2019 (5) TMI 1960 - AT - Income Tax

Admission of additional claim - Disallowance u/s 14A - voluntary disallowance u/s. 14A made by the assessee at the time of filing of return of income - Whether the CIT(A) is right in giving benefit of the amount of tax which the assessee has voluntarily paid ? - applicability of amendment to Section 14A - Whether CIT(A) is right in entertaining the plea of the assessee against the judgment of in the case of Goetze (India) Ltd. 2006 (3) TMI 75 - SUPREME COURT AND Interpreting the amendment introduced w.e.f 02/06/2016 prospectively. HELD THAT - The appellate authorities are entitled to exercise their jurisdiction to consider the additional claim.The assessee cannot be made to suffer inadvertent mistake made at the time of filing of the return i.e; in case the assessee pays the tax which is not required to pay as per the Act, he can always reclaim the amount. Owing to the above interpretation, we hold that the Ld. CIT(A) acted in a judicious manner and hence we decline to interfere with the order of the Ld.CIT(A) on these issues. Applicability of amendment to Section 14A from 02/06/2016 - We are the view that due to the fact that there is a specific date mentioned regarding the applicability of the amended provisions hence the same cannot be said to be retrospective. The Assessing Officer is directed to compute the disallowance as per the rules applicable as on the date. Regarding the ruling that the Assessing Officer shall account on the those investments which have yielded exempt income, we find strength by the orders of the special Bench of ITAT in the case of Vreet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI and also the order in the case of Prime Property Development Corp Pvt. Ltd. 2017 (11) TMI 2000 - ITAT MUMBAI . We direct the Assessing Officer to compute the disallowance accordingly . Capitalization of interest under section 36(1)(iii) - As we find that the assessee s own resources are to the tune of 321.17 Crores which shows the sufficiency of interest free funds to meet the expenses. We rely on the judgments in the assessee s own case wherein the judgment of Hon ble Jurisdictional High Court in the case of Abhishek Industries 2006 (8) TMI 123 - PUNJAB AND HARYANA HIGH COURT which was referred by the Assessing Officer in his order has been distinguished. Further in the case of Bright Enterprises 2015 (11) TMI 342 - PUNJAB HARYANA HIGH COURT clearly held that if interest free funds are available the a presumption would arise that the investments would be out of interest free fund generated or available with the company. Hence no disallowance under section 36(1)(iii) is called for. The order of the Ld. CIT(A) on this ground is confirmed.

Summary

Issues Involved:
1. Re-calculation of disallowance under Section 14A of the Income Tax Act, 1961.
2. Voluntary disallowance under Section 14A by the assessee.
3. Applicability of the amendment to Rule 8D(2)(ii) from 02.06.2016.
4. Capitalization of interest under Section 36(1)(iii) of the Income Tax Act, 1961.
5. Restoration of the Assessing Officer's (AO) order by the Revenue.

Detailed Analysis:

1. Re-calculation of Disallowance under Section 14A:
The Revenue challenged the CIT(A)'s direction to the AO to re-calculate the disallowance under Section 14A using the amended Rule 8D(2)(ii) @1% of the annual average of monthly averages of the opening and closing balances of investments. The amendment, effective from 02.06.2016, was argued to lack retrospective effect. The Tribunal upheld that the amended Rule 8D(2)(ii) should be applied prospectively, not retrospectively, and directed the AO to compute the disallowance as per the rules applicable on the date.

2. Voluntary Disallowance under Section 14A:
The CIT(A) allowed the voluntary disallowance of Rs. 3.35 crore made by the assessee, which the Revenue contested. The Tribunal noted that the assessee had inadvertently made this disallowance and cited judicial precedents that no disallowance is required if investments were made from non-interest-bearing funds. The Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee should not suffer due to an inadvertent mistake and that additional claims can be raised before appellate authorities.

3. Applicability of the Amendment to Rule 8D(2)(ii):
The Tribunal addressed the applicability of the amendment to Rule 8D(2)(ii), effective from 02.06.2016, and concluded that it is not retrospective. The AO was directed to compute the disallowance according to the rules in effect as of the specified date. The Tribunal supported the CIT(A)'s ruling that only those investments yielding exempt income should be considered, referencing the Special Bench of ITAT in the case of Vreet Investment Pvt. Ltd. and Prime Property Development Corp Pvt. Ltd.

4. Capitalization of Interest under Section 36(1)(iii):
The Revenue challenged the CIT(A)'s relief on capitalization of interest on investments in shares and capital advances. The Tribunal noted that the assessee's own resources were sufficient to cover the expenses, citing previous judgments in the assessee's own case and the Hon'ble High Court of Punjab & Haryana's ruling in Bright Enterprises. The Tribunal confirmed that no disallowance under Section 36(1)(iii) was warranted, as interest-free funds were available.

5. Restoration of the AO's Order by the Revenue:
The Revenue sought to restore the AO's original order, which was not favored by the Tribunal. The Tribunal upheld the CIT(A)'s decisions on the aforementioned issues, thus declining to interfere with the CIT(A)'s order.

Conclusion:
The Tribunal partially allowed the Revenue's appeal for statistical purposes, directing the AO to re-compute the disallowance under Section 14A as per the applicable rules and confirming the CIT(A)'s decisions regarding the voluntary disallowance and capitalization of interest. The Tribunal emphasized the procedural nature of the amendments and the judicial precedents supporting the CIT(A)'s rulings.