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TMI Blog2009 (4) TMI 543X X X X Extracts X X X X X X X X Extracts X X X X ..... any provision for the same in the books of the assessee. 2.The CIT(A) has erred in not appreciating the fact that addition was made by the Assessing Officer on the basis of the facts, i.e., the Security Premium Notes raised by the assessee were for the purposes of expansion and modernization of the business which are capital in nature. 3. The CIT(A) while upholding the disallowance made by the Assessing Officer in principle, has erred in restricting the disallowance to 1 per cent of the exempt income, i.e., Rs. 5 lakhs and deleting the balance disallowance to Rs. 36,10,680. 4. For these grounds and other grounds that may be urged at the time of hearing, the decision of the CIT(A) may be set aside and that of the Assessing Officer restored." 3. During the course of hearing of the present appellate proceedings, the Revenue contended vide ground Nos. 1 and 2, which are inter linked, that the learned CIT(A), erred in deleting the addition of Rs. 13.26 crores in respect of premium payable on secured premium notes as deduction claimed under section 36(i)( iii) of the Act which was appropriated against the statutory reserve which was neither taxable nor had any provision for the same, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payment is to secure a benefit over a number of years. There is continuing benefit to the business of the company over the entire period. The liability, therefore, be spread over a period of the debentures. 2.2In the case of the assessee also though the liability to pay starts from fourth year onwards the liability. In fact, pertains to the entire period of seven years during which the funds borrowed by way of SPN were utilised. The assessee did utilise the funds by way of SPN during the first three years. However, this does not mean that the funds in the first three years were interest-free. It is only in view of the terms and conditions of SPN that the interest (premium) was payable from the fourth year onwards. This view is fortified by the ratio of Madras Industrial Investment Corporation Ltd. (supra) and therefore, the amount of Rs. 8.14 crores claimed by the assessee is an allowable deduction. Though the expenditure has been shown as a provision, it is a provision for known and ascertained liability which was proportionately spread over the period of the debentures. In all the earlier years as well as subsequent years, except for the assessment year 1999-2000, the claim of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /2006 are reproduced hereunder : "1.The CIT (A) erred in confirming the disallowance under section 14A made by Assessing Officer in respect of expenses in connection with exempt income for Rs. 5,00,000. The appellant contends that there is no expenditure incurred in connection with the exempt income which is liable for disallowance under section 14A. 2.The appellants, therefore, pray that the order of the DCIT be amended to grant the aforesaid relief. 3.The appellant crave leave to add, alter, or amend any of the foregoing grounds as and when necessary". 8.1 The assessee also raised the additional ground of appeal and the same is also reproduced. [ "Additional grounds of appeal.-- 1.The notice issued under section 148 of the Income-tax Act, 1961 dated 21-4-2004 reopening the assessment is bad in law and the assessment made under section 143 (3) read with section 147 based thereon is also bad in law and, accordingly, the reassessment order passed under section 143(3) read with section 147 be set aside. 2.The Commissioner of Income-tax ought to have held that the disallowance made under section 14A of the Income-tax Act, 1961 is contrary to the proviso to section 14A as disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Dy. CIT (No. 2) [2001] 251 ITR 416 (Bom.). Caprihans India Ltd. v. Tarun Seema, Dy. CIT [2004] 266 ITR 566 (Bom.), Hindustan Lever Ltd. v. R.B. Wadkar, Asstt. CIT [2004] 268 ITR 332 (Bom.), Sesa Goa Ltd. v. Jt. CIT [2007] 294 ITR 101 (Bom.). 9.2 We are of the considered opinion that the decision of the Hon'ble Special Bench, in the case of Acquarius Travels (P.) Ltd. (supra) is not applicable to the facts of the present case. In the case of Acquarius Travels (P) Ltd. (supra), the assessment for the assessment year 1998-99 had been completed by the Assessing Officer, before section 14A was inserted, in the statute. However, the appeal for the said assessment year was pending before the Tribunal. In this specific backdrop of the fact-situation of the case, the Special Bench decided as "Whether where assessment proceedings pertaining to assessment year 2001-02 and earlier years have not been concluded or finalized and matter is pending before Tribunal involving issue relating to deduction of expenses which also includes expenses incurred in relation to exempted income, Tribunal can invoke provisions of section 14A, in appeals pending before it - Held, yes" 9.3 In the present case, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ening of the case or initiation of the re-assessment proceedings under section 147 read with section 148 of the Act, is inconceivable and incomprehensible. We are of the considered opinion that in the absence of existence of statutory jurisdiction, in terms of proviso to section 14A of the Act, with the Assessing Officer, to make reassessment under section 147 of the Act, the very discussions on the validity or otherwise of assumption of such jurisdiction, by way of issuance of the said notice under section 148 of the Act, is irrelevant and an exercise in futility. For the purpose of proper appreciation of the statutory position, as contained in the said proviso to section 14A of the Act and legislative intent contained therein, the text of the said proviso is reproduced hereunder : "Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001". 11.1 The legislative intent and mandate is also manifeste ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the notice of the Board. Reopening of past completed assessments, having attained finality, on the basis of newly inserted provisions of section 14A is likely to cause hardship to a large number of taxpayers and would result in increasing avoidable litigation. 4. The Board have considered this matter and hereby directs that the assessments where the proceedings have become final before the first day of April, 2001 should not be re-opened under section 147 of the Act to disallow expenditure incurred to earn exempt income by applying the provisions of newly inserted section 14A of the Act." 11.3 The Circular issued by the CBDT are binding on the Assessing Officer, even where the same are not in consonance with the meaning of the provisions, if they are benevolent and issued to mitigate the hardship of the assessee, as held by the Hon'ble Apex Court of the land in Navnit Lal C. Jhaveri v. K.K. Sen. AAC [1965] 56 ITR 198 (SC), Ellerman Lines Ltd. v. CIT [1971] 82 ITR 913 (SC), K.P. Varghese v. ITO [1981] 131 ITR 597 (SC) and UCO Bank v. CIT [1999] 237 ITR 889 (SC). It is pertinent to add here that the Assessing Officer ignored the said circular of the Board and judicial mandate of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing on or before 1st day of April, 2001. The case of the assessee pertains to the assessment year 1998-99 and, hence, the same is covered under immunity from making reassessment by the Assessing Officer, as contemplated by the aforesaid proviso. 12. Further, in this specific context, it would be appropriate to reproduce the extract of the decision of jurisdictional ITAT, in the case of Thacker & Co. Ltd. (supra), as quoted and relied upon by the learned 'A.R'. of the assessee to support his contention raised, in the grounds of appeal. "Section 14A, read with sections 143, 147 and 148, of the Income-tax Act, 1961 - Expenditure incurred in relation to income not includible in total income - Assessment years 1998-99 and 1999-2000 - Whether if Assessing Officer is prohibited from taking any action under section 147 in terms of proviso to section 14A, then he is also prohibited for reassessing income, even though notice under section 148 was valid - Held, yes - Whether object of proviso to section 14A is to stop Assessing Officer completely from taking any action where assessment proceedings have become final - Held, yes" 12.1 A bare perusal of the proviso to section 14A of the Act a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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