Aditya Medisales Limited, Baroda V. The Pr.CIT-1, Baroda

ITA 1334/AHD/2015

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 9326 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-02-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 14-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: A K
• Keywords: Opportunity of being heard; Earning of tax free income; Source of fund
• Section: 143(3); 14A; 263

Judgement Text

I.T.A. NO.: 1 334/AHD/15 ASSESSM EN T YEAR: 2010 - 11 PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL, AHMEDABAD D BENCH, AHMEDABAD [CORAM : PRAMOD KUMAR AM AND S S GODARA JM] I.T.A. NO. : 1334/AHD/15 ASSESSMENT YEAR : 2010 - 11 ADITYA MEDISALES LIMITED .APPELLANT 402, 4 TH FLOOR, R K CENTRE, FATEH GANJ BARODA 3 90 002 [ PAN: AABCA9317J] VS. ADDITIONAL COMMISSIONER OF INCOME TAX RANGE 1, BARODA . RESPONDENT APPEARANCES BY: S N SOPARKAR , FOR THE APPELLANT SANJAY AGARWAL AND A K PANDEY FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : D ECEMBER 29, 201 5 DATE OF PRONOUNCING THE ORDER : FEBRUARY 16 , 201 6 O R D E R PER PRAMOD KUMAR AM : 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HAS CHALLENGED CORRECTNESS OF THE ORDER DATED 27 TH MARCH 2015 PASSED BY THE COMMISSIONER, UNDER SECTION 263 R.W.S. 143(3) OF THE INCOME TAX ACT, 1961, FOR THE ASSESSMENT YEAR 2010 - 11. 2. GRIEVANCES RAISED BY THE ASSESSEE ARE AS FOLLOWS: 1. THE LEARNED PRINCIPAL COMMISSIONER OF INCOME TAX - 1, BARODA ('THE CIT') ERRED IN FACT AND IN LAW IN REVIS ING THE ASSESSMENT BY INVOKING POWERS U/S. 263 OF THE INCOME TAX ACT, 1961 ('THE ACT'), WHICH WAS COMPLETED BY WAY OF ASSESSMENT MADE U/S. 143(3) OF THE ACT BY THE ADDITIONAL COMMISSIONER OF INCOME TAX, RANGE - 1, BARODA ('THE AO') DESPITE THE FACT THAT TH E CONDITIONS STIPULATED FOR INVOKING SUCH EXTRA - ORDINARY JURISDICTION WERE NOT SATISFIED. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED CIT GROSSLY ERRED IN HOLDING THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE WITHOUT I.T.A. NO.: 1 334/AHD/15 ASSESSM EN T YEAR: 2010 - 11 PAGE 2 OF 11 APPRECIATING THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS NEITHER ERRONEOUS NOR PREJUDICIAL TO THE INTEREST OF REVENUE. 3. THE LEARNED CIT ERRED IN FACT AND IN LAW IN SETTING ASIDE THE ASSESSMENT FR AMED BY THE AO DESPITE THE FACT THAT THE AO HAS CONSIDERED EACH AND EVERY ASPECT OF THE CASE AND HAD FRAMED THE ASSESSMENT ONLY AFTER MAKING PROPER INQUIRES AND AFTER CONSIDERING THE SUBMISSIONS MADE BY THE APPELLANT. 4. THE LEARNED CIT FAILED TO APPRECIA TE THE FACT THAT ALL THE DETAILS RELATING TO SECTION 14A WAS FILED BEFORE THE AO AT THE TIME OF REGULAR ASSESSMENT AND IT IS ONLY AFTER PROPER VERIFICATION OF THE DOCUMENTS FILED/EXPLANATIONS GIVEN THE ASSESSMENT WAS FINALIZED AND HENCE THE ASSESSMENT ORDE R WAS NOT SUBJECT TO REVISION UNDER S. 263. 5. WITHOUT PREJUDICE TO THE ABOVE, THE CIT GROSSLY ERRED IN INVOKING REVISION PROCEEDINGS, WITHOUT APPRECIATING THAT DISALLOWANCE U/S 14A WAS ALREADY A SUBJECT MATTER OF APPEAL AND ACCORDINGLY CARRYING OUT REVIS ION PROCEEDINGS WAS NOT WITHIN POWERS OF CIT AS PER EXPLANATION (C) TO SECTION 263(1). 6. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT ERRED IN FACT AND IN LAW IN CALCULATING DISALLOWANCE U/S. 14A OF THE ACT R.W. RULE 8D ON THE FOLLOWING GROUNDS: - I. THE LEARNED CIT HAS TAKEN THE TOTAL INTEREST EXPENSE OF RS. 7,64,93,264/ - WITHOUT REDUCING THE INTEREST INCOME OF RS.6,43,12,159/ - FOR CALCULATING DISALLOWANCE OF INTEREST AS PER RULE 8D. II. THE LEARNED CIT HAS TAKEN INVESTMENT EARNING TAXABLE INCOME FOR CALCULATING THE AVERAGE VALUE OF INVESTMENT. HOWEVER, AS PER RULE 8D AVERAGE VALUE OF INVESTMENT INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF TOTAL INCOME SHOULD BE CONSIDERED. III. THE LEARNED CIT HAS TAKEN THE NET VALUE OF TOTAL ASSETS FOR CALCU LATING THE AVERAGE VALUE OF TOTAL ASSETS. HOWEVER, AS PER RULE 8D AVERAGE VALUE OF TOTAL ASSETS SHOULD BE TAKEN WITHOUT REDUCING THE AMOUNT OF CURRENT LIABILITIES AND PROVISIONS. 3. BRIEFLY STATED, THE RELEVANT MATERIAL FACTS, SO FAR AS NECESSARY FOR THE PURPOSE OF THIS ADJUDICATION BEFORE US, ARE LIKE THIS. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS UNDER SECTION 143(3), THE ASSESSING OFFICER NOTED THAT THE ASSESSEE H AS SHOWN DIVIDEND INCOME OF RS 6,93,93,019 BUT DISALLOWANCE UNDER SECTION 14A R.W. R. 8D HAS NOT BEEN OFFERED TO TAX. WHEN HE TOOK UP THE MATTER WITH THE ASSESSEE , IT WAS EXPLAINED TO HIM THAT THE NO INTEREST BEARING I.T.A. NO.: 1 334/AHD/15 ASSESSM EN T YEAR: 2010 - 11 PAGE 3 OF 11 FUNDS WERE USED BY THE ASSESSEE FOR MAKING THE RELATED INVESTMENTS ON WHICH THESE DIVIDENDS WERE EARNED. IT WAS ALSO EXPL AINED BY THE ASSESSEE THAT AS AGAINST AN INVESTMENT OF RS 12,54,57,104 IN THE SHARES, THE ASSESSEE HAS INTEREST FREE FUNDS AGGREGATING TO RS 37,39,53,963. IT WAS ALSO EXPLAINED THAT ON THE SAME SET OF FACTS, NO DISALLOWANCE UNDER SECTION 14A R.W.R. 8D WAS MADE IN THE PRECEDING ASSESSMENT YEARS AS WELL. IT WAS FURTHER SUBMITTED THAT, NOTWITHSTANDING THE ABOVE FACTUAL SITUATION, THE ASSESSEE HAS OFFERED A DISALLOWANCE OF RS 50,000 REPRESENTING 1% OF SALARY PAID TO MR HIREN DESAI, DIRECTOR. NONE OF THESE SUB MISSIONS, HOWEVER, IMPRESSED THE ASSESSING OFFICER. HE WAS OF THE VIEW THAT POST INSERTION OF RULE 8D, THE DISALLOWANCE IS TO BE MADE ON THE BASIS OF THE FORMULAE SET OUT THEREIN . IT WAS ALSO NOTED THAT THE NET INTEREST EXPENSES OF THE ASSESSEE WERE RS 1,2 1,81,105 WHICH WERE TO BE ALLOCATED IN THE RATIO OF 11,93,067,504 (I.E. AVERAGE INVESTMENTS YIELDING THE TAX EXEMPT INCOME) TO RS 397,36,69,792 (I.E. AVERAGE TOTAL ASSETS). THE TOTAL DISALLOWANCE THUS COMPUTED UNDER RULE 8D R.W.S. 14A WAS COMPUTED AT RS 5 0,000 (DIRECT EXPENSES OFFERED BY THE ASSESSEE ) + RS 5,96,533 (0.5% OF AVERAGE NET INVESTMENTS)+ RS 3,65,850 (NET INTEREST EXPENSES ALLOCATED AS ABOVE). THE AGGREGATE OF DISALLOWA NCE SO COMPUTED THUS WORKED OUT TO RS 10,12,383. IT WAS IN THIS BACKDROP THAT A FURTHER DISALLOWANCE OF RS 9,62,383, IN ADDITION TO RS 50,000 OFFERED BY THE ASSESSEE , WAS THUS MADE. AGGRIEVED BY THE DISALLOWANCE SO MADE, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A). LEARNED CIT(A) UPHELD THE CONTENTION OF THE ASSESSEE TO THE EFFECT THAT NO PART OF INTEREST EXPENSES COULD BE DISALLOWED UNDER SECTION 14A AS THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUNDS OF HIS OWN. THE DISALLOWANCE TO THE EXTENT OF RS 3,65,850 WAS THUS DELETED. WHILE DOING SO, VIDE ORDER DATED 12 TH JUNE 2015, LEARNED CIT(A) OBSERVED AS FOLLOWS: 5.4 THE ASSESSMENT ORDER U/S 143(3) AND REMAND REPORT DATED 01/06/2015 OF THE AO AS WELL AS SUBMISSION DATED 14/10/2013 AND REPLY/REBUTTAL DATED 10/06/2015 OF THE AR OF THE APPELLANT HAVE BEEN CONSIDERED. THE AO HAS MADE TOTAL DISALLOWANCE OF RS.10,12,383/ - U/S 14A OF THE ACT AND THIS DISALLOWANCE OF AMOUNT OF RS.10,12,383/ - COMPRISES OF DISALLOWANCE OF INTEREST EXPENDITURE OF RS.3,65,850/ - AND OTHER EXPENDITURE OF RS.6,46,533/ - . AS REGARDS DISALLOWANCE OF INTEREST EXPENDITURE OF RS.3,65,850/ - U/S 14A, THE FINDINGS OF THE AO IN THE ASSESSMENT ORDER IS NOT VERY SPECIFIC. AS PER THE AO THE APPELLANT IS HAVING INTEREST BEARING BORROWED FUNDS ON WHICH INTEREST IS PAID DURING THE YEAR. AS PER THE AO BUSINESS FUNDS ARE MIXED UP AND IT CANNOT BE ACCEPTED THAT FUNDS DEPLOYED FOR I.T.A. NO.: 1 334/AHD/15 ASSESSM EN T YEAR: 2010 - 11 PAGE 4 OF 11 EARNING TAX FREE INCOME WERE ENTIRELY OUT OF INTEREST FREE FUNDS. AS PER THE AO THE APPELLANT DID NOT MAINTAIN SEPARATE ACCOUNT FOR SOURCE OF FUNDS UTILIZED FOR INVESTMENT ACTIVITIES. AS PER THE A O WHERE TAX FREE ACTIVITIES AND TAXABLE INCOME EARNING ACTIVITIES ARE CARRIED OUT USING A COMMON KITTY OF FUNDS, IT WOULD BE REASONABLE TO APPORTION THE INTEREST BURDEN BETWEEN TWO ACTIVITIES, SINCE IT IS A CASE FALLING U/S 14A(2). ON THE OTHER HAND, THE APPELLANT'S AR HAD SUBMITTED THAT THE APPELLANT HAD SUFFICIENT INTEREST FREE FUND TO CARRY OUT THE INVESTMENT AND IT HAS NOT UTILIZED INTEREST BEARING FUNDS FOR MAKING TAX FREE INVESTMENT. AS PER THE AR AS ON 31/03/2010 THE APPELLANT WAS HAVING SHARE CAPIT AL OF RS.82,76,000/ - AND RESERVE AND SURPLUS OF RS.36,56,77,963/ - . AS PER THE AR THE APPELLANT HAD MADE INVESTMENTS IN THE SHARE OF M/S. SUN PHARMACEUTICAL INDUSTRIES LTD. IN THE YEAR 1995 - 96 AND 1997 - 90 ON WHICH IT HAS EARNED DIVIDEND INCOME, 5.5 AS REG ARDS DISALLOWANCE OF OTHER EXPENDITURE OF RS.6,46,533/ - (I.E. OTHER THAN INTEREST EXPENDITURE) IN MY OPINION THE AO HAS CORRECTLY MADE SUCH DISALLOWANCE OF RS.6,46,533/ - U/S 14A READ WITH RULE 8D. RULE 8D HAS TO BE APPLIED IN THE CASE OF APPELLANT BEING T HE ASSESSMENT YEAR 2010 - 11. AS PER DECISION OF HON'BLE MUMBAI HIGH COURT IN THE CASE OF M/S GODREJ & BOYCE MANUFACTURING CO. LTD. 328 ITR 81, RULE 8D IS APPLICABLE IN THE CASE OF ASSESSE E FROM ASSESSMENT YEAR 2008 - 09 ONWARDS. CONSIDERING THIS FACT THE D ISALLOWANCE OF RS.6,46,533/ - IS HEREBY CONFIRMED. AS REGARDS DISALLOWANCE OF INTEREST EXPENDITURE OF RS.3,65,850/ - IN MY OPINION THE AO HAS NOT ESTABLISHED THAT THE BORROWED FUNDS OR ANY PART OF BORROWED FUNDS WERE UTILIZED IN MAKING INVESTMENT INCOME OF WHICH WAS EXEMPT FROM TAX. MOREOVER, THE SHARE CAPITAL AND RESERVE AND SURPLUS IN THE CASE OF APPELLANT WAS SUFFICIENT TO COVER THE COST OF INVESTMENTS. IN VIEW OF THIS THE DISALLOWANCE OF INTEREST EXPENDITURE OF RS.3,65,850/ - AS MADE U/S 14A OF THE ACT IS HEREBY DELETED. THUS, THE GROUND OF APPEAL NO.3 OF THE APPELLANT IS PARTLY ALLOWED. 4. IN A SOMEWHAT PARALLEL DEVELOPMENT, HOWEVER , EVEN AS THE MATTER WAS BEFORE THE COMMISSIONER (APPEALS) FOR HIS ADJUDICATION, LEARNED COMMISSIONER INITIATED THE REVISI ON PROCEEDINGS UNDER SECTION 263 R.W.S. 143(3). VIDE SHOW CAUSE NOTICE DATED 22 ND JANUARY 2015, LEARNED COMMISSIONER REQUIRED THE ASSESSEE TO SHOW CAUSE AS TO WHY THE ASSESSMENT NOT BE ENHANCED OR SET ASIDE, WITH A DIRECTION TO MAKE THE FRESH ASSESSMENT I N ACCORDANCE WITH THE LAW IN THIS REGARD . IN THE SAID SHOW CAUSE NOTICE, IT WAS, INTER ALIA, POINTED OUT THAT THE INTEREST WHICH SHOULD HAVE BEEN TAKEN INTO ACCOUNT FOR THE PURPOSE OF DISALLOWANCE IS NOT THE NET INTEREST (I.E. INTEREST RECEIVED MINUS INTE REST PAID MINUS INTEREST DISALLOWED BY THE AO ANYWAY) BUT GROSS INTEREST ((I.E. INTEREST RECEIVED MINUS INTEREST DISALLOWED BY THE AO ANYWAY), THAT THE COMPUTATION OF AVERAGE INVESTMENT WAS INCORRECT INASMUCH AS IT DOES NOT TAKE INTO ACCOUNT MUTUAL FUNDS U NITS OF RS 15 CRORES, AND THAT THE COMPUTATION OF AVERAGE ASSETS WAS INCORRECT INASMUCH AS THE FIGURE OF CURRENT LIABILITIES WAS NOT AS PER THE I.T.A. NO.: 1 334/AHD/15 ASSESSM EN T YEAR: 2010 - 11 PAGE 5 OF 11 BALANCE SHEET . IT WAS EXPLAINED TO THE COMMISSIONER THAT THE MATTER HAS BEEN EXAMINED AT LENGTH BY THE ASSESSIN G OFFICER DURING THE ASSESSMENT PROCEEDINGS, THAT SPECIFIC QUESTIONS HAVE BEEN ASKED WITH RESPECT TO DISALLOWANCE UNDER SECTION 14A AND THE ASSESSEE HAS ELABORATELY EXPLAINED THE REASONING WHICH PREVAILED WITH THE ASSESSING OFFICER. IT WAS ALSO P OINTED OUT THAT WHEN THE ASSESSING OFFICER HAS MADE PROPER INQUIRIES AND THEN FRAMED THE ASSESSMENT ORDER IN A PARTICULAR MANNER, IT CANNOT BE SUBJECTED TO THE REVISION PROCEEDINGS JUST BECAUSE THE COMMISSIONER HAS A DIFFERENT VIEW OF THE MATTER. RELIANCE WAS PLACED ON HON BLE JURISDICTIONAL HIGH COURT S JUDGMENT IN THE CASE OF CIT VS AMIT CORPORATION [(2012) 21 TAXMANN.COM 64 (GUJ)] . IT WAS ALSO EXPLAINED THAT IN VIEW OF THE PROVISIONS OF EXPLANATION(C) TO SECTION 263(1), WHEN AN ASSESSMENT ORDER IS SUBJECTED TO AN APPEAL, THE REVISION POWERS OF THE COMMISSIONER EXTEND TO ONLY SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL , AND THAT SINCE DISALLOWANCE UNDER SECTION 14A HAS BEEN SUBJECT MATTER OF APPEAL, THE SAME COULD NOT BE TINKERED WITH IN THE COURSE OF THE REVISION PROCEEDINGS. IT WAS POINTED OUT THAT UNLESS THE ASSESSING OFFICER IS SATISFIED THAT THE DISALLOWANCE OFFERED BY THE ASSESSEE UNDER SECTION 14A IS INCORRECT, THERE IS NO OCCASION TO COMPUTE DISALLOWANCE UNDER RULE 8D. IN THE PRESENT CASE, THERE IS NOTHING TO SHOW THE ASSESSING OFFICER S DISSATISFACTION WITH THE DISALLOWANCE OFFERED BY THE ASSESSEE . IT WAS ALSO CONTENDED THAT EVEN ON MERITS, THE COMMISSIONER WAS IN ERROR IN PROPOSING THE REVISION PROCEEDINGS. WHAT CAN BE SUBJECTED TO DISALLOWANCE, AS HELD BY VARIOUS BENCHES OF THE TRIBUNAL INCLUDING IN THE CASES OF MORGAN STANLEY SECURITIES PVT LTD VS ACIT [(2011) 55 DTR 177 (MUM)] AND DCIT VS TRADE APARTMENTS LTD (ITA NO. 1277/KOL/2011; ORDER DATED 30 TH MARCH 2012) , IS ONLY THE NET AMOUNT OF INTEREST PAID. THERE WAS THUS NO INFIRMITY IN THE STAND OF THE ASSESSING OFFICER ON THIS POINT. AS FOR NOT INCLUDING THE INVESTMENTS IN MUTUAL FUND IN COMPUTATION OF DISALLOWANCE UNDER SECTION 14A, IT WAS SUBMITTED THAT THE INCOME ON REDEMPTION O F MUTUAL FUNDS WAS TAXABLE, AND, THEREFORE, THE VALUE OF MUTUAL FUND INVESTMENT WAS RIGHTLY NOT TAKEN INTO ACCOUNT FOR COMPUTATION OF DISALLOWANCE. WHAT SHOULD HAVE BEEN TAKEN INTO ACCOUNT, AND HAS BEEN TAKEN INTO ACCOUNT, IS THE INVESTMENT RELATING TO TA X EXEMPT INCOM E. AS FOR THE FIGURES OF ASSETS TAKEN IN THE COMPUTATION NOT BEING THE SAME AS THE BALANCE SHEET I.T.A. NO.: 1 334/AHD/15 ASSESSM EN T YEAR: 2010 - 11 PAGE 6 OF 11 FIGURE, IT WAS EXPLAINED THAT THE BALANCE SHEET FIGURE IN THE OUTER COLUMN IS NET OF CURRENT LIABILITIES, AS PER THE REQUIREMENTS OF SCHEDULE VI TO THE COMPANIES ACT, WHEREAS THE AMOUNT TAKEN INTO ACCOUNT IN THE COMPUTATION OF DISA LLOWANCE IS THE VALUE OF ASSETS AS PER THE BALANCE SHEET - AS IS THE REQUIREMENT OF RULE 8D. NONE OF THESE SUBMISSIONS, HOWEVER, IMPRESSED THE COMMISSIONER. LEARNED COMM ISSIONER WAS OF THE VIEW THAT WHETHER A MISTAKE IS MADE AFTER APPLICATION OF MIND BY THE ASSESSING OFFICER, OR WITHOUT APPLICATION OF MIND, DOES NOT MATTER AT ALL. AS LONG AS THE ASSESSING OFFICER IS IN ERROR, THE ORDER CAN BE SUBJECTED TO REVISION PROCEED INGS. THE COMMISSIONER FURTHER OBSERVED THAT THE AMOUNT TO BE DISALLOWED UNDER SECTION 14A IS THE GROSS AMOUNT AND NOT THE NET AMOUNT. AS FOR THE JUDICIAL PRECEDENTS CITED BEFORE HIM ON THIS ISSUE, HE CHOSE TO SIMPLY BRUSH THEM ASIDE. ON THE QUESTION OF G ROSS ASSETS VERSUS NET ASSETS, HOWEVER, HE REFERRED TO A DECISION OF THE TRIBUNAL IN THE CASE OF GEOJIT INVESTMENTS VS ACIT [(2015) 67 SOT 37 (COCHIN)] IN SUPPORT OF HIS STAND. ON THE BASIS OF THIS REASONING, AND WITHOUT EVEN DEALING WITH MANY OF THE ISSU ES RAISED BY THE ASSESSEE IN H IS SUBMISSIONS, LEARNED COMMISSIONER CONCLUDED AS FOLLOWS: 6. IN THE LIGHT OF THE ABOVE DISCUSSION, IT TRANSPIRES THAT THE AO HAS NOT PROPERLY COMPUTED DISALLOWANCE UNDER SECTION 14A WHILE FINALIZING THE ASSESSMENT. ACCORDINGL Y, IT IS HELD THAT THE ORDER PASSED BY THE ASSESSING OFFICER IS BOTH ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE, AND, THEREFORE, THE ORDER IS SET ASIDE TO BE FRAMED AFRESH. 7. THE ASSESSING OFFICER WILL PASS AN ORDER, IN THE LIGHT OF THE ABO VE DISCUSSIONS, AFTER DUE VERIFICATIONS, AND AFTER GIVING THE ASSESSEE AN OPPORTUNITY OF BEING HEARD. 5. THE ASSESSEE IS AGGRIEVED BY THE ORDER SO PASSED BY THE LEARNED COMMISSIONER, AND IS IN APPEAL BEFORE US. 6. WE HAVE HEARD THE RIVAL CONTENTIONS, PER USED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. 7. WE HAVE NOTED THAT AS ON THE TIME OF PASSING THE IMPUGNED REVISION ORDER, THE MATTER REGARDING DISALLOWANCE UNDER SECTION 14 A WAS PENDING FOR I.T.A. NO.: 1 334/AHD/15 ASSESSM EN T YEAR: 2010 - 11 PAGE 7 OF 11 CONSIDERATION BEFORE THE CIT(A). THE ASSESSEE HAD FILED THE APPEAL BEFORE THE CIT(A) ON 22 ND MARCH 2013 AND EVEN THE WRITTEN SUBMISSIONS WERE FILED ON 14 TH OCTOBER 2013. LEARNED CIT(A) WAS THUS IN SEISIN OF THE QUESTION AS TO WHETHER THE DISALLOWANCE UNDER SECTION 14A WAS CORRECTLY MADE, AND LET US NOT FORGET THAT THE CIT(A) HAD ALL THE POWERS, CO TERMINUS WITH THE POWERS OF THE ASSESSING OFFICER, INCLUDING THE POWERS OF ENHANCEMENT. AS TO WHETHER THE LEARNED COMMISSIONER COULD HAVE EXERCISE D HIS REVI SION POWERS UNDER SECTION 263 AT THIS POINT OF TIME, WE FIND GUIDANCE FROM HON BLE MADRAS HIGH COURT S JUDGMENT, IN THE CASE OF CWT VS SAMPATHMAL CHORDIA [(2002) 256 ITR 440 (MAD)] , WHICH OB SERVES, INTER ALIA, AS FOLLOWS: 2. THE REVISIONAL JURISDICTION CA NNOT BE EXERCISED IN A MANNER WHICH WOULD RESULT IN DEPRIVING THE APPELLATE AUTHORITY OF THE POWER TO EXAMINE THE CORRECTNESS OF THE ORDER UNDER APPEAL, WHEN AN APPEAL, HAS, IN FACT, BEEN FILED IN RESPECT OF THOSE MATTERS AND WAS PENDING BEFORE THE APPELLA TE AUTHORITY . THE EXPLANATION TO S. 25(2) IN CL. (C) THEREOF, AFTER ITS AMENDMENT BY THE FINANCE ACT OF 1989 MAKES THIS ABUNDANTLY CLEAR. THAT PROVISION SETS OUT THAT WHERE THE ORDER SOUGHT TO BE REVISED IS ONE PASSED BY THE AO AND HAD BEEN MADE THE SUBJEC T - MATTER OF AN APPEAL, THE POWER OF THE CWT WILL EXTEND TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL. 8. THE PROVISIONS OF EXPLANATION (C) TO SECTION 25(2) TO THE WEALTH TAX ACT AND EXPLANATION C TO 263(1) OF THE INCOME TAX ACT AR E EXACTLY THE SAME. FOR THE SAKE OF COMPLETENESS, HOWEVER, THESE TWO P ROVISIONS ARE REPRODUCED BELOW: (C) WHERE ANY ORDER REFERRED TO IN THIS SUB - SECTION AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJECT MATTER OF ANY APPEAL FILED ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988, THE POWERS OF THE COMMISSIONER UNDER THIS SUB - SECTION SHALL EXTEND AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL . [EXPLANATION C TO SECTION 25(2)] (C) WHE RE ANY ORDER REFERRED TO IN THIS SUB - SECTION AND PASSED BY THE ASSESSING OFFICER HAD BEEN THE SUBJECT MATTER OF ANY APPEAL FILED ON OR BEFORE OR AFTER THE 1ST DAY OF JUNE, 1988, THE POWERS OF THE PRINCIPAL COMMISSIONER OR COMMISSIONER UNDER THIS SUB - SECTIO N SHALL EXTEND AND SHALL BE DEEMED ALWAYS TO HAVE EXTENDED] TO SUCH MATTERS AS HAD NOT BEEN CONSIDERED AND DECIDED IN SUCH APPEAL. [EXPLANATION C TO SECTION 263(1)] I.T.A. NO.: 1 334/AHD/15 ASSESSM EN T YEAR: 2010 - 11 PAGE 8 OF 11 9. FOR THIS SHORT REASON ALONE AND RESPECTFULLY FOLLOWING HON BLE MADRAS HIGH COURT , THERE FORE, THE IMPUGNED REVISION ORDER MUST STAND QUASHED. HOWEVER, THERE ARE SEVERAL OTHER REASONS AS WELL WHICH LEAD US TO THE SAME CONCLUSION. WE HAVE ALSO NOTED THAT THE ASSESSING OFFICER HAD EXAMINED THE MATTER REGARDING DISALLOWANCE UNDER SECTION 14A IN D ETAIL AND THEN REACHED A CERTAIN CONCLUSION. THIS ASPECT OF THE MATTER HAS BEEN EXAMINED AT LENGTH BY THE ASSESSING OFFICER, AND, AFTER DUE CONSIDERATION AND CONSISTENT WITH THE ACCEPTED PAST HISTORY OF THE CASE, HE HAS PARTLY UPHELD THE CONTENTION OF THE ASSESSEE ON SOME ASPECTS OF THE DISALLOWANCE. IT IS A WELL - CONSIDERED AND WELL THOUGHT ABOUT DECISION, AND THE VIEW SO ADOPTED BY THE ASSESSING OFFICER IS NOT A PERVERSE OR UNREASONABLE VIEW. JUST BECAUSE THE VIEW ADOPTED BY THE ASSESSING OFFICER IS NOT TH E SAME AS THAT OF THE LEARNED COMMISSIONER CANNOT BE A REASON ENOUGH TO SUBJECT THE ASSESSMENT ORDER TO THE REVISION PROCEEDINGS. WHETHER THE NET INTEREST AMOUNT IS TO BE CONSIDERED FOR DISALLOWANCE UNDER SECTION 14A IS NOW JUDICIALLY SETTLED BY A NUMBER O F DECISIONS OF THIS TRIBUNAL IN FAVOUR OF THE ASSESSEE . WHEN THESE DECISIONS ARE POINTED OUT TO THE LEARNED COMMISSIONER, HE DOES NOT EVEN DEAL WITH TH ESE JUDICIAL PRECEDENTS. VARIOUS BENCHES OF THIS TRIBUNAL, SUCH AS IN THE CASES OF MORGAN STANLEY (S UPRA) AND TRADE APARTMENT (SUPRA) HAVE CONSISTENTLY TAKEN THE VIEW THAT THE AMOUNT OF INTEREST, FOR THE PURPOSE OF COMPUTING THE DISALLOWANCE, IS TO BE TAKEN AT THE NET FIGURE. SUCH BEING THE CIRCUMSTANCES, BY NO STRETCH OF LOGIC, THE ASSESSING OFFICER CONSIDER ING THE NET INTEREST AMOUNT FOR DISALLOWANCE UNDER SECTION 14A CANNOT SAID TO BE ERRONEOUS. AS REGARDS THE QUESTION OF INCLUDING THE MUTUAL FUNDS IN THE FIGURE OF INVESTMENTS IN ASSETS YIELDING TAX EXEMPT INCOME, FOR THE PURPOSE OF COMPUTING DISALLOWANCE UNDER SECTION 14A, WE HAVE NOTED THAT THERE WAS NO INCOME FROM THESE MUTUAL FUNDS WHICH WAS CLAIMED AS EXEMPT, AND THAT INCOME ON REDEMPTION OF THESE MUTUAL FUND UNITS WAS EXIGIBLE TO TAX AS CAPITAL GAIN. WE HAVE ALSO NOTED THAT VARIABLE B IN THE FORMULAE SET OUT IN RULE 8D(2)(II) REFERS TO THE AVERAGE VALUE OF INVESTMENTS, INCOME FROM WHICH DOES NOT , OR SHALL NOT , FORM PART OF THE TOTAL INCOME , AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE . . THE INVESTMENT IN MUTUAL FUND SATISFIES THIS CONDITION IN ASMUCH AS THE INVESTMENT IS STATED TO BE IN FIXED MATURITY PLAN - A FACT STATED BY THE I.T.A. NO.: 1 334/AHD/15 ASSESSM EN T YEAR: 2010 - 11 PAGE 9 OF 11 ASSESSE E ALL ALONG , INCLUDING IN HIS SUBMISSION BEFORE THE COMMISSION IN RESPONSE TO THE SHOW CAUSE NOTICE - AT PAGE 54 OF THE PAPERBOOK BEFORE US, AND THE SAME HAS NOT BE EN CONTROVERTED AT ANY STAGE. THE INCOME IN THE CASE OF A FIXED MATURITY PLAN ARISES ONLY ON REDEMPTION WHICH IS TAXABLE AS CAPITAL GAIN . ON THESE FACTS, EXCLUSION OF THESE UNITS IN THE COMPUTATION OF DISALLOWANCE WAS WHOLLY JUSTIFIED AND THERE WAS NO ERRO R IN THE STAND OF THE ASSESSEE . AS REGARDS THE QUESTION WHETHER CURRENT ASSETS ARE TO BE TAKEN ON THE BASIS OF THE ACTUAL FIGURES OR NET OF THE CURRENT LIABILITIES, WE FIND THAT THE WORDINGS OF THE FOR MULA ARE CLEAR AND UNAMBIGUOUS AND IT REFERS TO THE AV ERAGE OF TOTAL ASSETS, AS APPEARING IN THE BALANCE SHEET OF THE ASSESSEE , ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR . CLEARLY, THEREFORE, THE ASSETS ARE TO BE TAKEN AT THE BALANCE SHEET VALUE AND THERE IS NO SCOPE OF NETTING THESE FIGURES BY SUBTRACTING CURRENT LIABILITIES FROM THE SAME. A REFERENCE TO THE AVERAGE VALUE OF TOTAL ASSETS AS APPEARING IN THE BALANCE SHEET IMPLIES THE TOTAL OF ASSETS APPEARING IN THE BALANCE SHEET; NOTHING MORE, NOTHING LESS. THERE IS NO REASON FOR REDUCING THE TOTAL OF ASSETS BY THE CURRENT LIABILITIES. THE WORDING IS CLEAR AND UNAMBIGUOUS. WHAT IS TO BE TAKEN INTO ACCOUNT IS THE TOTAL OF ASSETS APPEARING IN THE BALANCE SHEET AND THERE IS NO CONTROVERSY ABOUT THE GROSS ASSETS AND NET ASSETS IN THE FORMULAE. A S FOR THE COORDINATE BENCH DECISION IN THE CASE OF GEOJIT INVESTMENTS (SUPRA) , ALL IT SAYS IS THAT SINCE THERE IS MISTAKE IN COMPUTING THE DISALLOWANCE, AS RIGHTLY POINTED OUT BY THE LD. AR, WE ARE INCLINED TO HOLD THAT NET CURRENT ASSETS IS TO BE CONSIDE RED WHILE APPLYING THE FORMULA UNDER RULE 8D OF THE I.T. RULES INSTEAD OF GROSS CURRENT ASSETS , BUT THEN THE LIMITED FACTS SET OUT IN THIS ORDER DO NOT MAKE IT CLEAR AS TO WHAT IS THE MISTAKE IN COMPUTATION WHICH HAS LED TO THE CONCLUSION THAT NET CURREN T ASSETS ARE TO BE ADOPTED RATHER THAN GROSS CURRENT ASSETS AND WHETHER THE NET CURRENT ASSETS ARE NET OF LIABILITIES O R NET OF SOMETHING ELSE. THERE IS NOTHING MORE ON FACTS OR THE REASONING PROCESS, EXCEPT FOR A REFERENCE TO MISTAKE IN COMPUTING THE DI SALLOWANCE BUT THEN THERE IS NO CLUE ABOUT THIS MISTAKE EITHER. WE FIND NO GUIDANCE IN THIS DECISION ON THE ISSUE WHETHER THE ASSETS ARE TO BE TAKEN AS AGGREGATE OF THE BALANCE SHEET VALUE OR THE ASSETS ARE TO BE TAKEN , AFTER NETTING OFF THE LIABILITIES, FROM THE AGGREGATE VALUE SO ARRIVED AT . IT WAS NOT, IN ANY EVENT, A POINT OF DISPUTE ON WHICH ADJUDICATION WAS DONE. THE FIGURE OF NET ASSETS WILL I.T.A. NO.: 1 334/AHD/15 ASSESSM EN T YEAR: 2010 - 11 PAGE 10 OF 11 ALWAYS BE LOWER VIS - - VIS THE GROSS ASSETS AND THE FORMULAE SET OUT IN RULE 8D(2) WILL, THEREFORE, HAVE A LAR GER DENOMINATOR IN THE EVENT OF GROSS ASSETS BEING ADOPTED. ESSENTIALLY, THE FIGURE OF GROSS ASSETS BEING ADOPTED AS A DENOMINATOR WILL LEAD TO LOWER AMOUNT. YET, IT APPEARS THAT, IN THIS CASE, THE ASSESSEE HIMSELF POINTED OUT THAT THE FIGURE OF NET ASSETS SHOULD BE ADOPTED WHICH WOULD HAVE LED TO A HIGHER DISALLOWANCE UNDER RULE 8D. SUCH A CONCESSION CANNOT, IN ANY EVENT, CONSTITUTE AN ADJUDICATION BY THE COORDINATE BENCH. BE THAT AS IT MAY, AT THE MINIMUM, IT IS A HIGHLY CONTENTIOUS ISSUE THAT ADOPTING TH E GROSS ASSETS FIGURE, WITHOUT REDUCING LIABILITIES FROM THE SAME, IS AN ERROR. WE ARE OF THE CONSIDERED VIEW THAT SUCH A NETTI NG OR ADJUSTMENT IS UNCALLED FOR , NOR IS IT AN ERROR TO TAKE THE ASSETS AT THE BALANCE SHEET VALUE . IT IS AT BEST ONE OF THE POSS IBLE VIEWS OF THE MATTER THAT THE ASSETS, NET OF LIABILITIES, SHOULD BE TAKEN INTO ACCOUNT, AND THE OTHER VIEW, WHICH IS EQUALLY IF NOT, MORE CONVINCING A VIEW IS THAT THE TOTAL VALUE OF ASSETS SHOULD BE TAKEN INTO ACCOUNT WITHOUT MAKING ANY ADJUSTMENT FOR THE LIABILITIES. IT IS ELEMENTARY, AS WAS HELD BY HON BLE SUPREME COURT IN THE CASE OF MAL ABAR INDUSTRIAL CO LTD VS CIT [ (2000) 243 ITR 83 (SC)] , EVERY LOSS OF REVENUE AS A CONSEQUENCE OF AN ORDER OF AO CANNOT BE TREATED AS PREJUDICIAL TO THE INTERESTS OF THE REVENUE, FOR EXAMPLE, WHEN AN ITO ADOPTED ONE OF THE COURSES PERMISSIBLE IN LAW AND IT HAS RESULTED IN LOSS OF REVENUE; OR WHERE TWO VIEWS ARE POSSIBLE AND THE ITO HAS TAKEN ONE VIEW WITH WHICH THE CIT DOES NOT AGREE, IT CANNOT BE TREATED AS AN ERRO NEOUS ORDER PREJUDICIAL TO THE INTERESTS OF THE REVENUE UNLESS THE VIEW TAKEN BY THE ITO IS UNSUSTAINABLE IN LAW . LEARNED COMMISSIONER WAS THUS IN ER ROR IN HOLDING THAT TAKING THE TOTAL OF ASSETS ON THE BASIS OF ITS VALUE IN THE BALANCE SHEET HAS RENDERED THE ASSESSMENT ORDER ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE. THE VIEW THAT THE ASSETS ARE REQUIRED TO BE TAKEN ON THE BASIS OF VALUE SHOWN IN THE BALANCE SHEET, AND NOT AFTER REDUCING THE LIABILITIES, IS AN EQUALLY, IF NOT MORE, CONVINCI NG APPROACH TO THE ISSUE. VIEWED IN THE LIGHT OF HON BLE SUPREME COURT S JUDGMENT IN THE CASE OF MALABAR INDUSTRIAL (SUPRA) , THUS THE ASSETS BEING TAKEN ON THE VALUE IN THE BALANCE SHEET, WITHOUT ADJUSTING THE LIABILITIES, IS NOT SUCH AN ERROR, ERROR EVEN IF IT IS, WHICH CAN LEAD TO THE ASSESSMENT ORDER BEING SUBJECTED TO THE REVISION PROCEEDINGS UNDER SECTION 263 . I.T.A. NO.: 1 334/AHD/15 ASSESSM EN T YEAR: 2010 - 11 PAGE 11 OF 11 10. IN VIEW OF THE ABOVE ANALYSIS, AS ALSO B E ARING IN MIND ENTIRETY OF THE CASE, WE ARE OF THE CONSIDERED VIEW THAT THE LEARNED COMMISSIONER WA S INDEED IN ERROR IN EXERCISING HIS REVISION POWERS UNDER SECTION 263 ON THE FACTS AND IN THE CIRCUMSTANCES OF THIS CASE. AS LEARNED CIT(A) WAS IN SEISIN OF THE SAME MATTER, I.E. DISALLOWANCE UNDER SECTION 14A, IN THE APPELLATE PROCEEDINGS, LEARNED COMMISS IONER COULD NOT HAVE INVOKED HIS REVISION POWERS ON THE ISSUE BEFORE THE CIT(A). THE VIEW ADOPTED BY THE LEARNED ASSESSING OFFICER WAS AFTER DUE EXAMINATION OF THE MATTER AND A CONSIDERED VIEW AFTER TAKING INTO ACCOUNT ALL THE RELEVANT FACTOR AND EVEN IF A DIFFERENT VIEW, ON THE SAME SET OF FACTS, WAS POSSIBLE, THE POSSIBILITY OF A NOTHER VIEW IN FAVOUR OF THE ASSESSEE DID NOT RENDER THE ASSESSMENT ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF REVENUE SO AS TO TRIGGER REVISION UNDER SECTION 263. IN ANY EVENT , EVEN ON MERITS, THE STAND OF THE COMMISSIONER WAS INCORRECT AND UNSUSTAINABLE IN LAW. FOR ALL THESE REASONS, WE ARE NOT INCLINED TO UPHOLD THE IMPUGNED ORDER. ACCORDINGLY, THE REVISION ORDER STANDS QUASHED. 11. IN THE RESULT, THE APPEAL IS ALLOWED. PRON OUNCED IN THE OPEN COURT TODAY ON 16 TH DAY OF FEBRUARY, 2016. SD/XX SD/XX S S GODARA PRAMOD KUMAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) DATED: THE 16 TH DAY OF FEBRUARY ,20 16 . COPIES TO : (1) THE APPELLANT (2) THE RESPONDENT (3) CIT (4) CIT(A) (5) DR (6) GUARD FILE BY ORDER ETC ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD