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TMI Blog2017 (9) TMI 1287X X X X Extracts X X X X X X X X Extracts X X X X ..... equest of the appellant to admit additional ground of appeal is against its own admitted position at the time of filing of return and later during the assessment proceedings, which cannot be allowed to be accepted. The aforesaid objection is fundamentally misconceived as the issue raised is a legal plea and therefore such a plea based on facts on record brought during the appellant proceedings and, confronted to the learned Assessing Officer, who not disputed on the facts in the remand report, can be raised at any stage of the proceedings include appellate proceedings. Matter is set aside to the file of AO who will verify the genuineness of ht claim of the assessee that whether the sale consideration is 10 crores or 25 lakhs and decide the issue de novo but by affording adequate opportunity of being heard to the assessee. Thus, Ground No. 1 of the assessee is allowed for statistical purposes. X X X X Extracts X X X X X X X X Extracts X X X X ..... regards Ground No. 1 of the assessee, during the course of appellate proceedings before the ld. CIT(A), the appellate counsel filed a request for admitting an additional ground as under: "Ground No. 4. That full value of consideration for sale of shares were wrongly assumed to be ₹ 10 crores whereas the full value of sale consideration was later worked out to be ₹ 25 lakhs". 7. Copy of the additional ground was sent to the Assessing Officer for seeking comments on the matter. The Assessing Officer, vide letter dated 14.01.2013 submitted that additional ground of appeal submitted by the appellant should not be admitted since from the perusal of assessment record, it is clear that due opportunities were provided to the assessee during the assessment proceedings before the Assessing Officer. 8. The said ground was not admitted by the ld. CIT(A) and on merits he decided the issue against the assessee. The relevant findings of the ld. CIT(A) are reproduced hereinbelow: "7.9 The additional Ground No.4 filed by the appellant during the course of the appellate proceeding relating to recomputing the capital gain on sale of shares of the appellant company by revising the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in view of the judgement of Hon'ble Delhi in the case of Joint Investment (P) Ltd. reported in 372 ITR 694, (pages 30-32 of JPB) wherein it has been held as under: "9. In the present case, the AO has not firstly disclosed why the appellant/assessee's claim for attributing ₹ 2,97,440/- as a disallowance under Section 14A had to be rejected. Taikisha says that the jurisdiction to proceed further and determine amounts is derived after examination of the accounts and rejection if any of the assessee's claim or explanation. The second aspect is there appears to have been no scrutiny of the accounts by the AO - an aspect which is completely unnoticed by the CIT (A) and the ITAT. The third, and in the opinion of this court, important anomaly which we cannot be unmindful is that whereas the entire tax exempt income is ₹ 48,90,000/-, the disallowance ultimately directed works out to nearly 110% of that sum, i.e., ₹ 52,56,197/-. By no stretch of imagination can Section 14A or Rule 8D be interpreted so as to mean that the entire tax exempt income is to be disallowed. The window for disallowance is indicated in Section 14A. and is only to the extent of disallowing expenditu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of expenditure incurred in relation to such income which does not form part of the total income under the Act. The law uses the words 'shall' and not 'may' for this purpose. However, before resorting to the prescribed method, the AO is required to meet the prescribed protocol u/s 14A(2) and (3) by recording his lack of satisfaction on cogent grounds. In the case of the appellant, the AO did not record his lack of satisfaction on any cogent grounds by disregarding the computation of disallowance made by the appellant summarily and went ahead to apply the provisions of Rule 8D, as fait accompli, which is certainly not the legislative intent. In view of the above, I hold that the action of the AO of applying the provisions of Rule 8D, without recording lack of satisfaction on the cogent ground identifying material defects in the computation of the appellant made in the return of income u/s 14A, is not in accordance with the provisions of section 14A(2)." 13. Reliance is placed on the following judgments: 394 ITR 449 (SC) Godrej & Boyce Manufacturing company Ltd. vs. DCIT (pages 1-14 of JPB) "37. We do not see how in the aforesaid fact situation a different view could have be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly if the amounts the assessee offers does not have any realistic correlation with the tax exempt income. For instance, in a given case if a tax exempt income is to the tune of ₹ 5 crores and the assessee is able to satisfy that expenditure relatable to that income or the reasonable nexus to such income is ₹ 251akhs there has to be strong reasons why the said amount of ₹ 25 lakhs are to be rejected. In other words, the opinion of the Assessing Officer in the later part (of section 14A(2)) is to be based upon an appraisal of objective material relating to the assessee's voluntary disallowance of amount/ amounts. Not only that, if in the course of assessment, the Assessing Officer enquires from the assessee about the amounts spent, which are to be disallowed, and the assessee in fact discloses a larger amount (than the one given in the return), it is still incumbent upon the Assessing Officer to enquire into such larger amounts and determine whether it has nexus with expenditure relatable to exempt income to attract section 14A(1). Sans this procedure, section 14A would be reduced to mere formality which it appears to have become in the circumstances of the case. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. vs. ACIT vi) ITA No. 47/KoI/2012 Assessment Year 2008-09 dated 22.8.2012 Hindustan Paper Corporation Ltd. vs. DCIT vii) ITA No. 16/Chd/2012 Assessment Year 2008-09 dated 6.3.2012 DCIT vs. M/s Oswal Wollen Mills Ltd viii) ITA NO. 5231/D/2002 A.Y. 2008-09 dated 17.1.2014 M/s J.H. Finvest Pvt. Ltd. vs. DCIT ix) ITA No. 5526/Del/2014 A.Y. 2010-11 dated 28.07.2017 DCIT Vs. M/s Indiabulls Financial Services Ltd. ( pages 166-171 of Paper Book) "9. Having regard to the above judicial binding precedents, we find that the ratio decidendi emerging is that it is incumbent upon the AO to record a satisfaction that having regard to accounts of assessee as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the assessee. In the instant case, assessee had made claim that expenses attributable to exempt income is ₹ 27,72,963/-; there is no satisfaction of the AO that having regard to the accounts of the assessee the aforesaid claim of ₹ 27,72,963/- is not acceptable. The AO has not been able to point out that any defect in the claim of the appellant on any cogent ground. On the contrary Rule 8D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t a time consuming activity. It does not involve full day effort of the personnel's' involved and hence the same ought to be accepted as such, no further disallowance is warranted. 16. Also in absence of any identified/specific expenditure disallowance is untenable Reliance is placed on. i) 374 ITR 108 (Del) ACB India Ltd. vs. ACIT (pages 46-48 of JPB) ii) 347 ITR 272 (Del) at page 290 and 291 Maxopp Investment Ltd. vs. CIT Punjab & Haryana High Court i) 323 ITR 518 (P&H) CIT vs. Hero Cycles Ltd. Income Tax Appellate Tribunal i) ITA No. 3889/Mum/2011 A.Y. 2008-09 Justice Sam P Bharucha vs. Addl. CIT ii) 138 TTJ 240 (Del) Minda Investments Ltd. vs. DCIT iii) ITA Nos 563 & 564/D/2013 dated 9.3.2015 M/s Bhushan Energy Ltd. vs. ACIT iv) ITA No. 305/Mad/2013 dated 7.11.2013 DCIT v. M/s Allied Investments Housing (P) Ltd. v) ITA No. 7851/Mum/2011 dated: 06.05.2013 JK Investors Ltd. vs ACIT vi) 129 ITD 237 (Mum) Yatish Trading Co. (P) Ltd. v. ACIT 17. The Assessing Officer has included all the investments for calculation of disallowance under Rule 8D of the Income Tax Rules, 1962.The disallowance under section 14A read with rule 8D is to be in relation to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant thereon nor likely to be earned, as the very purpose of such investment was to support the core business activity of the company. It ft submitted that the Hon'ble High Court in the case of CIT vs. Oriental Structural Engineers Pvt. Ltd. reported in 216 Taxman 92 (Del) (pages 5JT-59 oFJPB) noted that, the assessee invested in shares of subsidiary companies and claimed that the said subsidiaries were formed out of "commercial expediency" in order to obtain contracts from the NHAI. In the assessment order, the AO while rejecting the commercial expediency claim of the assessee, has disallowed ₹ 35,85,121/- as expenses incurred in relation to exempt income u/s 14A read with Rule 8D. Being aggrieved, the assessee appealed before learned Ld. CIT (A) where the disallowance u/s 14A made by AO was deleted and the Ld. CIT (A) categorically held that: "In respect of investments of ₹ 6,07,775,000/- made in subsidiary companies as per documents produced before me, they are attributable to commercial expediency. and therefore no expense and interest attributable to the investments made by the appellant in the SPVs can be disallowed u/s 14Ar.w. Rule 8D because it cannot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the primary object of investment is holding controlling stake in the group concern and not earning any income out of investment. Further the investment were made long back and not in the year under consideration. Therefore, in view of the fact that the investment are in the group concern we do not find any reason to believe that the assessee would have incurred any administrative expenses in holding these investments The AO has not brought on record any fact or material to show that any expenditure has been incurred on the activity which has resulted into both taxable and non taxable income. Therefore, in our view when the assessee has prima facie brought out a case that no expenditure has been incurred for earning the income which does not form part of the total income then in the absence of any finding that expenditure has been incurred for earning the exempt income the provisions of section 14A cannot be applied. Accordingly we delete the addition/disallowance made by AO u/s 14A r.w. Rule 8D" 21. Above proposition has also been accepted by ITATMumbai in a recent case of JM Financial Limited vs. Addl. CIT 4(31, Mumbai ITA No. 4521/Mum/2012. (Page No. 86-96 of the Paper B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited (hereinafter referred as SLDL). That on 04.12.2008 assessee had entered into an agreement(pages 133-136 of Paper Book) with M/s Virasat Agro Foods Private Limited (hereinafter referred as Virasat) to sell such shares for a total consideration of ₹ 10 Crores. Out of the said value, an amount of ₹ 25 Lacs was received by the assessee during the year under consideration. However in accordance with the provisions of section 45 of I.T.Act., assessee accounted the capital gains considering the sale consideration as ₹ 10 Crores and paid the taxes accordingly. A copy of computation is placed at page 2 of Paper Book. Further, subsequent to share purchase agreement and transfer of sale of shares, SLDL had mortgaged its land measuring 11.30 acres situated at Kherki Dhaula Tehsil Sohna District Gurgaon in favour of Indiabulls vide mortgage deed dated 12.12.2008 alongwith deposit of title documents as a security for fulfillment of the obligation of Virasat under the share purchase agreement as per clause 3.6 of above said agreement reproduced herein below; "3.6 The purchaser has represented that it is at an advanced stage of acquiring, either in its own favour or in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the parties have mutually agreed that the consideration for purchase of sale shares stand revised from ₹ 10,00,00,000/- (Rupees Ten crores only) to ₹ 25,00,000/- (Rupees Twenty Five Lakhs only). 29. Further in accordance with aforesaid settlement deed a supplementary share purchase agreement is executed on 01.02.2012 (pages 137-138 of Paper Book) between parties of share purchase agreement dated 04.12.2008. The assessee could not raise this claim before assessing officer as the sale consideration on which tax was paid was revised only on 01.02.2012, however assessment proceedings u/s 143(3) was completed on 26.12.2011. Therefore, the aforesaid issue was raised before learned CIT(A) vide letter dated 12.06.2012(page 130 of Paper Book) as additional ground. Further submissions dated 30.10.2012 (pages 131-138 of Paper Book) and 06.12.2012 (page 139 of Paper Book) were submitted before learned CIT(A). Then learned CIT(A) sent the additional ground to the learned Assessing Officer for seeking his comments on the matter, however the Assessing Officer vide letter dated 14.01.2013 (page 142 of Paper Book) submitted before Id. CIT(A) that additional ground of appeal submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring assessment proceedings. The additional issue has emerged only after the assessment proceedings which are completed vide order dated 26.12.2011; and sale consideration has been changed only on 01.02.2012 in supplementary share purchase agreement. The learned CIT (A) has erroneously rejected the claim of the assessee holding that, the request of the appellant to admit additional ground of appeal is against its own admitted position at the time of filing of return and later during the assessment proceedings, which cannot be allowed to be accepted. The aforesaid objection is fundamentally misconceived as the issue raised is a legal plea and therefore such a plea based on facts on record brought during the appellant proceedings and, confronted to the learned Assessing Officer, who not disputed on the facts in the remand report, can be raised at any stage of the proceedings include appellate proceedings. The Hon'ble Supreme Court in the case of National Thermal Power Co. Ltd v CIT reported in 229 ITR 383 has held as under: "But where the Tribunal is only required to consider a question of law arising from the facts which are on record in the assessment proceedings we fail to see w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dgments observed that there is no prohibition on the powers of the Tribunal to entertain an additional ground which according to the Tribunal arises in the matter and for the just decision of the case. In Pruthvi Brokers (supra), a division Bench of Bombay High Court, referred to the judgments of Supreme Court in Jute corpn. of India Ltd. (supra), NTPC (supra) and Goetze (India) Ltd. (supra) and observed as under:- "23. It is clear to us that the Supreme Court did not hold anything contrary to what was held in the previous judgments to the effect that even if a claim is not made before the assessing officer, it can be made before the appellate authorities. The jurisdiction of the appellate authorities to entertain such a claim has not been negated by the Supreme Court in this judgment. In fact, the Supreme Court made it clear that the issue in the case was limited to the power of the assessing authority and that the judgment does not impinge on the power of the Tribunal under section 254." Thus there cannot be any doubt or debate, that the claim and submission could have been raised by the respondent assessee before the appellate authorities. In either way, the issue has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vised return. After the return was filed, the appellant sought to claim a deduction by way of a letter before the Assessing Officer. The claim, therefore, was not before the 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 retu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1297, that the State authorities should not raise technical pleas if the citizens have a lawful right and the lawful right is being denied to them merely on technical grounds. The State authorities cannot adopt the attitude which private litigants might adopt." ii) 27 taxmann.com 202(Guj.) Aryaman Spinners (P) Ltd. Vs. CIT(pages 118-122 of JPB) Orissa High Court i) 106 CALLT 192 NULL Srei International FinanceLtd.vs. State of Orissa and Ors. Dated 18.3.2008 "Following Article 265 that, there was no estoppels against statute and, if a person was not liable whether the four comers of the statute, to pay tax, he cannot be assessed to tax, merely because the preciously admitted his liability on a wrong notion. According to the court, the liability to pay tax had to be determined in accordance with the provisions of law and not an admission Allahabad High Court i) 90 ITR 236 (All) Dhampur Sugar Mills Ltd. vs. CIT Delhi Central Calcutta High Court i) 57 DTR 39 (Cal) Modern Malleables Ltd. vs. CIT Tribunal i) 35 DTR 388 (Mum) Rajesh Rasiklal Shah vs. DCIT ii) 15 SOT 252 (Mum) Chicago Pneumatic India Lt.d vs. DCIT iii) 94 TTJ 113 (Pune) Lab India Instruments (P) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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