 347 - BOMBAY HIGH COURT] and therein conclude that “Education Cess” and the Secondary and Higher Education Cess is not disallowable as a deduction u/s 40(a)(ii) of the Act. We, thus, restore the issue to the file of the A.O for the limited purpose of giving consequential effect. Issues Involved:1. Disallowance under Section 14A of the Income Tax Act, 1961.2. Deduction under Section 36(1)(vii) read with Section 36(1)(viia) of the Act.3. Deduction under Section 36(1)(viii) of the Act.4. Claim for deduction of education cess paid on income tax.Issue-Wise Detailed Analysis:1. Disallowance under Section 14A of the Act:The assessee, a multi-state co-operative bank, had offered a suo motto disallowance under Section 14A read with Rule 8D of Rs. 50.64 lakhs in its return of income for A.Y. 2013-14. The Assessing Officer (A.O) recalculated the disallowance to Rs. 1,86,62,836/- by including an investment of Rs. 20 crores in its subsidiary, which the assessee had excluded. The CIT(A) agreed with the assessee that significant interest-free funds were available, thus no interest disallowance was warranted. However, the CIT(A) restricted the disallowance to Rs. 50.64 lakhs, stating that any reduction beyond this amount required a revised return. The Tribunal, referencing the Supreme Court judgment in Goetze India Ltd. and the Bombay High Court's judgment in Pruthvi Brokers & Shareholders, held that appellate authorities could entertain new claims based on facts on record and vacated the entire disallowance of interest expenditure under Section 14A r.w. Rule 8D(2)(ii).2. Deduction under Section 36(1)(vii) read with Section 36(1)(viia) of the Act:The assessee claimed a deduction of Rs. 27.66 crores under Section 36(1)(vii) for bad debts written off, which was initially restricted to the excess over the 'closing balance' of the provision for bad and doubtful debts. The CIT(A) admitted the additional ground but denied the claim, stating it was not raised in the original or revised return. The Tribunal, relying on the CBDT Circular No. 17/2008 and the judgments of the Bombay High Court and Gujarat High Court, directed the A.O to allow the revised claim, emphasizing that appellate authorities could consider new claims based on facts on record.3. Deduction under Section 36(1)(viii) of the Act:The A.O disallowed the assessee's claim of Rs. 7.50 crores under Section 36(1)(viii) as no reserve was created during the year. The CIT(A) allowed the claim, referencing the Tribunal's decision in the assessee's favor for previous years. For A.Y. 2014-15, the CIT(A) allowed the claim but erroneously mentioned the amount as Rs. 10 lakhs instead of Rs. 10 crores. The Tribunal directed the CIT(A) to rectify this mistake.4. Claim for Deduction of Education Cess Paid on Income Tax:The assessee claimed a deduction for education cess paid on income tax amounting to Rs. 2,90,37,888/- for A.Y. 2013-14 and Rs. 1,62,86,196/- for A.Y. 2014-15. The Tribunal admitted the additional ground, referencing the Bombay High Court's judgment in Sesa Goa Ltd., which held that education cess is not disallowable under Section 40(a)(ii) of the Act. The Tribunal restored the issue to the A.O for consequential effect.Conclusion:The Tribunal allowed the appeals for both A.Y. 2013-14 and A.Y. 2014-15, directing the A.O to give effect to the revised claims and rectify errors as per the Tribunal's observations. The judgments emphasized the appellate authorities' powers to entertain new claims based on the facts available on record, even if not raised in the original or revised returns.