TaxTMI 
TaxTMI 
2016 (1) TMI 604
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....ncome-tax Appellate Tribunal (hereinafter referred to as "the Tribunal") dated 30tb August, 2013, raising the following questions for our consideration: [A] Whether the Appellate Tribunal has substantially erred in directing the Assessing Officer to admit assessee's contention for deleting the suo moto disallowance of Rs. 6.32 crores u/s 14A made by the assessee in the return of income? [B] Whether the Appellate Tribunal has erred in not appreciating the fact that the assessee can only make a new claim which was not made in the original return by way of filing a revised return u/s. 139(5)?" 2. We have heard the learned counsel for the parties and in the facts of the case, propose to dispose of this Tax Appeal at this stage. 3. Briefly stated the facts are that the Assessing Officer by his order of assessment for the assessment year 2002-03 made addition of Rs. 30.45 crore (rounded off) by way of additional disallowance under section 14A of the Income-tax Act, 1961 ("the Act", for short). The aasessee carried the matter in appeal. CIT (Appeals) restricted the additions, but still confirmed the view of the Assessing Officer that section 14A of the Act would apply. ....
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.... give its final conclusive opinion on the entire issue. 7. Learned counsel for the Revenue placed heavy reliance on the decision of the Supreme Court in the case of Gietze (India) Limited Vs. Commissioner of Income-tax, reported in [2006] 284 ITR 323 (SC), whereas counsel for the assessee placed reliance on the judgment of this Court dated 02.04.2014 in Tax Appeal No.2562/2009 and connected appeals in the case of Commissioner of Income-tax Vs. Mitesh Impex. 8. When we are placing the entire issue for consideration before the Tribunal, we would not like to make any conclusive observations on the rival contentions. We leave it for the Tribunal to hear both the parties and give its conclusive findings as found appropriate in law. 9. Under the circumstances, the appeal is partly-allowed. The Tribunal's judgment on the issue on hand is set aside. The entire issue is placed back before the Tribunal for decision on merits." 3. Both parties inform us that the sole substantive issue identical in all three cases for our adjudication is that of section 14A disallowance. We accordingly treat assessee's appeal ITA 152/Ahd/2006 as the 'lead' case. 4. The assessee company M/s U....
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....ing the exempt income under the provisions of Sec. 14A. This view is supported by the decision of ITAT Chennai Bench in the case of Southern Petro Chemicals Industries V. DCIT, 93 TTJ 161. As pc this decision, the investment decisions are very strategic decisions in which top management is involved and, therefore, proportionate management expenses are required to be deducted while computing the exempted income. On similar logic, the other operating expenses are also to be deducted. The appellant has already disallowed Rs. 6.23 Cr. out of interest expenditure. The disallowance out of operating expenses comes to Rs. 5.11 Cr. which is justified. Hence, the disallowance is confirmed to the extent of Rs. 5.11 Cr. and the balance amount of Rs. 25.34 Cr. is deleted." 6. This lower appellate order left both parties aggrieved. The assessee filed the instant appeal ITA 152/Ahd/2006. The Revenue preferred cross appeal ITA 233/Ahd/2006. A co-ordinate bench decided these appeals on 30-08-2013. The assessee raised an additional argument therein that its suo moto disallowance of Rs. 6.23 crores is also not sustainable. The learned co-ordinate bench in its order admitted this new plea and remitt....
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....reafter worked out disallowance u/s 14A as under:- Total Tax-free Investments at 31/3/2002 (Rs. 414 crores + 14.92crores) Rs. 428. 92 crores Proportion of total funds to interest hearing funds 91%. Proportion of interest bearing funds used for Tax free investment (91% of Rs. 428. 92 crores) Rs. 390.32 crores Expenses allocated to such amount of Rs. 390.32 crores @ 9.4% on the basis of average cost of borrowal - 9.4% of Rs.390.32Cr. Rs. 36.68cror es Total expenses incurred for earning taxfree income is Rs. 36.68cror es Disallowances u/s 14A Rs. 36.68 crores Already disallowed by assessee Rs. 6.23 crores Balance disallowable Rs. 30.45 crores 16. The disallowance worked out by the AO was Rs. 36.68Crore but since the Assessee had already suo motu disallowed Rs. 6.23 Crore, he made disallowance of balance amount of Rs. 30.45 Crore. Aggrieved by the order of AO, Assessee carried the matter before CIT(A). CIT(A) after considering the submissions made by the assessee granted partial relief to the Assessee by holding as under: 6.3 After considering the submissions of the appellant and the case laws relied upon, I am of the opinion that the acti....
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.... the Assessee in the form of Capital, Reserves and interest free demand deposits aggregated to Rs. 1766 Crore as against which the tax free investment at the end of the year was Rs. 414 Crore. He thus submitted that the interest free funds available with the assessee were far in excess over the tax free investment and in percentage terms, the interest free deposits in relation to tax free funds worked out to 327%. He further submitted that in view of the fact that interest free funds was far in excess of tax free investments, no disallowance u/s 14A was called for. He further submitted that the disallowance made suo moto by the Assessee of Rs. 6.23 Cfore should also be reversed for the reason that on identical facts in the case of Assessee, the Hon. Tribunal had deleted the addition made u/s 14A and which was also upheld by Hon. Gujarat High Court in Tax appeal no. 118/Ahd/2013. He placed on record at page 335 to 372 the order of Tribunal for A.Y. 2003-04 and at page 373 to 378 the order of Gujarat High Court. The learned A.R. further submitted that since no amount of disallowance u/s 14A can be made in the case of the Assessee and therefore urged to delete the entire disallowance ....
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....ing the credit of disallowance of Rs. 5.53 crore made by the-Assesses, the AO disallowed Rs. 27.23 crore u/s 14A. As on 31 March 2003, the interest free funds available with the assessee was to the tune of Rs. 3404 crore (comprising of share capital of Rs. 230 crore, Reserves of Rs. 689 crores and interest free demand deposits of Rs. 2485 crores) as against which the tax free investments were to the tune of Rs. 589 crore. Thus the interest free funds were, far in excess of the investments. CIT (A) has given a finding that the facts in AY 2003-04 are identical to the facts of the case in AY 2002-03 and accordingly he has followed the decision of CIT (A) for AY 2002-03. These facts have not been controverted by the Ld. D.R. nor have they brought on record any facts to the contrary. Hon'ble Bombay High Court in the case of CIT Vs Reliance Utilities & Power Ltd (supra) has held that if there are interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee has raised a loan it can be presumed that the investments were from interest free funds available. In the present case, since the assesses has suo moto disallowed Rs. 5,53 crore....
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....tical purposes." The Revenue's corresponding ground in its cross appeal also followed suit. It preferred the above stated tax appeal no. 307 of 2014 before the hon'ble jurisdictional high court. Their lordships have directed us to decide the entire issue after hearing both parties 7. The assessee submits that our adjudication in the instant appeal is confined to the issue of suo moto disallowance only and not to decide the correctness of entire disallowance of Rs. 36.68 crores made in the course of assessment. It refers to section 260A(1) of the Act and takes us to the Revenue's two substantial questions of law. The assessee argues that their lordships have not framed any additional substantial question of law u/s. 260(4) of the Act. It contends that the hon'ble jurisdictional high court in case of Mitesh Impex (supra) has settled the law that filling of a revised return u/s. 139(5) of the Act is not mandatory if it is found that the claim in question is very much admissible under the law but not raised either inadvertently or on account erroneous belief before the lower authorities. 8. The assessee's submissions on merits are that its suo moto disallowance of Rs. 6.23 crores i....
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....mount is only interest sum qua incremental demand deposits. The Assessing Officer in assessment disallowed a sum of Rs. 36.68 crores mainly on proportionate basis between total funds vis-à-vis interest bearing ones. The CIT(A) granted part relief to the extent indicated hereinabove. Both parties came in appeal. The co-ordinate bench in first round remitted the entire issue back to the assessing authority. The Revenue challenged this order before the hon'ble jurisdictional high court. Their lordships observe in above extracted order that the tribunal ought to have given conclusive opinion. This backdrop of facts culminated in this second round of proceedings before us. 11. Now we come to first dispute between the parties as to whether our instant adjudication is confined to correctness of suo moto disallowance of Rs. 6.23 crores made towards exempt income or that to the entire issue of section 14A disallowance made by the Assessing Officer to the tune of 36.68 crores. It has come on record that the tribunal in first round had remitted the issue of this disallowance back to the assessing authority for afresh adjudication. The net result was that corresponding ground in assess....
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....administrative expenditure u/s. 14A, in the face of facts that infrastructure and human resources of Bank were employed for investing activities which earned exempt income, particularly, when the assessee itself disallowed certain part of interest expenditure u/s. 14A?" 3. The issue pertains to disallowance under Section 14A of the Act made by the Assessing Officer which was partially deleted by the CIT(A). Such order of CIT(A) gave rise to cross appeals at the hands of the assessee as well as the revenue. Tribunal confirmed the view of the CIT(A) making following observations: "33. We have heard the rival contentions and perused the material on record, The undisputed facts are that during the year the assessee has earned interest of Rs. 17.45 crore on tax free bond and debentures as against which the assessee had suo motu disallowed Rs. 5.53 crore being the interest expenses u/s. 14A as against which the AO has worked out the disalloweance of Rs. 32.76 crore. After giving the credit of disallowance of Rs. 5.53 crore made by the Assessee, the AO disallowed Rs. 27.23 crore u/s. 14A. As on 31st March, 2003, the interest free funds available with the assessee was to the tune of ....
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....mbay High Court in case of CIT Vs. Reliance Utilities & Power Ltd. reported in 313 ITR 340. Additionally, we find that the Assessing Officer had, without giving a finding as to how much administrative expenditure have been incurred to earn the exempt income, had made disallowance. In the earlier years also, similar position obtained. That being the fact, no question of law arises. 5. In the result, tax appeal is admitted only for above noted question." The Revenue's Special Leave Petition (supra) stand admitted qua administrative expenses only. The only distinction that is to be seen in these two assessment years is that the assessee has suo moto disallowed Rs. 6.23 crores in the impugned assessment year. The Revenue seeks to apply estoppel principle. We are of the view that purpose of scrutiny assessment is to determine correct taxable income as per law and not to rely on such technicalities. The same principle applies even in appellate proceedings being in the nature of continuity of original proceedings. Therefore, we follow consistency and hold that the impugned disallowance of Rs. 36.68 crores made in the course of assessment partly sustained in lower appellate proceeding....