TMI Blog2016 (1) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... uch 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 - ITA No. 152 & 2572/Ahd/2006, 65/Ahd/2009 - - - Dated:- 28-10-2015 - Shri Anil Chaturvedi, Accountant Member and Shri S. S. Godara, Judicial Member For The Revenue by: Shri R.I. Patel, CIT-D.R. For The Assessee by: Shri Arvind Sonde, A.R. ORDER PER : S. S. GODARA, JUDICIAL MEMBER:- These three assessee s appeals for assessment years 2002- 03, 2004-05 and 2005-06, arise from different orders of the CIT(A)- XIV, Ahmedabad dated 18-11-2005, 25-09-2006 and 20-11-2008 in appeal nos. C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A). AO had proceeded on the basis of the suo-moto disallowance made by the Assessee. Thus the AO or CIT(A) did not had any opportunity to examine the aforesaid contention and therefore there is no finding on it either by the A.O. and CIT (A). In view of these facts, we are of the view that the matter with respect to Nil disallowance under 14A be remitted back to the file of AO for examining it afresh. Thus the matter is remitted to the file of AO and he is directed to admit the issue and decide the issue afresh on merits as per law after considering the submissions made by the Assessee and after giving a reasonable opportunity of hearing to the Assessee. Assessee is also directed and furnish promptly the details called for by the AO to decide the issue. Thus this ground of the Assessee is allowed for statistical purposes. 5. In this context, the Revenue has questioned the Tribunal s decision to permit the assessee to argue before the Tribunal that even suo motu disallowance of ₹ 6.32 crore (rounded off) made by the assessee in the return filed was not justified. The stand of the Revenue is that when the assessee had filed a return in which the disallowance noted a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment order dated 30- 03-2005 states this figure as ₹ 413.6 crores. The assessee had suo moto disallowed a sum of ₹ 6.23 crores comprising of interest pertaining to incremental demand deposits. The Assessing Officer in assessment order computed section 14A disallowance of ₹ 36.68 crores i.e. net figure of ₹ 30.45 crores over and above ₹ 6.23 crores added back suo moto. 5. The assessee preferred appeal. This CIT(A) partly accepted its contentions as follows:- 6.3 After considering the submissions of the appellant and the case laws relied upon, I am of the opinion that the action of the A.O. is not correct as regards disallowing interest expenses amount after allocating it to the investments for exempted income. The appellant has filed the details before the A.O. admitting that only part of the interest bearing funds is used for investing in the investments giving tax exempted income. The interest cost is calculated at ₹ 6.23 Cr. which is offered for taxation. Hence, the A.O. is not justified in further allocating the interest expenditure for this purpose disregarding the fact that the appellant has surplus funds. However as regards th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds and debentures and dividend income and had further calculated expenses disallowable u/s 14A at ₹ 6.32 Crore. The Assessee was asked to justify its claim and allocate tax free income to tax free investment. Assessee interalia submitted that the investments were totally funded out of interest free funds which were available with it in the form of Capital,-Reserves and Surplus, balance in current account deposits etc. On the basis of its computation, the Assessee had shown incremental position of tax free investment of ₹ 13 Crore for the year under appeal. On the aforesaid investment it had computed the total interest cost of ₹ 6.23 Crore which was added back to computation income. The submission made by the Assessee were not found acceptable to the AO for the reason that the Assessee had not confirmed the date of purchase of investments and therefore he was of the view that the Assessee cannot claim that the investments were held by it permanently for 8 long years. He also noted that Assessee had opening balance of tax free investment of ₹ 401 Crore, had entered into purchase and sale of investment worth hundreds of crores in the tax free investment, the to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the A. O. is not correct as regards disallowing interest expenses amount after allocating it to the investments for exempted income. The appellant has filed the details before the A.O. admitting that only part of the Merest bearing funds is used for investing in the investments, giving tax exempted income. The interest cost is calculated at ₹ 6.23 Cr. which is offered for taxation. Hence, the A.O. is not justified in further allocating the interest expenditure for this purpose disregarding the fact that the appellant has surplus funds. However as regards the other operating expenses are concerned, the appellant has not filed any details as to how much expenditure is to be apportioned for earning the exempted income. The total operating expenses are ₹ 205 .47 Cr. and the exempt income claimed by the appellant is ₹ 39,65 Cr. whereas the total income earned by the appellant is ₹ 1595.40 Cr. Hence the exempted income is 2.485% of the total income. Therefore, by allocating the operating expenses of ₹ 205.47 Cr. in this ratio, the expense allocable to the exempt income comes to ₹ 5.11 Cr. (205.47 x 2.485%) Therefore, this expenditure has to be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee and therefore urged to delete the entire disallowance u/s 14A. He further submitted that the deletion of entire disallowance u/s 14A can be raised by the assessee for the first time before Tribunal and for which he placed reliance on the decisions in the case of National Thermal Power Company Limited vs. CIT 1998 229 383 ITR (SC), Jute Corporation of India vs. CIT (1991) 187 ITR 688 (SC). He also placed reliance on the decision in the case of Asit Kumar Ghosh vs. CIT (1953) 24 ITR 576 for the proposition that estoppel is only a rule of evidence and not a cause of action. In any event estoppel is not a basis of liability to assessment under the Income Tax Act and therefore the assessment of a person for an amount of income to which he is a stranger cannot be based on the ground that he himself wanted to be assessed on it. The learned D.R. on the other hand pointed to the relevant paragraphs of the order of AO and relied on the order of AO and further submitted that the AO has rightly made the disallowance u/s 14A and thus supported his i order. 19. We have heard the rival submissions and perused the material V on record. It is an undisputed fact that the Assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts were from interest free funds available. In the present case, since the assesses has suo moto disallowed ₹ 5,53 crore u/s 14A, respectfully following the decision of Bombay High Court, we are of the view that in the facts of the present case, no further disallowance over and above than what has been disallowed by the Assessee is called for. As far as disallowance of other administrative expenses is concerned, the undisputed fact is that the disallowance has been made by the AO without giving a finding as to how much administrative expenditure has been incurred to earn the exempt income. In the case of Hero Cycles (supra) the Hon'ble High Court has held that the contention of the Revenue that directly or indirectly some expenditure is always incurred which must be disallowed u/s 14A cannot be accepted. Disallowance u/s 14A requires finding of incurring of expenditure. In the present case, the AO has presumed that the assessee might have incurred expenditure to earn the exempt income. He has not given any finding of incurring of expenditure. In view of these facts and respectfully following the decision of High Court, we are of the view that no disallowance of administr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neous belief before the lower authorities. 8. The assessee s submissions on merits are that its suo moto disallowance of ₹ 6.23 crores is qua interest sums only. Our attention is invited to page 275 of the paper book containing details of its interest free funds vis- -vis tax free investment right from its initial year of business i.e. up to 31-03-1995 to 31-03-2003. The assessee s interest free deposits in the impugned assessment year are ₹ 1,766 crores in capital reserves and deposits. Tax free interest investment in question are of ₹ 4,14 crores leaving behind a surplus of ₹ 1,352 crores. This results in surplus percentage of interest free funds @ 327%. The assessee then takes us to its suo moto disallowance computation at page 274 of the paper book. It pleads that its interest free funds are much more than tax free investments. The tribunal in assessment year 2003-04 relied upon the case law of CIT vs. Reliance Utilities and Power Ltd 313 ITR 340 for deleting an identical disallowance. The only difference being that the assessee therein had not challenged suo moto disallowance. The Revenue filed tax appeal no. 119 of 2013 before the hon ble jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rst round had remitted the issue of this disallowance back to the assessing authority for afresh adjudication. The net result was that corresponding ground in assessee s instant appeal as well as that filed at Revenue s behest stood restored for afresh adjudication. The Revenue s limited grievance was accordingly confined to the issue of suo moto disallowance of ₹ 6.23 crores in assessee s appeal as it could not have been aggrieved against the tribunal s decision in restoring the issue in appeal. It framed only two substantial questions of law before the hon ble jurisdictional high court i.e. suo moto disallowance and correctness of co-ordinate bench decision in admitting additional ground (supra). Their lordships hon ble jurisdictional high court considered tribunal s common order in cross appeal for using the crucial expression entire issue in the operative part of para no. 8 hereinabove. We reject assessee s first argument seeking to restrict our adjudication in these facts and circumstances. And proceed to decide the entire issue of section 14A disallowance. 12. We come to merits now. We have already narrated in the preceding paragraphs that assessee s interest free d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... giving the credit of disallowance of ₹ 5.53 crore made by the Assessee, the AO disallowed ₹ 27.23 crore u/s. 14A. As on 31st March, 2003, the interest free funds available with the assessee was to the tune of ₹ 3404 crore (comprising of share capital of ₹ 230 crore Reserves of ₹ 689 crores and interest free demand deposits and ₹ 2485 crores) as against which the tax free investments were to the tune of ₹ 589 crore. Thus the interest free funds were far in excess of the investments. CIT(A) has given a finding that the facts in AY 2003-04 are identical to the facts of the case in AY 2002-03 and accordingly he has followed the decision of CIT(A) for AY 2002-03. These facts have not been controverted by the Ld. D.R. nor have they brought on record any facts to the contrary. Hon'ble Bombay High Court in case of CIT Vs. Reliance Utilities Power Ltd. (supra) has held that if there are interest free funds available to an assessee sufficient to meet its investments and at the same time the assessee has raised a loan it can be presumed that the investments were from interest free funds available. In the present case, since the assessee has suo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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) 284 ITR 323 (SC) 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 (supra) 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 O ..... X X X X Extracts X X X X X X X X Extracts X X X X
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