Original Innovative Logistics India Private Limited, CHENNAI V. JCIT, CHENNAI

ITA 1250/CHNY/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 7768 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 7 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-12-2016
• Appeal Filed By: Assessee
• Bench Allotted: A
• Assessment Year: 2009-2010
• Appeal Filed On: 09-05-2014
• Court: TRIBUNAL
• Department Lawyers: PATHLAVATA PEERYACIT
• Assessee Lawyers: S S SRIDHARCHENNAI
• Keywords: Capital asset; Business income; Earning of tax free income; Retrospective amendment; Question of law; Date of conversion; Non compliance; Revised return; Bonafide mistake
• Section: 14A; 139(5); 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : CHENNAI , ! ' . #$ % &' BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ./ I.T.A.NO.1250/MDS./2014 / ASSESSMENT YEAR : 2009-10 M/S. ORIGINAL INNOVATIVE LOGISTICS INDIA PVT LTD ., NO.25, VIJAYANAGAR, 3 RD CROSS STREET, EXTENSION, VELACHERY, CHENNAI 600 042. VS. THE JCIT, COMPANY RANGE-V, CHENNAI-34. [PAN AAACO 6143 P ] ( () / APPELLANT) ( *+() /RESPONDENT) / APPELLANT BY : MR.S.S.SRIDHAR,ADVOCATE,CHENNAI /RESPONDENT BY : MR.PATHLAVATA PEERYA,CIT D.R / DATE OF HEARING : 10 - 11 - 201 6 / DATE OF PRONOUNCEMENT : 28 - 12 - 2016 , / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THIS APPEAL OF THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS)-V, CHENNAI DATED 28.01.2014 PERTAINING TO ASSESSMENT YEAR 2009-10. 2. THE FIRST ISSUE IN THIS APPEAL IS WITH REGARD T O CONFIRMING THE DISALLOWANCE OF THE LOSS ON SALE OF SHARES AGGREGAT ING TO ` 10,77,83,977/- AFTER CONVERSION OF THE INVESTMENT I NTO STOCK-IN-TRADE ITA NO.1250/MDS./14 :- 2 -: DISCLOSED UNDER THE HEAD BUSINESS WHILE FILING TH E VALID REVISED RETURN OF INCOME IN THE COMPUTATION OF TAXABLE TOTAL INCOM E WITHOUT PROPER REASONS AND JUSTIFICATION. 3. THE FACTS OF THE ISSUE ARE THAT THE ASSESSEE HAS CLAIMED TO HAVE CONVERTED PART OF ITS LONG TERM INVESTMENTS IN TO STOCK-IN-TRADE. THE ASSESSEE HAD CLAIMED LOSS UNDER THE HEAD CAPITAL GA INS ON SALE OF SHARES AMOUNTING TO ` 10,82,27,8791- IN THE ORIGINAL RETURN OF INCOME FIL ED. SUBSEQUENTLY, A REVISED RETURN WAS FILED BY CLAIMIN G THE LOSS UNDER THE HEAD BUSINESS INCOME AND CAPITAL GAINS IN RESPECT OF THE SALE OF SAME ASSETS SHARES. THE ASSESSING OFFICER HAS NOTICED CERTAIN D ISCREPANCIES IN THE ORIGINAL RETURN COMPARED WITH THAT OF REVISED RETUR N SUCH AS DATES OF AUDIT REPORT FILED U/S 44AB AS 25.06.2009 AND IN SECOND R ETURN THE DATE WAS MENTIONED AS 03.09.2009. SIMILARLY METHOD OF ACCOUN TING ALSO CHANGED FROM CASH TO MERCANTILE IN THE ABOVE SAID RETURNS. ON VE RIFYING THE COLUMN NO.12A OF THE AUDIT REPORT REGARDING THE CONVERSION OF CAPITAL ASSETS INTO STOCK-IN- TRADE WHICH WAS MENTIONED AS NIL HOWEVE R, THE CHARTERED ACCOUNTANT STATED IN HIS NOTES ON ACCOUNTS THAT THE ASSESSEE HAS CONVERTED CERTAIN INVESTMENTS INTO STOCK-IN-TRADE DURING THE YEAR WITHOUT FURNISHING ANY DETAILS. EVEN THE MINUTES BOOK AND BOARD OF MEE TING BOOKS WERE NOT PRODUCED EITHER BEFORE THE ASSESSING OFFICER OR BEF ORE THE CIT(A) TO PROVE THAT SHARES WERE CONVERTED AS A RESULT OF ANY RESOL UTION PASSED BY THE BOARD OF DIRECTORS. ACCORDING TO AO, THE ASSESSEE HAS CLEARLY VIOLATED ITA NO.1250/MDS./14 :- 3 -: REGULATION 71 OF TABLE A (SCHEDULE 1) OF COMPANIES ACT. THE ASSESSING OFFICER HAS ELABORATELY DISCUSSED THE FAILURE ON TH E PART OF THE ASSESSEE COMPANY TO CONDUCT ANY BOARD MEETING FOR PASSING AN Y RESOLUTION FOR THE ABOVE SAID CONVERSION OF SHARES INTO STOCK-IN-TRADE . HENCE, THE LD. ASSESSING OFFICER DISALLOWED THE LOSS ON SALE OF SHARES AGGREGATING TO ` 10,77,83,977/- AFTER CONVERSION OF THE INVESTMENT I NTO STOCK-IN-TRADE. 3. 1 AGGRIEVED, THE ASSESSEE CARRIED THE APPEAL BEF ORE THE LD.CIT(A). ON APPEAL, THE LD.CIT(A) OBSERVED THAT OVER AND ABOVE THE ASSESSEE COMPANY CAN REVISE THE RETURN U/S 139(5) WITHIN THE TIME ALLOWED FROM THE DATE OF FILING OF THE ORIGINAL RETURN ON N OTICING SOME OMISSIONS OR CORRECTIONS. ONCE THE ORIGINAL RETURN OF INCOME FIL ED AS PER BOOKS OF ACCOUNTS AND PAYING TAXES U/S 140A, THE APPELLANT COMPANY IS NOT SUPPOSED TO FILE A REVISED RETURN ON TOTALLY DIFFERENT FACTS BY CHANGI NG THE AUDIT REPORT FILED ALONG WITH THE ORIGINAL RETURN OF INCOME WHEREIN TH ERE WAS NO MENTION OF CONVERSION OF CAPITAL ASSETS INTO STOCK-IN-TRADE, W HICH IS NOT ACCEPTABLE BY FILING A REVISED RETURN WITH TOTAL DISTORTION OF FA CTS. EVEN IN THE REVISED RETURN FILED BY THE APPELLANT WITH AN AUDIT REPORT DATED 0 3.09.2009 WHICH DID NOT CONTAIN ANY DETAILS OF CONVERSION OF ANY CAPITAL AS SETS INTO STOCK-IN-TRADE. SINCE THE ASSESSEE COULD NOT SHOW ANY DEFECT OR OMI SSION/WRONG STATEMENT IN THE ORIGINAL RETURN FILED, THE ASSESSEE SHOULD N OT HAVE REVISED THE RETURN TO SUIT HIS CONVENIENCE U/S 139(5) AND THEREFORE NO INTERFERENCE IS REQUIRED IN THE DECISION TAKEN BY THE ASSESSING OFFICER IN R EJECTING THE REVISED RETURN ITA NO.1250/MDS./14 :- 4 -: FILED U/S 13.9(5) OF THE IT ACT. HENCE, LD.CIT(A) D ISMISSED THIS GROUND. AGGRIEVED BY THE ORDER OF LD.CIT(A), THE ASSESSEE I S IN APPEAL BEFORE US. 4. ACCORDING TO LD.A.R, IN THE BALANCE SHEET/ANNUA L REPORT AVAILABLE ALONG WITH THE ORIGINAL RETURN OF INCOME EVEN THOUG H FURNISHED AT THE TIME OF SCRUTINY ASSESSMENT PROCEEDINGS, THE APPELLANT WHIL E DISCLOSING THE ACCOUNTING POLICIES FORMING PART OF THE ACCOUNTS FO R THE PERIOD ENDED ON 31.3.2009 HAD STATED IN ITEM NO.4 IS AS FOLLOWS: DURING THE YEAR PART OF INVESTMENTS HELD BY THE CO MPANY HAVE BEEN CONVERTED INTO STOCK IN TRADE AT THE MARKET PR ICE AS ON THE DATE OF CONVERSION. THE DIFFERENCE BETWEEN THE COST AND THE CONVERSION AMOUNTING TO RS.615 LAKHS HAS BEEN CONSI DERED AS LOSS ON SALE OF SHORT TERM INVESTMENTS IN THE TAX AUDIT REPORT FILED ALONG WITH THE ORIGIN AL RETURN OF INCOME IN COLUMN NO.12A, THE TAX AUDITOR HAD QUALIFIED AS NI L IN ANSWERING QUESTION ON THE CAPITAL ASSET BEING CONVERTED INTO STOCK-IN- TRADE DURING THE PREVIOUS YEAR RELATING TO THE ASSESSMENT YEAR UNDER CONSIDER ATION. THE SAID AUDIT REPORTED WAS DATED 3.9.2009 WHEREAS IN THE ORIGINAL RETURN OF INCOME THE SAID DATE WAS WRONGLY TYPED AS 25.6.2009 INASMUCH A S THE SAID ORIGINAL RETURN OF INCOME WAS FILED ELECTRONICALLY ON 26.9.2 009. THE PROVISIONS IN SECTION 139(5) OF THE ACT PRESCRI BE FOR FILING OF THE REVISED RETURN OF INCOME WITHIN ONE YEAR FROM THE END OF TH E RELEVANT ASSESSMENT YEAR OR BEFORE THE COMPLETION OF THE ASSESSMENT WHI CHEVER IS EARLIER FOR CORRECTING ANY OMISSION OR ANY WRONG STATEMENT UPON DISCOVERY OF SUCH OMISSION OR WRONG STATEMENT BY THE APPELLANT. ITA NO.1250/MDS./14 :- 5 -: THERE ARE TWO PRINCIPLES EMERGING FROM THE CONSIDER ATION OF THE PROVISIONS IN SECTION 139(5) OF THE ACT AND THE FIRST PRINCIPLE I S RELATING TO THE INTERPRETATION OF SUCH PROVISIONS IN CANVASSING THE THEORY OF THE REVISED RETURN EFFACING THE ORIGINAL RETURN. THE OTHER THEO RY/PRINCIPLE ON THE INTERPRETATION OF SECTION 139(5) OF THE ACT IS THAT SUCH VALID REVISED RETURN DOES NOT WASH AWAY ORIGINAL RETURN INASMUCH AS AN O RIGINALLY FILED RETURN IS A RETURN IN ALL ESSENTIAL RESPECTS AND THE REVISED RE TURN ONLY CURES THE DEFECTS CONTAINED IN THE ORIGINAL RETURN. 4.1. THE LD.A.R SUBMITTED THAT IN EXTENSION OF THE ABOVE TWO PRINCIPLES, THE OTHER FACET EMERGES ON THE ANALYSIS OF THE PROV ISIONS AND JUDICIAL PRECEDENTS U/S 139(5) OF THE ACT AND IN THIS REGARD THERE IS DISTINCTION BETWEEN A REVISED RETURN AND A CORRECTION OF A RETU RN. IF THE ASSESSEE FILES AN APPLICATION FOR CORRECTING A RETURN ALREADY FILE D OR MAKING AMENDMENTS THEREIN, IT COULD NOT MEAN THAT HE HAS FILED A REVI SED RETURN. IT WILL STILL RETAIN THE CHARACTER OF A ORIGINAL RETURN, BUT ONCE A REVI SED RETURN IS FILED THE ORIGINAL RETURN MUST BE TAKEN TO HAVE BEEN WITHDRAW N AND TO HAVE BEEN SUBSTITUTED FOR A FRESH RETURN FOR THE PURPOSE OF A SSESSMENT. 4.1.2 HE SUBMITTED THAT SECTION 139(5) OF THE ACT WILL APPLY ONLY TO THE CASES OF OMISSION OR WRONG STATEMENT AND NOT TO THE CASES OF CONCEALMENT OR FALSE STATEMENTS INASMUCH AS THE OMISSION OF WRO NG STATEMENT IN THE ORIGINAL RETURN MUST BE DUE TO BONAFIDE INADVERTENC E OR MISTAKE ON THE PART OF THE ASSESSEE. FURTHER, THERE IS NO MANDATE FOR S EEKING PERMISSION FROM THE ASSESSING OFFICER TO FILE SUCH A REVISED RETURN WITHIN THE SCOPE OF SECTION 139(5) OF THE ACT. ON THE CONTRARY, THE FILING OF T HE REVISED RETURN OF INCOME ITA NO.1250/MDS./14 :- 6 -: TO CORRECT THE OMISSION OR WRONG STATEMENTS IN THE ORIGINAL RETURN OF INCOME IS A MATTER OF LEGAL RIGHT VESTED BY THE STATUTE ON THE ASSESSEE. 4.1.3 THE LD.A.R SUBMITTED THAT THE DECISION TO CO NVERT CERTAIN INVESTMENTS IN THE FORM OF SHARES IN THE LISTED COMPANIES INTO STOCK-IN-TRADE BY THE BOARD OF DIRECTORS OF THE APPELLANT WAS TAKEN IN THE BOAR D MEETING CONDUCTED ON 22.4.2008 AND BASED ON THAT DECISION, THE APPELLANT CLAIMED CAPITAL LOSS OF RS.6,15,59,553/- UP TO THE SAID DATE AND THE BUSINE SS LOSS OF RS.10,77,83,977/- QUANTIFIED FROM THE DATE OF CONVE RSION TO THE END OF THE PREVIOUS YEAR RELATING TO THE ASSESSMENT YEAR UNDER CONSIDERATION BASED ON THE SALE OF SUCH CONVERTED ASSETS DURING THE SAID P ERIOD. 4.1.4 THE LD.A.R CLAIMED THAT THE ASSESSING OFFICER IN THE IMPUGNED ORDER HAD REJECTED THE REVISED RETURN OF INCOME IN NOT PE RMITTING SET OFF OF BUSINESS LOSS ARISING ON ACCOUNT OF THE CONVERSION IN THE COMPUTATION OF TAXABLE TOTAL INCOME, WHILE FURTHER NOT ALLOWED THE CARRIED FORWARD OF LONG TERM CAPITAL LOSS TO FULL EXTENT IN VIEW OF HIS DEC ISION NOT TO TREAT THE BUSINESS LOSS AS SUCH. THE ASSESSING OFFICER FIRST RELIED ON THE TAX AUDIT REPORT TO REJECT THE REVISED RETURN OF INCOME FILED WITHIN THE PERMITTED TIME U/S 139(5) OF THE ACT AND THE CLERICAL MISTAKE IN T HE SAID TAX AUDIT REPORT ESPECIALLY IN COLUMN NO.12A WAS NOT TAKEN INTO CONS IDERATION AS A BONAFIDE MISTAKE. THE ACT OF THE ASSESSING OFFICER IN REJECT ING THE REVISED RETURN OF INCOME BASED ON THE SAID MISTAKE COMMITTED IN THE T AX AUDIT REPORT IS ERRONEOUS AND INVALID. 4.1.5 IN FACT, THE TAX AUDITOR APPEARED BEFORE THE ASSESSING OFFICER DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS AS REFLECT ED AND RECORDED IN THE ITA NO.1250/MDS./14 :- 7 -: IMPUGNED ORDER AT PAGE NO.2, PARA 1.3 AND FORTIFIED THE FACT OF MISTAKE IN ISSUING THE TAX AUDIT REPORT. IN THE PROCESS, THE A SSESSING OFFICER HAD REFERRED TO THE NOTES ON ACCOUNTS GIVING THE ACCOUN TING POLICIES WHICH FORMED PART OF THE ANNUAL ACCOUNTS OF THE ASSESSMEN T YEAR UNDER CONSIDERATION. THE REASONING OF THE ASSESSING OFFIC ER IN THIS REGARD AS MENTIONED IN PARA 1.3 OF THE IMPUGNED ORDER IS NOT WELL TAKEN INASMUCH AS THERE WAS NO CONFLICTING STATEMENT IN THIS REGARD B Y THE TAX AUDITOR AND THE FACT OF CONVERSION EVEN THOUGH STATED IN THE ANNUAL REPORT WAS NOT BROUGHT OUT IN THE TAX AUDIT REPORT DUE TO THE BONAFIDE MIS TAKE IN VIEW OF THE CLERICAL ERROR. HENCE, THE APPELLANT PRODUCED THE T AX AUDITOR BEFORE THE ASSESSING OFFICER IN THE ASSESSMENT PROCEEDINGS TO GIVE CLARIFICATION WHICH ACCORDING TO THE APPELLANT WAS REJECTED WITHOUT ANY VALID REASON. HE SUBMITTED THAT THE SECOND ASPECT TAKEN UP/TOUCHED U PON BY THE ASSESSING OFFICER FOR ARRIVING AT THE CONCLUSION ON THE CORRE CTNESS OF THE REVISED RETURN OF INCOME FILED IS RELATING TO THE DATE OF TAX AUDI T REPORT. THE TAX AUDIT REPORT WAS DATED 3.9.2009 AND THE SAID DATE WAS ERR ONEOUSLY INCORPORATED AS 25.6.2009 WHILE UPLOADING THE ELECTRONIC RETURN. THE SAID MISTAKE IN ENTERING THE DATE OF TAX AUDIT REPORT IN THE E-RETU RN FILED ORIGINALLY HAD TRIGGERED THE FILING OF THE VALID REVISED RETURN OF INCOME INASMUCH AS THE SAID MISTAKE WAS ONE FACET OF THE REASONS FOR FILING THE REVISED RETURN OF INCOME UNDER CONSIDERATION. THE FINDINGS IN THIS REGARD RE CORDED IN PARA 1.7 OF THE IMPUGNED ORDER ARE WRONG, INCORRECT, UNJUSTIFIED, E RRONEOUS AND NOT SUSTAINABLE BOTH ON FACTS AND IN LAW. ITA NO.1250/MDS./14 :- 8 -: 4.1.6 ACCORDING TO HIM, THE ASSESSEE HAD NOT FILE D IN THE ASSESSMENT PROCEEDINGS TWO TAX AUDIT REPORTS AT ANY POINT OF T IME AND THE AUDIT REPORT U/S 44AB OF THE ACT WAS FILED IN THE ASSESSMENT PRO CEEDINGS WHICH AUDIT REPORT WAS DATED 3.9.2009. AS ALREADY EXPLAINED IN THE PRECEDING PARAGRAPH, THE KEYING MISTAKE IN THE FILING OF THE ORIGINAL RETURN OF INCOME ELECTRONICALLY IN MENTIONING THE DATE OF AUDIT REPO RT WRONGLY AS 25.6.2009 OUGHT TO HAVE BEEN APPRECIATED AND TAKEN NOTE OF FO R UNDERSTANDING THE INCORRECT CONCLUSION REACHED IN PARA 1.7 OF THE IMP UGNED ORDER BY THE ASSESSING OFFICER. THE TAX AUDIT REPORT UNDER CONSI DERATION SHOULD BE UNDERSTOOD IN THE CONTEXT OF SUCH REPORT AIDING AND HELPING THE ASSESSING OFFICER IN FRAMING THE ASSESSMENT ACCURATELY AND TH EREFORE ANY MISTAKES INCLUDING CLERICAL MISTAKES ARE NOT FATAL TO THE CL AIMS MADE IN THE VALID REVISED RETURN OF INCOME FOR THE PURPOSE OF ACCEPTA NCE. 4.1.7 REGARDING THE ALLEGATIONS ON THE NON CONDUC TING OF THE BOARD MEETING ON 224.2008, IT IS SUBMITTED BY THE LD.A.R THAT THE CONDUCT OF BOARD MEETING WAS FOR THE PURPOSE OF TAKING THE DECISION OF CONVERSION OF CERTAIN ASSETS IN THE FORM OF SHARES IN THE LISTED COMPANIE S INTO STOCK- IN-TRADE. THE ASSESSING OFFICER WENT WRONG IN STATING THAT THE SA ID BOARD MEETING WAS NOT CONDUCTED ON THE SAID DATE MERELY ON THE GROUND OF THE MINUTES OF THE BOARD MEETING PRODUCED IN THE ASSESSMENT PROCEEDING S WAS DATED AS 22.8.2008. 4.1.8 HE SUBMITTED THAT THE COPY PRODUCED BEFORE T HE ASSESSING OFFICER HAD CLEARLY MENTIONED THE CONDUCT OF THE BO ARD MEETING AS ON 22ND APRIL 2008 AND HENCE THE CONCLUSION REACHED TO REJE CT THE CLAIM OF BUSINESS ITA NO.1250/MDS./14 :- 9 -: LOSS ON CONVERSION OF CAPITAL ASSETS/INVESTMENTS IN THE FORM OF SHARES IN THE LISTED COMPANIES INTO STOCK-IN-TRADE IN THE COMPUTA TION OF TAXABLE TOTAL INCOME IS FLIMSY AND DEVOID OF MERITS. THE PROCEDUR AL REQUIREMENTS IN THE MAINTENANCE OF THE RECORDS OF THE BOARD MEETINGS UN DER THE COMPANIES ACT, 1956 WERE WIDELY TOUCHED UPON AND DISCUSSED IN THE IMPUGNED ORDER BY THE ASSESSING OFFICER AND THE IRREGULARITIES IN FOLLOWI NG SUCH PROCEDURAL REQUIREMENTS UNDER THE COMPANIES ACT, 1956 ARE NOT FATAL TO THE CLAIM OF BUSINESS LOSS BASED ON THE CONVERSION OF INVESTMENT S INTO STOCK-IN-TRADE AS ON 22.4.2008. 4.1.9 HE PLEADED AND RAISED ANOTHER LEGAL ISSUE QUESTIONING THE POWER OF THE ASSESSING OFFICER IN REJECTING THE REV ISED RETURN OF INCOME FILED VALIDLY WITHIN THE SCOPE OF SECTION 139(5) OF THE A CT. IN THIS REGARD, IT IS SUBMITTED THAT THERE IS NO POWER VESTED WITH THE AS SESSING OFFICER TO REJECT A VALID REVISED RETURN OF INCOME WHICH REVISED RETU RN OF INCOME, PROCEDURALLY AS WELL AS LEGALLY EFFACES/REPLACES THE ORIGINAL RE TURN OF INCOME. THEREFORE, THE COMPUTATION OF TAXABLE TOTAL INCOME FORMING PAR T OF THE IMPUGNED ORDER BASED ON THE ORIGINAL RETURN OF INCOME IS ERRONEOUS AND INVALID. UNDER THESE CIRCUMSTANCES, THERE WERE NO ALLEGATIONS OR FINDING S AS TO THE NON COMPLIANCE OF VARIOUS CONDITIONS PRESCRIBED U/S 139 (5) OF THE ACT TO TREAT THE REVISED RETURN OF INCOME AS VALID ON THE FACTS AND IN CIRCUMSTANCES OF THE CASE. IN THE ABSENCE OF SUCH FINDINGS, IT IS SUBMIT TED THAT THE REVISED RETURN OF INCOME FILED ON 13.5.2010 IS CORRECT, VALID AND LEGALLY SUSTAINABLE FOR FRAMING THE ASSESSMENT FOR THE ASSESSMENT YEAR UNDE R CONSIDERATION. ITA NO.1250/MDS./14 :- 10 - : 4.2 THE DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT THE PRIMARY REASONS GIVEN BY THE AO NOT TO ACCEPT THE REVISED RETURN TO SEE THAT THE ASSESSEE HAS NOT FURNISHED THE MINUTE BOOK SHOWING THE AGEND A OF THE MEETING, RESOLUTION PASSED AND ATTENDANCE OF ALL THE CONCERN ED. ACCORDING TO LD.A.R, THE TYPED MINUTES CANNOT BE ACCEPTED AS A RELEVANT OR GENUINE AS DOCUMENT; ESPECIALLY THEY ARE DATED FOUR MONTHS LAT ER. MOREOVER, MINUTES BEING IN THE CUSTODY OF BOARD OF DIRECTORS, ARE ALW AYS AMENABLE TO ALTERATION. AS SUCH IN THE ABSENCE OF MINUTE BOOK, THE TYPED MI NUTES CANNOT BE CONSIDERED AS AN EVIDENCE AS PER AO. AS SUCH, HE I S NOT GIVEN ANY CREDENCE TO THE REVISED RETURN FILED BY THE ASSESSEE IN TERM S OF SEC. 139(5) OF THE ACT. ACCORDING TO HIM, THERE IS NO ERROR OR OMISSION IN THE ORIGINAL RETURN FILED BY THE ASSESSEE U/S.139(1) OF THE ACT AND HE HAS OVERL OOKED THE REVISED RETURN. 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN THIS CASE, THE ASSESSEE FILED ORIGINAL R ETURN OF INCOME ON 26.09.2009. THERE IS A TIME LIMIT TO FILE A REVISE D RETURN U/S.139(5) OF THE ACT BEFORE THE EXPIRY OF ONE YEAR FROM THE END OF T HE RELEVANT ASSESSMENT YEAR OR BEFORE THE COMPLETION OF THE ASSESSMENT ORD ER, WHICHEVER IS EARLIER. IN THIS CASE, THE ASSESSMENT WAS COMPLETED VIDE ASS ESSMENT ORDER DATED 15.12.2011. HENCE, THE ASSESSEE HAS A TIME LIMIT T O FILE REVISED RETURN BEFORE 31.03.2011. THE ASSESSEE FILED REVISED RETU RN IN THIS CASE ON 13.05.2010. WHILE FILING ORIGINAL RETURN ON 26.09.2 009, THE ASSESSEE ADMITTED IN THE ORIGINAL RETURN THE TAXABLE TOTAL I NCOME AT ` 8,84,763/- UNDER THE HEAD BUSINESS INCOME AND CLAIMING LOSS ` 1,35,82,239/- AS LOSS UNDER THE HEAD CAPITAL GAINS. ITA NO.1250/MDS./14 :- 11 - : 5.1 IN THIS CASE, THE ASSESSEE FILED REVISED RETU RN ON 13.05.2010, ADMITTEDLY TOTAL LOSS BUSINESS OF ` 10,68,99,214/- AND SHORT TERM LOSS OF ` 6,05,51,477/-. THE REASONS FOR FILING THE REVISED R ETURN OF INCOME WAS ON THE REASON THAT A PART OF THE INVESTMENT HELD BY TH E COMPANY HAS BEEN CONVERTED INTO STOCK-INTRADE AT THE MARKET PRICE. AS ON THE DATE OF CONVERSION, THE DIFFERENCE BETWEEN THE COST AND CON VERSION, AMOUNTING TO ` 6.15 LAKHS HAS BEEN CONSIDERED AS LOSS UNDER THE HE AD BUSINESS INCOME. 5.1.1 NOW, LET US SEE, WHAT IS THE RELEVANT PROVIS IONS OF THE SECTION 139(5) OF THE ACT FOR FILING THE REVISED RETURN OF INCOME, WHICH READS AS UNDER:- S.139(5): IF ANY PERSON, HAVING FURNISHED A RETURN UNDER SUB- SECTION (1), OR IN PURSUANCE OF A NOTICE ISSUED UNDER SUB-SECTION (1) OF SECTION 142, DISCOVERS ANY OMISSION OR ANY WRONG STATEMENT THERE IN, HE MAY FURNISH A REVISED RETURN AT ANY TIME BEFORE THE EXPIRY OF O NE YEAR FROM THE END OF THE RELEVANT ASSESSMENT YEAR OR BEFORE THE COMPL ETION OF THE ASSESSMENT, WHICHEVER IS EARLIER: PROVIDED THAT WHERE THE RETURN RELATES TO THE PREVI OUS YEAR RELEVANT TO THE ASSESSMENT YEAR COMMENCING ON THE 1ST DAY OF APRIL, 1988, OR ANY EARLIER ASSESSMENT YEAR, THE REFERENCE TO ONE YEAR AFORESAID SHALL BE CONSTRUED AS A REFERENCE TO TWO YEARS FROM THE END OF THE RELEVANT ASSESSMENT YEAR. WHAT IS CONTEMPLATED ABOVE SEC.139(5) FOR FILING OF THE REVISED RETURN ARE AS FOLLOWS:- I) THAT THE ORIGINAL RETURN MUST HAVE BEEN FURNISHE D U/S.139(1) OR PURSUANCE OF NOTICE U/S.142(1) OF THE ACT. II) THAT THE ASSESSEE DISCOVERS ANY OMISSION OR A NY WRONG STATEMENT THEREIN AND ITA NO.1250/MDS./14 :- 12 - : III) THAT THE REVISED RETURN IS FILED AT ANY TIME B EFORE THE ASSESSMENT IS MADE OR BEFORE THE EXPIRY OF ONE YEAR FROM THE END OF RELEVANT ASSESSMENT YEAR. 5.2 THE ONLY DISPUTE HEREIN IS ABOUT THE SATISFACT ION OF SECOND CONDITION AS TO WHETHER THERE WAS A DISCOVERY OF ANY OMISSION OR WRONG STATEMENT BY THE ASSESSEE IN THE ORIGINAL RETURN OF INCOME. ACC ORDING TO REVENUE, THE WORD DISCOVERS USED IN SEC.139(5) OF THE ACT CONN OTES DISCOVER OF SOME OMISSION OR WRONG STATEMENT IN RETURN OF INCOME OF WHICH THE ASSESSEE WAS NOT AWARE AT THE TIME OF FILING THE ORIGINAL RETURN OF INCOME. PROVISIONS OF THE SECTION 139(5) CONTEMPLATED THAT THE ASSESSEE COULD FILE THE REVISED RETURN WHEN THE ASSESSEE DISCOVERED ANY OMISSION OR ANY WRONG STATEMENT. THE WORD OMISSION CONNOTES UNINTENTIONAL ACT OR INCL UDE TO PERFORM WHAT THE LAW REQUIRED; THE WORD WRONG STATEMENT INCLUDES I N ITS SCOPE A STATEMENT WHICH WAS NOT ATTENTIVE TO THE KNOWLEDGE OF THE PER SON MAKING IT ; AND THE WORD DISCOVER WOULD TAKE IN ITS AMBIT THAT WHIC H WAS HIDDEN, CONCEALED OR UNKNOWN. THE WORD DISCOVERS CONNOTES DISCOVER Y OF SOME OMISSION OR WRONG STATEMENT IN THE RETURN OF WHICH THE ASSESSEE WAS NOT AWARE AT THE TIME OF FILING THE ORIGINAL RETURN. IF THE ASSESSE E DELIBERATELY OMITTED THE PARTICULARS OF INCOME AND MADE WRONG STATEMENTS IN THE ORIGINAL RETURN, THE REVISED RETURN WOULD NOT BRING THE CASE WITHIN THE SCOPE OF SEC.139(5) OF THE ACT. DISCOVERY OF THE OMISSION OR WRONG STATEMENT MADE BY THE ASSESSEE THAT ITSELF IS NOT SUFFICIENT TO FILE THE REVISED R ETURN WITHIN AMBIT OF SEC.139(5) OF THE ACT. FURTHER, THE REQUIREMENT IS THAT THIS OMISSION AND WRONG STATEMENT IN THE ORIGINAL RETURN MUST BE DUE TO BONA FIDE ITA NO.1250/MDS./14 :- 13 - : INADVERTENCE OR MISTAKE ON THE PART OF THE ASSESSEE . THE OMISSION AND WRONG STATEMENT IN THE ORIGINAL RETURN CAN BE SAID TO BE DUE TO BONAFIDE INADVERTENCE OR BONAFIDE MISTAKE ON THE PART OF THE ASSESSEE ONLY ON THE BASIS OF EVOLUTION OR MATERIAL ON RECORD. 5.3 IT WAS THEREFORE, NECESSARY TO ASCERTAIN AS TO WHETHER THERE WAS ANY WRONG STATEMENT MADE IN THE RETURN OF INCOME OR IGINALLY FILED BY THE ASSESSEE AND WHETHER THE ASSESSEE WAS NOT AWARE OF SUCH WRONG STATEMENT AT THE TIME OF FILING THE ORIGINAL RETURN. FOR THIS PURPOSE, THE CLAIM MADE BY THE ASSESSEE IN REVISED RETURN OF INCOME, VIS--VIS THE RETURN OF INCOME FILED ORIGINALLY TO BE EXAMINED ON MERIT TO ASCERTAIN WHE THER THERE WAS ANY WRONG STATEMENT MADE IN THE ORIGINAL RETURN OF INCOME OF WHICH THE ASSESSEE WAS NOT AWARE AT THE TIME OF FILING THE ORIGINAL RETURN OF INCOME. SUCH EXAMINATION OF THE ASSESSEES CLAIM WILL REVEAL AS TO WHETHER THE CONDITION NO.(II) WAS SATISFIED IN THE PRESENT CASE IN ORDER TO ENABLE THE ASSESSEE TO FURNISH THE REVISED RETURN OF INCOME U/S.139(5) OF THE ACT. IN THE PRESENT CASE, THE MAIN REASON FOR FILING THE REVISER RETURN OF INCOME BY THE ASSESSEE WAS THAT THE ASSESSEE HAS CHANGED THE METHOD OF TRE ATMENT OF LONG TERM INVESTMENTS. EARLIER IT HAS TREATED THE INVESTMENT S AS CAPITAL ASSET AND NOW IT HAS CHANGED IT TO STOCK-IN TRADE, WHICH RESULT ED IN CLAIM OF BUSINESS LOSS. IN OTHER WORDS, ORIGINALLY THE ASSESSEE CLAIMED LO SS UNDER THE HEAD CAPITAL GAINS ON SALE OF SHARES AMOUNTING TO ` 10,82,27,879/-. HOWEVER, THE REVISED RETURN ON ACCOUNT OF TREATMENT OF INVESTMEN TS AS STOCK-IN TRADE, WHICH RESULTED IN BUSINESS LOSS AND LONG TERM CAPIT AL LOSS. THE AO REJECTED THE CHANGE OF METHOD OF TREATMENT OF INVESTMENTS AS CAPITAL ASSET INTO ITA NO.1250/MDS./14 :- 14 - : STOCK-IN TRADE ON THE REASON THAT IT IS NOT A GENU INE IN NATURE. FOR THIS PURPOSE, HE WAS OF THE OPINION THAT THE ASSESSEE HA S TO PRODUCE ORIGINAL MINUTE BOOK CONTAINING BOARD RESOLUTION TO THIS EFF ECT. SINCE THE ASSESSEE HAS PRODUCED ONLY TYPED COPY OF MINUTES OF BOARD ME ETING, AO BRUSHED ASIDE IT AND HE REJECTED THE REVISED RETURN FILED B Y THE ASSESSEE. THE PLEA OF THE LD.A.R IS THAT THERE WERE BONA FIDE OMISSION AN D WRONG STATEMENT IN THE ORIGINAL RETURN OF THE INCOME, WHICH WAS LATER DISC OVERED BY THE ASSESSEE. THEREFORE, THE REVISED RETURN FILED BY THE ASSESSEE IS IN ACCORDANCE WITH SEC.139(5) OF THE ACT. AT THIS STAGE, IT IS APPROP RIATE TO REFER ONE JUDGEMENT OF SUPREME COURT IN THE CASE OF GOETZE (INDIA) LTD. , VS. CIT IN 284 ITR 323(SC) WHEREIN THE ISSUE BEFORE THE COURT WAS WHET HER THE ASSESSEE COULD MAKE A CLAIM FOR DEDUCTION OTHER THAN BY FILI NG A REVISED RETURN BEFORE THE AO. THE DEDUCTION WAS DISALLOWED BY THE AO ON THE GROUND THAT THERE WAS NO PROVISION UNDER THE INCOME TAX ACT ALLOWING AN AMENDMENT IN THE RETURN OF INCOME BY APPLICATION AT ASSESSMENT STAGE WITHOUT REVISING THE RETURN. THE COURT HELD THAT THE AO CANNOT ENTERTAIN A CLAIM FOR DEDUCTION OTHERWISE THAN BY FILING A REVISED RETURN. 5.4 IN THE CASE UNDER CONSIDERATION, THE ASSESSEE FILED REVISED RETURN OF INCOME TO CLAIM THE LOSS ARISE OUT OF CHANGE IN TREATMENT OF INVESTMENT FROM CAPITAL ASSET TO STOCK-IN TRADE. THE ASSESSE E COULD CLAIM THIS TYPE OF CLAIM ONLY BY FILING THE REVISED RETURN BEFORE THE AO. FURTHER, THE HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. IN [1998] 229 ITR 383 (SC) WHEREIN HELD THAT THE TRIBU NAL HAD JURISDICTION TO EXAMINE A QUESTION OF LAW WHICH AROSE FROM THE FACT S AS FOUND BY THE ITA NO.1250/MDS./14 :- 15 - : INCOME-TAX AUTHORITIES BELOW AND HAVING A BEARING O N THE TAX LIABILITY OF THE ASSESSEE NOTWITHSTANDING THE SAME WAS NOT RAISED BE FORE THE LOWER AUTHORITIES. FURTHER, THE APPELLATE AUTHORITIES MUS T BE SATISFIED THAT THE GROUND RAISED WAS BONA FIDE AND THAT THE SAME COULD NOT HAVE BEEN RAISED EARLIER FOR GOOD REASONS. 5.5. FURTHER, SUPREME COURT IN THE CASE OF M/S.S.A BUILDERS VS. CIT REPORTED IN 288 ITR 1 WHEREIN HELD THAT THE REVENU E CANNOT CLAIM NOT PUT ITSELF IN THE ARM CHAIR OF BUSINESSMAN OR IN THE P OSITION OF BOARD OF DIRECTOR AND ASSUME THE ROLE TO DECIDE WHETHER TO INCUR ANY EXPENDITURE OR NOT. THE REASONABLENESS OF THE EXPENDITURE HAS TO BE DECIDED FROM THE POINT OF VIEW OF THE BUSINESSMAN AND NOT THE REVENUE. 5.6. NOW, COMING TO THE FIRST REASON FOR REJECTING THE REVISED RETURN WAS THAT IN ORIGINAL RETURN, THE ASSESSEE HAS CHANG ED THE METHOD OF ACCOUNTING AS CASH, IN THE SECOND RETURN IT WAS S HOWN AS MERCANTILE. HOWEVER, THE AO ACCEPTED THE METHOD OF ACCOUNTING O F ASSESSEE AS MERCANTILE AS NOTICED FROM THE FIRST PAGE OF THE COLUMN-8 OF THE ASSESSMENT ORDER WHEREIN MENTIONED AS MERCANTILE. ONCE THE AO HAS ACCEPTED THE METHOD OF ACCOUNTING OF THE ASSESSEE A S MERCANTILE, THERE IS NO QUESTION OF DOUBTING THE METHOD OF ACCOUNTING BY AO. 5.7 THE NEXT REASON GIVEN BY THE AO IS THAT THE AU DIT REPORT FILED DURING THE COURSE OF SCRUTINY SHOWED THAT AGAINST C OLUMN NO.12A REGARDING PARTICULARS OF CAPITAL ASSETS CONVERTED INTO STOCK- IN TRADE, THE CHARTERED ITA NO.1250/MDS./14 :- 16 - : ACCOUNTANT HAS STATED NIL MEANING NO SUCH CONVERS ION. HOWEVER, THE SAME CHARTERED ACCOUNTANT IN THE AUDIT REPORT IN IT S NOTES ON ACCOUNT STATED THAT THE ASSESSEE HAD CONVERTED CERTAIN INVESTMEN TS INTO STOCK-IN TRADE DURING THE YEAR WITHOUT GIVING ANY DETAILS. HOWEVE R, ON SUMMON ISSUED TO THE AUDITOR BY AO, HE HAD CLARIFIED THAT THE ASSESS EE INDEED CONVERTED THE INVESTMENT INTO STOCK-INTRADE AND HE SUBMITTED BEF ORE THE AO ON HIS PERSONAL APPEARANCE THAT IT WAS DUE TO INADVERTENT MISTAKE AND PRAYED THAT IT SHOULD BE ACCEPTED. THE AO WAS NOT READY TO ACC EPT HIS PERSONAL STATEMENT WHICH WAS GIVEN BY CHARTERED ACCOUNTANT B EFORE THE AO. THE AO FOR THE PURPOSE OF CLARIFICATION, HE SUMMONED MR.C .L.RAVINDRA, CHARTERED ACCOUNTANT. WHEN HE CONFIRMED HIS REPORT WHICH RELA TED TO HIS STATEMENT IN THE NOTES ON ACCOUNT FILED ALONG WITH REVISED RETUR N OF INCOME, THE AO WAS NOT READY TO ACCEPT THE SAME, WHEN IT IS IN FAVOUR OF ASSESSEE. THIS KIND OF ACTION OF AO IS NOT APPRECIABLE. THIRDLY, THE AO CA LLED FOR ORIGINAL COPY OF MINUTE BOOK OF BOARD MEETING. HOWEVER, THE ASSESSEE PRODUCED THE COPY OF TYPED COPY OF MINUTE BOOK. HE DOUBTED THE TYPED CO PY OF MINUTE BOOK AND HE REJECTED THE SAME. IF THE SURROUNDING CIRCUMSTAN CES SUGGEST THAT THE ASSESSEE CONVERTED INVESTMENT INTO STOCK IN TRADE A ND ALSO SUPPORTED BY THE MINUTES PRODUCED BY THE ASSESSEE, STILL IF HE HAD T HE DOUBT, HE SHOULD HAVE CLARIFIED IT FROM BOARD OF DIRECTORS WHO ATTENDED T HE MEETING. INSTEAD OF THIS, HE REJECTED REVISED RETURN OF INCOME ITSELF, WHICH IS NOT APPROPRIATE. MORE SO, IN OUR OPINION, THE ASSESSEE COULD MAKE CL AIM EVEN AT APPELLATE STAGE AS HELD BY THE SUPREME COURT IN THE CASE OF N ATIONAL THERMAL POWER CO. LTD. IN [1998] 229 ITR 383 (SC). WE FIND THAT T HE PROCEDURAL ITA NO.1250/MDS./14 :- 17 - : IRREGULARITIES COMMITTED BY THE ASSESSEE EITHER UND ER THE COMPANIES ACT OR INCOME TAX ACT, CANNOT BE CONSIDERED AS A FATAL SO AS TO DISALLOW THE CLAIM OF ASSESSEE. ACCORDINGLY, WE DIRECT THE AO TO CONSI DER THE REVISED RETURN AS A VALID RETURN FILED BY THE ASSESSEE IN TERMS OF SE C.139(5) OF THE ACT AND COMPLETE THE ASSESSMENT AS PER THE REVISED RETURN FILED BEFORE HIM. THIS GROUND OF ASSESSEE IS ALLOWED. 6. THE NEXT GROUND IS WITH REGARD TO CONFIRMING T HE DISALLOWANCE OF ` 1,28,83,860/- BEING THE TWO PAYMENTS TO THE SUB-CO NTRACTORS FOR WANT OF TDS ON THE APPLICATION OF SEC.40(A)(IA) OF THE ACT IN THE COMPUTATION OF TAXABLE TOTAL INCOME WITHOUT ASSIGNING PROPER REASO NS AND JUSTIFICATION. 6.1 THE FACTS OF THE ISSUE ARE THAT THE ASSESSING OFFICER DISALLOWED ` 1,28,83,860/- BEING THE PAYMENTS TO TWO SUB-CONTRAC TORS FOR WANT OF REMITTANCE OF TDS AMOUNTS WITHIN THE STIPULATED PER IOD ON THE APPLICATION OF SECTION 40(A)(IA) OF THE ACT.. THE APPELLANT HAS NO T DEDUCTED ANY TDS ON THE PAYMENTS MADE UP TO FEBRUARY 2009 TO THE TWO SUB-CO NTRACTORS AT ` 1,28,83,860/-. THE ASSESSEE COMPANY HAS NOT MADE AN Y TDS TILL END OF THE YEAR I.E. 31.03.2009. AS PER THE AMENDED PROVISIONS OF SECTION 40(A)(IA) THE APPELLANT CAN AVAIL TIME TO REMIT INTO THE GOVERNME NT ACCOUNTS OF TDS AMOUNT DEDUCTED BEFORE THE END OF THE FINANCIAL YEA R. THIS AMENDED PROVISION IS APPLICABLE FROM 01.04.2010 ONWARDS. IN THE INSTANT CASE UNDER CONSIDERATION THE APPELLANT HAS NOT DEDUCTED ANY TD S AMOUNT ON THE PAYMENTS MADE TO TWO SUB CONTRACTORS TILL FEBRUARY 2009 AT RS.1,28,83,860/-. THUS CLEARLY VIOLATED THE PROVISI ON OF SECTION 40(A)(IA) ITA NO.1250/MDS./14 :- 18 - : HENCE THE ASSESSING OFFICER HAS CORRECTLY DISALLOWE D THE ENTIRE AMOUNT AND ADDED TO THE INCOME RETURNED. AGGRIEVED, THE ASSES SEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, THE LD.CIT(A) OBSE RVED THAT THE ADDITION MADE BY THE ASSESSING OFFICER U/S 40(A)(IA) OF THE IT ACT AT ` 1,28,83,80/- IS CONFIRMED. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 7. LD.A.R SUBMITTED THAT THE DISALLOWANCE OF RS. 1,28,83,860/- BEING THE TWO SUB-CONTRACTORS PAYMENTS FOR WANT OF REMITTANC E OF TDS AMOUNTS WITHIN THE STIPULATED PERIOD ON THE APPLICATION OF SECTION 40 (A) (IA) OF THE ACT IS ASSAILED IN THE PRESENT APPEAL PROCEEDINGS O N THE STRENGTH OF THE AMENDMENT BROUGHT INTO THE STATUTE RETROSPECTIVELY ON THE INSERTION OF A PROVISO BELOW THE SAID SECTION WITH EFFECT FROM 1.4 .2005. THE TDS AMOUNTS RELATING TO THE SAID TWO SUB-CONTRACTORS PAYMENTS WERE MADE/REMITTED TO THE GOVERNMENT ACCOUNT ON 25.09.2009 WHICH DATE WAS BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME NAMELY, 30.9.2009 AS PER THE PROVISIONS IN SECTION 139(1) OF THE ACT. 7.1 HE SUBMITTED THAT THE PROVISO INSERTED BELOW T HE SECTION 40 (A) (IA) OF THE ACT ENVISAGES ALLOWANCE OF SUCH PAYMENTS IN THE COMPUTATION OF TAXABLE TOTAL INCOME IF THE TDS RELATABLE TO SUCH P AYMENTS ARE REMITTED TO THE GOVERNMENT ACCOUNT WITHIN THE DUE DATE U/S 139( 1) OF THE ACT AND EFFECTIVELY THE SAID PROVISO BARS THE ASSESSING OFF ICER FROM MAKING THE DISALLOWANCE OF SUCH PAYMENTS IN THE COMPUTATION OF TAXABLE TOTAL INCOME IN SUCH A SITUATION. 7.1.2 THE ASSESSING OFFICER IN THE IMPUGNED ORDER HAD RECORDED A FINDING THAT THE SAID PROVISO BELOW THE SECTION 40 (A) (IA) OF THE ACT WAS NOT ITA NO.1250/MDS./14 :- 19 - : RETROSPECTIVE ON THE CONTRARY WAS ONLY PROSPECTIVE APPLICABLE ONLY WITH EFFECT FROM 1.4.2010. THE SAID UNDERSTANDING OF THE ASSESS ING OFFICER IN INTERPRETING THE AMENDMENT UNDER CONSIDERATION IS E RRONEOUS AND CONTRARY TO THE JUDICIAL PRECEDENTS ON THE SAID ISSUE. 7.1.3 HE SUBMITTED THAT THE DECISION OF THE SPEC IAL BENCH IN THE CASE OF BHARATI SHIPYARD LIMITED REPORTED IN 132 ITD 53, NO DOUBT SUPPORTS THE, FINDING OF THE ASSESSING OFFICER ON THE EFFECT OF T HE AMENDMENT IN THE FORM OF INSERTING A PROVISO BELOW THE SECTION 40 (A) (IA ) OF THE ACT AND THE SAID IS NOT BE CONSIDERED AS GOOD LAW IN VIEW OF THE BINDIN G DECISION OF THE CALCUTTA HO DECISION. 7.1.4 HE SUBMITTED THAT THE CHENNAI BENCH OF THE IN COME TAX APPELLATE TRIBUNAL IN THE CASE OF TRV GLOBAL TRADING HAD DECL INED TO FOLLOW THE ABOVE MENTIONED SPECIAL BENCH DECISION IN THE LIGHT OF TH E DECISION OF THE CALCUTTA HIGH COURT RENDERED IN THE CASE OF CIT VS. VIRGIN C REATIONS. THE DECISION OF THE CALCUTTA HIGH COURT IS REFERRED TO IN THE DECIS ION RENDERED ON 14.5.2012 BY THE CHENNAI BENCH IN PARA 3 AND ACCORDING TO THE SAID DECISION, THE SAID PROVISO IS RETROSPECTIVE INASMUCH AS CONSEQUENTLY A LL PAYMENTS OF TDS MADE/REMITTED BEFORE THE DUE DATE OF FILING OF THE RETURN OF INCOME IN TERMS OF SECTION 139(1) OF THE ACT ARE OUTSIDE THE PURVIE W OF APPLICABILITY OF SECTION 40 (A) (IA) OF THE ACT. 7.1.5 HE RELIED ON THE ORDER OF THE DELHI BENCH O F THE INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF SRI NARESH KUMAR REPRESENTED THROUGH HIS LEGAL HEIR, SRI NAVEEN KUMAR IN L.T.A.NO.1300/DEL/2 012 DATED 21.5.2012 ITA NO.1250/MDS./14 :- 20 - : HAD HELD IN PARA 6 THAT THE INSERTION OF THE PROVIS O WAS TO BE CONSIDERED AS REMEDIAL AND CURATIVE IN NATURE AND HENCE HAD RETRO SPECTIVE EFFECT. 7.1.6 SIMILARLY, THE LD.A.R RELIED ON ANOTHER DE CISION OF DELHI BENCH OF THE INCOME TAX APPELLATE TRIBUNAL RENDERED ON 22.5.2012 IN L.T.A.NO.3592/DEL/2011 HAD ECHOED AND APPROVED THE RETROSPECTIVE NATURE OF THE AMENDMENT BROUGHT-IN IN THE INSERTION OF THE PROVISO BELOW THE SECTION 40 (A) (IA) OF THE ACT. 7.1.7 THE LD.A.R RELIED ON THE ORDER OF AHMEDABAD BENCH OF THE INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF M/S ALPHA PRO JECTS SOCIETY P LTD. IN I.T.A.NO.2869/AHD/201 I DATED 23.3.2012 HAD HELD IN PARA 7 THAT THE INSERTION OF THE PROVISO WAS TO BE CONSIDERED AS A RETROSPECTIVE AMENDMENT BY RESPECTFULLY FOLLOWING THE ONY AVAILABLE DECISI ON OF THE CALCUTTA HIGH COURT AFTER NOTICING THE SPECIAL BENCH DECISION REN DERED IN THE CASE OF M/S BHARATI SHIPYARD LIMITED. 7.1.8 FINALLY, HE RELIED ON ANOTHER DECISION OF AH MEDABAD A BENCH OF THE INCOME TAX APPELLATE TRIBUNAL RENDERED ON 30.3.2012 IN I.T.A. NO.673/AHD/20 10 HAD ECHOED AND APPROVED THE RETROS PECTIVE NATURE OF THE AMENDMENT BROUGHT-IN IN THE INSERTION OF THE PROVIS O BELOW THE SECTION 40 (A) (IA) OF THE ACT. 8. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. IN OUR OPINION THIS ISSUE IS SQUARELY COVERED BY TH E ORDER OF THE SPECIAL BENCH OF THE TRIBUNAL IN THE CASE OF MERILYN SHIPPI NG AND TRANSPORTS V. ADDL. CIT [2012] 16 ITR (TRIB) 1 (VISAKHAPATNAM) [SB] W HEREIN HELD THAT WHEN THE EXPENSES IS NOT OUTSTANDING AT THE END OF TH E CLOSE OF THE FINANCIAL ITA NO.1250/MDS./14 :- 21 - : YEAR, PROVISIONS OF THE SECTION 40(A)(IA) OF THE AC T CANNOT BE APPLIED. BEING SO, IF THE AMOUNT IS ALREADY PAID, THE PROVISIONS O F THE SECTION 40(A)(IA) CANNOT BE APPLIED. WITH THIS OBSERVATION, WE REMIT THE ISSUE TO THE FILE OF LD. ASSESSING OFFICER FOR FRESH CONSIDERATION. 9. THE NEXT ISSUE IS WITH REGARD TO CONFIRMING THE DISALLOWANCE OF ` 15,14,252/- BEING THE EXPENSES QUANTIFIED AS PER R ULE 8D OF IT RULES ON THE APPLICATION OF SEC.14A IN THE COMPUTATION OF TA XABLE INCOME. 9.1. THE FACTS OF THE CASE ARE THAT THE AO DISALLO WED ` 15,14,252/- BEING THE EXPENSES RELATABLE TO THE EARNING OF THE TAX FR EE INCOME ON THE APPLICATION OF SEC.14A OF THE ACT R.W.RULE 8D IN TH E COMPUTATION OF TAXABLE INCOME. THE AO DISALLOWED AT % OF AN AVERAGE INVES TMENTS WORKED OUT AS PER THE PROVISIONS OF THE SECTION 14A R.W.RULE 8D. AGGRIEVED, THE ASSESSEE CARRIED THE APPEAL BEFORE THE LD.CIT(A). ON APPEAL, THE LD.CIT(A) OBSERVED THAT SINCE THE AO HAS CORRECTLY WORKED AVERAGE INVE STMENTS AT ` 30,28,50,535/- THEREBY CALCULATED EXPENDITURE U/S.1 4A AT ` 15,14,252/-, THUS THERE IS NO INFIRMITY IN THE ORDER OF AO. HENC E, HE CONFIRMED THE ORDER OF THE LD. ASSESSING OFFICER. AGAINST THIS, THE ASS ESSEE IS IN APPEAL BEFORE US. 10. THE A.R SUBMITTED THAT THE DISALLOWANCE OF EXPENSES RELATABLE TO THE EARNING OF THE TAX FREE INCOME AND PLACED RELIANCE IN THE DECISION OF P&H HIGH COURT REPORTED IN THE CASE OF CIT VS. HERO CYC LES LTD. REPORTED IN 323 ITR 518 WHEREIN HELD THAT DISALLOWANCE U/S.14A REQU IRES FINDING OF INCURRING EXPENDITURE. WHEN IT IS FOUND THAT FOR EARNING EXEM PTED INCOME, EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE U/S.14A CANNOT STAND. HE ALSO ITA NO.1250/MDS./14 :- 22 - : POINTED OUT THAT THE AO FAILED IN DISCHARGING THE I NITIAL BURDEN OF PROVING THE INCURRING EXPENSES FOR EARNING THE TAX FREE INCOME WOULD VITIATE HIS ACTION IN APPLYING SEC.14A OF THE ACT. 11. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE LD.CIT(A) BASED HIS CONCLUSION ON HIS E ARLIER ORDER IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2009-10. FOR ASSESSMEN T YEAR 2009-10, THE SAME ISSUE CAME FOR CONSIDERATION BEFORE THIS TRIBU NAL IN THE CASE OF M/S CONSOLIDATED CONSTRUCTION CONSORTIUM LTD IN ITA NO .594/MDS./14 & 702/MDS./14 DATED 06.01.2016 WHEREIN THE TRIBUNAL R EMITTED THE ISSUE TO THE FILE OF AO WITH THE FOLLOWING OBSERVATIONS:- 5. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN OUR OPINION, THE DECISION OF THE SPECIAL BENCH DELHI IN THE CASE OF CHEMINVEST VS IT O (SUPRA) IS NO MORE GOOD LAW AS THIS DECISION IS REVERSED BY THE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD VS CIT I N I.T.A.NO. 749/2014 DATED 2.9.2015 WHEREIN HELD THAT NO DISALL OWANCE U/S 14A CAN BE MADE IN A YEAR IN WHICH NO EXEMPT IN COME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. SEC. 14A ALSO DOES NOT APPLY TO SHARES BOUGHT FOR STRATEGIC PURPO SES. BEING SO, IN OUR OPINION, APPLICABILITY OF DECISION OF SP ECIAL BENCH IS NOT PROPER. FURTHER, THE LD. AR RELIED ON THE JUDG MENT OF THE COCHIN BENCH OF THE TRIBUNAL IN THE CASE OF M/S GEO JIT INVESTMENT SERVICES LTD VS ACIT, I.T.A.NO.261/COCH/ 2014 DATED 28.8.2014 AND ALSO THE DECISION OF THE CHENNA I BENCH IN THE CASE OF ACIT VS M/S BEST & CROMPTON ENGINEERING LTD, I.T.A.NO.1603/MDS/2012, DATED 16.7.2013, FOR THE PR OPOSITION THAT THE ASSESSING OFFICER SHALL SATISFY HIMSELF AB OUT THE ITA NO.1250/MDS./14 :- 23 - : APPLICABILITY OF 14A R.W. RULE 8D. IN OUR OPINION, THE GRIEVANCE OF THE ASSESSEE IS JUSTIFIED AND IT REQU IRES REEXAMINATION AT THE END OF THE ASSESSING OFFICER A ND HE HAS TO SEE WHETHER ANY EXPENDITURE WAS INCURRED FOR EAR NING THE EXEMPT INCOME OR NOT. THE ASSESSING OFFICER SHALL CONSIDER THE ABOVE DECISIONS AND ALSO THE DECISION OF MUMBAI BENCH IN THE CASE OF M/S DAGA GLOBAL CHEMICALS PVT. LTD VS A CIT IN I.T.A.NO.5592/MUM/2012, DATED 1.1.2015 AND THE JUDG MENT OF THE DELHI HIGH COURT IN THE CASE OF JOINT INVEST MENTS PVT. LTD VS CIT, 372 ITR 694 WHEREIN IT WAS OBSERVED AS UNDER:- 6. HEARD BOTH THE PARTIES. ON A PERUSAL OF THE ORD ER OF MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S. DAGA GLOBAL CHEMICALS PVT. LTD. (SUPRA), WE FIND THAT AN IDENTICAL ISSUE HAS BEEN DECIDED BY THE TRIBUNAL HOLDING THAT DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8D CANNOT EXCEED THE EXEMPT INCOME. WHILE HOLDING SO, THE TRIBUNAL OBSERVED AS UNDER:- 2. AT THE TIME OF HEARING, DR. K.SHIVARAM ALONG WITH SHRI RAHUL HAKANI, LD. COUNSELS FOR THE ASSESSEE ADVANCED THEIR ARGUMENTS WHICH ARE IDENTICAL TO THE GROUND RAISED BY SUBMITTING THAT NO EXPENDITURE DIRECTLY OR INDIRECTLY WAS INCURRED BY THE ASSESSEE FOR EARNING EXEMPT INCOME AND FURTHER THE INVESTMENT IN SHARES WAS MADE IN EARLIER YEARS OUT OF OWN FUNDS AND NOT OUT OF BORROWED FUNDS, THEREFORE, NO DISALLOWANCE U/S 14A R.W. RULE 8D IS TO BE MADE. 2.1. ON THE OTHER HAND, SHRI AKHILENDRA YADAV STRONGLYDEFENDED THE CONCLUSION ARRIVED AT BY THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BY CONTENDING THAT A WELL REASONED ORDER HAS BEEN PASSED BY THE LD. FIRST APPELLATE AUTHORITY AS APPORTIONMENT OF EXPENDITURE FOR EARNING THE DIVIDEND INCOME WAS DONE AS PER THE PROVISIONS OF THE ACT. IT WAS PLEADED THAT SECTION 14A R.W. RULE 8D OF THE RULES IS CLEARLY APPLICABLE TO THE FACTS OF THE PRESENT APPEAL. 2.2. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS, IN BRIEF, ARE THAT THE ASSESSEE IS A LIMITED ITA NO.1250/MDS./14 :- 24 - : COMPANY, ENGAGED IN TRADING OF BULK AND FINE, CHEMICALS, SOLVENT AND PHARMACEUTICAL RAW MATERIALS DECLARED ITS INCOME AT RS.74,40,000/- ON 26/09/2009. THE ASSESSEE CREDITED DIVIDEND INCOME OF RS.1,82,262/- IN ITS PROFIT AND LOSS ACCOUNT. THE ASSESSING OFFICER WHILE FRAMING THE ASSESSMENT INVOKE SECTION 14A R.W. RULE 8D BY CONTENDING THAT ASSESSEE CLAIMED VARIOUS EXPENSES WHICH ARE RELATED TO EXEMPT INCOME IN ITS PROFIT & LOSS ACCOUNT AND DISALLOWED RS.14,58,412/-. ON APPEAL, BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) BROADLY THE STAND TAKEN IN THE ASSESSMENT ORDER WAS AFFIRMED AGAINST WHICH THE ASSESSEE IS IN FURTHER APPEAL BEFORE THIS TRIBUNAL. THE TOTALITY OF FACTS CLEARLY INDICATES, AS CLAIMED BY THE ASSESSEE THAT NO BORROWED FUNDS WERE UTILIZED FOR EARNING THE EXEMPT INCOME BY THE ASSESSEE AND FURTHER THE DIVIDEND WERE DIRECTLY CREDITED IN THE BANK ACCOUNT OF THE ASSESSEE AND NO EXPENDITURE WAS CLAIMED. WHAT IT MAY BE, WE FIND THAT THE ASSESSEE ONLY RECEIVED RS.1,82,362/- AS DIVIDEND INCOME, THEREFORE, THERE IS NO QUESTION OF DISALLOWANCE OF RS.14,58.412/- BY INVOKING SECTION 14A R.W. RULE 8D UNDER THE FACTS AVAILABLE ON RECORD. IT WAS ALSO EXPLAINED BY THE LD. COUNSEL FOR THE ASSESSEE THAT ON IDENTICAL FACT IN EARLIER YEARS, NO DISALLOWANCE WAS MADE. IN THE PRESENT ASSESSMENT YEAR ALSO, NO BORROWED FUNDS WERE INVESTED BY THE ASSESSEE FOR MAKING INVESTMENT IN SHARES OR FOR EARNING DIVIDEND INCOME . AT BEST, IF ANY DISALLOWANCE COULD BE MADE THAT CAN BE RESTRICTED TO RS. 1,485/- WHICH WERE CLAIMED AS DEMAT CHARGES. DISALLOWANCE U/S 14A R.W. RULE 8D CANNOT EXCEED THE EXEMPT INCOME. IN VIEW OF THIS FACT, WE FIND MERIT IN THE CLAIM OF THE ASSESSEE. THE APPEAL OF THE ASSESSEE IS THEREFORE, ALLOWED. 5.1 FOLLOWING THE ABOVE DECISION OF THE MUMBAI B ENCH OF THE TRIBUNAL, WE ARE OF THE OPINION THAT DISALLOWAN CE U/S.14A R.W. RULE 8D SHOULD NOT EXCEED THE EXEMPT INCOME. THE MUMBAI BENCH IN ITS ORDER SUSTAINED THE DISALLOWANC E ON APPLICABILITY OF PROVISIONS OF SEC.14A R.W. RULE 8D . HOWEVER, THE ALTERNATIVE CLAIM OF THE ASSESSEE WAS THAT DISA LLOWANCE IF AT ALL SHOULD BE MADE, IT SHOULD BE RESTRICTED TO E XEMPT ITA NO.1250/MDS./14 :- 25 - : INCOME EARNED AND NOT BEYOND THAT. ACCORDINGLY, TH E AO IS DIRECTED TO LOOK AT THIS ISSUE ON THIS ANGLE AND DE CIDE IT AFRESH IN THE LIGHT OF THE ABOVE DECISION OF THE MUMBAI BE NCH OF THE TRIBUNAL. ACCORDINGLY, THIS ISSUE IS REMITTED TO THE FILE OF AO ON SIMILAR DIRECTION. 12. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED ON 28 TH DECEMBER, 2016, AT CHENNAI. SD/ - SD/ - ! ' # . $ %& ' ( DUVVURU RL REDDY ) ) % / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER () / CHENNAI *+ / DATED: 28 TH DECEMBER, 2016 K S SUNDARAM +,-- ./-0/ / COPY TO: - 1 . / APPELLANT 3. - 1-!' / CIT(A) 5. /23- 4 / DR 2. / RESPONDENT 4. - 1 / CIT 6. 3&-5 / GF