2016 (1) TMI 604 - AT - Income Tax

Section 14A disallowance - suo moto disallowance - Held that - 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 ₹ 36.68 crores made in the course of assessment partly sustained in lower appellate proceedings; suo moto or the one computed by the lower authorities, is not liable to be sustained. The Revenue s reliance placed on case law Goetze India Ltd vs. CIT (2006 (3) TMI 75 - SUPREME Court) that the assessee ought to have file a revised return for deleting this suo moto addition also stands decided in assessee s favour by hon ble jurisdictional high court in case of Mitesh Impex (2014 (4) TMI 484 - GUJARAT HIGH COURT ) for holding that if a claim though available in law is not made either inadvertently or on account of erroneous of 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 assessing authority. We draw support from this decision for accepting the assessee s additional ground leading to our adjudication in its favour on merits. The entire disallowance of ₹ 36.68 crores made by the Assessing Officer including that added suo moto at assessee s behest of ₹ 6.23 crores is deleted by placing reliance on the hon ble jurisdictional high court decision for succeeding assessment year. The assessee s arguments on merits are accepted. - Decided in favour of assessee

Summary

Issues Involved:
1. Section 14A disallowance of Rs. 36.68 crores.
2. Suo moto disallowance of Rs. 6.23 crores by the assessee.
3. Whether the assessee needed to file a revised return under Section 139(5) to make a new claim.

Issue-wise Detailed Analysis:

1. Section 14A Disallowance of Rs. 36.68 Crores:
The primary issue in these appeals concerns the disallowance under Section 14A of the Income Tax Act, 1961. The Assessing Officer (AO) had computed a disallowance of Rs. 36.68 crores, which was later reduced by the CIT(A) to Rs. 5.11 crores, leading to cross-appeals by both the assessee and the Revenue. The Tribunal initially remitted the issue back to the AO for fresh consideration. The Tribunal's decision was challenged by the Revenue, resulting in the High Court directing the Tribunal to provide a conclusive opinion on the entire issue. The Tribunal, upon re-evaluation, noted that the assessee's interest-free funds far exceeded its tax-free investments, and thus, following the precedent set by the Bombay High Court in CIT vs. Reliance Utilities & Power Ltd, concluded that no further disallowance over the suo moto disallowed amount was warranted. The Tribunal also referenced the Gujarat High Court's decision in the assessee's favor for the subsequent assessment year, which supported the deletion of the entire disallowance under Section 14A.

2. Suo Moto Disallowance of Rs. 6.23 Crores by the Assessee:
The assessee had initially disallowed Rs. 6.23 crores suo moto towards its exempt income. The Tribunal noted that this amount pertained to interest sums on incremental demand deposits. The Tribunal found that the assessee's interest-free deposits were significantly higher than its tax-free investments, leading to a surplus. The Tribunal held that the suo moto disallowance was not sustainable, and thus, deleted the entire disallowance of Rs. 36.68 crores made by the AO, including the suo moto disallowance. This decision was based on the principle that the purpose of scrutiny assessment is to determine the correct taxable income as per law, not to rely on technicalities.

3. Filing of Revised Return under Section 139(5):
The Revenue argued that the assessee should have filed a revised return under Section 139(5) to make a new claim. However, the Tribunal referenced the Gujarat High Court's decision in Mitesh Impex, which held that if a claim is admissible under the law but was not raised due to inadvertence or erroneous belief, it could still be raised before the appellate authority without filing a revised return. The Tribunal applied this principle, allowing the assessee to challenge the suo moto disallowance without the need for a revised return. The Tribunal emphasized that the scrutiny assessment's objective is to determine the correct taxable income, and thus, technicalities should not hinder legitimate claims.

Conclusion:
The Tribunal allowed the assessee's appeals, deleting the entire disallowance of Rs. 36.68 crores made by the AO, including the suo moto disallowance of Rs. 6.23 crores. The Tribunal's decision was based on the principles of correct income determination, the sufficiency of interest-free funds over tax-free investments, and the applicability of legal precedents supporting the assessee's claims. The Tribunal's order emphasized that the scrutiny assessment process should focus on the substantive correctness of the taxable income rather than procedural technicalities.