TaxTMI 
TaxTMI 
2021 (7) TMI 212
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....in facts and in law in not deleting the disallowance under section 14A of the Act to the extent of Rs. 50.64 lakhs which was offered by the appellant in the return of income, on the ground that such claim would amount to an additional claim which could only have been made by way of filing a revised return of income and not otherwise. 2. The learned Commissioner of Income Tax (Appeals) erred in facts and in law in not appreciating that there is no restriction on the powers of an appellate authority to admit an additional claim raised otherwise than by way of filing a revised return. 3. The learned Commissioner of Income Tax (Appeals) should have deleted the entire disallowance of Rs. 50.64 lakhs under section 14A of the Act, having held that the investments in exempt income yielding securities were made out of own funds. 4. The learned Commissioner of Income Tax (Appeals) erred in facts and in law in not allowing appellants claim of deduction under section 36(1)(vii) r.w.s. 36(1)(viia) of the Act to the extent of Rs. 27.66 crores on the ground that such claim would amount to an additional claim which could only have been made by way of filing a revised ret....
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....nder Sec. 14A r.w. Rule 8D of Rs. 50,64,432/-. It was noticed by him that the assessee while computing the disallowance under Sec. 14A had excluded the investment of Rs. 20 crores made in its subsidiary company viz. M/s Saraswat Infotech Ltd. Being of the view that the assessee had wrongly excluded the aforesaid investment made in its subsidiary company while computing the disallowance u/s 14A, the A.O reworked out the disallowance at an amount of Rs. 1,86,62,836/-, as under: Calculation of disallowance under Sec. 14A r.w Rule 8D (31.03.2013) 1.Actual Direct Expenditure 0 2. Interest expenditure not directly attributable to any particular income or receipt. (Working note 1 and 2) 17290778 3. 0.5% of average value of investment. (Working note 3 &4) 1372058 Total Disallowance u/s 14A in respect of exempt income (dividend) (1+2+3) 18662836 Working note 1 1. Interest expenditure Int. on deposits 1537,47,00,019.62 Int. on borrowings 78,55,64,203.98 1....
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.... the Special reserve to the extent of Rs. 7.50 crore [Rs. 15 crore (minus) Rs. 7.5 crore]. It was observed by the A.O that since the assessee had not created any reserve during the year under consideration, thus, for the said reason its claim for deduction u/s 36(1)(viii) was not to be allowed. Accordingly, the A.O disallowed the assessee's claim for deduction of Rs. 7.50 crore u/s 36(1)(viii) of the Act. On the basis of his aforesaid deliberations the A.O vide his order passed u/s 143(3), dated 22.03.2016 assessed the income of the assessee bank at Rs. 334,05,90,740/-. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(A). During the course of the appellate proceedings, the assessee by way of an "additional ground of appeal" assailed the disallowance of the interest expenditure u/s 14A r.w. Rule 8D(2)(ii). It was the claim of the assessee that as it had sufficient self-owned funds for making investments in the exempt income yielding securities, thus, no disallowance of any part of the interest expenditure under Sec. 14A r.w. Rule 8D(2)(ii) was called for in its hands. In support of its aforesaid contention the assessee had drawn support from the judgment ....
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....y the A.O u/s 36(1)(viii), it was observed by the CIT(A) that the assessee had appropriated profits of the earlier year to the extent of Rs. 15 crore and had credited the same to the Special Reserve Account. However, it was noticed by the CIT(A) that a credit to the extent of 7.5 crore. which was in excess of 20% of the eligible profit as per 36(1)(viii) was reversed during the same year and deduction of Rs. 7.5 crore was claimed by the assessee u/s 36(1)(viii) of the Act. It was observed by the CIT(A) that the A.O had disallowed the aforesaid claim of deduction of Rs. 7.5 crore, for the reason, that the reserve had not been created by debiting the profit and loss account. It was observed by the CIT(A) that his predecessor while disposing off the assessee's appeal for the preceding years, viz. A.Y. 2009-10, A.Y. 2011-12 and A.Y. 2012-13 had allowed its claim of deduction u/s 36(1)(viii) of the Act. It was further observed by the CIT(A) that the ITAT, Mumbai in the case of the assessee for A.Y 2012-13 had considered the issue in question and decided the same in favour of the assessee. Accordingly, the CIT(A) following the view taken by the Tribunal in the assessee's own case for ....
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....suo motto offered by the assessee u/s 14A in its return of income. The CIT(A) was of the view that the scaling down of the disallowance u/s 14A to a figure lower than that offered in the return of income could have been done only by filing of a revised return, which the assessee had failed to do. It was submitted by the ld. A.R that the assessee by raising the aforesaid "additional ground of appeal" before the CIT(A) had sought for quantification of the disallowance u/s 14A as per the binding judgement of the Hon'ble High Court of Bombay in the case of HDFC Bank Ltd. (supra). It was submitted by the ld. A.R, that the CIT(A) after principally agreeing with the assessee, both on facts and the settled position of law, was thus obligated to have granted the necessary relief that was sought by the assessee. It was stated by the ld. A.R that though the judgment of the Hon'ble Supreme Court in the case of Goetze India Ltd. (supra) jeopardised the powers of the A.O to allow any relief which had not been claimed by the assessee in its return of income, however, the same was not applicable insofar the appellate authorities were concerned. In support of his aforesaid claim the ld. A.R had rel....
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....ore that was made in the shares of its wholly owned subsidiary, viz. M/s Saraswat Infotech Ltd., for the reason, that the same was in the nature of a strategic investment, the A.O not finding favour with the said claim had included the same and recomputed the disallowance u/s 14A r.w. Rule 8D at Rs. 1,86,62,836/-, as under: Particular Amount u/r 8D(2)(i) Nil Disallowance of interest expenditure u/r 8D(2)(ii) Rs. 1,72,90,778/- Disallowance of administrative expenses u/r 8D(2)(iii) Rs. 13,72,058/- Total Rs. 1,86,62,836/- 8. As observed by us hereinabove, for the reason, that the assessee had significant self-owned funds to justify the investments in the exempt income yielding securities, therefore, it had by relying on the judgment of the Hon'ble High Court of Bombay in the case of HDFC Bank Ltd. (supra) and the order of the Tribunal in the assessee's own case for the preceding years, viz. A.Y 2008-09, A.Y 2009-10 & A.Y 2010-11, vide a common order dated 31st October, 2018 had by raising an "additional ground of appeal" sought that the entire disallowance of interest expenditure u/s 14A r.w Rule 8D(2)(ii) be vacated. The CIT(A) after necessary deliber....
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....sessee in its return of income, except for where the same had been raised by way of filing of a revised return, is applicable only qua the assessing officer and cannot be extended to disable the powers of an appellate authority. In case a view to the contrary is taken, then, the very purpose of admission of an "additional ground of appeal" by the appellate authorities would be rendered as redundant or in fact purposeless. Our aforesaid conviction that a question of law can be raised for the first time before the appellate authority, as long as the facts are borne out from the records is supported by the judgment of the Hon'ble High Court of Bombay in the case of CIT Vs. Pruthvi Brokers & Shareholders (P) Ltd. (2012) 349 ITR 336 (Bom). In its said judgment, it was held by the Hon'ble High Court that an assessee is entitled to raise additional grounds not merely in terms of legal submissions, but also additional claims to wit claims not made in the return filed by it. The Hon'ble High Court while concluding as hereinabove had observed as under: "10. A long line of authorities establish clearly that an assessee is entitled to raise additional grounds not merely in terms of....
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....he assessment; under clause (b) thereof he may set aside the assessment and direct the Income Tax Officer to make a fresh assessment. The Appellate Assistant Commissioner has, therefore, plenary powers in disposing of an appeal. The scope of his power is co-terminus with that of the Income-tax Officer. He can do what the Income-tax Officer can do and also direct him to do what he has failed to do." (emphasis supplied) 6. The above observations are squarely applicable to the interpretation of Section 251(1)(a) of the Act. The declaration of law is clear that the power of the Appellate Assistant Commissioner is co-terminus with that of the Income Tax Officer, if that be so, there appears to be no reason as to why the appellate authority cannot modify the assessment order on an additional ground even if not raised before the Income Tax Officer. No exception could be taken to this view as the Act does not place any restriction or limitation on the exercise of appellate power. Even otherwise an Appellate Authority while hearing appeal against the order of a subordinate authority has all the powers which the original authority may have in deciding the question before it subject ....
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....er depends upon the facts and circumstances of each case and no rigid principles or any hard and fast rule can be laid down for this purpose." [emphasis supplied] 13. 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 was made..." "or" if "the ground became available on account of change of circumstances or law" 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 ha....
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....lable when the return was filed or the assessment order was made, was not taken or raised for reasons which the appellate authorities 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. 16(A). A Full Bench of this Court in Ahmedabad Electricity Limited v. Commissioner of Income-tax, (1993) 199 ITR 351 considered a similar situation. In that case, the appellant/assessee did not claim a deduction in respect of the amounts it was required to transfer to contingencies reserve and dividend and tariff reserve either before the Income Tax Officer or before the Appellate Assistant Commissioner in appeal. Subsequently, this Court had, in Amalgamated Electricity Company Limited v. Commissioner of Income-tax, (1974) 97 ITR 334, held that such amounts represented allowable deductions on revenue account. The appellant, therefore, raised a new claim and additional grounds before the Tribunal in that connection. The Tribunal rejected the same. The second question which was raised in the ....
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....ait a decision of a court in that regard. Indeed, even if a judgment is against an assessee, it is always open to the assessee to claim the deduction and carry the matter higher. The words "could not have been raised", therefore, cannot be read strictly. Neither the Supreme Court nor the Full Bench of this Court meant them to be read strictly. They include cases where the assessee did not raise the claim for a reason found to be reasonable or valid by the appellate authorities in the facts and circumstances of a case. 17. The next judgment to which our attention was invited by Mr. Mistri is the judgment of a Bench of three learned Judges of the Supreme Court in National Thermal Power Company Limited v. Commissioner of Income-tax, (1997) 7 SCC 489 = (1998) 229 ITR 383. In that case, the assessee had deposited its funds not immediately required by it on short term deposits with banks. The interest received on such deposits was offered by the assessee itself for tax and the assessment was completed on that basis. Even before the Commissioner of Income-tax (Appeals), the inclusion of this amount was neither challenged by the assessee nor considered by the Commissioner of Incom....
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....axed 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 for 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 appea1/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." 18. In the case before us, the CIT(A) and the Tribunal have held the omission to claim the deduction of Rs. 40,00,000/- to be inadvertent. Both the appellate authorities held, after considering all the facts, that the assessee had inadvertently claimed a deduction of Rs. 20,00,000/- paid after the end of the year in question. We see no reason to interfere with this finding. We see less reason to interfere with the exercise of discretion by the appellate authorities in permitting the respondent to rais....
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....e appellate authorities. The deduction was disallowed by the Assessing Officer on the ground that there was no provision under the Act to make an amendment in the return of income by modifying an application at the assessment stage without revising the return. The Commissioner of Income-tax (Appeals) allowed the assessee's appeal. The Tribunal, however, allowed the department's appeal. In the Supreme Court, the assessee relied upon the judgment in National Thermal Power Company Limited contending that it was open to the assessee to raise the points of law even before the Tribunal. The Supreme Court held :- "4. The decision in question is that the power of the Tribunal under section 254 of the Income-tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing aut....
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....k Ltd. (supra) 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) of Rs. 46.92 lac that was offered by the assessee in its return of income. The Grounds of appeal nos. 1 to 3 are allowed in terms of our aforesaid observations. 10. We shall now advert to the assessee's grievance that though the CIT(A) had principally agreed qua its claim that the amount o....
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....g of a revised return, however, the said embargo in no way is applicable to the appellate authorities. As deliberated by us at length hereinabove, a question of law as long as the same is based on the facts available on the record can be raised for the first time before an appellate authority. Once again, 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) 349 ITR 336 (Bom) and that of the Hon'ble High Court of Madras in the case of CIT, Chennai Vs. Abhinitha Foundations (Pvt.) Ltd. (2017) 396 ITR 251 (Mad). 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....
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.... observed that if the legislature would had intended to prohibit the deduction of amounts paid by an assessee towards say, "education cess" or any other "cess", then, it could have easily included a reference to "cess" in clause (ii) of Section 40(a). On the basis of its aforesaid observations, the Hon'ble High Court had concluded that now when the legislature had not provided for any prohibition on the deduction of any amount paid towards "cess" in clause (ii) of Sec. 40(a), therefore, holding to the contrary would amount to reading something which is not to be found in the text of the provision of Sec. 40(a)(ii). Accordingly, the Hon'ble High Court had concluded that there was no prohibition on the deduction of any amount paid towards "cess" in Sec. 40(a)(ii), while computing the income chargeable under the head "profits and gains of business or profession", observing as under : "16. The aforesaid question arises in the context of provisions of Section 40(a)(ii) which inter alia provides that notwithstanding anything to the contrary in sections 30 to 38 of the IT Act, the following amounts shall not be deducted in computing the income chargeable under the head "Profits a....
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....sed by the Legislature best declares its intention and must be accepted as decisive of it. 19. Besides, when it comes to interpretation of the IT Act, it is well established that no tax can be imposed on the subject without words in the Act clearly showing an intention to lay a burden on him. The subject cannot be taxed unless he comes within the letter of the law and the argument that he falls within the spirit of the law cannot be availed of by the department. [See CIT vs Motors & General Stores 66 ITR 692 (SC)]. 20. In a taxing Act one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied, into the provisions which has not been provided by the legislature [See CIT Vs Radhe Developers 341 ITR 403 ]. One can only look fairly at the language used. No tax can be imposed by inference or analogy. It is also not permissible to construe a taxing statute by making assumptions and presumptions [See Goodyear Vs State of Haryana 188 ITR 402(SC)]. 21. There are several decisions which lay down rule that....
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....mputing the income chargeable under the head " profits and gains of business or profession". Since the deletion of expression "cess" from the Income Tax Bill, 1961, was deliberate, there is no question of reintroducing this expression in Section 40(a)(ii) of IT Act and that too, under the guise of interpretation of taxing statute. 26. In fact, in the aforesaid precise regard, reference can usefully be made to the Circular No. F. No.91/58/66-ITJ(19), dated 18th May, 1967 issued by the CBDT which reads as follows :- "Interpretation of provision of Section 40(a)(ii) of IT Act, 1961-Clarification regarding. "Recently a case has come to the notice of the Board where the Income Tax Officer has disallowed the 'cess' paid by the assessee on the ground that there has been no material change in the provisions of section 10(4) of the Old Act and Section 40(a)(ii) of the new Act. 2. The view of the Income Tax Officer is not correct. Clause 40(a)(ii) of the Income Tax Bill, 1961 as introduced in the Parliament stood as under:- "(ii) any sum paid on account of any cess, rate or tax levied on the profits or gains of any business or profession or assessed at....
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....after consideration of the 'circumstances' of the assessee, including his business income. The Privy Council held that the rate was not 'assessed on the basis of profits' and was allowable as a business expense. Following this decision, the Supreme Court held in Jaipuria Samla Amalgamated Collieries Ltd Vs CIT [82 ITR 580] that the expression 'profits or gains of any business or profession' has reference only to profits and gains as determined in accordance with Section 29 of this Act and that any rate or tax levied upon profits calculated in a manner other than that provided by that section could not be disallowed under this sub-clause. Similarly, this sub-clause is inapplicable, and a deduction should be allowed, where a tax is imposed by a district board on business with reference to 'estimated income' or by a municipality with reference to 'gross income'. Besides, unlike Section 10(4) of the 1922 Act, this sub-clause does not refer to 'cess' and therefore, a 'cess' even if levied upon or calculated on the basis of business profits may be allowed in computing such profits under this Act. 30. The Division B....
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....really not determinative in such matters. 34. Ms. Linhares, has relied upon M/s Unicorn Industries Vs Union of India and others, 2019 SCC Online SC 1567 in support of her contention that "cess" is nothing but "tax" and therefore, there is no question of deduction of amounts paid towards "cess" when it comes to computation of income chargeable under the head profits or gains of any business or profession. 35. The issue involved in Unicorn Industries ( supra ) was not in the context of provisions in Section 40(a)(ii) of the IT Act. Rather, the issue involved was whether the 'education cess, higher education cess and National Calamity Contingent Duty (NCCD)' on it could be construed as "duty of excise" which was exempted in terms of Notification dated 9th September, 2003 in respect of goods specified in the Notification and cleared from a unit located in the Industrial Growth Centre or other specified areas with the State of Sikkim. The High Court had held that the levy of education cess, higher education cess and NCCD could not be included in the expression "duty of excise" and consequently, the amounts paid towards such cess or NCCD did not qualify for exem....
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....cts and circumstances of the case, the ITAT, in law, was right in holding that the claim of deduction not made in the original returns and not supported by revised return, was admissible. The Revenue had relied upon Goetze (supra ) and urged that the ITAT had no power to allow the claim for deduction. However, the Division Bench, whilst proceeding on the assumption that the Assessing Officer in terms of law laid down in Goetze (supra) had no power, proceeded to hold that the Appellate Authority under the IT Act had sufficient powers to permit such a deduction. In taking this view, the Division Bench relied upon the Full Bench decision of this Court in Ahmedabad Electricity Co. Ltd Vs CIT (199 ITR 351) to hold that the Appellate Authorities under the IT Act have very wide powers while considering an appeal which may be filed by the Assessee. The Appellate Authorities may confirm, reduce, enhance or annul the assessment or remand the case to the Assessing Officer. This is because, unlike an ordinary appeal, the basic purpose of a tax appeal is to ascertain the correct tax liability of the Assessee in accordance with law. 40. The decision in Goetze (supra) upon which....
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....file of the A.O for the limited purpose of giving consequential effect. The "additional ground of appeal" raised by the assessee is allowed for statistical purpose in terms of our aforesaid observations. 14. Resultantly, the appeal of the assessee is allowed in terms of our aforesaid observations. ITA. No.6610/Mum/2019 (Assessment Year: 2014-15) 15. We shall now advert to the assessee's appeal for A.Y. 2014-15. The impugned order has been assailed by the assessee on the following grounds of appeal before us: " 1. The learned Commissioner of Income Tax (Appeals) erred in facts and in law in not deleting the disallowance under section 14A of the Act to the extent of Rs. 16,10,205/- which was offered by the appellant in the return of income, on the ground that such claim would amount to an additional claim which could only have been made by way of f iling a revised return of income and not otherwise. 2. The learned Commissioner of Income Tax (Appeals) erred in facts and in law in not appreciating that there is no restriction on the powers of an appellate authority to admit an additional claim raised otherwise than by way of filing a revised return. ....
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....ring of this appeal as per law." 16. Briefly stated, the assessee had e-filed its return of income for A.Y 2014-15 on 24.09.2014, declaring a total income of Rs. 208,57,58,150/-. Subsequently, the assessee filed a revised return of income on 24.02.2015; declaring an income of Rs. 166,13,66,510/-. Subsequently, the case of the assessee was selected for scrutiny assessment under Sec. 143(2) of the Act. 17. Assessment order was passed by the A.O u/s 143(3) of the Act, dated 19.12.2016 and the income of the assessee bank was assessed at Rs. 176, 23,66,520/-. During the course of the assessment proceedings the A.O made certain additions/disallowances, viz. (i). disallowance u/s 14A was enhanced by an amount of Rs. 10 lac; and (ii). disallowance of the assessee's claim of deduction u/s 36(1)(viii) of Rs. 10 crore. 18. On appeal, the CIT(A) though allowed the "additional ground of appeal" raised by the assessee, and principally agreed with him that as it had sufficient interest-free funds to make investment in the exempt income yielding securities, therefore, no disallowance of interest expenditure was called for in its hands u/s 14A r.w. Rule 8D. However, relying on the view ....