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TMI Blog2019 (9) TMI 935X X X X Extracts X X X X X X X X Extracts X X X X ..... the Ld.CIT(A) in giving such direction. Thus, the ground raised by the Revenue is dismissed. Disallowance u/s. 14A - determining the reasonable expenditure attributable for earning exempt income - HELD THAT:- We are not inclined to restore the matter once again to the Assessing Officer for determining the reasonable expenditure attributable for earning exempt income. The Mumbai Tribunal in the case of Shakuntaladevi Trade Investments Pvt. Ltd., v. ITO, [ 2013 (12) TMI 1579 - ITAT MUMBAI ] held that disallowance u/s. 14A for the period before the A.Y. 2008-09 should be restricted to 2% of the dividend income. Also in the case of CIT v. M/s. Godrej Agrovet Ltd. [ 2014 (8) TMI 457 - BOMBAY HIGH COURT ] upheld the order of the Tribunal in estimating the expenditure to the extent of 2% of total exempt income earned by the assessee - we direct the AO to compute the expenditure attributable for earning exempt income at 2% of the exempt income earned by the assessee during the A.Y.2007-08. Suo moto disallowance towards expenditure attributable for earning exempt income, to this extent, the expenditure shall be reduced from total disallowance and compute the balance disallowance accordingl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccounts or as per the statute provided in the section itself in the original assessment proceedings has bearing on the issue of allowance u/s. 36(1)(viia) in the reopened assessment, the issue thus in a way became consequential and should go back to the Assessing Officer for fresh adjudication depending upon the decision taken by the Assessing Officer in the original assessment proceedings which were set aside. Thus, we restore this issue on merits i.e. allowability u/s. 36(1)(viia) of the Act in the reassessment proceedings to the file of the Assessing Officer to decide afresh in view of our above observations. This ground is allowed for statistical purpose. - SHRI C.N. PRASAD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR, HON'BLE ACCOUNTANT MEMBER Assessee by: Shri C. Naresh Department by: Shri Sushil Kumar Poddar ORDER PER C.N. PRASAD (JM) ITA.No. 2231/MUM/2018(A.Y. 1991-92) (Revenue s appeal) 1. This appeal is filed by the Revenue challenging the order of the Learned Commissioner of Income Tax (Appeals) [hereinafter in short Ld.CIT(A) ] in holding that refund shall first be adjusted against interest payable and balance, if any, shall be adjusted towards tax payable w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order and interest payable thereon works out to ₹ 1.58 crores; thus total refund due is ₹ 15.65 crores. The Assessing Officer granted refund of ₹ 12.03 crores. The dispute between the Assessing Officer and the assessee is with regard to adjustment of refund; according to the assessee refund should first be adjusted against interest payable and only the balance amount shall be adjusted against tax refundable and in this process the balance refund due would work out to ₹ 3,52,28.442/- on which the assessee is entitled to interest u/s. 244A of the Act whereas the Assessing Officer calculated the balance refund clue at ₹ 2,03,99,541/-(tax component) and ₹ 1,58,28,901/- (interest component). Reason for such calculation was that according to the Assessing Officer no interest is payable on interest due in which event, even if there is substantial delay in interest payable, the assessee can be made to wait unendingly without payment of interest. Though, before the Assessing Officer as well learned CIT(A), the assessee's claim of interest u/s 244A is not properly focused but sum and substance of the assessee's case before us is that in the event ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a particular date, does not amount to payment of interest on interest. Their lordships, taking support from the judgment of Hon ble Supreme Court in the case of CIT vs HEG Ltd, observed as under: .......14. Matter was taken by the Revenue before the Supreme Court in the case of HEG Limited and the SLP was granted and civil appeal was registered. The Supreme Court thereupon answered the question against the Revenue in the following words:- Therefore, this is not a case where the assessee is claiming compound interest or interest on interest as is sought to be made out in the civil appeals filed by the Department. The next question which we are required to answer is what is the meaning of the words refund of any amount becomes due to the assessee in Section 244A? In the present case, as stated above, there are two components of the tax paid by the assessee for which the assessee was granted refund, namely TDS of ₹ 45,73,528 and tax paid after original assessment of ₹ 1,71,00,320. The Department contends that the words any amount will not include the interest which accrued to the respondent for not refunding ₹ 45,73,528 for 57 months. We see no merit in this argume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch, 2013 and thereafter on ₹ 40,000/-. Further, interest payable on ₹ 60,000/-, which stands paid, will be quantified on 31st March, 2013 and on this amount, i.e., interest amount quantified, Revenue would be liable to pay interest under Section 244A till payment is made.................... 3.6. The facts of the case before us are similar in the sense that here also only part amount was refunded in the first phase by the department and when the balance amount was paid by the department in the second phase, the assessee was entitled for interest on the balance amount of refund due. Thus, from the aforesaid observations of Hon ble Delhi High Court, we can say that it is not a case of payment of interest on interest. Thus, in view of these facts and aforesaid judgments, Ld Counsel contended that Ld. CIT(A) had wrongly applied the judgment of Hon ble Supreme Court in the case of CITvs Gujarat Fluoro Chemicals, since it was not applicable on the facts of this case. 3.7. Further, it was also held by Hon ble High Court that the department ought to follow the same procedure and rules while collecting tax and while issued refunds. We have gone through the provisions of section 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Supreme Court has discussed at length about moral and legal obligation of the department to refund the amount of tax collected from the tax payers which was more than the amount actually due as per law, along with interest. Some of the useful observations are reproduced hereunder for the sake of better clarity in deciding the issue before us: 37 A tax refund is a refund of taxes when the tax liability is less than the tax paid. As per the old section an assessee was entitled for payment of interest on the amount of taxes refunded pursuant to an order passed under the Act, including the order passed in an appeal. In the present fact scenario, the deductor/assessee had paid taxes pursuant to a special order passed by the assessing officer/Income Tax Officer. In the appeal filed against the said order the assessee has succeeded and a direction is issued by the appellate authority to refund the tax paid. The amount paid by the resident/ deductor was retained by the Government till a direction was issued by the appellate authority to refund the same. When the said amount is refunded it should carry interest in the matter of course. As held by the Courts while awarding interest, i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es but may take account of what is just and fair. Thus, if we decide the issue before us ex aequo et bono, then it would be decided by the principles of what is fair and just and not necessarily as per strict rule of law. Thus, since the statute itself has already prescribed a particular method of adjustment in explanation to section 140A(1), then justice, fairness, equity and good conscience demands that same method should be followed while making adjustment for refund of taxes, especially when no contrary provision has been provided. Under these circumstances and aforesaid discussion, we find that the judicial proprietary demands that order of the Tribunal of earlier years must be followed and therefore we direct the AO to re-compute the amount of interest u/s 244A by first adjusting the amount of refund already granted towards the interest component and balance left if any shall be adjusted towards the tax component. Thus, with these directions, the appeal of the assessee is allowed. 5. We find that this decision of the Coordinate Bench has been followed by the Ld.CIT(A) and directed to recompute the interest by first adjusting the refund towards interest and balance, if any, to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment Year under appeal i.e. 2007-08. However, the matter was restored back to the file of the Assessing Officer to work out the disallowance on some reasonable basis after calling for the details. We observed that while passing the consequential order giving effect to the Tribunal order the Assessing Officer once again applying Rule 8D of I.T. Rules computed the disallowance u/s. 14A of the Act. The assessee carried the matter before the Ld.CIT(A) and the Ld.CIT(A) following the order of the Tribunal for the A.Y. 2010-11 in ITA.No. 2142/Mum/2014 and 1627/Mum/2014 directed the Assessing Officer to examine the issue afresh. 9. The Ld. Counsel for the assessee before us submits that the Ld.CIT(A) is wrong in following the order of the Tribunal for the A.Y. 2010-11 and directing the Assessing Officer to examine the issue afresh. The Ld. Counsel for the assessee referring to the order passed by the Tribunal for the A.Y. 2010-11 submits that, there the Tribunal held that disallowance computed by the Assessing Officer which was confirmed by the Ld.CIT(A) was not in accordance with the mandate of the law since the Assessing Officer has proceeded to compute the disallowance as per Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the provisions of Rule 8D have no application for the A.Y. 2007-08. The other decisions relied on by the Ld. Counsel for the assessee in the case of Punjab National Bank v. ACIT in ITA.No. 5481/Del/2014 dated 03.01.2019 and ACIT v. UCO Bank in ITA.No. 1615/Kol/2016 dated 21.08.2018 also cannot be applied as these decisions have been rendered in the context of disallowance under Rule 8D r.w.s. 14A for the A.Y. 2011-12 and 2012-13 respectively 14. At this stage, we are not inclined to restore the matter once again to the Assessing Officer for determining the reasonable expenditure attributable for earning exempt income. The Mumbai Tribunal in the case of Shakuntaladevi Trade Investments Pvt. Ltd., v. ITO in ITA.No. 8006/M/2010 dated 06.12.2013 held that disallowance u/s. 14A for the period before the A.Y. 2008-09 should be restricted to 2% of the dividend income. Further the Hon'ble Bombay High Court in the case of CIT v. M/s. Godrej Agrovet Ltd in Income Tax Appeal No. 934 of 2011 dated 8.1.2013 upheld the order of the Tribunal in estimating the expenditure to the extent of 2% of total exempt income earned by the assessee. In view of what is discussed above, we direct the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e purpose of computation under the said section. 17. Briefly stated the facts are that, the assessment u/s. 143(3) of the Act was completed on 31.12.2009 determining the income at ₹.1285,86,81,240/- as against income of ₹.32,10,87,162/- determined by the assessee under normal provisions of the Act. While completing the assessment the Assessing Officer disallowed deduction claimed u/s.36(1)(vii) of the Act at ₹.285,84,98,629/- being the bad debts written off on the ground that this cannot be allowed since the claim for deduction u/s. 36(1)(viia) of the Act being the provision for bad and doubtful debts exceeded the bad debts written off to that extent. 18. The Assessing Officer further while completing the assessment restricted the deduction in respect of provision for bad and doubtful debts u/s. 36(1)(viia) of the Act to the extent of provision made in the books in respect of the amount eligible for deduction at 7.5% of the total income and 10% of the rural advances. The matter has been carried to Ld.CIT(A) and also to the Tribunal and the Tribunal in ITA.No. 6631/Mum/2010 and 6349/Mum/2010 dated 18.01.2013 concluded that in so far as the disallowance of bad debts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sclose truly and fully all the information required for completion of assessment. Ld. Counsel for the assessee referring to the Page No. 1 in Para No.2 of the reassessment order submits that it is evident from the reasons recorded for reopening which clearly states that On perusal of assessment records it was noticed that provision for standard assets and provision for restructuring of accounts was also taken as provision for doubtful debts. 22. Learned Counsel for the assessee submitted that from the reasons given by the Assessing Officer, it is on perusal of assessment records , it was noticed that provision for standard assets and provision for restructuring of accounts was included in provision for bad and doubtful debts. It is evident that there was no failure on part of the assessee to fully and truly disclose any information. Therefore, he submits that as per proviso to section 147, the reopening is beyond jurisdiction. Reliance is placed on the decision of ITAT Mumbai in the case of Bank of India in ITA No. 4842/Mum/2017 and decision of Hon'ble Delhi High Court in the case of Usha International Ltd. [25 taxmann.com 200]. The assessee also relied on the decisions of Tita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gregate rural advances), an amount of ₹ 494.50 crores was taken as provision for doubtful debt which included an amount of ₹ 136.00 crores of provision for standard asset and ₹ 28.50 crores as provision for restructuring of accounts. The provision u/s. 36(1)(viia) is applicable for provision for provision for doubtful debts only. Thus consideration of provision for standard assets and provision for restructuring of accounts for the computation of deduction u/s.36(1)(viia) resulted in underassessment of total income. 3. As there is a failure on part of assessee to disclose fully and truly all material facts necessary for its assessment, I have reasons to believe that income chargeable to tax has escaped assessment for this assessment year, coining within the meaning of section 147 of the Income Tax Act, 1961. ' 4. In view of the above, notice u/s 148 was issued after Approval of the CIT-LTU, Mumbai as per provisions of section 151 of the LT. Act, 1961. 28. Undoubtedly the assessment in this case was reopened beyond the period of four years from the end of the Assessment Year as the Assessment Year relates to 2007-08 and notice u/s. 148 of the Act was issued on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided by Hon'ble ITAT for the same assessment year directing that the deduction be allowed based on provision held, AO should not have reopened the issue overlooking the direction of Hon'ble ITAT. Deduction u/s 36(1) (viia) 2.1 Without prejudice to the above ground on jurisdiction, the CIT(A) ought to have decided and allowed the claim of appellant that provision made in respect of debts though classified as standard assets that had arrears up to 90 days is provision for bad and doubtful debts eligible for deduction under the said section. 2.3 The Ld. CIT(A) omitted to consider and allow provision made for restructured assets as per RBI guidelines as provision for bad and doubtful debts under the said section. 32. In so far as the reopening of assessment is concerned, the assessee contends in its grounds of appeal that issue of deduction u/s.36(1)(viia) of the Act had been decided by the Hon'ble ITAT for the Assessment Year directing to allow deduction based on provision, the Assessing Officer should not have reopened the assessment. 33. The Ld. Counsel for the assessee submits that even in the reasons recorded the Assessing Officer states that on a perusal of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... standard assets and the provision for restructuring of accounts shall form part of provision made for bad and doubtful debts for the computation of allowance for deduction u/s. 36(1)(viia) of the Act was not a subject matter of appeal before the Tribunal in the original assessment proceedings. In the circumstances, the contentions of the assessee that the issue has been decided in the original assessment proceedings by the Tribunal and therefore the assessment should not have been reopened is not correct and has no merit. 38. In this case the assessment was reopened within four years from the end of the Assessment Year as the relevant Assessment Year is 2009-10 and the notice u/s. 148 of the Act was issued on 28.03.2014 and the assessment was completed on 18.03.2015. Since the assessment for this Assessment Year i.e 2009-10 was reopened within four years from the end of the relevant Assessment Year the proviso to section 147 of the Act has no application. 39. The Ld.CIT(A) considering the submissions of the assessee, sustained the reopening of assessment observing as under: - 3.1.3.4 These aspects have been examined. The statutes as well as various judicial pronouncements are also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed assessment. Material available on record has rational connection and relevant bearing on such formation of belief for issuing valid notices for re-assessment.-sufficiency or correctness of material was not to be considered at this stage. 2) Sun Pharmaceuticals Industries Ltd. Vs. DCIT 353 ITR 474 (Guj.) where the Hon'ble High Court held formation by belief by AO is essentially within his subjective satisfaction - at the stage of issue of notice, only question is whether there was relevant material on which reasonable person could have formed requisite belief. 3) N.K. Industries Ltd. vs. ITO 362 ITR 542 (Guj.) where the Hon ble HC held if a particular issue is brought to the notice of the AO by audit party and AO of his/her application of mind finds this ground as valid, reopening of assessment cannot be quashed merely because such ground was brought to the notice of AO by the audit party. 3.1.3.6. In view of the above, the reassessment proceedings initiated u/s. 147 of the I.T. Act are held to be perfectly legal and valid., Therefore, this ground of appeal is dismissed. 40. On a perusal of the order of the Ld.CIT(A) and the reasoning given for reopening of assessment, we do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owards tax pay able, based on the Hon'ble Delhi High Court's decision in the case of India Trade Promotion Organization vs. CIT (361 ITR 646) when the Income Tax Department had not accepted the decision and a review petition had been filed before the Hon'ble High Court. 44. Ground Nos. 1 2 are restored to the file of the Assessing Officer, as the issue of allowability of deduction u/s. 36(1)(viia) of the Act on merits have been restored to the file of the Assessing Officer in assessee s appeal. 45. Coming to the Ground No. 3, identical issue has been decided for the A.Y. 1991-92 in ITA.No. 2231/Mum/2018 in Para Nos. 4 5 above. Facts being identical, the decision rendered therein shall apply mutatis mutandis to the appeal for this year. Accordingly, we uphold the order of the Ld.CIT(A) and reject the ground raised by the Revenue. 46. In the result, appeal of the Revenue is partly allowed for statistical purpose. 47. To sum up, the appeals of the Assessee and Revenue are disposed off as under: - Sl. No. ITA. No. Result 1. ITA. No. 2231/MUM/2018 (A.Y. 1991-92) Dismissed 2. ITA. No. 1801/MUM/2018 (A.Y. 2007-08) Partly allowed 3. ITA. No. 2233/MUM/2018 (A.Y. 2007-08) Partly ..... X X X X Extracts X X X X X X X X Extracts X X X X
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