The Nainital Bank Ltd. Vs Asstt. (ITAT Delhi)
When the assessee furnished all the facts and figures including the earning of the tax free income and the expenditure which was accepted by the learned AO, it is not open for the AO to say that the income escaped assessment because assessee did not reveal the method of arriving at the disallowance made u/s 14A during the assessment proceedings. The assessment proceedings are meant for verification of such thing and to say that no income has escaped assessment in so far as the facts and figures revealed in the return of income. If the AO accepts a figure under Rule 8D of the Rules in the order u/s 143(3) of the Act inasmuch as Section 14A and Rule 8D there on the statute book, the AO cannot say that since the assessee did not disclose the method of calculation, income escaped from assessment. The method to be followed is available in the shape of the provisions of Rule 8D of the Rules.
In the circumstances, we are of the considered opinion that the entire material is available before the AO when he framed the assessment u/s 143(3) of the Act and being aware of the assessee earning tax free income and incurring some expenditure, the AO accepted the expenditure offered by the assessee under Rule 8D of the Rules, as such, in the absence of any fresh tangible evidence to suggest that the assessee is guilty of not disclosing fully and truly all the material facts necessary for the assessment, it is not open for the AO to reopen the proceedings. Facts are revealed by the assessee and the method is contemplated by the Statute, as such, the assessee not revealing the method of calculation in no way resulted in any income being escaped from assessment. Any reason recorded by the AO on this aspect at a later point of time is only a change of opinion.
FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-
I.T.A Nos.5347/Del/2016 and 5767/Del/2016 relate to the assessment year 2008-09 filed by the revenue and the assessee respectively challenging the order dated 28.7.2016 passed by the learned Commissioner of Income-tax(A), Haldwani Delhi {for short “ld.CIT(A)”) in Appeal No.191/CIT(A)/HLD/2015-16; whereas ITA Nos. I.T.A Nos.5348/Del/2016 and 5768/Del/2016 relate to the assessment year 2009-10 filed by the assessee and the revenue respectively challenging the order dated 28.7.2016 passed by the ld. CITA) in Appeal No.192/CIT(A)/HLD/2015-16. Since the parties and the question of fact involved in this matter was substantially the same, we deem it just and convenient to pass a common order.
2. Briefly stated facts are that after conclusion of the assessment u/s 143(3) of the Income-tax Act, 1961 (for short “the Act”) for respective years, learned AO recorded reasons dated 26.2.2015 and 19.2.2015 respectively in respect these two asstt. Years stating that subsequent to the completion of the assessment u/s 143(3) of the Act, it was noticed that the assessee did not disclosed the method of arriving at the disallowance made u/s 14A during the course of assessment proceedings, the assessment was framed with the same figure of disallowance as furnished by the assessee and since the assessee did not disclose the method of arriving at the disallowance u/s 14A of the Act either in the return of income or during the course of assessment proceedings, it resulted into the failure on the part of the assessee to disclose fully and truly all the material facts necessary for its assessment and that the disallowance warranted under Rule 8D(2)(ii) of the Income-tax Rules, 1962 (for short “the Rules”) could not be considered and thereby it escaped assessment. On this premise, learned AO proceeded to reopen the concluded assessment and passed orders u/s 143(3) read with 147 of the Act making additions on that account.
3. When the assessee carried the matter in appeal before the learned CIT(A), by way of impugned orders, learned CIT(A) held that the reopening of the proceedings was valid but, however, inasmuch as the interest free funds of the assessee are far exceeding the investment during the relevant years, question of invoking the provisions under Rule 8D directly and mechanically does not arise. He further recorded that a similar question had arisen in assessee’s own case on earlier occasions also and the Tribunal as well as the High Court of Uttarakhand recorded a finding that for Section 14A to apply, there should be a direct nexus between the earning of income and incurring of expenditure and the expenditure incurred should be in relation to income which does not form part of the total income and when the assessee denied to have the interest expenditure in relation to earning of investment in tax free bonds, attribution of any portion of interest without identifying which part of borrowed fund was utilized for investment in tax free bonds, is not envisaged in law. On this ground, he directed the learned AO to delete the additions made under Rule 8D(2)(ii) of the Rules.
4. Challenging the deletion of the addition by applying the Rule 8D(2)(ii) of the Rules, Revenue preferred these appeals whereas challenging the validity of reopening of proceedings as sustained by the learned CIT(A), the assessee is before us in the other two appeals.
5. It is the argument of the learned AR that the reopening proceedings are bad because in both the years, the AO was aware of the earning of the tax free amount by the assessee and also incurring the administrative expenses which was disallowed for both the years at 0.5% of the average investment. As a matter of fact, for the AY 2008-09, there was a query in this respect which was answered by the assessee and basing on that learned AO disallowed a sum of Rs.17,16,318/-. And also in that process the assessee brought it to the notice of the learned AO that in respect of Asstt. Year 2009-10, the assessee themselves complied with the requirement of disallowance under Rule 8D of the Rules. Inasmuch as this issue was considered while framing the assessment u/s 143(3) of the Act, it is not open for the learned AO to propose reopening in respect of very same issue without coming into possession of any fresh tangible material.
6. The learned DR placed reliance on the decisions reported in the cases of Greenwell Orchard vs ITO (2017), 82 com461 (Guj); Honda Siel Power Products Ltd. vs DCIT (2012) 340 ITR 64 (SC); ); Honda Siel Power Products Ltd. vs DCIT (2012) 340 ITR 53 (SC); New Delhi Television Ltd. vs DCIT (2017) 84 taxmann.com 136 (Del); CIT vs P.V.S. Bedies (P) Ltd. (1999) 237 ITR 13 (SC); Pranawa Leafin (P) Ltd. vs DCIT (2013) 215 Taxman 109 (Bom); CIT vs Kiranbhai Jamnadas Sheth (HUF) (2013) 221 Taxman 19 (Guj); and Dishman Pharmaceuticals & Chemicals Ltd. vs CIT (2012) 346 ITR 228 (Guj) for the proposition that assessee having not pointed out during assessment proceedings about expenses incurred relatable to tax free income u/s 14A, there was omission and failure on its part to disclose fully and truly material facts and hence, reopening of assessment was justified.
7. We have gone through the record. As a matter of fact Para 7 of the asstt. Order dated 24.11.2010 passed u/s 143(3) of the Act in respect of Asstt. Year 2008-09 reads as follows:
“ 7. Issue of disallowance u/s 14A:
7.0 During assessment proceedings an examination of the material available on record and also from the books of account of the assessee it was pin pointed that assessee has not added back a sum of Rs. 17,16,318/- u/s 14A of the I.T. Act, 1961. Accordingly the assessee was asked to explain as to why this amount may not be added back to the return income of the assessee.
7.1 On this issue the assessee submitted as under: –
“In the Return of Income have not made disallowance regarding Section 14A of Income Tax Act 1961. This was based on the assumption like past that the investment made during the year is out of the Interest Free Funds available. Rule 8D was introduced by the IT (Fifth Amendment) Rule, 2008 w.e.f. 24.03.2008. We were under the impression that this Rule will be Relevant For AY 2009-10 and accordingly we have made proper disallowance as per Rule SD in AY 2009-10.
During this year we were under impression that this provision is not applicable. We have taken proper Legal Advice on this issue and accordingly we are disallowing Rs.17,16,318/- being inadmissible u/s 14A of IT Act 1961. The working is enclosed herewith.
We are submitting Corrected Computation Chart after considering the disallowance u/s 14Aof IT Act regarding income of the Bank. It is requested, to compute the income as per this corrected computation chart. Due taxes on this income has already been paid as our Refund amount will become less accordingly.
It is prayed that the mistake is unintentional as we are confused with the New Provision brought on Record w.e.f. 24.03.2008. Accordingly it is prayed to kindly do not initiate penalty proceedings.
Thanking You,
Yours faithfully,
(RAVINDRA SAXENA)
Chief Manager, Taxation
Place: Nainital”
Without prejudice to my separate finding on the issue of initiation of penalty the disallowance u/s 14A is computed as under: –
