TMI Blog2023 (9) TMI 1230X X X X Extracts X X X X X X X X Extracts X X X X ..... dent/assessee had infused funds by way of equity in the joint venture company and also held that it was not believable that no expenditure had been incurred in relation to the assets, income wherefrom does not form part of total income. Completely ignoring the version of the respondent/assessee that being a cash rich company, it did not have to deploy any person by way of any special effort which could be treated as expenditure to earn the exempted income, the Assessing Officer recorded a conclusion that the respondent/assessee had infused significant funds by way of equity in the joint venture company. No cogent reasons, much less supported by data extracted from accounts of the respondent/assessee were advanced by the Assessing Officer to explain why the case set up by the respondent/assessee was not believable. Even the quantification of the disallowance was carried out under Rule 8D(iii) of the Rules without scrutinizing the accounts of the respondent/assessee and by jumping over the mandate to first proceed under Section 14A of the Act. Such conjectural decision of the Assessing Officer, that too, to the prejudice of the respondent/assessee cannot be sustained. Therefore, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the present appeal by the appellant/revenue. 3. As would be evident, the present dispute revolves around the disallowance of CSR expenses and disallowance of expenditure under Section 14A of the Act. It would be apposite to briefly examine the view taken by the different authorities on these two aspects. 3.1 As regards CSR expenses, in its profit loss account, the respondent/assessee recorded a sum of Rs. 3,96,00,919/- towards the same and was called upon by the Assessing Officer to explain as to why the said expenditure be not disallowed, being capital in nature. The respondent/assessee in reply dated 24.10.2016 took a plea that the said expenses had been legitimately claimed since no enduring benefit accrued or arose to the respondent/assessee in the future years. Taking note of the earlier decisions of CIT(A), wherein similar disallowance had been confirmed, the Assessing Officer found the submissions of the respondent/assessee as untenable and treated the CSR expenses as capital expenditure and added back the same to the total income of the respondent/assessee for the reason that CSR expenses are incurred for enduring long term benefits for communities, cultures and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on as to why the explanation rendered by the assessee was not tenable; and in this regard, the Tribunal had earlier placed reliance on the judgment of Hon ble Supreme Court in the case of Godrej Boyce Manufacturing Co. Ltd. vs DCIT, (2017) 7 SCC 421. 4. Before this court, in the backdrop of above two issues raised on behalf of the appellant/revenue, at the time of preliminary hearing dated 20.03.2023, learned counsel for appellant/revenue in all fairness conceded that the issue pertaining to CSR expenses already stands covered by a judgment dated 06.01.2023, passed by this court in ITA 03/2023 titled PCIT vs Steel Authority of India Ltd., 2023/DHC/000307. Learned counsel for appellant/revenue sought admission of this appeal only with regard to the deletion of disallowance made by the Tribunal under Section 14A of the Act. 5. As such, the appeal was admitted on the following question of law: Whether in the facts and circumstances of this case, the deletion of disallowance made by the learned Tribunal under Section 14A of the Act was not in accordance with law? With the consent of learned counsel for both sides, we heard the appeal finally at this stage itse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure. Learned counsel for respondent/assessee also argued that decision of the learned Tribunal in previous Assessment Years, as detailed in the impugned order, was not challenged by the appellant/revenue, which shows that the appellant/revenue had accepted the legality of the earlier decisions and now the appellant/revenue cannot reagitate the same. Learned counsel for respondent/assessee strongly contended that the Assessing Officer failed to examine the accounts of the assessee before passing the impugned Assessment Order, and that vitiated the Assessment Order. In support of his submissions, learned counsel for respondent/assessee placed reliance on the judgments in the cases of Godrej Boyce Manufacturing vs DCIT, (2017) 7 SCC 421; Maxopp Investment Ltd. vs. CIT, (2018) 15 SCC 523; South Indian Bank Limited vs CIT, (2021) 10 SCC 153; Radha Swami Satsang, Agra vs CIT, (1992) 1 SCC 659; M/s Godrej Sara Lee Limited vs E.T.O cum A.O. Ors (2023) SCC Online (1) SCC 443; Pr. CIT vs Steel Authority of India Ltd., 2023/DHC/000307; CIT vs Reliance Industries Ltd [CIT vs Reliance Industries Ltd] (2019) 20 SCC 478 : (2019) 410 ITR 466; CIT vs Chenniappa Mudiliar (1969) 1 SCC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses. Unlike the present case, the Assessing Officer in the said case recorded explicit findings of negative satisfaction on the basis of examination of accounts of the assessee. 6.2 In the case of India Bulls Financial Services Ltd. (supra), relied upon by the learned counsel for appellant/revenue, unlike the present case, the Assessing Officer carried out an elaborate analysis of the record in order to arrive at computation of Rs. 3,87,00,000/- as expenses attributable to the exempted income. In the said case, the Division Bench of this court observed that the Assessing Officer is under a mandate to apply the formulae prescribed under Rule 8D in view of the provisions under Section 14A(2) of the Act and in a given case if the Assessing Officer is confronted with a figure which prima facie is not in accordance with what should be the approximate figure on a fair working out of the provisions, the Assessing Officer is duty bound to reject the figure of disallowance explicitly and then proceed to work out the methodology. Rather, the records in the said case clearly reflected that the Assessing Officer had carried out an elaborate analysis, which unfortunately did not take pla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aims that no expenditure was incurred by him concerning income which does not form part of the total income under the Act. 13.2. The approach of the Tribunal has been that, since a disallowance was made, it follows logically, that the AO was not satisfied. This, according to us, is not what is envisaged under the provisions of Section 14A of the Act. The satisfaction has to be arrived at by the AO having regard to the assessee s accounts and not otherwise. Concededly, there is nothing in the record to suggest that the AO examined the accounts from this perspective . (emphasis is ours) 7. Section 14A of the Act has always been a highly litigious one on account of its universal application because almost all assessees have investment portfolio which might give rise to tax free income. By way of Finance Act 2001, the provision under Section 14A was inserted in the Income Tax Act 1961 with retrospective effect from 01.04.1962. Section 14A of the Act basically provides that for the purposes of computing the total income, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) (2) The expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely:- (i) the amount of expenditure directly relating to income which does not form part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely:- B A X -- C Where A = amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C = the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year, (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the need for consistency and certainty and existence of strong and compelling reasons for a departure from a settled position has to be spelt out which conspicuously is absent in the present case. In this regard we may remind ourselves of what has been observed by this Court in Radhasoami Satsang vs. Commissioner of Income-Tax, (1992) 193 ITR (SC) 321. We are aware of the fact that strictly speaking res judicata does not apply to income tax proceedings. Again, each assessment year being a unit, what is decided in one year may not apply in the following year but where a fundamental aspect permeating through the different assessment years has been found as a fact one way or the other and parties have allowed that position to be sustained by not challenging the order, it would not be at all appropriate to allow the position to be changed in a subsequent year. 12. In the case Maxopp Investment (supra) also, the Hon ble Supreme Court described the legal position pertaining to and the genesis of Section 14A of the Act traversing through various judicial pronouncements on the subject and held thus: 41. In the first instance, it needs to be recognised that as per Sect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenses incurred towards maintaining such assets. Having thus concluded the disallowance under Section 14A of the Act, the Assessing Officer took recourse to Rule 8D(iii) of the Rules and quantified the disallowance to be Rs. 1,92,91,622/-, being 0.5% of the average investment Rs. 385,83,24,506/-. 15. Admittedly, before recording the aforesaid disbelief, the Assessing Officer did not examine even a shred of accounts of the respondent/assessee. Without looking into accounts of the respondent/assessee, the Assessing Officer held that the respondent/assessee had infused funds by way of equity in the joint venture company and also held that it was not believable that no expenditure had been incurred in relation to the assets, income wherefrom does not form part of total income. Completely ignoring the version of the respondent/assessee that being a cash rich company, it did not have to deploy any person by way of any special effort which could be treated as expenditure to earn the exempted income, the Assessing Officer recorded a conclusion that the respondent/assessee had infused significant funds by way of equity in the joint venture company. No cogent reasons, much less supporte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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