The DCIT, Cirlce-1(1)(1), Ahmedabad V. M/s. Amazon Textiles Pvt. Ltd., Ahmedabad

ITA 1473/AHD/2019

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The case involves the Income Tax Department (Revenue) and Amazon Textiles Pvt. Ltd. (assessee) contesting the assessment order for the assessment year 2016-2017. The primary contention was regarding the disallowance made under section 14A read with rule 8D of the Income Tax Rules, which pertains to the disallowance of expenses related to earning exempt income. The Assessing Officer (AO) had made a higher disallowance than what the assessee had declared, leading to appeals by both parties. The Commissioner of Income Tax (Appeals) had deleted the addition made by the AO, which the Revenue contested. The Tribunal's decision emphasized that the disallowance should not exceed the exempt income, a principle supported by various High Court rulings.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 135821 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-10-2023
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 26-09-2023
• Assessment Year: 2016-2017
• Appeal Filed On: 23-09-2019
• Other Referred Cases: Corrtech Energy Pvt. Ltd. vs. CIT-1, S.R. Koshti vs. CIT, Vareli Textile Industry vs. CIT, CIT vs. Corrtech Energy Private Limited, Pr. CIT vs. Caraf Builders & Constructions (P.) Ltd., Maxopp Investments Ltd. vs. CIT, Cheminvest vs. CIT, CIT vs. Holcim (P.) Ltd., Vinay Chandulal Satia vs. N.O. Parekh, CIT, Babutmal Raichand Oswal vs. Laxmibai R. Tarte, SLP bearing No. 2522/2022 vs. Babasaheb Raosaheb Kobarne & ANR vs. Pyrotek India Private Limited
• Laws Referred To: Income Tax Act 1961, Income Tax Rules
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SHRIASHOKKUMARSUTHAR; SUOMOTUDISALLOWANCEUNDERSECTIONAMADEINRETURNOF
• Assessee Lawyers: SHRIBIRENSHAH; DAYS.ASPERTHEASSESSEE; THEDELAYINFILINGTHECOIS

Judgement Text

आयकरअपीलीयअधिकरण , अहमदाबादनयायपीी INTHEINCOMETAXAPPELLATETRIBUNAL, ‘’C’’BENCH,AHMEDABAD BEFORESHRIWASEEMAHMED,ACCOUNTANTMEMBER And SHRISIDDHARTHANAUTIYAL,JUDICIALMEMBER आयकरअपीलसं ./ITANo.1473/AHD/2019 With CONo.32/Ahd/2022 धििाधरणणवध / Asstt.Year:2016-2017 D.C.I.T, Circle-1(1)(1), Ahmedabad. Vs. M/s.AmazonTextilesPvt.Ltd., ArvindMillsPremises, NarodaRoad, Ahmedabad380025 PAN:AABCB6914E (Applicant)(Respondent) Revenueby:ShriAshokKumarSuthar,Sr.DR Assesseeby:ShriBirenShah,A.R सुिणाईकीतारीख/DateofHearing:27/09/2023 घोवणाकीतारीख /DateofPronouncement:18/10/2023 आदेश/ORDER PERWASEEMAHMEDACCOUNTANTMEMBER: ThecaptionedappealandCOhavebeenfiledattheinstanceofthe RevenueandtheassesseeagainsttheorderoftheLearnedCommissionerof IncomeTax(Appeals)-1,Ahmedabad,dated11/07/2019(inshort“Ld.CIT(A)”) arisinginthematterofassessmentorderpassedunders.143(3)oftheIncome TaxAct1961(here-in-afterreferredtoas"theAct").Theassesseehasfiledthe ITAno.1473/AHD/2019with C.ONo.32/Ahd/2022 Asstt.Year2016-17 2 CrossObjectionintheRevenue’sappealbearingITANo.1473/Ahd/2019forthe AssessmentYear2016-2017. 2.TheRevenuehasraisedfollowinggroundsofappeal: 1.Theld.CIT(A),haserredinlawandonfactsindeletingthedisallowanceof Rs.4,28,82,196/-madebytheAssessingOfficeru/s.14Ar.wRule8DoftheITRules. 2.Itis,therefore,prayedthattheorderofLd.CIT(A)maybesetasideandthatof theAssessingOfficerberestored. 3.TheonlyissueraisedbytherevenueisthattheLd.CIT(A)erredindeleting thedisallowancemadebytheAOforRs.4,28,82,196/-undertheprovisionsof section14Ar.w.Rule8DofIncome-taxRules. 4.Brieflystatedfactsarethattheassesseeinthepresentcaseisprivate limitedcompanyandhasfileditsreturnofincomedeclaringincomefromthe capitalgainandbusiness/profession.Theassesseeintheyearunderconsideration hasmadethedisallowanceu/s14AoftheActforRs.13,40,46,115only.However, aspertheAO,thedisallowanceu/s14AoftheAct,r.w.Rule8Dcomesoutat Rs.17,69,28,311/-only.Thus,theAOwasoftheviewthatthedisallowancemade bytheassesseesuo-motoisnotcorrect.Assuch,theassesseehasmadeless disallowanceundertheprovisionofsection14Ar.w.Rule8DofIncome-taxRules byanamountofRs.4,28,82,196/-only(17,69,28,311-13,40,46,115).Thus,theAO madethedisallowanceofRs.4,28,82,196/-andaddedtothetotalincomeofthe assessee. 5.AggrievedassesseepreferredanappealtotheLd.CIT(A),whodeletedthe additionmadebytheAObyobservingasunder: 4.5Itisseenthattheappellanthasearnedexemptincomeof Rs.2,01,76,8587-andhasmadedisallowanceofRs.13,40,46,116/-inthereturnofincome. However,theAssessingOfficerhasrecomputedthedisallowanceasperRule8D.Ifhas beenheldbythejurisdictionalHighCourtinthecaseofCorrtechEnergyPvt.Ltd.V/sCIT- 1[2014]223taxman130(Guj)thattheA.O.cannotmakedisallowanceexceedingthe exemptincome.However,theappellantitrelfhascomputedthedisallowanceconsidering theexpenditureonaccountofinterestandfurtherfinancecostonloansmade disallowanceofRs.13,40,46,115/-.Thedisallowancemadebytheappellantonhis ITAno.1473/AHD/2019with C.ONo.32/Ahd/2022 Asstt.Year2016-17 3 ownexceedstheexemptincome,therefore,nofurtherdisallowanceasperRule8Dis calledfor.Inviewoftheabove,disallowancemadebytheAssessingOfficerisdeleted. 6.Beingaggrievedbytheorderoftheld.CIT-A,boththeRevenueand assesseeareinappealandcrossobjectionbeforeus.TheRevenueisinappeal againstthedeletionoftheadditionmadebytheAOforRs.4,28,82,196/-whereas theassesseeisincrossobjectioncontendingthatthedisallowanceu/s14Ar.w. Rule8DofIncome-taxRulesshouldbelimitedtotheextentofexemptedincome i.e.Rs.2,01,76,858/-only.TherelevantobjectionraisedintheCObythe assesseeisreproducedasunder: Onthefactsandinthecircumstancesofthecase,theLdAOoughttohavereduced taxableincomeofappellantbysuo-motudisallowanceundersection14Amadeinreturnof incomeforRs.11,38,69,257/-beingexcessofdisallowanceoverexemptincomeearned andAOshouldbedirectedtoaccesstotalincomeasperprovisionsoftheAct. 7.Attheoutset,wenotethattherewasadelayinfilingtheCObythe assesseeby1122days.Aspertheassessee,thedelayinfilingtheCOis attributabletotwofactors.Firstly,theemployee,workingwiththeassessee,has lefttheorganizationwithouthandingovertaxappealpapertotheconcernperson. Secondly,therewasacovidpandemicwhichhascauseddelayinfilingtheappeal. TheHon’bleSupremeCourtvideorderdated09/05/2022inthecaseofSLP bearingNo.2522/2022inthecaseofBabasahebRaosahebKobarne&ANRVs. PyrotekIndiaPrivateLimitedhasdirectedtoexcludetheperiodfrom15-03-2020 till31-05-2022forthepurposeoflimitation. 8.TheLd.ARfurthersubmittedthattheassesseehasaverystrongcaseinits favourwhichiscoveredbytheJurisdictionalHighCourt.Thus,aspertheAR,the meritoriouscaseshouldnotberejectedonaccountoftechnicallapses. 9.Onthecontrary,theLd.DRsubmittedthatthereisinordinatedelayinfiling theappealbytheassesseeandthereforeheopposedtocondonethedelayin filingtheappeal. ITAno.1473/AHD/2019with C.ONo.32/Ahd/2022 Asstt.Year2016-17 4 10.Wehaveheardtherivalcontentionofboththepartiesandperusedthe materialsavailableonrecord.Onmerit,whatappearsisthisthattheassesseehas afairchancetosucceedintheappealfiledbytheRevenueandtheCOfiledbyit. WenotethattheHon’bleGujaratHighCourtinthecaseofS.R.KoshtiVs.CIT reportedin276ITR165hasheldasunder: 20.Awordofcaution.TheauthoritiesundertheActareunderanobligationtoactin accordancewithlaw.TaxcanbecollectedonlyasprovidedundertheAct.Ifanassessee, underamistake,misconceptionoronnotbeingproperlyinstructed,isover-assessed,the authoritiesundertheActarerequiredtoassisthimandensurethatonlylegitimatetaxes duearecollected.ThisCourt,inanunreporteddecisionincaseofVinayChandulal Satiav.N.O.Parekh,CIT[Spl.CivilApplicationNo.622of1981dated20-8-1981],has laiddowntheapproachthattheauthoritiesmustadoptinsuchmattersinthefollowing terms: "TheSupremeCourthasobservedinnumerousdecisions,includingRamlalv.Rewa CoalfieldsLtd.AIR1962SC361,StateofWestBengalv.Administrator,Howrah MunicipalityAIR1972SC749andBabutmalRaichandOswalv.LaxmibaiR.TarteAIR 1975SC1297,thattheStateauthoritiesshouldnotraisetechnicalpleasifthecitizens havealawfulrightandthelawfulrightisbeingdeniedtothemmerelyontechnical grounds.TheStateauthoritiescannotadopttheattitudewhichprivatelitigantsmight adopt." 10.1Fromtheaboveitisrevealedthattheincomeoftheassesseeshouldnotbe overassessedevenifthereisamistakeoftheassessee.Assuchthelegitimate deductionforwhichtheassesseeisentitledshouldbeallowedwhiledetermining thetaxableincome. 10.2WealsonotethattheHon’bleGujaratHighCourtinthecaseofVareli textileindustryversusCITreportedin154Taxman33whereinitwasheldas under: Itisequallywell-settledthatwhereacauseisconsciouslyabandoned(asinthe presentcase)thepartyseekingcondonationhastoshowbycogentevidence sufficientcauseinsupportofitsclaimofcondonation.Theonusisgreater.Oneof thepropositionsofsettledlegalpositionistoensurethatameritoriouscaseisnot thrownoutonthegroundoflimitation.Therefore,itisnecessarytoexamine,at leastprimafacie,whethertheassesseehasorhasnotacaseonmerits. 10.3Inviewoftheaboveandafterconsideringthefactsintotality,weareof theviewthatitisafitcasewherethedelayinfilingtheappealbytheassessee ITAno.1473/AHD/2019with C.ONo.32/Ahd/2022 Asstt.Year2016-17 5 deservestobecondoned.Accordingly,wecondonethedelayandproceedto adjudicatetheissueonmerit. 10.4Onmerit,theLd.DRsubmittedthattheassesseewastomakethe disallowanceaspertheprovisionofRule8Dwhichhasnotbeendonebythe assesseeinitscase.Theld.DRwithoutprejudicetotheabovealsocontendedthat theassesseeshouldnotbegivenbenefitofthedisallowancemadebyitsuo-moto intheincometaxreturnbydisallowingtheexpenseofRs.13,40,46,115/-only. 10.5Ontheotherhand,theLd.ARfiledapaperbookrunningfrompages1to 57andcaselawscompilationrunningfrompages1to21andsubmittedthatthe disallowanceinanycaseshouldnotexceedtheexemptedincomeasheldby Hon’bleGujaratHighCourtinthecaseofCITvs.CorrtechEnergyPrivateLimited reportedin45taxmann.com116. 11.BoththeLd.DRandtheARbeforeusvehementlysupportedtheorderof theauthoritiesbelowtotheextentasfavourbletothem. 12.Wehaveheardtherivalcontentionsofboththepartiesandperusedthe materialsavailableonrecord.Fromtheorderoftheauthoritiesbelow,itis undisputedthattheexemptedincomeearnedbytheassesseeintheyearunder considerationstandsatRs.2,01,76,858/-onlywhereastheassesseemadethe suomotodisallowanceundersection14AoftheActatRs.13,40,46,115/-only. Thus,thequestionariseswhetherthedisallowancecanbemadeunderthe provisionsofsection14AoftheActexceedingtheexemptedincome.Itis pertinenttonotethattheamountofdisallowanceundersection14Ar.w.r.8D cannotexceedtheamountofexemptedincomeasheldbytheHon'bleDelhiHigh CourtincaseofPr.CITv.CarafBuilders&Constructions(P.)Ltd.[2019]101 taxmann.com167/261Taxman47/414ITR122.Further,theSLPfiledbythe revenueagainstsuchorderwasdismissedbytheHon'bleSupremeCourtinPr. ITAno.1473/AHD/2019with C.ONo.32/Ahd/2022 Asstt.Year2016-17 6 CITv.CarafBuilders&Constructions(P.)Ltd.[2019]112taxmann.com 322/[2020]268Taxman317wheretheHon'bleHighcourtheldasunder: "25.Totalexemptincomeearnedbytherespondent-assesseeinthisyearwasRs. 19lakhs.Inthesecircumstances,wearenotrequiredtoconsiderthecaseofthe RevenuethatthedisallowanceshouldbeenhancedfromRs.75.89crorestoRs. 144.52crores.UpperdisallowanceasheldinPr.CITv.McDonaldsIndia(P.)Ltd. ITA725/2018decidedon22ndOctober,2018cannotexceedtheexemptincomeof thatyear.ThisdecisionfollowstheratioandjudgmentoftheSupremeCourtinthe caseofMaxoppInvestmentsLtd.v.CIT[2018]402ITR640/254Taxman325/91 taxmann.com154andtheearlierjudgmentsoftheDelhiHighCourtinCheminvest v.CIT[2015]378ITR33/234Taxman761/61taxmann.com118andCITv.Holcim (P.)Ltd.[2015]57taxmann.com28(Delhi)." 12.1TheHon’bleJurisdictionalHighCourtofGujaratinthecaseofCITvs. CorrtechEnergyPrivateLimitedreportedin45taxmann.com116heldthatthe provisionofsection14AoftheActcannotbeappliedintheabsenceofany exemptedincome.TherelevantobservationoftheHon’bleBenchreadsasunder: Section14A(1)providesthatforthepurposeofcomputingtotalincomeunderchapterIV, nodeductionshallbeallowedinrespectofexpenditureincurredbytheassesseeinrelation toincomewhichdoesnotformpartofthetotalincomeundertheAct.Intheinstantcase, theTribunalhasrecordedthefindingoffactthattheassesseedidnotmakeanyclaimfor exemptionofanyincomefrompaymentoftax.ItwasonthisbasisthattheTribunalheld thatdisallowanceundersection14Acouldnotbemade.Intheprocesstribunalreliedon thedecisionofDivisionBenchofPunjabandHaryanaHighCourtincase ofCITv.WinsomeTextileIndustriesLtd.[2009]319ITR204inwhichalsotheCourthad observedthatwheretheassesseedidnotmakeanyclaimforexemption,section14A couldhavenoapplication. 12.2RespectfullyfollowingtheordersoftheHon’bleHighCourtasmentioned above,weholdthatdisallowanceundertheprovisionofsection14Ar.w.r.8Dof IncomeTaxRulescannotexceedtheexemptedincomeinthegivenfactsand circumstances. 12.3Nowthequestionarises,whethertheassesseecanclaimthebenefitofthe disallowancemadebytheassesseeintheincometaxreturnbeforethejudicial forum.Itisthetritelawthattheincometaxhastobeleviedontheincomewhich isdeterminedundertheprovisionsoftheAct.Theassesseeforanyreasonhas ITAno.1473/AHD/2019with C.ONo.32/Ahd/2022 Asstt.Year2016-17 7 offeredanyincomewhichwasnotchargeabletotax,therevenueisnotexpected todenythebenefittotheassesseeforwhichitwasentitled.Thus,inour consideredopiniontheassesseecannotbedeprivedfromthebenefitsprovided undertheprovisionsoflawmoreparticularlyinasituationwheretheproceedings oftheassesseefortheyearunderconsiderationwerependingbeforetheHigher authoritiesonsameissues.Inviewoftheaboveandafterconsideringthefactsin totality,weholdthattheassesseeisentitledtothebenefitofsuomoto disallowancesmadebyitintheIncomeTaxreturn.Inviewoftheabovedetailed discussion,thegroundofappealoftherevenueisherebydismissedwhereas groundofobjectionraisedbytheassesseeisherebyallowed. 13.IntheresultappealoftherevenueisdismissedandCOoftheassesseeis allowed. OrderpronouncedintheCourton18/10/2023atAhmedabad. Sd/-Sd/- (SIDDHARTHANAUTIYAL)(WASEEMAHMED) JUDICIALMEMBERACCOUNTANTMEMBER (TrueCopy) Ahmedabad;Dated18/10/2023 Manish