Andhra Bank Financial Services Limited V. The Commissioner of Income Tax-I

ITTA/228/2007

AI Insights

The case involves Andhra Bank Financial Services Limited, the appellant, contesting the disallowance of certain interest expenses under Section 14A of the Income Tax Act for the assessment year 1999-2000. The primary legal contention was whether the issue of disallowance was debatable and thus could be rectified under Section 154 of the Act. The Income Tax Appellate Tribunal had earlier dismissed the appellant's appeal, leading to this appeal in the High Court. The High Court examined the procedural correctness of the rectification and the substantive application of Section 14A, ultimately agreeing with the lower authorities that the disallowance was rightly made and the rectification was valid.

• Counselvise Citation: [2024] 140 COUNSELVISE.COM (IT) 752721 (HC-TELANGANA)
• Appeal Type: Others
• Pronouncement Date: 28-11-2024
• Assessment Year: misc
• Other Referred Cases: T.S. Balaram, Income-Tax Officer, Company Circle IV, Bombay v. M/s. Volkart Brothers, Bombay, MEPCO Industries Limited, Madurai v. Commissioner of Income Tax, Maxopp Investment Ltd. v. Commissioner of Income Tax, South Indian Bank Limited v. Commissioner of Income Tax
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: J V PRASAD
• Assessee Lawyers: C P RAMASWAMI
• Keywords: Assessment year 1999-2000; Disallowance; Income Tax; Interest; Rectification Order; Tax-free bonds
• Section: 154; 14A; 260A

Judgement Text

"IN THE HIGH COURT FOR THE STATE OF TELANGANA AT HYDERABAD THURSDAY, THE TWENTY EIGHTH DAY OF NOVEIVEER TWO THOUSAND AND TWENTY FOUR PRESENT THE HON'BLE THE CHIEF JUSTICE ALOK ARADHE THE HON'BLE SRI JUSTICE J. SREENIVAS RAO INCOME TAX TRIBUNAL APPEAL NO: 228 OF 2oo7 lncome tax Tribunar Appear under Section 260-4 of the rncome tax Act, .1g6i, against the order of the Income Tax Appeflate Tribunar, Hyderabad Bench ,A,, Hyderabad in lrA No. 188 tHyd.r zoo4 for Assessment year 1999 - 2000 dated 27 -02-2007 preferred against the order of the commissioner of lncome Tax (Appeals) -ll , Hyderabad dated 06-1r-2002 in trA No. 33 / ctr (A) -ill 02_03, preferred against the order of the Asst. commissioner of rncome Tax , circre 1 (3), Hyderabad dated 28-03-2002 in pAN /GtR No. A_i61. Between: Andhra Bank Financiar services Limited, First Froor, 4-5-1 to 23, Andhra Bank Buildings, Sultan Bazar, Hyderabad-195 AND ..APPELLANT The Commissioner of lncome Tax-|, Aayakar Bhavan, Basheerbagh, Hyderabad- 500 001 ...RESPONDENT Counsel for the Appellant: SRl. C. p. RAMASWAMI counsel for the Respondent: sRr J. v. PRASAD (sr. SC FoR rNcoME TAX) The Court delivered the following Judgment: THE HON' BLE THE CHIEF JUSTICE ALOK ARADHE AND THE HON'BLE SRI WSTICE J.SREENIVAS RAO INCOME TA)( TRIBUNAL APPEAL No.228 of 2OO7 JUDGMENT: per the Hon,ble Sn Justice J.sreeniuos Rao) Dr. C.P.Ramaswami, learned counsel for the appellarlt Mr. J\"!'.Prasad, Iearned Senior Standing Counsel for Income Tax Department for the respondent. 2. This appeal under Section 260A of the Income Tax Act, I 96 1 (hereinafter referred to as, ,,the Act.), has been filed by the ,assessee. The subject matter of the appeal pertains to the assessment year 1999_2OOO. The appea_l was admitted by a Bench of this Court on the foltowing substantial questions of law: \"i) Whether on the facts and rn the crrcumstances of the case, the Income Tax Appellate Tribunal was correct in law in holding that there was ncr debatable issue with regard to the amount of interest disallowable u/s. l4A of the I.T.Act, 196l when the issue 2 got conciuded before the lLrst appellate authority at the time when the ground was dismissed as not pressed? ii) Whether on the facts and in the circumstarces of the case, the Income Tax Appellate Tribunal was correct in law in holding that the lirst appellate authority was justified in passing the Rectification Order u/ s' i 54 when the matter is highly debatable?\" 3. Facts giving rise to filing of this appeal briefly stated arethattheassesseewasincorporatedinFebruary'1991' as a Private Limited Company and since April' 1991' as a Public Limited Company' The assessee is a 100% subsidiary company of Andhra Bank' a nationalised bank' which is now merged with Union Bank of India' The assessee is a non-banking financial services company engaged in the business of financial services like leasing' hire Purchase activities etc' 4. The assessee filed the return of income for the assessment Year 1999-2OOO ' In the Previous Year relevant to the assessment Year 1999-2000, the assessee had earned income of Rs' 10,73'07 '123 l' on tax free bonds' The assessee claimed that the aforesaid income is exempt +-1 3 from tax in lieu of Section 1O(5) of the Act. An order of assessment was passed by the Assessing Offlcer on 28.O3.2OO2 try which the total income of the assessee was assessed at Rs.7,44,42,610 l- as against the loss returned in the revised return of Rs.2,13,12,326/-. The Assessing Officer made, disallowance of Rs. I , 10,6g0 / - . The said disa-llowance was computed without taking into account the payment made to M/s.Tamil Nadu Newsprint and Papers Limited. Since the claim to deduct the amount in computation of income was rejected entirely, the assessee filed an appeal before the Commissioner of Income Tax (Appeals)-Il, Hyderabad (hereinafter referred to as, ,,the CIT (A)\"). The claim with regard to disallowance made under Section 14A of the Act was not pressed by the assessee before the CIT (A). By an order dated 06. Il.2OO2, the CIT (A) partly allowed the appeal preferred by the assessee. The CIT (A) issued a notice on Ol.OS.2OO3 to the assessee seeking to rectify the order passed in appeal. The assessee objected to the proposed rectification and filed a statement on I 9.08.2O03. 4 5. The CIT (A), in an order passed under Section 154 of theAct,d,ated'29.|2.2003,rejectedtheobjectionspreferred by the assessee and directed the Assessing Offrcer to enhance disallowance under Section 14A of the Act' 6. The assessee thereupon filed an appeal i'e'' I.T.A.No.188 llydl2}Oa before the Income Tax Appellate Tribunal, Bench 'A', Hyderabad (hereinafter referred to as' \"the Tribunal\"). The Tribunal' by an order dated 27 .O2.2OO7 has dismissed the appeal' Hence' this appeal' 7. Learned counsel for the assessee submitted that the issue with regard to disallowance of amount under Section 14A of the Act was highly debatable issue and therefore' the same could not have been taken up in exercise of powers under Section 154 of the Act' It is further submitted that an order of enhancement could not have been passed by the CIT (A) in the garb of an order of rectification under Section 154 of the Act' It is urged that the issue with regard to the disallowance under Section l4AoftheActattainedfinalityonadjudicationofthe /J appeal by an order oated 06 ' 1 | '2OO2 passed by the CIT (A) ' ) It is also contended that the length of show cause notice issued by the CIT (A) itself shows that the a_lleged mistake is not a mistake apparent from the record. In support of the aforesaid submissions, reliance has been placed on the decisions in T.S.Balaram, Income_Tax Oflicer, Company Circle fV, Bombay v. M/s. Volkart Brothers, Bombayl, MEPCO Industries Limited, Madurai v. Commissioner of Income Taxz, Maxopp Investment Ltd. v. Commissioner of Income Taxs and South Indian Bank Limited v. Commissioner of Income Taxa. B. On the other hand, learned counsel for the Revenue submitted that the assessee has accepted the disallowance under Section 14A of the Act and therefore it rvas not a debatable issue. It is contended that.the proviso to Section l4A(3) of thr: Act was incorporated with a ,/iew ro put quietus to completed assessment and the same does not apply to an ongoing assessment. It is submitted that the orders passed by the CIT (A) as well as the Tribunal have I lq7tl82 tTR 50 ( s{t): ( tqT t) 2 scc 526 '(20r0) | scc 4j4 ] l:llti tt SCC 52r ; t2ot8t 4o2nR 640 (sc) 'G02I) t0 scc I5-l 6 been passed by assigning valid and cogent reasons and no substantial questions of lar'v arise for consideration' g. We have considered the submissions made on both sides and have perused the record' Before proceeding further, it is apposite to take note of the relevant statutory provisions, which are reproduced beiow for the facility of reference. \"154. Rectification of mistake' [(1) With a view to rectifying any mistake apparent from the record an income-tax authority referred to in section 116 maY,- (a) amend any order passed by it under the provisions of this Act;] [(b) amend any intimation or deemed intimation under sub-section (1) of section 143'l| [{c) amend any intimation under sub-section (1) of section 20OA.l [(d) amend any intimation under sub-section (1] of section 206CBl [(1A) Where any matter has been considered and decided in any proceeding by way of appeal or revision relating to an order referred to in sub-section (1)' the authority passing such order may' notwithstanding anything conained in any law for the time being tn 7 force, zrmend the order under that sub_section in relation ro any matter other than the matter which has been so considered and decided.l (2) Subject to the other provisions of this section, the authority concerned- (a) maly make an amendment under sub_section (i) of it.s own motion, and (b) shall make such amendment for rectifyrng any such mistake which has been brought to its notice by the assessee, and where the authorit5z concerned is the t- \" *] [Commissioner (Appeals)l by the [Assessing Oflicer] also. lt (3) An amendment, which has the effect of enhancing an assessment or reducing a refund or otherwise increasing the liability of the assessee, shall not be made under this section unless the authorily concerned has given notice to the assessee of i1.s intention so to do and has allowed the assessee a reasonable opportunit5r of being heard. (4) Where an amendment is made under this section, an order shall be passed in writing by the income_tax authoriLy concerned. (5) Subject to the provisions of section 24 1, where any such amendment has the effect of reducing the assessmenl., the [Assessing Officer] shall make anv refund which may be due to such assessee. (6) Where any such amendment has the effect ot enhancing the assessment or reducing a refund I 8 already made, the [Assessing Ofhcer] shall serve on the assessee a notice of demand in the prescribed form specifying the sum payable, and such notice of demand shall be deemed to be issued under section 156 and the provisions of this Act shall apply accordingly. (7) Save as otherwise provided in section 155 or sub_ section (4) of section 186, no amendment under this section shall be made after the expiry of four years [from the end of the financial year in which the order sought to be amended was passedl. (8) Without prejudice to the provisions of sub_section (7), where an application for amendment under this section is made by the assessee on or after the lst day of June, 20O 1 to an income-tax authority referred to in sub-section (1), the authorit5r shall pass an order, within a period of six months from the end of the month in which the application is received by it,_ (a) making the amendment; or (b)refusing to allow the claim.l\" . 10. After having noticed the relevarrt statutory provisions, we may advert to the facts of the case in hand. The assessee had furnished three different calculations of interest to be disallowed under Section 14A of the Act before the Assessment Officer depending upon the taxability of interest and financial chq{ggs paid to the -.-:a;s:- 9 M/s.Tamil Nadu Newsprint and papers Limited of an amount of Rs.9,35,33,906/_ through letter dated 2l .O3.2OO2. The Assessing Officer has disa_llowed an amount of Rs.i,L0,680/- under.section 14A of the Act accepting the third alternative calculation method, by its order dated '.28.O3.2OO2. Aggrieved by the same, the assessee liled appeal belore the appellate authoritl. ald during the course of appeal, the assessee has not pressed the ground of disallowance made by the Assessing Officer aled the appellate authority passed order on 06.ll.2OO2 in LT.A.No.33/CIT(A)-ill02-03. Therea_fter, the appellate authority while exercising the powers conferred under Section 154 of the Act, issued notice on O1.OS.2OO3 to the assessee. Pursuant to the said notice, the assessee filed statement on 19.O8.2003 objecting the proposed rectification. The appellate authority after considering the said objections, and after perusal of the records partly allowed the appeal, by its order dated 29.12.2003. Questioning the said order, the assessee filed appea) uid.e LT.A.No. 188/H''rd/2004 and the same was dismisseci on 27.O2.2007. l0 11. It is relevant to place on record that the appellate Tribunal aJter considering the contentions of the respective parties and evidence on record specifically held the appellate authority while discharging his quasi judicial functions rightly passed the order basing upon the calculations made by the assessee holding that disallowalce under Section 14A of the Act is limited to Rs.2,77,80,538/ - and the same cannot be treated as an enhalcement of assessment and further held that neither assessee nor Assessing Officer have mentioned particular figure without linking the same to the allowance of the interest paid and when the allowances of interest has not reached linality, it cannot be said that quantum of disallowanceunderSectionl4Ahaslinallybearrivedat and also held that the first appellate authority has omitted to consider the aspect of amount disallowable under Sectionl4A of the Act and the said mistake was rectified by the Commissioner in the appeal while exercising the power conferred under Section 154 of the Act and the same is ;3 ..i j permissible. ll 12. In South Indian Bank Limited (supra) by relying the judgment of Maxopp Investment Ltd (supra), the Hon,ble Supreme Court held that the purpose behind Section 14A of the Act, bv not permitting deduction of the expenditure incurred in relation to income, which does not form part of total income, is to ensure that the assessee does not get double benefit. Once a particular income itself is not to be included in the total income and is exempted from tax, there is no reasonable basis for giving benefit of deduction of the expenditure incurred in earning such as income. 13. In T.S.Balaram (supra) and MEPCO tndustries Limited (supra) , the Hon,ble Supreme Court held that a mistake appar.ent on the record must be an obvious and patent mistake and not something which czut be established by a long drawn process of reasoning on points on which there may be conceivably two opinions. A decision on a debatable point of law is not .,mistake apparent from the record\". 14. The above said judgments are not applicable to the facts and circumstances of the case on the ground that the assessee had filed three calculations of the interest to be allowed under Section 14A of the Act before the Assessing Officer to determine the total income ald allowance of interest paid to the M/s.Tamil Nadu Newsprint and Papers Limited. Hence, the contention of the learned counsel for the appellant that the provisions of Section l4A of the Act is not applicable to the assessee is not tenable under law' especially the appellate authority passed order dated 2g.12.2OO3 rectifying the disallowance amount under Section 14A of the Act basing upon the ca-lculations made by the assessee and the sarne cannot be treated as enhancement of assessment. 15. It is pertinent to mention here that the assessee itself had accepted the disallowance under Section 14A of the Act and therefore it was not debatable issue' The appellate authority after foltowing the due procedure as contemplated under the law including the issuance of notice and after considering the objections of the parties rectified the error and made disa]lowance of Rs.2,77,80,5 281 - and the same is within the purview of the ) ... :t rtm. .,il.it*i,. ry/ l3 provrsions of the Act. Hence, substantia-l questions of law are answered. against the assessee. 76. In view of the preceding analysis, we do not find any merit in this lncome Tax Tribunal AppeaJ. Accordingly, the same fails and is hereby dismissed. Miscella.neous applications pending, if any, shall stald closed. //TRUE COPY/i Sd/- K, SRINIVASA RAO JOrNT REGTSTRAR 9' SECTION OFFICER To 1. 2 J 4. 6 The lncome Tax Appellate Tribunal, Hyderabad Bench \"A\" Hyderabad The Commissioner of lncome Tax (Appeals) -ll , Hyderabad The Asst. Commissioner of lncome Tax , Crrcle 1 (3), Hyderabad One CC to SRI. C. P. RAMASWAIvII, Advocate [OPUC] One CC to SRI .1. V. PRASAD (Sr SC FOR INCOI/E TAX), Advocate loPUCl Two CD Copies kul/DL ! HIGH COURT DATED:2811112024 JUDGMENT ITTA.No.228 ot 2007 DISMISSING TIIE I1'TA 1t Y o (r I ? B 0Ei 2[ Ejilai r;lri '24 1l t ) D I 01 "