DCIT Vs ICICI Bank Ltd. (ITAT Mumbai)
ITAT Mumbai held that inordinate delay of nearly 15 years in filing of cross objection by the assessee without giving any valid reason and/ or plausible explanation is not condoned.
Facts- During the course of assessment, the AO noticed that assessee bank had incurred expenses of Rs 486.67 to earn dividend of ₹112.17 crore. The AO found that dividend income was only of ₹112.17 crore whereas as expenses incurred of ₹486.67 crore was incurred to earn the said exempt income. The assessing officer considered that borrowed funds of the assessee at the end of the year was Rs.59834.96 crores and assessee had paid interest of R.6376.78 crores on the borrowed funds. The assessing officer stated that since the assessee has not maintained separate accounts for each source of receipts and computed average cost @ 10.65% of Rs.485.54 crores as interest expenditure on the utilisation of funds for investing in shares. Therefore, the AO has disallowed the entire remaining expenditure of ₹374.50 crore incurred towards earning exempt income and the assessee’s claim of exempt income of Rs.112.17 crores was also rejected. CIT(A) allowed the appeal.
Notably, there was delay of 14 years and 30 days [5218 days] in filing the cross objection. Assessee has filed affidavit dated 08.01.2023 for condonation of delay of 5218 days in filing the cross objection. In the affidavit, the assessee submitted that while discussing the upcoming hearing of January 09th 2023 with the banks legal counsel, the bank was advised to consider the challenging of validity of reopening proceedings.
Conclusion- Held that if surplus interest free funds are available with the assessee to take care of the investments made in shares giving rise to dividend income, no disallowance of interest expenditure can be made. Here, the assessee was having much more interest free funds then the investment made to earn exempt income as discussed supra, we do not find any infirmity in the decision of the Ld. CIT(A). Therefore, this ground of appeal of the Revenue stand dismissed.
The assessee failed to demonstrate that there was valid reason for inordinate delay of nearly 15 years in filing this cross objection. As per section 5 of the limitation act 1963 an appeal may be accepted after the limitation period for the same is over if the assessee had a sufficient cause for not being able to file the appeal during the limitation period. We find that the appellate has not given plausible explanation for delay. There is a no genuine hardship or reasonable cause demonstrated for inordinate huge delay in filing this cross objection. The assessee could not bring on record any plausible cause to demonstrate that it was prevented by inevitable circumstances for huge delay in filing this cross objection. Therefore, in the fact and circumstances of case we are considered view that there is failure on the part of the assessee without any valid reason for inordinate delay in filing this cross objection. Therefore, request of the assessee in condoning the delay is devoid on merits and same is dismissed.
FULL TEXT OF THE ORDER OF ITAT MUMBAI
The appeal filed by the revenue and the cross objection filed by the assessee are pertained to the same assessment year and arising from same order of Ld. CIT(A), therefore, both these appeals are adjudicated together in this order.
Revenue’s Appeal ITA No. 5765/Mum/2008
1. The fact in brief is that the return of income declaring total income of ₹314,57,08,980/- was filed on 31.10.2001. The assessee filed revised return of income on 28.03.2003 declaring loss of ₹91,11,71,830/- and total income u/s 115JA was computed at ₹95,72,42,478/-. Thereafter, assessment u/s 143(3) was finalized on 27.02.2004 and total income of the assessee bank was assessed at ₹1263,01,56,820/-, thereafter, order u/s 154 was passed on 25.03.2024 determining total income of the assessee bank at ₹763,72,30,950/-. Subsequently, the case of the assessee was reopened u/s 47 of the Act and notice u/s 148 of the Act was issued on 07.07.2004. Further facts of the case are discussed while adjudicating the grounds of appeal filed by the revenueas follows.
2. Ground No.1 : Addition of expenses amounting to ₹50 crore from business income as expenditure earning for tax free income.
3.1 During the course of assessment, the AO noticed that assessee bank had incurred expenses of Rs 486.67 to earn dividend of ₹112.17 crore. The AO found that dividend income was only of ₹112.17 crore whereas as expenses incurred of ₹486.67 crore was incurred to earn the said exempt income. The assessing officer considered that borrowed funds of the assessee at the end of the year was Rs.59834.96 crores and assessee had paid interest of R.6376.78 crores on the borrowed funds. The assessing officer stated that since the assessee has not maintained separate accounts for each source of receipts and computed average cost @ 10.65% of Rs.485.54 crores as interest expenditure on the utilisation of funds for investing in shares. Therefore, the AO has disallowed the entire remaining expenditure of ₹374.50 crore incurred towards earning exempt income and the assessee’s claim of exempt income of Rs.112.17 crores was also rejected.
4. The assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) has allowed the appeal of the assessee.
5. Heard both the sides and perused the material on record. During the year under consideration, the assessee has claimed dividend income of ₹17 crore as exempt income u/s 10 sub section 33 of the Act.
At the time of assessment u/s 143(3) of the Act, the AO has restricted the disallowance to the extent of exempt income of ₹112.17 crore. However, in the reassessment proceedings the AO has further disallowed ₹374.50 core [₹486.67 crore – ₹112.17crore] comprising interest expenses for earning of dividend income.
5.1 During the course of appellate proceedings before us the Ld. Counsel submitted that similar issue on identical facts the coordinate bench of the ITAT Mumbai for the assessment year 2004-05 has adjudicated the issue in favour of the assessee and no expenses pertaining to interest expenses was disallowed after considering the surplus interest free own funds of the assessee available for investment. It is also submitted that during the year under consideration the assessee was having sufficient funds to make investment and assessee’s own funds was at ₹8008.32 crore whereas investment made for earning exempt income was to the amount₹4559.10 crore. With the assistance of Ld. Representative, we have perused the decision of ITAT in the case of the assessee itself vide ITA No. 7589/Mum/2007 and 7508/Mum/2007 for assessment year 2001-02, the relevant operating part of the Para is reproduced as under:
“22. We have considered the rival submissions and perused the material on record. We note that the identical facts and circumstances, the Tribunal had, while disposing appeal for the Assessment Year 2004-05, (common order dated 03/11/2017 passed in ITA No. 6137 & 6127/Mum/2008) had held as under:
“27. We have heard rival contentions and perused the material available on record. The main contention of the assessee against disallowance of interest expenditure is, investment in dividend earning assets were made out of surplus interest free funds available with the assessee. We find substantial merit in the aforesaid submissions of the learned Authorised Representative. If surplus interest free funds are available with the assessee to take care of the investments made in shares giving rise to dividend income, no disallowance of interest expenditure can be made in view of the decision of the Hon’ble Jurisdictional High Court in HDFC Bank Ltd. (supra). As far as managerial / administrative expenditure are concerned, we have noted, in the assessment year 1997- 98, the assessee had furnished a working of disallowance of expenditure to be made for earning exempt income wherein, it has quantified the disallowance for administrative expenditure at 1% of the gross exempt income. Notably, in assessment year 2000-01, the Tribunal while deciding identical issue has restored the matter back to the file of the Assessing Officer observing as under:-
“12.We find that the assessee claimed exemption u/s 10(33) of the Act but the AO disallowed interest expenses and managerial & administrative expenses at Rs.257.63 crore and Rs.2.70 crore respectively and disallowed exemption u/s 10(33) of the Act as against the claim of the assessee of Rs.222,69,96,573/-. The CIT(A) partly confirmed the disallowance of interest expenses at Rs.134,37,32,781/- and managerial and administrative expenses at 1%. The assessee before us now claimed that no interest expenses to be allocated as the investment is made out ofassessee’s own funds. For this, the learned Counsel for the assessee relied upon the decision of the Hon’ble Bombay High Court in the case of CIT Vs. HDFC Bank Ltd. 366 ITR 505 (Bom.) and also in the case of CIT Vs. Reliance Utilities & Power Ltd. 313 ITR 314 (Bom.). It was contended by the learned Counsel for the assessee that the entire interest expenses are to be allowed as expenses and no interest expenses to be allocated as the investment is made out ofassessee’s own funds. She referred to the Tribunal’s decision in assessee’s own case assessment year 1997-98 in ITA No.5424/Mum/2001 wherein the issue is decided vide Para 10.3 by observing as under:-
“10.3 It is noted that in earlier years, this issue has been decided in favour of the assessee, after considering the judgment of Hon’ble Bombay High in the case of Emerald Co. Ltd. (supra). It is noted that in assessment year 1995-96 (order dt. 09.09.2015), the Tribunal decided this issue after considering not only the judgment of Hon’ble High Court in the case of Emerald Co. Ltd. (supra) but after considering section 14A as well. Therefore, respectfully following the orders of earlier years, this ground is principally decided in favour of the assessee, subject to verification of facts of this year. Thus, AO is directed to follow the orders of earlier years and decide this ground after verification of facts of this year, and compute the deduction allowable to the assessee taking guidance from tribunal’s orders of earlier years. This ground is treated as allowed for statistical purposes”.
13. After hearing both the sides, we find that the AO while examining the assessee’s own funds vis-à-vis investments in shares will follow the decision of the Hon’ble Bombay High Court in the case of HDFC Bank Ltd. (supra) and Reliance Utilities & Power Ltd. (supra). In case, the investment is made out of assessee’s funds, then, no interest expenses is to be allocated to the interest income. Accordingly, we set aside this issue to the file of the AO to verify the facts. This issue of the assessee is allowed for statistical purposes and the issue in Revenue’s appeal is dismissed.”
28.Consistent with the view expressed by the Co-ordinate Bench of the Tribunal reproduced herein above, we direct the Assessing Officer to verify the facts and decide the issue keeping in view the directions of the Tribunal herein above. Ground no.5, raised by the Revenue corresponding to ground no.4, in assessee’s appeal are allowed for statistical purposes” (Emphasis Supplied)
23. Since facts in the present appeal are identical to appeal for the Assessment Years 2000-01 and 2004-05, consistent with the above view expressed by the Co-ordinate Bench of the Tribunal, we direct the Assessing Officer to verify the facts and decide the issue keeping in view the directions given by the Tribunal while deciding appeal for the Assessment Years 2000-01 and 2004-05 reproduced herein above. Accordingly, the Ground No. [3], raised by the Assessee is allowed for statistical purposes.”
Following the decision of co-ordinate bench of the ITAT as above after considering the undisputed facts that assessee was having much more interest free funds then the investment made to earn exempt income as discussed supra, we do not find any infirmity in the decision of the Ld. CIT(A). Therefore, this ground of appeal of the Revenue stand dismissed.
6. Ground No. 2 Deleting the addition on account of reworking of deduction computed u/s 36(1) (viii) of I.T. Act amounting ₹ 70 crore
6.1 During the course of assessment the AO noticed that assessee has claimed special reserve in the computation of income. The AO was of the view that while computing the deduction u/s 36(1)(viii)the dividend of ₹112.17crore should have been reduced since the same has not been derived from long term financing activities.The assessing officer also considered that write back of specific provision of Rs.393.83 crores, interest on income tax refund, capital gains were to be reduced from the business income before computing eligible deduction u/s 36(1)(viii).
The AO has recomputed the deduction u/s 36(1)(vii) of the Act at ₹Nill by reducing following income from business income by treating the same as income from non-finance activity.
