Case Law Details
Golf View Homes Limited Vs ACIT (ITAT Bangalore)
From a perusal of the order of AO/CIT(A) it is clear that the disallowance has been made on the basis of the proviso to Sec.36(1)(iii) of the Act. There is no dispute that the interest free loans were given for the purpose of business of the Assessee.
The proviso was inserted by the finance Act, 2003 w.e.f. 1.4.2003. The words “for extension of existing business or profession” were omitted by the Finance Act, 2015 w.e.f 1.4.2016. The Hon’ble Supreme Court in the case of Dy. CIT v. Core Health Care Ltd. [2008] 298 ITR 194/167 Taxman 206, has held that the newly inserted proviso will operate prospectively. Therefore Interest paid on capital borrowed for acquisition of an asset for any period beginning from the date on which the capital was borrowed for acquisition of the asset till date on which such an asset was put to use shall not be allowed as deduction only from AY 2016-17. For the period prior to AY 2016-17, the disallowance can be made only if the interest paid is in respect of capital borrowed for acquisition of an asset for extension of existing business or profession. Admittedly, the acquisition of capital asset is not for extension of existing business of the Assessee. Hence, the disallowance of interest cannot be sustained as otherwise the interest paid is regarded even by the AO as for the purpose of business of the Assessee. Therefore the disallowance of Rs.82,49,994/- made by the AO and the action of the CIT(A) in sustaining a sum of Rs.17,12,616/- out of the disallowance made by the AO, cannot be sustained and the same is directed to be deleted.
FULL TEXT OF THE ITAT JUDGEMENT
These two appeals filed by the assessee are directed against the orders of Commissioner of Income Tax (Appeals), Bangalore both dt.13.03.2019 for the Assessment Years 2014-15 & 2015-16. Since the issues involved are common and identical, for the sake of convenience they are heard together and passed the consolidated order.
2. The assessee has raised the following grounds :
1.“ That the order of the learned Commissioner of Income Tax (Appeals) in so far it is prejudicial to the interests of the appellant, is bad and erroneous in law and against the facts and circumstances of the case.
2. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in disallowing a sum of Rs.17,12,616 (as per calculation of appellant) u/s 36(1)(iii) of Income Tax Act 1961 (Act) on the ground that the appellant has not put to use the asset even though the asset constitutes the stock in trade of the appellant.
3. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in holding that the disallowance of Rs.17,12,616 (as per calculation of appellant) even though the loan has been taken for the purpose of purchasing assets which are stock in trade of the appellant.
4. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in disallowing a portion of the interest Rs.48,20,663 (as per the calculations of the appellant) on the ground that the appellant had diverted the loans for non-business purposes and such a finding is perverse in law as being contrary to materials on record.
5. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in disallowing a portion of interest Rs.48,20,663 (as per the calculations of the appellant) even though the total amounts paid to related parties is much less than the capital and reserves and other interest free funds available with the appellant and he ought to have held that the advances are out of capital reserves and other interest free funds of the appellant.
6. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in disallowing a sum of Rs. 76,23,425 u/s 14A of the Act.
7. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in disallowing the interest u/s 14A of the Act even though the share capital and reserves of the appellant is much more than the investments.
8. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in disallowing the sum of Rs. 76,23,425 u/s 14A of the Act even though the appellant had not earned any income from such investments.
9. Without prejudice to the above ground, that the learned Commissioner of Income Tax (Appeals) ought to have held that only the investments on which the exempt income has been earned should be taken into account for the purpose of applying the formula u/r 8D (2) of the Rule.
10. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in upholding the disallowance u/s 14A on the grounds that it is automatic and the appellant would have incurred expenditure.
11. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in upholding the disallowance u/s 14A even though the learned assessing officer has not recorded proper satisfaction.
12. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in holding that even a loss from a partnership firm is to be considered as income for the purpose of S.14A of the Act.
13. Without prejudice to the ground No.6 to 12 above, that the learned Commissioner of Income Tax (Appeals) erred in law and on facts considering the interest of Rs.12,81 ,90,657/-instead of Rs.2,00,54,050/- for calculation of disallowance u/s 14A read with rule 8D(2)(ii) of the Act.
14. Without prejudice to the ground No.6 to 12 above, that the learned Commissioner of Income Tax (Appeals) erred in law and on facts considering the loan processing charges of Rs.45,04,000/- (included in the finance charges of Rs.12,81,90,657/-) for calculating the disallowance u/s 14A read with rule 8D(2)(ii) of the Act.
Each of the above grounds is without prejudice to one another, the appellant craves the leave of the Hon’ble Income Tax Appellate Tribunal, Bangalore to add, delete, amend or modify otherwise all or any of the above grounds either before or at the time of hearing this appeal.”
3. Ground No.1 is general in nature which do not require adjudication.
3.1 Ground Nos.2 & 3 are regarding disallowance of Rs.17,12,616/- u/s. 36(1)(iii) of the Income Tax Act, 1961 (‘the Act’) for purchase of property in the Assessment Year 2014-15 and additional grounds of appeal in A.Y. 2014-15 which are inter related to these grounds are as follows :
4. The assessee has raised additional grounds which reads as under in Assessment Year 2014-15 :
1. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in confirming the disallowance to the extent of interest of Rs.65,33,279/- (Rs.17,12,616 + 48,20,663) u/s. 36(1)(iii) of the Act even though the total amounts advanced to related parties is much less than the capital and reserves and other interest free funds available with the appellant.
2. Without prejudice to the other grounds, that the learned Commissioner of Income Tax (Appeals) erred in law and on facts in confirming the disallowance of to the extent interest of Rs.17,12,616/- u/s. 36(1)(iii) of the Act on the ground that the borrowed funds have been utilized for acquisition of capital asset even though the said acquisition does not amount to extension of existing business.
The above grounds are purely legal grounds. No new or fresh facts are required to be brought on record to decide the above grounds. The appellant has challenged the above disallowance in the appeal before ITAT vide ground nos. 2 to 5. However, it was advised to raise specific grounds. Hence, it is prayed that the Hon’ble Income Tax Appellate Tribunal to admit the additional grounds and decide them on merits. The appellant relied on the following decisions of the Hon’ble Supreme court in :
a. CIT Vs National Thermal Power Corporation (229) ITR 383
b. Jute Corporation of India Vs CIT (187) ITR 688.
Hence, it is humbly prayed that the Hon’ble Tribunal be pleased to admit the above ground and decide the same on merits in the interest of equity, justice and good conscience.”
5. Regarding the admission of additional ground, the learned Authorised Representative submitted that admission of these additional grounds does not require any investigation of fresh facts and which may be admitted in view of the judgement of Hon’ble Supreme Court in the case of NTPC Ltd. Vs. CIT 229 ITR 383 (SC). On the other hand, the learned Departmental Representative strictly opposed the admission of additional grounds and submitted that there is no reasonable cause for not raising these grounds on earlier occasion and same to be rejected.
6. We have heard both the parties and perused the material on record. As held by the Hon’ble Supreme Court in the case of NTPC Ltd. Vs. CIT 229 ITR 383 (SC), we are inclined to admit the additional grounds as argued by the learned Authorised Representative. Accordingly, the additional grounds are admitted for
7. First, we take up main ground of appeal Nos.2 & 3 and Additional Ground No.2 that the assessee is having capital and reserves and other interest free funds.
8. The facts of the case in Assessment Year 2014-15 are that the assessee is engaged in property development, trading in immovable property and renting of immovable property. The immovable properties are treated as stock in trade by the assessee. The Assessing Officer disallowed interest cost to the extent of Rs.82,49,994 on the ground that the funds borrowed have been utilized for giving interest free advances to related parties for purchase of property and these properties are in the nature of capital assets. Since the same has not been acquired and put to use during the year, the interest on such loans is disallowed u/s. 36(1)(iii) of the Act. The contention of the AR is that the above mentioned advances were also for the purpose of business and they are not classified as ‘Capital WIP’ or ‘Capital Advance.’ The ld. AR submitted that there is no dispute that the assessee is in real estate development. He submitted that the advances given to purchase the immovable property should not be considered as advances given for purchase of capital assets. He further submitted that the advances given to sister concerns for purchase of property will not fall under the purview of Section 36(1)(iii) of the Act. The ld. AR submitted that the advances given to related parties are to be presumed as interest free funds sufficient to meet the investments and advances to related parties. He relied on the judgment of Hon’ble Supreme Court in the case of CIT Vs. Reliance Industries Ltd. 410 ITR 466 (SC). On appeal, the CIT (Appeals) confirmed the disallowance on the ground that the borrowed funds have been utilized for purchase of capital assets. Hence, the interest on such borrowed funds have to be capitalized as per proviso to Section 36(1)(iii) of the Act. The proviso to Section 36(1)(iii) as is stood on that date clearly states that the interest on borrowed funds are not allowable as deduction if the same is utilized in respect of acquisition of an asset for extension of existing business or profession. The extension of business means starting a new business activity and in the present case, the advances are made in regular course of business. Therefore, on this ground also the disallowance u/s. 36(1)(iii) of the Act has to be deleted. The ld. AR further relied on the decision of co-ordinate Bench of this Tribunal in the case of Maxim India Integrated Circuits Pvt. Ltd. Vs. DCIT (ITA No.287/Bang/2014) for the above proposition.
9. The learned Departmental Representative submitted that interest bearing funds were diverted for non-business purpose and the same to be disallowed and supported the orders of CIT (Appeals).
10. We have heard both the parties and perused the material on record. From a perusal of the order of AO/CIT(A) it is clear that the disallowance has been made on the basis of the proviso to Sec.36(1)(i ii) of the Act. There is no dispute that the interest free loans were given for the purpose of business of the Assessee. 36(1 )(i ii) and its proviso reads thus:
Other deductions.
36. (1) The deductions provided for in the following clauses shall be allowed in respect of the matters dealt with therein, in computing the income referred to in section 28—
………….
(iii) the amount of the interest paid in respect of capital borrowed for the purposes of the business or profession :
Provided that any amount of the interest paid, in respect of capital borrowed for acquisition of an asset for extension of existing business or profession (whether capitalised in the books of account or not); for any period beginning from the date on which the capital was borrowed for acquisition of the asset till the date on which such asset was first put to use, shall not be allowed as deduction.
Explanation.—Recurring subscriptions paid periodically by shareholders, or subscribers in Mutual Benefit Societies which fulfil such conditions as may be prescribed, shall be deemed to be capital borrowed within the meaning of this clause;
The proviso was inserted by the finance Act, 2003 w.e.f. 1.4.2003. The words “for extension of existing business or profession” were omitted by the Finance Act, 2015 w.e.f 1.4.2016. The Hon’ble Supreme Court in the case of Dy. CIT v. Core Health Care Ltd. [2008] 298 ITR 194/167 Taxman 206, has held that the newly inserted proviso will operate prospectively. Therefore Interest paid on capital borrowed for acquisition of an asset for any period beginning from the date on which the capital was borrowed for acquisition of the asset till date on which such an asset was put to use shall not be allowed as deduction only from AY 2016-17. For the period prior to AY 2016-17, the disallowance can be made only if the interest paid is in respect of capital borrowed for acquisition of an asset for extension of existing business or profession. Admittedly, the acquisition of capital asset is not for extension of existing business of the Assessee. Hence, the disallowance of interest cannot be sustained as otherwise the interest paid is regarded even by the AO as for the purpose of business of the Assessee. Therefore the disallowance of Rs.82,49,994/- made by the AO and the action of the CIT(A) in sustaining a sum of Rs.17,12,616/- out of the disallowance made by the AO, cannot be sustained and the same is directed to be deleted.
11. Gr.No.4 & 5 and Additional Ground No.1 are co-related to this issue which reads as follows : (in ITA No.1037/Bang/2019)
4. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in disallowing a portion of the interest Rs.48,20,663 (as per the calculations of the appellant) on the ground that the appellant had diverted the loans for non-business purposes and such a finding is perverse in law as being contrary to materials on record.
5. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in disallowing a portion of interest Rs.48,20,663 (as per the calculations of the appellant) even though the total amounts paid to related parties is much less than the capital and reserves and other interest free funds available with the appellant and he ought to have held that the advances are out of capital reserves and other interest free funds of the appellant.
Additional Ground No.1
1. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in confirming the disallowance to the extent of interest of Rs.65,33,279/- (Rs.17,12,616 + Rs.48,20,663) u/s. 36(1)(iii) of the Act even though the total amounts advanced to related parties is much less than the capital and reserves and other interest free funds available with the appellant.
11.1 Based on the decisions of Hon’ble Karnataka High Court in assessee’s own case for Assessment Year 1999-2000 (ITA No.29 of 2013) and ITAT for A.Ys 2006-07 to 2009-10 (ITA Nos.1252 to 1255/Bang/2012), the learned CIT (Appeals) held that the borrowed funds from Citi Bank and Yes Bank were utilized for repayment of earlier borrowings which were given as advances to M/s. Platinum City, Diamond District and India Builders Corpn. for the purpose of business.
11.2 The ld. AR submitted that the disallowance u/s. 36(1)(iii) of the Act is not attracted to the extent of advances made to the above parties. The interest cost and loan processing charges of Rs.10,36,36,607 was accordingly deleted from the above interest cost of Rs.12,81,90,657 while computing the disallowance u/s. 36(1)(iii) of the Act. The remaining interest cost of Rs.2,00,54,050 was considered in the computation of disallowance u/s. 36(1)(iii) of the Act. He submitted that the order of Hon’ble Karnataka High Court did not speak about transactions with other related parties. Further he submitted that it must be presumed that the interest free funds have been utilized for giving advances to related parties and disallowance u/s. 36(1)(iii) of the Act cannot be made. He relied on the decision of Hon’ble Supreme Court in the case of CIT Vs. Reliance Industries Ltd. 410 ITR 466 (SC). On appeal, the CIT (Appeals) confirmed the disallowance. The learned Departmental Representative submitted that for determining proportion of the interest bearing funds given to the Related Parties, entire funds need to be considered and not only the interest bearing fund as in absence of specific detail the interest bearing funds as well as non-interest bearing funds would contribute to the interest free loans. He further submitted thatsince only interest expenditure of Rs.2,00,54,050 is considered, so for purposes of total loan funds only corresponding loans need to be considered along with interest free funds. After excluding the CITI Bank loan balance and the Yes Bank Loan as on 31.03.2013 and 31.03.2014, the average total funds would work out to Rs.2,53,83,67,900. The ratio of average interest free loans and that of average total fund can then be worked out and the proportionate disallowance of interest would accordingly be of Rs.2,00,54,050. The ld. DR supported the order of CIT (Appeals).
12. We have heard both the parties and perused the material on record. The contention of the learned Authorised Representative is that the assessee is having interest free funds to give advances to Related Parties and no disallowance u/s. 36(1)(iii) of the Act to be made. However, the assessee has not placed necessary details of availability of interest free funds in the form of reserves and surplus so as to make interest free advance to Related Parties. The assessee has to prove that it is having own funds to make advances to Related Parties for which the assessee has to furnish the fund/cash flow statements as on date of making such advance to Related Parties. The Assessing Officer on examining these statements has to decide whether the assessee is having enough interest free funds so as to make advance to Related Parties. The assessee shall prove its case of having interest free funds for making advance to Related Parties. Accordingly, this issue is remitted to the file of Assessing Officer for fresh consideration, as per law.
13. Ground Nos.6 to 14 are with regard to disallowance u/s. 14A of the Act.
14. The learned Authorised Representative submitted that the assessee has not earned any exempt income and disallowance ;u/s. 14A is not attracted. He submitted that the interest free funds i.e. share capital, Reserves and Surplus and Interest free loans are sufficient to meet the investments and the borrowed funds were not utilized for making the investments. He submitted that the interest disallowance u/s. 14A r.w. Rule 8D(2)(ii) cannot be made. Further he submitted that the investments from which exempt income earned alone to be considered for the purpose of arriving at average investments in computation of disallowance u/s. 14A r.w. Rule 8D(2)(ii) and 8D(2)(iii) of the Act. He further submitted that since no exempt income was earned during the previous year ended on 31.03.2014, value of investments in the numerator of formula u/r 8D is NIL and there can be no disallowance. The interest cost of Rs.12,81,90,657 has been considered as interest cost in the computation of disallowance u/s.14A of the Act. The contention of the AR is that the interest cost has to be considered as Rs.2,00,54,050. He relied on the following judgments :-
(i) DCIT Vs. Ambuthi rtha Power Pvt. Ltd. in ITA No.2324/Bang/2019 (Bang-Trib.)
(ii) Cheminvest Limited Vs/ CIT 378 ITR 33 (Del)
(iii) ACIT Vs. Vireet Investments 58 ITR (Trib) 313 (Del.-SB)
The learned Departmental Representative relied on the order of CIT (Appeals).
15.1. The Assessee has contended that the Assessee did not earn any exempt income during the previous year relevant to AY 2014-15 and therefore there can be no disallowance u/s.14A of the Act in the absence of any exempt income having been earned by the Assessee. On this issue, the undisputed fact is that the Assessee did not earn any exempt income during the relevant previous year. Now it is settled position of law that whenever assessee did not earn any exempt income, no disallowane could be made u/s. 14A of the Act. The Hon’ble Delhi High Court in the case of Cheminvest Ltd. v. CIT, 378 ITR 33 (Del) has categorically held that section 14A envisages that there should be actual receipt of income which was not includible in the total income during the relevant previous year for the purpose of disallowing any expenditure in relation to the said income. Wherever there is no exempt income includible in the total income of the assessee, the provisions of section 14A cannot be invoked. The relevant observations of the judgment of the Hon’ble Delhi High Court are extracted hereunder:-
“15. Turning to the central question that arises for consideration, the court finds that the complete answer is provided by the decision of this court in CIT v. Hololcim India (F) Ltd. (decision dated 5th September 2014, in I.T. A. No. 486 of 2014). In that case, a similar question arose, viz., whether the Income-tax Appellate Tribunal was justified in deleting the disallowance under section 14A of the Act when no dividend income had been earned by the assessee in the relevant assessment year ? The court referred to the decision of this court in Maxopp Investment Ltd. (supra) and to the decision of the Special Bench of the Income-tax Appellate Tribunal in this very case, i.e., Cheminvest Ltd. v. CIT [2009] 317 !TR (AT) 86 (Delhi) [SB]. The court also referred to three decisions of different High Courts which have decided the issue against Revenue. The first was the decision in CIT v. Lakhani Marketing Incl. (decision dated April 2, 2014, of the High Court of Punjab and Haryana in I. T. A. No. 970 of 2008)–since reported in [2015] 4 ITR-OL 246 (P&H)– which in turn referred to two earlier decisions of the same court in CIT v. Hero Cycles Ltd. [2010] 323 ITR 518 (P&H) and CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 (P&H). The second was of the Gujarat High Court in CIT v. Corrtech Energy (P.) Ltd. [2014] 223 Taxmann 130 (Guj) ; [2015] 372 1TR 97 (Guj) and the third of the Allahabad High Court in CIT v. Shivam Motors (P) Ltd. (decision dated 5th May, 2014, in T.A. No. 88 of ITA No.1 1071Bang12016 2014). These three decisions reiterated the position that when an assessee had not earned any taxable income in the relevant assessment year in question “corresponding expenditure could not be worked out for disallowance.”
15.2. It was submitted that the following observations of the Hon’ble Supreme Court in the case of Maxopp Investments Ltd. Vs. CIT (2018) 91 taxmann.com 154(SC) suggests that even in the absence of exempt income having been earned by an Assessee, still a disallowance could be made u/s.14A of the Act.
….as per section 14A(1) of the Act, deduction of that expenditure is not to be allowed which has been incurred by the assessee “in relation to income which does not form part of the total income under this Act”. Axiomatically, it is that expenditure alone which has been incurred in relation to the income http://www.itatonline.org 33 which is includible in total income that has to be disallowed.”
…..we are of the opinion that the dominant purpose for which the investment into shares is made by an assessee may not be relevant. No doubt, the assessee like Maxopp Investment Limited may have made the investment in order to gain control of the investee company. However, that does not appear to be a relevant factor in determining the issue at hand. Fact remains that such dividend income is non-taxable. In this scenario, if expenditure is incurred on earning the dividend income, that
much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. Keeping this objective behind Section14A of the Act in mind, the said provision has to be interpreted, particularly, the word ‘in relation to the income’ that does not form part of total income. Considered in this hue, the principle of apportionment of expenses comes into play as that is the principle which is engrained in Section 14A of the Act.
…..where the assessee would continue to hold those shares as it wants to retain control over the investee company. In that case, whenever dividend is declared by the investee company that would necessarily be earned by the assessee and the assessee alone. Therefore, even at the time of investing into those shares, the assessee knows that it may generate dividend income as well and as and when such dividend income is generated that would be earned by the assessee.”
15.3. The above observations occur in paragraph-32, 34 and 40 of the decision of the Hon’ble Supreme Court. The question before the Hon’ble Supreme Court in the case of Maxopp (supra) has been set out in paragraph-4 of its judgment, which reads as follows:
“4. However, in these appeals, the question has arisen under varied circumstances where the shares/stocks were purchased of a company for the purpose of gaining control over the said company or as http://www.itatonline.org 6 ‘stock-in-trade’. However, incidentally income was also generated in the form of dividends as well. On this basis, the assessees contend that the dominant intention for purchasing the share was not to earn dividends income but control of the business in the company in which shares were invested or for the purpose of trading in the shares as a business activity etc. In this backdrop, the issue is as to whether the expenditure incurred can be treated as expenditure ‘in relation to income’ i.e. dividend income which does not form part of the total income. To put it differently, is the dominant or main object would be a relevant consideration in determining as to whether expenditure incurred is ‘in relation to’ the dividend income. In most of the appeals, including in Civil Appeal Nos. 104-1 09 of 2015, aforesaid is the scenario. Though, in some other cases, there may be little difference in fact situation. However, all these cases pertain to dividend income, whether it was for the purpose of investment in order to retain controlling interest in a company or in group of companies or the dominant purpose was to have it as stock-in-trade.”
15.4. It is clear from the above paragraph that the Hon’ble Supreme Court was not considering question whether in the absence of exempt income there can be disallowance of expenses u/s.14A of the Act. This aspect will be clear from the facts of the case of Maxopp Investments Ltd. one of the appellant in the group of appeals decided by the Hon’ble Supreme Court which was as follows:
“5. The appellant company is engaged, inter alia, in the business of finance, investment and dealing in shares and securities. The appellant holds shares/securities in two portfolios, viz. (a) as investment on capital account; and, (b) as trading assets for the purpose of acquiring and retaining control over investee group companies, particularly Max India Ltd., a widely held quoted public limited company. Any profit/loss arising on sale of shares/securities held as ‘investment’ is returned as income under the head ‘capital gains’, whereas profit/loss arising on sale of shares/securities held as ‘trading assets’ (i.e. held, inter alia, with the intention of acquiring, exercising and retaining control over investee group companies) has been regularly offered and assessed to tax as business income under the head ‘profits and gains of business or profession’. Consistent with the aforesaid treatment regularly followed, the appellant filed return for the previous year relevant to the Assessment Year 2002-03, declaring income of Rs.78,90,430/-. No part of the interest expenditure of Rs.1,16,21,168/- debited to the profit and loss account, to the extent relatable to investment in shares of Max India Limited, yielding tax free dividend income, was considered disallowable under Section 14A of the Act on the ground that shares in the said company were acquired for the purposes of retaining controlling interest and not with the motive of earning dividend. According to the appellant, the dominant purpose/intention of investment in shares of Max India Ltd. was acquiring/retaining controlling interest therein and not earning dividend and, therefore, dividend of Rs.49,90,860/- earned on shares of Max India Ltd. during the relevant previous year was only incidental to the holding of such shares. The Assessing Officer (AO), while passing the assessment order dated August 27, 2004, under Section 143(3) worked out disallowance under Section 14A of the Act at Rs.67,74,175/- by apportioning the interest expenditure of Rs. 1,16,21,168/- in the ratio of investment in shares of Max India Ltd. (on which dividend was received) to the total amount of unsecured loan. The AO, however, restricted disallowance under that Section to Rs.49,90,860/- being the amount of dividend received and claimed exempt. (emphasis supplied)”
15.5 The Assessee in the appeal before Hon’ble Supreme Court earned Dividend income which was exempt. The facts of another Assessee (State Bank of Patiala) in the group of appeals before Hon’ble Supreme Court in the case of Maxopp Investments Ltd. (supra) have been set out in paragraph-18 of the judgment, which is as follows:
“18) This case arose in the context where exempt income in the form of dividend was earned by the Bank from securities held by it as its stock in trade. The assessee filed its return declaring an income of about Rs.670 crores which was selected for scrutiny. The return showed dividend income exempt under section 10(34) and (35) of about Rs.11.07 crores and net interest income exempt under section 10(15)(iv) (h) of about Rs.1.12 crores. The total exempt income claimed in the return was, therefore, Rs.12,19,78,015/-. The assessee while claiming the exemption contended that the investment in shares, bonds, etc. constituted its stock-in-trade; that the investment had not been made only for earning tax free income; that the tax free income was only incidental to the DsVessee’VLII maJSLII 1 usJSLssLII fLII salLLII aSXLII Lu RIase LII DfLII HeR JtJesLII SX, LII therefore, no expenditure had been incurred for earning such exempt income; the expenditure would have remained the same even if no dividend or interest income had been earned by the assessee from the said securities and that no expenditure on proportionate basis could be allocated against exempt income. The assessee also contended that in any event it had acquired the securities from its own funds and, therefore, section 14A was not applicable. The AO restricted the disallowance to the amount which was claimed as exempt income by applying the formula contained in Rule 8D holding that Section 14A would be applicable…………………. ”
15.6. The Assessee in the appeal before Hon’ble Supreme Court State Bank of Patiala also earned Dividend income which was exempt. Therefore it is clear that the Hon’ble Supreme Court in the aforesaid decision was not confronted with an issue as to whether in the absence of exempt income there could be a disallowance u/s.14A of the Act or not. If the entire paragraph-32, 34 and 40 from which the aforesaid passages are extracted, it would be clear that the observations quoted from these paragraphs have nothing to do with the issue before this tribunal in the case of the Assessee. We may usefully refer to a decision of the Hon’ble Supreme Court in the case of Commissioner Of Income-Tax vs M/S. Sun Engineering Works (P.) 1992 Supp 1 SCR 732 a wherein the Hon’ble Supreme Court has cautioned against the practice of quoting words or sentences from a judgment and drawing inferences therefrom diverse from the context in which those words or sentences appear:
Para-37 observations
“…It is neither desirable nor permissible to pick out a word or a sentence from the judgment of this Court, divorced from the context of the question under consideration and treat it to be the complete ‘law’ declared by this Court. The judgment must be read as a whole and the observations from the judgment have to be considered in the light of the questions which were before this Court. A decision of this Court takes its colour from the questions involved in the case in which it is rendered and while applying the decision to a later case, the courts must carefully try to ascertain the true principle laid down by the decision of this Court and not to pick out words or sentences from the judgment, divorced from the context of the questions under consideration by this Court, to support their reasonings. In Madhav Rao iwaji Rao Scindia Bahadur and Ors. v. Union of India this Court cautioned:
It is not proper to regard a word, a clause or a sentence occurring in a judgment of the Supreme Court, divorced from its context, as containing a full exposition of the law on a question when the question did not even fall to be answered in that judgment.”
15.7. We are therefore of the view that the law as it prevails today and flowing from the judgments of various High Courts set out above that in the absence of exempt income having been earned by the Assessee there can be no disallowance of expenses u/s.14A of the Act. Consequently, we delete the disallowance of a sum of Rs. 76,23,425 and allow Gr.No.8 raised by the Assessee in the appeal for AY 2014-15 and further hold that in view of the decision on Gr.No.8, Grounds No.6,7 and 9 to 14 does not require any adjudication.
ITA No.1038/Bang/2019 (A.Y. 2015-16)
16. The assessee has raised the identical grounds on merit as in ITA 1 037/Bang/201 9, only change in figures.
17. The assessee has raised the additional grounds as follows :
1.“ Grounds regarding validity of notice u/s. 143(2) of Income-tax Act, 1961 (Act)
1.1 That the order of the learned lower authorities erred in law and on facts in making an assessment without issuing a valid notice u/s 143(2) of the Act and therefore, the assessment is bad in law.
1.2 That the learned lower authorities erred in law and on facts in concluding the assessment even though the notice u/s 143(2) issued by the officer not having the jurisdiction over the appellant.
1.3 That the learned Commissioner of Income-Tax (Appeals) erred in law and on facts in holding that the provisions of section 292BB are applicable since the appellant has participated in the assessment proceedings.
1.4 That the learned Commissioner of Income-Tax (Appeals) erred in law and on facts in holding that the appellant has not challenged the validity of jurisdiction during the assessment proceedings and therefore, the same cannot be entertained during the appellate proceedings.
2. Grounds regarding conversion of limited scrutiny to complete scrutiny
2.1 That the order of the learned lower authorities erred in law and on facts in not following the CBDT guidelines for converting the limited scrutiny into complete scrutiny and therefore, the assessment is bad in law
2.2 That the learned Commissioner of Income-Tax (Appeals) erred in law and on facts in holding that the disallowance u/s. 36(1)(iii) and 14A falls under the CASS reasons for selection of scrutiny i.e large business loss set-off against other heads of income therefore, the assessment is a limited scrutiny.
The above grounds are purely legal in nature and can be decided on the basis of facts and materials on record. These grounds were raised before the learned Commissioner of Income-Tax (Appeals) and the same have been adjudicated. Due to oversight, the above grounds were not included in the Grounds of appeal filed with ITAT. No new or fresh facts are required to be brought on record to decide the above ground.
3. “ Grounds regarding disallowance u/s. 36(1)(iii) of the Act
3.1. That the learned Commissioner of Income Tax (Appeals) erred in law and on facts in confirming the disallowance to the extent of interest of Rs.81 ,94,383/- (Rs.50,49,890 + Rs.31,44,493) u/s. 36(1)(iii) of the Act even though the total amounts advanced to related parties is much less than the capital and reserves and other interest free funds available with the appellant.
3.2 Without prejudice to the other grounds, that the learned Commissioner of Income Tax (Appeals) erred in law and on facts in confirming the disallowance of to the extent interest of Rs.50,49,890/- u/s. 36(1)(iii) of the Act on the ground that the borrowed funds have been utilized for acquisition of capital asset even though the said acquisition does not amount to extension of existing business. The above grounds are purely legal grounds. No new or fresh facts are required to be brought on record to decide the above grounds. The appellant has challenged the above disallowance in the appeal before ITAT vide ground nos. 2 to 5. However, it was advised to raise specific grounds.”
18. Now we take up the additional grounds raised in ITA No.1038/Bang/2019. In view of the Hon’ble Supreme Court in the case of NTPC Ltd. Vs. CIT 229 ITR 383 (SC), we are inclined to admit the additional grounds as argued by the learned Authorised Representative. Accordingly, the additional grounds are admitted for adjudication.
19.1. As far as AY 2015-16 is concerned, we shall take up for consideration Additional Ground No.1 raised by the Assessee. In Additional Ground No.1 the Assessee has raised an issue with regard to validity of the order of assessment passed by the AO on the ground that no notice u/s.143(2) of the Act was issued by the AO having jurisdiction over the Assessee and that an order of assessment passed without issuing a valid notice u/s.143(2) of the Act is bad in law and is liable to annulled. The further plea of the Assessee is that the provisions of Sec.292BB of the Act will not be applicable in the case on the ground that the Assessee participated in the Assessment proceedings The issue sought to be raised in the additional ground was raised before the CIT(A). The CIT(A) did not agree with the plea of the Assessee in this regard. The facts with regard to the aforesaid grounds of appeal. The additional grounds were already admitted by us.
19.2. The facts with regard to the aforesaid additional grounds of appeal are that the Assessee was assessed to income tax by the Deputy Commissioner of Income Tax (DCIT)- Central Circle (CC)-1 (3) Bangalore. By a notification in exercise of powers u/s.127(4) of the Act dated 30.4.2013, the jurisdiction of the Assessing officer of the Assessee was transferred to Deputy Commissioner of Income Tax (DCIT)- Circle -11 (3) Bangalore (presently Circle-3(1)(2) Bangalore) w.e.f 27.5.2013. Therefore DCIT-CC-1(3), Bangalore ceased to exercise jurisdiction over the Assessee with effect from 27.5.2013.
19.3. For AY 2015-16, the Assessee filed return of income on 30.9.2015, with the DCIT-Ci rcle-1 1(3), Bangalore. A notice u/s.143(2) of the Act, dated 26.4.2016 was issued by the DCIT, CC-1(3), who ceased to have jurisdiction over the Assessee w.e.f 27.5.2013. Thereafter notice u/s.142(1) dated 5.10.2017 was issued by the Deputy Commissioner of Income Tax (DCIT)- Circle -11 (3) (Presently Circle-3(1)(2), Bangalore). An order of Assessment dated 7.12.2017 was passed u/s.143(3) of the Act by the Deputy Commissioner of Income Tax (DCIT)- Circle -11 (3) (Presently Circle-3(1)(2), Bangalore).
19.4. Admittedly there was no notice issued by the Deputy Commissioner of Income Tax (DCIT)- Circle -11 (3) (Presently Circle-3(1)(2), Bangalore) who completed the Assessment and was the AO who had jurisdiction with the Assessee w.e.f. 27.5.2013.
19.5. On the above facts which are undisputed, the learned counsel for the Assessee submitted that since the AO who had jurisdiction over the Assessee did not issue notice u/s. 143(2) of the Act before passing order of assessment, the order of assessment is a nullity. The learned counsel for the Assessee placed reliance on a decision of the ITAT Kolkata Bench in the case of M/S. Rungta Irrigation Ltd. Vs. ACIT in ITA No.1224/Kol/2019 order dated 6.9.2019, wherein facts were identical to the case of the Assessee in this appeal and the Tribunal held that the order of assessment is bad in law and is liable to be annulled.
19.6. The learned DR relied on the order of the CIT(A) who took the view that the Assessee participated in the proceedings and there is no prejudice caused to the Assessee and that provisions of Sec.292BB of the Act will come to the rescue of the revenue to cure defect of non service of notice u/s.143(2) of the Act by the AO having jurisdiction over the Assessee. The CIT(A) in coming to the above conclusion placed reliance on a decision of the Hon’ble Kerala High Court in the case of Padinjarekara Agencies (P) Ltd. Vs. CIT (2017) 85 taxmann.com 1 29(kerala).
19.7. We have carefully considered the rival submissions. Section 127 of the Act reads as follows:
”Power to transfer cases. 127.(1) The Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, transfer any case from one or more Assessing Officers subordinate to him (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) also subordinate to him.
(2) Where the Assessing Officer or Assessing Officers from whom the case is to be transferred and the Assessing Officer or Assessing Officers to whom the case is to be transferred are not subordinate to the same Principal Director General or Director General or Principal Chief Commissioner or Chief Commissioner or Principal Commissioner or Commissioner,—
(a) where the Principal Directors General or Directors General or Principal Chief Commissioners or] Chief Commissioners or Principal Commissioners or] Commissioners to whom such Assessing Officers are subordinate are in agreement, then the Principal Director General or] Director General or [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner from whose jurisdiction the case is to be transferred may, after giving the assessee a reasonable opportunity of being heard in the matter, wherever it is possible to do so, and after recording his reasons for doing so, pass the order;
(b) where the [Principal Directors General or] Directors General or [Principal Chief Commissioners or] Chief Commissioners or [Principal Commissioners or] Commissioners aforesaid are not in agreement, the order transferring the case may, similarly, be passed by the Board or any such [Principal Director General or] Director General or [Principal Chief Commissioner or] Chief Commissioner or [Principal Commissioner or] Commissioner as the Board may, by notification in the Official Gazette, authorise in this behalf.
(3) Nothing in sub-section (1) or sub-section (2) shall be deemed to require any such opportunity to be given where the transfer is from any Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) to any other Assessing Officer or Assessing Officers (whether with or without concurrent jurisdiction) and the offices of all such officers are situated in the same city, locality or place.
(4) The transfer of a case under sub-section (1) or sub-section (2) may be made at any stage of the proceedings, and shall not render necessary the reissue of any notice already issued by the Assessing Officer or Assessing Officers from whom the case is transferred.
Explanation.—In section 120 and this section, the word “case”, in relation to any person whose name is specified in any order or direction issued thereunder, means all proceedings under this Act in respect of any year which may be pending on the date of such order or direction or which may have been completed on or before such date, and includes also all proceedings under this Act which may be commenced after the date of such order or direction in respect of any year.”
19.8. It can be seen from the provisions of Sec.127(4) of the Act that the necessity of re-issuing any notice already issued by transferor AO by the transferee AO is not necessary but on the date on which a notice is issued the transferor AO should have held valid jurisdiction. In this case the notice u/s.143(2) of the Act was issued by the transferor AO on 26.4.2016 whereas he had no jurisdiction over the Assessee as early as 27.5.2013. Therefore the provisions of Sec.127(4) of the Act cannot come to the rescue of the revenue.
19.9. We find the facts of the present case are identical to the case already decided by the ITAT Kolkata Bench in the case of Rungta Irrigation Ltd. (supra). The issue in the case before the ITAT Kolkata Bench in the case of M/S. Rungta Irrigation Ltd. Vs. ACIT in ITA No.1224/Kol/2019 order dated 6.9.2019 was whether, non-issue of notice u/s.143(2) by the AO who passed the assessment order will render the order of assessment void or was it a curable defect. It was the plea of the Assessee that as held by the Hon’ble Supreme Court in Hotel Blue Moon 321 ITR 362 (SC), non-issue of notice u/s.143(2) by the AO who passed the order of assessment renders the order of assessment a nullity. The factual details in that case were as follows:
Sl. No. Date Events
1. Upto 08.10.2008 DCIT, Circle-15(1), New Delhi was the AO of assessee on the basis of territorial jurisdiction.
2. On 08.10.2008 CIT-V, Delhi transferred the jurisdiction over the assessee’s case u/s. 127 to DCIT,Central Circle-1, Ranchi.
3. From 09.10.2008 to 03.11.2017 DCIT, Central Circle-1, Ranchi was the AO of assessee for all proceedings under the Act.
4. 28.07.2016 ACIT, Circle-21(1), New Delhi issued notice u/s. 143(2) to the assessee.
5. 30.06.2017 ACIT, Circle-21(1), New Delhi issued notice u/s. 142(1) to the assessee.
6. 17.07.2017 Assessee objected to jurisdiction of ACIT, Circle-21(1), New Delhi.
7. 07.08.2017 Show Cause Notice/proposal for centralization of assessee’s case at Kolkata Issued by Pr. CIT7, Delhi.
8. 16.08.2017 Assessee objected to the jurisdiction of Pr. CIT7, New Delhi.
9. 24.10.2017 Pr. CIT, Central Patna issued Show Cause Notice for centralization of assessee’s case under the charge of Pr. CIT, Central 2, Kolkata.
10. 03.11.2017 Pr. CIT, Central Patnapassed order u/s. 127 centralizing the assessee’s case with ACIT, Central Circle-3(1), Kolkata under the charge of Pr. CIT, Central 2, Kolkata.
11. 9.11.2017 ACIT, Central Circle-3(1), Kolkatainti matesthe assessee u/s. 129 being the succeeding AO for AY 2015-16.
12. 5.12.2017 Notice u/s 142(1) issued by ACIT, Central Circle-3(1), Kolkata for AY 2015-16.
13. 29.12.2017 Assessment order framed u/s. 143(3)of the Act by ACIT, Central Circle-3(1), Kolkata forAY 2015-16
19.10. According to the revenue as per section 127 of the Act, which deals with transfer of jurisdiction of a case specifically provides in sub-section (4) of section 127 that there is no necessity to re-issue of any statutory notices already issued by the AO from whom the case is transferred. The Tribunal held that after the order of the CIT-V, New Delhi dated 08.10.2008 transferring the jurisdiction of the assessee’s case to DCIT, Central Circle, Ranchi, the CIT, Delhi became functus officio and thereby his subordinate officers viz., ACIT, Circle 21(1), New Delhi, could not have issued notice u/s. 143(2) dated 28.07.2016 and in that view of the matter the notice issued by the ACIT, Circle-21(1), New Delhi u/s 143(2)was without jurisdiction and, therefore, non-est in the eyes of law. The Tribunal held that the ACIT, Central Circle-3(1), Kolkata who framed the assessment order dated 29.12.2017 pursuant to transfer of case ordered by PCIT, Central Patna dated 03.11.2017 u/s. 127 of the Act, without there being valid issuance of notice u/s 143(2) of the Act and therefore the said order is bad in law as held by the Hon’ble Supreme Court in CIT V Hotel Blue Moon (2010) 321 ITR 362 (S.C) wherein the Hon’ble Supreme Court has held that issue of a legally valid notice u/s. 143(2) is mandatory for usurping jurisdiction to frame scrutiny assessment u/s. 143(3) of the Act and absence of a valid notice u/s 143(2) is not a curable defect. The Tribunal also noticed that it’s view in the case of Hotel Blue Moon (supra) was reiterated by the Hon’ble Apex Court in the case of CIT Vs Laxman Das Khandelwal(108 taxmann.com 183). The relevant observations of the Hon’ble Supreme Court were extracted and are as follows:
“5. At the outset, it must be stated that out of two questions of law that arose for consideration in Hotel Blue Moon’s case the first question was whether notice under Section 143(2) would be mandatory for the purpose of making the assessment under Section 143(3) of the Act. It was observed:-
“3. The Appellate Tribunal held while affirming the decision of CIT (A) that non-issue of notice under Section 143(2) is only a procedural irregularity and the same is curable. In the appeal filed by the assessee before the Gauhati High Court, the following two questions of law were raised for consideration and decision of the High Court, they were:
“(1) Whether on the facts and in circumstances of the case the issuance of notice under Section 143(3) of the ncome Tax Act, 1961 within the prescribed time-limit for the purpose of making the assessment under Section 143(3) of the Income Tax Act, 1961 is mandatory? And
(2) Whether, on the facts and in the circumstances of the case and in view of the undisputed findings arrived at by the Commissioner of Income Tax (Appeals), the additions made under Section 68 of the Income Tax Act, 1961 should be deleted or set aside?”
4. The High Court, disagreeing with the Tribunal, held, that the provisions of Section 142 and sub-sections (2) and (3) of Section 143 will have mandatory application in a case where the assessing officer in repudiation of return filed in response to a notice issued under Section 158-BC(a) proceeds to make an inquiry. Accordingly, the High Court answered the question of law framed in affirmative and in favour of the appellant and against the Revenue. The Revenue thereafter applied to this Court for special leave under Article 136, and the same was granted, and hence this appeal.
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13.The only question that arises for our consideration in this batch of appeals is: whether service of notice on the assessee under Section 143(2) within the prescribed period of time is a prerequisite for framing the block assessment under Chapter XIV-B of the Income Tax Act, 1961?
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27. The case of the Revenue is that the expression “so far as may be, apply” indicates that it is not expected to follow the provisions of Section 142, sub-sections (2) and (3) of Section 143 strictly for the purpose of block assessments. We do not agree with the submissions of the learned counsel for the Revenue, since we do not see any reason to restrict the scope and meaning of the expression “so far as may be, apply”. In our view, where the assessing officer in repudiation of the return filed under Section 158-BC(a) proceeds to make an enquiry, he has necessarily to follow the provisions of Section 142, sub-sections (2) and (3) of Section 143.”
6. The question, however, remains whether Section 292BB which came into effect on and from 01.04.2008 has effected any change. Said Section 292BB is to the following effect:-
“292BB. Notice deemed to be valid in certain circumstances.—Where an assessee has appeared in any proceeding or cooperated in any inquiry relating to an assessment or reassessment, it shall be deemed that any notice under any provision of this Act, which is required to be served upon him, has been duly served upon him in time in accordance with the provisions of this Act and such assessee shall be precluded from taking any objection in any proceeding or inquiry under this Act that the notice was – (a) Not served upon him; or (b) Not served upon him in time; or (c) Served upon him in an improper manner: Provided that nothing contained in this section shall apply where the assessee has raised such objection before the completion of such assessment or reassessment.”
7. A closer look at Section 292BB shows that if the assessee has participated in the proceedings it shall be deemed that any notice which is required to be served upon was duly served an the assessee would be precluded from taking any objections that the notice was
(a) not served upon him; or
(b) not served upon him in time; or
(c) served upon him in an improper manner.
According to Mr. Mahabir Singh, learned Senior Advocate, since the Respondent had participated in the proceedings, the provisions of Section 292BB would be a complete answer. On the other hand, Mr. Ankit Vijaywargia, learned Advocate, appearing for the Respondent submitted that the notice under Section 143(2) of the Act was never issued which was evident from the orders passed on record as well as the stand taken by the Appellant in the memo of appeal. It was further submitted that issuance of notice under Section 143(2) of the Act being prerequisite, in the absence of such notice, the entire proceedings would be invalid.
8. The law on the point as regards applicability of the requirement of notice under Section 143(2) of the Act is quite clear from the decision in Blue Moon’s case2. The issue that however needs to be considered is the impact of Section 292BB of the Act.
9. According to Section 292BB of the Act, if the assessee had participated in the proceedings, by way of legal fiction, notice would be deemed to be valid even if there be infractions as detailed in said Section. The scope of the provision is to make service of notice having certain infirmities to be proper and valid if there was requisite participation on part of the assessee. It is, however, to be noted that the Section does not save complete absence of For Section 292BB to apply, the notice must have emanated from the department. It is only the infirmities in the manner of service of notice that the Section seeks to cure. The Section is not intended to cure complete absence of notice itself.
10. Since the facts on record are clear that no notice under Section 143(2) of the Act was ever issued by the Department, the findings rendered. by the High Court and the Tribunal and the conclusion arrived at were correct. We, therefore, see no reason to take a different view in the matter.”
19.11. In the present case, admittedly no notice u/s.143(2) was issued by the AO who had jurisdiction over the Assessee at all material point of time. The Assessee filed return of income on 30.9.2015, with the DCIT-Circle-11(3), Bangalore. A notice u/s.143(2) of the Act, dated 26.4.2016 was issued by the DCIT, CC-1(3), who ceased to have jurisdiction over the Assessee w.e.f 27.5.2013. Thereafter notice u/s.142(1) dated 5.10.2017 was issued by the Deputy Commissioner of Income Tax (DCIT)- Circle -11 (3) (Presently Circle-3(1)(2), Bangalore). An order of Assessment dated 7.12.2017 was passed u/s.143(3) of the Act by the Deputy Commissioner of Income Tax (DCIT)- Circle -11 (3) (Presently Circle-3(1)(2), Bangalore). As already stated, Admittedly there was no notice issued by the Deputy Commissioner of Income Tax (DCIT)- Circle -11 (3) (Presently Circle-3(1)(2), Bangalore) who completed the Assessment and was the AO who had jurisdiction with the Assessee w.e.f. 27.5.2013. In those circumstances, the decision of the ITAT Kolkata Bench rendered in the case of Rungta Irrigation Pvt. Ltd. (supra) will be clearly applicable to the facts of the present case.
19.12. We also find that the Hon’ble Karnataka High Court in the case of Nittu Vs anth Kumar Mahesh Vs. ACIT W.P.No.2387/2019(T-IT) in its judgment dated 11.4.2019 reported in (2019) Taxman 277 (Karnataka) has taken a view that non-service of notice u/s.143(2) of the act renders the order of assessment bad in law and that the provisions of Sec.292BB of the Act cannot cure such a defect. Therefore the decision of the Hon’ble Kerala High Court in the case of Pandinjarekara Agencies Pvt.Ltd. (supra) on which the learned CIT(A) placed reliance will not be of any assistance to the plea of the Revenue.
19.13. For the reasons set out above, we uphold the objections raised by the Assessee against the validity of the impugned order u/s 143(3) for AY 2015-16. We accordingly hold that since in the present case no valid notice u/s 143(2) was issued by the AO who held jurisdiction over the case of the Assessee the consequent order passed u/s 143(3) dated 7.12.2017 was legally unsustainable and therefore is null in the eyes of law and therefore quashed. The assessee accordingly succeeds on the preliminary legal issue raised before us. Consequently, the other grounds of appeal raised by the Assessee in its appeal does not require any consideration. The appeal of the Assessee for AY 201 5-16 is accordingly allowed.
20.To sum up, both the appeals of assessee in ITA No.1037 is partly allowed for statistical purposes and ITA No.1038 is allowed.
Pronounced in the open court on the date mentioned on the caption page.
