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UTI Bank Limited Versus Assistant Commissioner of Income Tax, Circle-8, Ahmedabad

2016 (1) TMI 604 - ITAT AHMEDABAD

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 proceeding .....

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rtently 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 .....

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.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. CIT(A)-XIV/AC.C.8/81 & 241/2005-06 and CIT(A)- XIV/Addl. Range-8/246/07-08 respectively, in proceedings under section 143(3) of the Income Tax Act, 1961; in short the Act . 2. We notice at the outset that all these three case files contain hon ble .....

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in directing the Assessing Officer to admit assessee's contention for deleting the suo moto disallowance of ₹ 6.32 crores u/s 14A made by the assessee in the return of income? [B] Whether the Appellate Tribunal has erred in not appreciating the fact that the assessee can only make a new claim which was not made in the original return by way of filing a revised return u/s. 139(5)?" 2. We have heard the learned counsel for the parties and in the facts of the case, propose to dispos .....

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The assessee carried the matter in further appeal before the Tribunal. The Tribunal relied upon its own decision for the subsequent assessment year 2003-2004, in case of this very assesses, where somewhat similar question had come up. The Tribunal concluded as under: "20. Before us, the learned A.R. has raised a new argument wherein it was submitted that even the suo motu disallowance made by the Assessee while computing the income should be deleted and for which he placed reliance the deci .....

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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 contex .....

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remitted the entire issue back for consideration before the Assessing Officer. 6. In our opinion, when all materials necessary to examine the nature of disallowance to be made, if at all, under section 14A of the Act are already on record and when once Assessing Officer as well as CIT (Appeals) have already considered the Issue and given detailed findings. It would be appropriate for the Tribunal to give its final conclusive opinion on the entire issue. 7. Learned counsel for the Revenue placed .....

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the rival contentions. We leave it for the Tribunal to hear both the parties and give its conclusive findings as found appropriate in law. 9. Under the circumstances, the appeal is partly-allowed. The Tribunal's judgment on the issue on hand is set aside. The entire issue is placed back before the Tribunal for decision on merits. 3. Both parties inform us that the sole substantive issue identical in all three cases for our adjudication is that of section 14A disallowance. We accordingly trea .....

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e of ₹ 39.65 crores arising from tax free bonds, debentures and dividends. The assessee had invested a sum of ₹ 4,14 crores in these instruments as per page 275 of the paper book. The 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 .....

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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 the other operating expenses are concerned, appellant has not filed any details as to how much expenditure is to b .....

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disallowed out of the total expenditure for earning the exempt income under the provisions of Sec. 14A. This view is supported by the decision of ITAT Chennai Bench in the case of Southern Petro Chemicals Industries V. DCIT, 93 TTJ 161. As pc this decision, the investment decisions are very strategic decisions in which top management is involved and, therefore, proportionate management expenses are required to be deducted while computing the exempted income. On similar logic, the other operating .....

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. A co-ordinate bench decided these appeals on 30-08-2013. The assessee raised an additional argument therein that its suo moto disallowance of ₹ 6.23 crores is also not sustainable. The learned co-ordinate bench in its order admitted this new plea and remitted the entire issue of section 14A disallowance raised in cross appeals back to the assessing authority as under:- Ground no. 3.1 to 3.7 are with respect to disallowance u/s. 14A. 15. During the course of assessment proceedings, AO not .....

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alia 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 .....

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d bonds and debentures including taxable and tax free instruments was to the tune of ₹ 6,818 Crore. He accordingly concluded that the Assessee was trading heavily in tax free instruments. He further noticed that Assessee has considered only the interest cost of funds for the purpose of disallowance. He was of the view that since the bank was "carrying on different activities which earned taxable as well as tax free income the business of the Assessee cannot be termed as indivisible bu .....

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32 crores Expenses allocated to such amount of Rs. 390.32 crores @ 9.4% on the basis of average cost of borrowal - 9.4% of Rs.390.32Cr. Rs. 36.68cror es Total expenses incurred for earning taxfree income is Rs. 36.68cror es Disallowances u/s 14A ₹ 36.68 crores Already disallowed by assessee ₹ 6.23 crores Balance disallowable ₹ 30.45 crores 16. The disallowance worked out by the AO was ₹ 36.68Crore but since the Assessee had already suo motu disallowed ₹ 6.23 Crore, .....

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xempted 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 ap .....

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o ₹ 5.11 Cr. (205.47 x 2.485%) Therefore, this expenditure has to be disallowed out of the total expenditure for earning the exempt income under the provisions of Sec. 14A. This view is supported by the decision of ITAT Chennai Bench in the case of Southern Petro Chemicals Industries V. DCIT, 93 TTJ 161. As pt this decision the investment decisions are very strategic decisions in which top management is involved and, therefore, proportional management expenses are required to be deducted w .....

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- 18. Before us, the learned A.R. placed at page 61 of the paper book the chart showing opening position of interest free funds vis-a-vis tax free investment for various years starting from 31st March, 1995 to 31st March, 2003. From the aforesaid chart, he pointed that the interest free funds available with the Assessee in the form of Capital, Reserves and interest free demand deposits aggregated to ₹ 1766 Crore as against which the tax free investment at the end of the year was ₹ 41 .....

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versed for the reason that on identical facts in the case of Assessee, the Hon. Tribunal had deleted the addition made u/s 14A and which was also upheld by Hon. Gujarat High Court in Tax appeal no. 118/Ahd/2013. He placed on record at page 335 to 372 the order of Tribunal for A.Y. 2003-04 and at page 373 to 378 the order of Gujarat High Court. The learned A.R. further submitted that since no amount of disallowance u/s 14A can be made in the case of the Assessee and therefore urged to delete the .....

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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 th .....

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disallowance made by the assessee, he disallowed ₹ 30.45 Crore. We find that before AO, Assessee has not raised the contention about no disallowance u/s 14A and therefore the AO had proceeded ahead on the basis of suo moto disallowance made by the Assessee. CIT(A) had deleted the addition to the extent of ₹ 25.35 Crore. We further find that on identical facts for A.Y. 2003-04, (ITA No 2571/And/2006), the Co-ordinate Bench of Tribunal had restricted the disallowance to that made by th .....

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the-Assesses, the AO disallowed ₹ 27.23 crore u/s 14A. As on 31 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 of ₹ 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 .....

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aised a loan it can be presumed that the investments 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 .....

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e 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 administrative expenses can be made. We accordingly direct for the deletion of the addition made by the AO and allow this ground of the assessee. 20. Before us, the learned A.R. has raised a new argument wherein it was submitted that even the suo motu disallow .....

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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 .....

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orrectness of entire disallowance of ₹ 36.68 crores made in the course of assessment. It refers to section 260A(1) of the Act and takes us to the Revenue s two substantial questions of law. The assessee argues that their lordships have not framed any additional substantial question of law u/s. 260(4) of the Act. It contends that the hon ble jurisdictional high court in case of Mitesh Impex (supra) has settled the law that filling of a revised return u/s. 139(5) of the Act is not mandatory .....

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5 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 inve .....

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dated 07-02-2014 admitted it only qua disallowance of administrative expenses. The assessee accordingly submits that even on merits, it deserves to succeed qua the entire issue as well. 9. The Revenue strongly supports Assessing Officer s action in making the above disallowance of ₹ 36.68 crores. Its case is that the CIT(A) has erred in granting part relief to assessee. It opposes assessee s arguments that our adjudication is confined to the limited issue of suo moto disallowance only by .....

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es and perused the case file. Relevant facts stand narrated in the preceding paragraphs. The assessee suo moto disallowed a sum of ₹ 6.23 crores qua its exempt income in question. This amount is only interest sum qua incremental demand deposits. The Assessing Officer in assessment disallowed a sum of ₹ 36.68 crores mainly on proportionate basis between total funds vis-à-vis interest bearing ones. The CIT(A) granted part relief to the extent indicated hereinabove. Both parties .....

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f suo moto disallowance of ₹ 6.23 crores made towards exempt income or that to the entire issue of section 14A disallowance made by the Assessing Officer to the tune of 36.68 crores. It has come on record that the tribunal in first 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. .....

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nsidered 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 demand deposits comprising of capital, reserves etc read a figure of &# .....

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h court deleted an identical section 14A disallowance based on the very presumption. The hon ble jurisdictional high court in Tax Appeal No. 119 of 2013 decides the very question in assessee s favour as under:- 2. Question 1 arises out of two cross appeals filed by the revenue and assessee before the Tribunal against the order of the Appellate Commissioner. This issue was cumulatively considered by us in Tax Appeal No. 118 of 2013 in which also order has been passed today. We had declined the qu .....

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particularly, when the assessee itself disallowed certain part of interest expenditure u/s. 14A?" 3. The issue pertains to disallowance under Section 14A of the Act made by the Assessing Officer which was partially deleted by the CIT(A). Such order of CIT(A) gave rise to cross appeals at the hands of the assessee as well as the revenue. Tribunal confirmed the view of the CIT(A) making following observations: "33. We have heard the rival contentions and perused the material on record, .....

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unds 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 .....

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t case, since the assessee 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 expenditur .....

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expenditure. In view of these facts and respectfully following the decision of High Court, we are of the view that no disallowance of administrative expenses can be made. We accordingly direct for the deletion of the addition made by the AO and allow this ground of the assessee. " 4. In our opinion the Tribunal has committed no error. Basically the entire disallowance has been made on the basis of facts emerging on record. The Tribunal also relied on the decision of the Bombay High Court in .....

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dmitted qua administrative expenses only. The only distinction that is to be seen in these two assessment years is that the assessee has suo moto disallowed ₹ 6.23 crores in the impugned assessment year. The Revenue seeks to apply estoppel principle. 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 orig .....

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