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TMI Blog2018 (4) TMI 1770X X X X Extracts X X X X X X X X Extracts X X X X ..... oportion of exempt income (other than Long Term Capital Gain) to total exempt income. Modified Ground of appeal No.-1(a) - The Learned CIT(A) ought to have held that no disallowance u/s.14A (2) r.w.rule 8D can be sustained in the absence of a specific recording of satisfaction by the A. a., based on cogent material and having regard to the accounts of the assessee, to the effect that the claim of the assessee is not correct." Modified Grounds : "On the facts and circumstances of the case and in law the learned 'CIT (A)' erred in : 1.a) Disallowing a sum of Rs. 24,69,760/- being disallowance U/s. 14A on the basis of proportion of exempt income (other than Long Term Capital Gain) to total exempt income. 2.a) not granting set off of the amount offered towards contingency of Rs. 60,00,000/- against disallowance u/s.14A. He erred in confirming that contingency of Rs. 60,00,000/- was correctly added by the learned A.O. even though the learned A.O. had not identified any further disallowance. b) Alternately, the learned CIT (A) ought to have granted relief by reducing the total income assessed by R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s.14A r.w. Rule 8D(2) of the I.T. Rules, 1962 is sustainable when there is no valid satisfaction for invoking the said provisions of the Act/Rules, (2) when the said disallowance u/s.14A of the Act is unsustainable in law, should there be any requirement of granting set off of the said disallowance against the buffer disclosure of Rs. 60 lakhs offered by the assessee during search and seizure ; (3) in the absence of any clear omissions or commissions or discrepancies made out by the AO, if the said sum of buffer disclosure of Rs. 60 lakhs could be reduced from the returned income by that amount of Rs. 60 lakhs and (4) if the claim of Gratuity is allowable if the scheme is not approved by the competent authority. We shall take up the issue-wise adjudication in the following paragraphs. 6.First issue : If the disallowance made by the AO u/s.14A r.w. Rule 8D(2) of the I.T. Rules, 1962 is sustainable when there is no satisfaction invoking the provisions of the Act/Rules ? Bringing our attention to the assessment order in this regard, Ld. Counsel for the assessee submitted that on similar satisfaction mentioned by the AO, the Tribunal in the assessee's own case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able income. Therefore, I am satisfied that the assessee has not made adequate disallowance as mandated u/s.14A of the I.T. Act and therefore, the case of the assessee is a fit case for computation of the said disallowance u/s.14A of the I.T. Act." 28.Further, Ld. AR for the assessee submitted that the above recorded satisfaction , is extremely general and it falls short of the legal requirement as provided in the judgement of Hon'ble Apex Court in the case of Godrej and Boyce Manufacturing Company Ltd vs. DCIT 394 ITR 448 (SC). Contents of Para No.37 of the said judgment is relied heavily and prayed for deletion of the addition made by the AO invoking the provisions of section 14A of the Act. 29.Ld. DR for the Revenue relied on the orders of the AO/CIT(A). 30.We heard both the parties on the issue relating to the issue of recording of satisfaction and perused the above extracted satisfaction recorded by the AO on this issue. We find the legal position was explained by the Hon'ble Apex Court and the Para No.37 of the judgment of Hon'ble Apex Court in the case of Godrej and Boyce Manufacturing Company Ltd. (supra) are relevant. Hon' ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions made by the assessee. It is observed that apart from investments in the overseas subsidiaries (where there is no tax-free income since the dividend is also taxable) the investments made by the assessee are in mutual funds. The entire investment in mutual fund is in non-equity scheme. In respect of investment in mutual funds, except for growth funds, the company receives tax free dividend. The amount of dividend received by the company is substantial. This is a clear case for application of Rule 8D. Hence, the contention of the assessee cannot be accepted. The disallowance u/s 14A is required to be made by applying Rule 8D. As per the working of disallowance u/s 14A as per Rule 8D, the amount of disallowance comes to Rs. 5,68,32,323/-. The assessee has already disallowed Rs. 50,00,000/- in the computation of income." 35.The requirement of section 14(2) of the Act is that the Assessing Officer is to record as to why the disallowance made by the assessee i.e. Rs. 50 lakhs under section 14A of the Act is not correct. The Assessing Officer takes note of the disallowance, considers the explanation of assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. Considering the above position, we are of the view that the AO failed to record the sustainable satisfaction before invoking the provisions of section 14A of the Act. Therefore, the disallowance made by the AO is unsustainable technically. Accordingly, this part of the argument of Ground No.1 is allowed. We find adjudication of the other issues of the said ground relating to merits becomes an academic exercise. Therefore, the same are dismissed as academic." Following the same parity of reasoning, we allow the first issue in favour of the assessee and direct the AO to delete the disallowance of Rs. 24,69,760/- made by the AO u/s.14A of the Act. 9.Second issue : when the said disallowance u/s.14A of the Act is unsustainable on the ground of invalid satisfaction, should there be any requirement of granting set off of the said disallowance against the buffer disclosure of Rs. 60 lakhs offered by the assessee during search and seizure action ? 10.Since we have decided the addition made by the AO u/s.14A of the Act as unsustainable in law, the question of set-off against the said disallowance against the bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... jected the said demand of the assessee as per the discussion given in para 13.2 of his order. Thus, CIT(A) decided this issue against the assessee. 29.To sum up his finding, in the said para, the CIT(A) held that the claim made by the assessee that such income of Rs. 1 crore may be excluded from the total income assessed by the assessee as no discrepancies were found during the assessment proceedings, cannot be accepted as the said additional income was offered voluntarily in the return of income. If accepted, the assessed income shall be lower than the returned income. The alternative claim of the assessee for set off of such contingencies against other disallowances u/s.14A of the Act made by the AO was also rejected despite the existence of the favourable decision of the Tribunal in the group cases of the assessee (M/s. Adurjee Brothers Pvt. Ltd.). Aggrieved with the order of CIT(A) the assessee is in appeal before us. 30.Before us, Ld. Counsel for the assessee submitted that similar issue with some variance came up for adjudication before the Tribunal in a case belonging to the same group named M/s. Adurjee Brothers Pv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sanctity of returned income - if the assessed income be less than the returned income. 32.On this issue, Ld. Counsel for the assessee submitted that it is a settled legal proposition in favour of the Assessee and against the Revenue. For this, Ld counsel relied on various binding judgments of Apex Courts and others. We shall now proceed to analyse each of them here as under. 33.To start with, we will take up the Apex Court's judgment in the case of Commissioner of Income-tax v. Shelly Products [2003] 261 ITR 367 (SC), the Apex Court held in favour of refunding of the excess taxes paid (of advance tax as well as self-assessment tax) out of abundant caution or owing to error or non taxability. Held portion of this judgment is extracted as under : "However, failure or inability of the Revenue to frame a fresh assessment should not place the assessee in a more disadvantageous position than he would have been in if a fresh assessment were made. In a case where the assessee chooses to deposit, by way of abundant caution, advance tax or tax on self assessment which is in excess of his liability on the basis of the return furnished or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside, with a direction to the Assessing Officer to make assessment without keeping in mind the Central Board of Direct Taxes Circular dated 31-10-1989." 35.The same Hon'ble Gujarat High Court again in the case of CIT Vs. Milton Laminates Ltd. vide Tax Appeal No.1022 of 2010 dated 24-012012 held the issue in favour of the Assessee and against the Revenue. Revenue took the issue to the Hon'ble High Court on the issue, if the Tribunal's direction to the AO to allow complete effect to the order of the CIT(A) without restricting the income to the returned income. In this case, after giving effect to the order of the CIT(A), the income assessed has fallen below the returned income of the assessee. The Hon'ble High Court upheld the order of the Tribunal. Relevant lines from this judgment also are extracted as under : "7. In view of the above, we do not find any reason to interfere with the Tribunal's ultimate conclusion in allowing the assessee's appeal. Though some of the observations may not appeal to us, nevertheless, for the reasons somewhat different from those recorded by the Tribunal we come to the same conclusion. Decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the return of income is not sacrosanct and what matters is the AO's finding on the assessed income of the assessee. The assessed income can be lower than the returned income. Relying on the decision of Nagpur Bench of the Tribunal in the case of DCIT Vs. Sanmukhdas Wadhwani 85 ITD 734, Shri R.S. Abhyankar, Ld. Counsel for the assessee submitted that where the assessee himself returned his undisclosed income on adhoc basis without giving any break-up for the same and when the subsequent working submitted by him reveals that the undisclosed income actually assessable in the hands of the assessee is lower than the returned income, the same has to be assessed at such lower income based on the concept of Real Income. Only condition specified in the said decision relates to the verification and correctness of the statements so submitted giving the detailed working before the AO. Relevant portion is extracted as under : "12. It is observed that a similar issue in the context of regular assessment arose for consideration before the Hon'ble Delhi High Court in the case of CIT v. Bharat General Insurance Co. Ltd. [1971] 81 ITR 303 wherein it was held ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6 ITR 260 (Delhi). According to this judgment, suo moto disallowance leading to increased returned income can always be verified by the AO in the assessment and decrease the returned income, even if it falls below the amount of total income returned by the assessee in the return of income. In this case, the Hon'ble High Court restored the matter for such verification. Relevant portion of the judgment are extracted as under : "11. According to us, the Tribunal ought to have examined the issue as to whether the fact that assessee had made an admission with respect to an addition / disallowance in its original return or in the revised return would ipso facto bar the assessee from claiming an expense or disputing an addition if it is otherwise permissible under law. This is so especially in view of the circumstances, that the Assessing Officer while making the additions /disallowances did not call upon the assessee to furnish any explanation. The upshot of the submission made by the learned counsel for the assessee, is that, had the assessee been given an opportunity by the Assessing Officer it could have demonstrated that no additions or disallowances were called ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tract Para No.13.2 of the CIT(A) : "13.2 . . . . . . . . . . . . . . . . . . . . . . . . . . . To sum up, the fresh claim made by the appellant during the present proceedings that such income of Rs. 1,00,00,000/- may be excluded from the total income assessed by the Assessing Officer as no discrepancies were found during the assessment proceedings cannot be accepted as the additional income was offered voluntarily in the return of income. The alternate claim of the appellant for set off of such contingencies against other statutory disallowance made by the AO also cannot be accepted as discussed above. Ground of appeal No.8 stands rejected." The CIT(A) denied the claim of the assessee ignoring the settled legal propositions on the topic. The reasons given above by the CIT(A) are artificial and not supported by the legal precedents. 39.The CBDT issued a Circular No.549 dated 31-10-1989 imposing fetters on the AOs for not determining the assessed income at a lower figure than the returned income. The said Circular was held ultra vires by the higher judiciary in the case of Gujarat Gas Company Ltd. (supra). Infact, it is the dut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now have to decide that the said amount of Rs. 1 crore is assessable to tax in the light of the above legal scope relating to this addition. 41.The AO has not brought any issue or facts relating to the undisclosed income specific to the said sum of Rs. 1 crore. In such circumstances, we are of the opinion that the decision of the Nagpur Bench of the Tribunal in the case of DCIT Vs. Sanmukhdas Wadhwani (supra) becomes relevant to the facts of the present case. As such, we proceed to dismiss the voluntary-centric reasoning given by the CIT(A) for denying the claim of the assessee regarding the issue of taxation of the said amount of Rs. 1 crore. Considering the above, we are of the opinion that the AO is directed to verify the working of total undisclosed income assessable in the hands of the assessee going by the concept of real income. He shall grant reasonable opportunity of being heard to the assessee. AO is directed to apply the ratio laid down by the above referred judgments in general and the ratio laid down by the Nagpur Bench of the Tribunal in the case of DCIT Vs. Sanmukhdas Wadhwani (supra) while arriving at the assessed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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