TMI Blog2018 (5) TMI 417X X X X Extracts X X X X X X X X Extracts X X X X ..... with a view to ensuring consistency and uniformity in approach on the same issue for different assessment years, we deem it fit and proper to uphold the stand of the assessee on this aspect. Thus, Ground of appeal no. 2 is hereby allowed. Manner of computing the deduction u/s 36(1)(viii) - whether AO erred in allowing the deduction by grossing-up the profit derived from long term financing operations, i.e. after making deduction under the said clause - Held that:- It was a common point between the parties that similar issue was in the case of CIT vs Kerala State Ind. Development Corporation,(1998 (2) TMI 6 - SUPREME Court) wherein the issue has been decided in favour of the assessee. In terms of the said decision, the Assessing Officer is directed to calculate the deduction allowed u/s 36(1)(viii) of the Act on the total income before deduction of the amount allowable under the section. Thus, on this aspect, assessee succeeds. Deduction on account of amortisation of amount of lease premium paid to MMRDA in respect of leasehold land rejected - Held that:- Ostensibly, having regard to the precedents in assessee’s own case, the lease premium paid by assessee to MMRDA in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er charge interest u/s 234C of the Act if so permissible as per law and pass a speaking order in this regard. Thus, on this aspect, assessee succeeds for statistical purposes. Disallowance u/s 14A - Held that:- AO could not have straightaway resorted to Rule 8D(2)(iii) of the Rules in order to compute the disallowance u/s 14A of the Act. Moreover, we find that the assessee has explained the basis of computing the disallowance of ₹ 21,69,490/- before the Assessing Officer as well as the CIT(A), and we do not find any reasons advanced by them to doubt its veracity. Therefore, considered in this light, in our view, resort to Rule 8D of the Rules made by the Assessing Officer to enhance the disallowance u/s 14A of the Act is not merited in the instant case. Thus, the enhancement of disallowance made u/s 14A of the Act by the Assessing Officer by a sum of ₹ 1,80,96,335/- is not tenable and is hereby directed to be deleted. - ITA NOS.4045,4047 & 4048/MUM/2011, ITA NO. 3708/MUM/2012, ITA NOS. 4219 & 4220/MUM/2011 And 4462/MUM/2012 - - - Dated:- 23-3-2018 - SHRI G.S. PANNU, ACCOUNTANT MEMBER AND SHRI PAWAN SINGH, JUDICIAL MEMBER For The Appellant : Shri Arvind Sonde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, the learned Commissioner of Income Tax (Appeals) erred in holding the reduction of deduction allowable u/s. 36(1)(viia)(c) from profits derived from business of long term finance operation while computing deduction u/s. 36(1)(viii) for which the base is business profits. 3. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) ought to have held that the statutory deduction u/s. 36(1)(viii) should be calculated on the eligible business income before deduction of amount allowable under that section and thereby erred in confirming the computation of deduction u/s. 36(1)(viii) as done by the learned Assessing Officer by grossing up the rate i.e 40/140 of profits derived from business of long term financing operations computed under the head Profits and gains of business and profession and doing so without assigning any reasons is wrong and contrary to the facts and circumstances of the case, provisions of the Income Tax Act, 1961 and the Rules made thereunder; 4. On the facts and circumstances of the case, the learned Commissioner of Income Tax (Appeals) erred in rejecting the contention of the appellant that no interest is lev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y its claim of deduction u/s 36(1)(viii) of the Act on pro rata income from business of long term financing before reducing the deduction admissible u/s 36(1)(viia)(c) of the Act. In this manner, before the lower authorities, assessee had sought to defend the deduction allowable u/s 36(1)(viii) of the Act as made in the original assessment. The Assessing Officer as well as the CIT(A) have not concurred with the assessee on this aspect as, according to them, the respective provisions were clear and the deduction u/s 36(1)(viii) of the Act has to be calculated after reducing the deduction allowable u/s 36(1)(viia)(c) of the Act from the profits eligible for the benefits of u/s 36(1)(viii) of the Act. 6. In this background, assessee is in appeal before us. Ostensibly, the dispute raised before us stems from the interplay between the provisions of Sec. 36(1)(viia)(c) of the Act vis-a-vis Sec. 36(1)(viii) of the Act. At the time of hearing, the learned representative for the assessee has taken us through the history of assessment on this aspect. Firstly, it is pointed out that similar issue cropped-up in Assessment Year 2010-11 and the CIT(A) allowed the stand of assessee, which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount allowable under that section. In this context, it was a common point between the parties that similar issue was before the Hon'ble Supreme Court in the case of CIT vs Kerala State Ind. Development Corporation, 233 ITR 197 (SC) wherein the issue has been decided in favour of the assessee. In terms of the said decision, the Assessing Officer is directed to calculate the deduction allowed u/s 36(1)(viii) of the Act on the total income before deduction of the amount allowable under the section. Thus, on this aspect, assessee succeeds. 9. Since assessee has succeeded on both the substantive issues raised in appeal, the other Ground relating to the validity of proceedings initiated u/s 147/148 of the Act is rendered academic and is not being adjudicated for the present. 10. In this manner, appeal of the assessee is hereby allowed as above. 11. Now, we may take-up the appeal of assessee in ITA No. 4047/Mum/2011, which is directed against the order of the CIT(A)-7, Mumbai dated 10.03.2011, pertaining to the Assessment Year 2006-07, which in turn has arisen from the order passed by the Assessing Officer dated 25.09.2008 under section 143(3) of the Act. In this appeal, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provisions of the Income Tax Act, 1961 and the Rules made thereunder. ( b) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) erred in not appreciating that the disallowance amounting to ₹ 16,56,73,690/- wrongly offered in the return of income on ad-hoc basis being highly exaggerated and unreasonable was rightly withdrawn during the assessment proceedings. ( c) The learned Commissioner of Income Tax (Appeals) ought to have held that no disallowance whatsoever was warranted u/s. 14A on the facts of the appellant's case even if the appellant has wrongly offered disallowance u/s. 14A in the return of income. ( d) On the facts and in the circumstances of the case and in law the learned Commissioner of Income Tax (Appeals) ought to have not confirmed the disallowance of ₹ 16,56,73,690/- u/s. 14A irrespective of the fact that the appellant had offered the disallowance in the computation of total income in light of the following: ( i) the proposition laid down in Circular No.14(XL-35) dated 11.04.1955 of the Central Board of Direct Taxes and ( ii) the principles laid down in Nat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed, the same relates to the deduction on account of amortisation of amount of lease premium paid to MMRDA of ₹ 60,79,790/- in respect of leasehold land. The Assessing Officer as well as the CIT(A) have rejected the claim of assessee based on their respective stands in the past years. 13. Before us, the learned representative for the assessee pointed out that in the earlier years, identical issue has been decided by the Tribunal against the assessee and the matter is pending before the Hon'ble High Court of Bombay. At the time of hearing, a Declaration u/s 158A(1) of the Act in the prescribed Form no. 8 has been filed claiming that identical question of law is pending before the Hon'ble High Court for Assessment Year 2004-05 and it is canvassed that if the Assessing Officer was to apply the final decision on the question of law referred in the earlier year, then, assessee would not prefer further appeal before the Hon'ble High Court on this aspect in this year. 14. The ld. DR had no objection to the application made by the assessee in terms of Sec. 158A(1) of the Act. 15. We have carefully considered the rival submissions. Ostensibly, having regard to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer, in para 6 of the assessment order, however, noted the stand of the assessee that no expenditure has been incurred to earn the exempt dividend income, which he rejected. The Assessing Officer applied Rule 8D of the Income Tax Rules, 1962 (in short the Rules ) and accordingly, computed the disallowance of ₹ 5,64,66,105/-, which comprised of disallowance of interest expenditure of ₹ 4,69,58,242/- in terms of Rule 8D(2)(ii) of the Rules and of ₹ 95,07,863/- representing overheads expense in terms of Rule 8D(2)(iii) of the Rules. The said disallowance was carried in appeal before the CIT(A). The CIT(A) noted that the suo moto disallowance made by the assessee u/s 14A of the Act was ₹ 16,56,77,690/- and, therefore, there was no justification for the Assessing Officer to compute a further disallowance of ₹ 5,64,66,105/- and add it to the returned income. Not being satisfied with the decision of the CIT(A), assessee is in further appeal before us. 17. Before us, the learned representative pointed out that though disallowance of ₹ 16,56,77,690/- was made by the assessee in the revised return of income filed on 26.02.2008 in the context of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was suo moto made by the assessee-bank. In our considered opinion, the plea of the assessee to examine the efficacy of the disallowance has been wrongly rejected by both the authorities below. This is especially so if we consider the assessment position of Assessment Year 2004-05 wherein, under similar circumstances, the decision of CIT(A) in restricting the disallowance to 5% of the exempt income has been accepted by the Assessing Officer as no appeal is stated to have been filed against such a decision. Therefore, considering all these aspects, we deem it fit and proper to set-aside the order of CIT(A) and direct the Assessing Officer to evaluate the plea of assessee afresh and, in any case, the disallowance, if any, retained by him shall not exceed 5% of the exempt income, as was the position in Assessment Year 2004-05. Needless to mention, the Assessing Officer shall allow the assessee a reasonable opportunity of being heard and only thereafter pass a speaking order on this limited aspect. Thus, on this aspect, assessee succeeds for statistical purposes. 20. Insofar as Ground of appeal no. 3 is concerned, the same relates to assessee s claim for deduction of a sum of ͅ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal and the matter was remitted back to the file of the Assessing Officer. The learned representative pointed out that in the order giving effect to the order of the Tribunal passed by the Assessing Officer on 01.06.2012, copy of which has been placed at page 277 of the Paper Book, such a claim has been accepted and allowed by the Assessing Officer. Even in the subsequent years from Assessment Year 2008-09 onwards, the said claim is being allowed by the assessing authority itself. In this manner, the assessee has sought to justify its claim for deduction of the said expenditure. 23. On the other hand, the ld. DR has defended the orders of the authorities below on this aspect. 24. We have carefully considered the rival submissions. Ostensibly, the claim for deduction of contribution made to Credit Guarantee Fund Trust was not made by the assessee in the return of income filed. So, however, it is not a case where the Assessing Officer was not aware of the claim inasmuch as the claim was indeed set-up in the course of the assessment proceedings itself. Thus, it is not a case where the Assessing Officer did not have an opportunity to examine the claim put forth by the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the effect that the said issue stands covered against the Revenue in view of the judgment of the Hon'ble Bombay High Court in assessee s own case for Assessment Year 2003-04 being ITA No. 2108/2010 dated 12.09.2012. The learned representative for the respondent-assessee pointed out that the said dispute came-up for the first time in Assessment Year 2002-03 wherein the Tribunal vide its combined order in ITA Nos. 3407 3408/Mum/2006 dated 15.07.2009 allowed the claim of the assessee. The said decision has since been approved by the Hon'ble Bombay High Court vide its order for Assessment Year 2003-04 dated 12.09.2012 (supra). 28. In view of the aforesaid, we hereby affirm the decision of CIT(A) and Revenue fails in its appeal. 29. Insofar as appeals being ITA No. 4220/Mum/2011 4462/Mum/2012 pertaining to Assessment Years 2007-08 and 2008-09 are concerned, the issues involved are identical to that considered by us in ITA No. 4219/Mum/2011 in the earlier paras, therefore, our decision therein shall apply mutatis mutandis to the said appeals also. 30. Now, we may take-up the appeal of assessee in ITA No. 4048/Mum/2011, which is directed against the order of the C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncome Tax (Appeals) erred in upholding the action of the learned Assessing Officer in reducing Provision for bad and doubtful debts allowable under section 36(1)(viia)(c) from the profits derived from business of long term finance operations for the purpose of computing deduction u/s. 36(1)(viii) and thereby erred in confirming the action of the learned Assessing Officer in disallowing the appellant's claim of deduction made u/s. 36(1)(viii) of the Income Tax Act, 1961 to the extent of ₹ 21,72,99,623/-. ( b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) ought to have held that the deduction under section 36(1)(viia)(c) in respect of the provision made by the appellant towards bad and doubtful debts is independent and distinct as the same is based on parameter of total income. Therefore, the learned Commissioner of Income Tax (Appeals) erred in holding the reduction of deduction allowable u/s. 36(1)(viia)(c) from profits derived from business of long term finance operation while computing deduction u/s. 36(1)(viii) for which the base is business profits. 3(a). On the facts and in the circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ances of the case and in law, the learned Commissioner of Income Tax (Appeals) ought to have allowed the deduction of ₹ 32,99,95,750/- in light of the following: ( i) that the contribution is deductible being expenditure incurred for meeting the objects of the business of the appellant, ( ii) the principle laid down in Commissioner of Income-tax v. Chandulal Keshavlal Co. [1960] 38 ITR 601 (SC) and ( iii) the principle laid down in Kedarnath Jute Mfg. Co. Ltd., 82 ITR 363 (S.C.), Sutlej Cotton Mills Ltd., 116 ITR 1 (S.C.), Fort Properties P. Ltd., 208 ITR 232 (Bom.) and Tuticorin Alkali Chemicals Fertilizers Ltd., 227 ITR 172 (S.C.) wherein it has been held that deductions/allowances are to be made as per provisions of law and not as per entries in the books of account of the assessee. 5. On the facts and in the circumstances of the case, the learned Commissioner of Income Tax (Appeals) ought to have held that interest cannot be levied u/s. 234C as there was no shortfall in payment of advance tax by the appellant in any of the four installments and not doing so is wrong and contrary to the facts and circumstances of the case, provisions of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lied the provisions of Rule 8D of the Rules and calculated the disallowance u/s 14A of the Act at ₹ 5,64,81,040/-. When the matter was taken-up before the CIT(A), assessee made varied submissions. The CIT(A) found that in the absence of assessee having come forward with any reasonable method for determining the expenditure attributable to earning of exempt income, the mechanism of Rule 8D of the Rules could be considered as a reasonable method for computation of disallowance. However, he noticed that the formula for disallowance put forward by the assessee in the earlier years was found to be reasonable and that there was no reason to deviate from that in the year under consideration also. Accordingly, he directed the Assessing Officer to recompute/estimate the expenditure attributable to earning of exempt income as per the method adopted by the assessee in Assessment Year 2006-07 and earlier years. Not being satisfied with the order of CIT(A), assessee is in further appeal before us. 34. Before us, the learned representative for the assessee pointed out that before the CIT(A), assessee had made a working of disallowance contemplated u/s 14A of the Act, a copy of which has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 34C of the Act. On this aspect, the plea of assessee is that there was no shortfall in payment of advance tax in any of the four instalments and, therefore, interest has been wrongly charged u/s 234C of the Act. According to the learned representative, a mistake has occurred on account of the fact that the levy of interest has been calculated by taking into consideration assessed tax instead of tax due on the returned income . On this aspect, we deem it fit and proper to restore the matter back to the file of the Assessing Officer, who shall verify the factual aspects and thereafter charge interest u/s 234C of the Act if so permissible as per law and pass a speaking order in this regard. Thus, on this aspect, assessee succeeds for statistical purposes. 39. In the result, appeal of the assessee is partly allowed. 40. Now, we may take-up the appeal of assessee in ITA No. 3708/Mum/2012, which is directed against the order of the CIT(A)-7, Mumbai dated 24.02.2012, pertaining to the Assessment Year 2008-09, which in turn has arisen from the order passed by the Assessing Officer dated 30.12.2010 under section 143(3) of the Act. In this appeal, the assessee has raised the fol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purpose of computing deduction u/s.36(1)(viii) and thereby erred in confirming the action of the learned Assessing Officer in disallowing the appellant's claim of deduction made u/s. 36(1)(viii) of the Income Tax Act, 1961 to the extent of ₹ 15,60,84,343/-. ( b) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) ought to have held that the deduction under section 36(1)(viia)(c) in respect of the provision made by the appellant towards bad and doubtful debts is independent and distinct as the same is based on parameter of total income. Therefore, the learned Commissioner of Income Tax (Appeals) erred in upholding the action of the learned Assessing Officer in reducing the deduction allowable u/s. 36(1)(viia)(c) from profits derived from business of long term finance operation while computing deduction u/s. 36(1)(viii) for which the base is business profits. 3(a) On the facts and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) erred in confirming the disallowance made by the learned Assessing officer of sum of ₹ 2,02,65,825/- by invoking rule 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount of Provision for bad and doubtful debts allowable u/s 36(1)(viia)(c) of the Act, is upheld. Thus, on this aspect, assessee succeeds. 43. Insofar as Ground of appeal no. 3 is concerned, the grievance of the assessee is that the CIT(A) erred in confirming the disallowance made by the Assessing Officer u/s 14A of the Act at ₹ 2,02,65,825/- by applying Rule 8D of the Rules as against disallowance of ₹ 21,69,490/- worked out by the assessee. In brief, the relevant facts are that assessee had declared exempt income of ₹ 92,36,20,023/- and had suo moto disallowed proportionate amount of ₹ 21,69,490/- out of establishment expenditure in terms of Sec. 14A of the Act. The Assessing Officer, however, applied Rule 8D(2)(iii) of the Rules and determined the disallowance out of administrative/overhead expenditure at ₹ 2,02,65,825/- for the purposes of Sec. 14A of the Act thereby resulting in an enhanced disallowance of ₹ 1,80,96,335/-. The said enhancement in the disallowance made by the Assessing Officer was challenged in appeal before the CIT(A). Before the CIT(A), assessee asserted that there was no specific costs incurred in relation to ear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes not form part of the total income under the Act. Sec. 14A(2) of the Act empowers the Assessing Officer to determine the amount of expenditure incurred in relation to the exempt income in accordance with such method as may be prescribed, which is contained in Rule 8D of the Rules. In the present case, the Assessing Officer has applied Rule 8D(2)(iii) of the Rules to determine the amount of such administrative/overhead expenditure. However, the case set-up by the assessee is that resort to Rule 8D(2)(iii) of the Rules by the Assessing Officer is circumscribed by a caveat in Sec. 14A(2) of the Act itself. The phraseology of Sec. 14A(2) of the Act itself prescribes that resort to Rule 8D of the Rules can be made only if the Assessing Officer is not satisfied with the correctness of the claim of assessee in respect of such expenditure, having regard to the accounts of the assessee. Notably, in the present case, assessee has made a suo moto disallowance of ₹ 21,69,490/- out of proportionate establishment expenditure. Before the lower authorities as well as before us, assessee has referred to the basis of such calculation and pointed out that the proportionate cost of employee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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