AACHMAN VANIJYA PVT.LTD., MUMBAI V. DCIT- CC- 8(4), MUMBAI

ITA 1511/MUM/2021

AI Insights

The case involves M/s. Aachman Vanijya Pvt. Ltd., which appealed against the order of the Learned Commissioner of Income Tax (Appeals)-50, Mumbai, concerning the assessment year 2018-19. The primary issues in the appeal were the addition of interest income on an income tax refund and the disallowance under Section 14A read with Rule 8D of the Income Tax Rules. The Assessing Officer had added the interest income to the assessee's income and made additional disallowances under Section 14A. The CIT(A) upheld these additions and disallowances, leading to the appeal before the Tribunal.

• Counselvise Citation: [2022] 140 COUNSELVISE.COM (IT) 123121 (ITAT-MUMBAI)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-11-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 04-09-2022
• Assessment Year: misc
• Appeal Filed On: 30-04-2022
• Laws Referred To: Income-tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Rule 8D
• Section: 132; 244A; 142(1); 14A; 143(2)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH “A”, MUMBAI BEFORE SHRI KULDIP SINGH, HON'BLE JUDICIAL MEMBER AND SHRI S. RIFAUR RAHMAN, HON'BLE ACCOUNTANT MEMBER ITA NO. 1511/MUM/2021 (A.Y: 2018-19) M/s. Aachman Vanijya Pvt. Ltd., Main Building, 2 nd Floor Kolkata, West Bengal-700001 PAN: AACCA5165H v. DCIT – Central Circle – 8(4) 6th Floor, Aayakar Bhavan M.K. Road, Mumbai - 400020 (Appellant) (Respondent) Assessee Represented by : None Department Represented by : Shri Jagadish Jangid Date of Hearing : 05.09.2022 Date of Pronouncement : 22.11.2022 O R D E R PER S. RIFAUR RAHMAN (AM) 1. This appeal is filed by the assessee against order of the Learned Commissioner of Income Tax (Appeals)- 50, Mumbai [hereinafter in short “Ld.CIT(A)”] dated 13.08.2021 for the A.Y. 2018-19. 2 ITA NO. 1511/MUM/2021 (A.Y: 2018-19) M/s. Aachman Vanijya Pvt. Ltd., 2. In spite of issue of notice none appeared on behalf of the assessee nor any adjournment was sought. Therefore, we proceed to dispose of this appeal on merits with the assistance of Ld.DR. 3. Ld. DR brought to our notice grounds of appeal raised by the assessee and also relevant facts of the case. Brief facts relating to this appeal are assessee filed its return of income for the A.Y. 2018-19 on 26.10.2018 declaring total income of ₹.2,19,26,350/- and the same was processed u/s.143(1) of Income-tax Act, 1961 (in short “Act”). A search and seizure action u/s. 132 of the Act was conducted on 22.03.2018 by DDIT(Inv.), Unit-6(1), Mumbai in the case of Aachman Group and other related entities. The case of the assessee was also covered under search and seizure on 22.03.2018 and the case was centralized. The case was selected for scrutiny and notice u/s. 143(2) and 142(1) of the Act were issued and served on the assessee. In response AR of the assessee attended and submitted the relevant information as called for. 4. During the assessment proceedings Assessing Officer observed that assessee has received interest income on tax refund to the extent of ₹.9,64,816/- during the year under consideration and he observed that assessee has not offered the interest received on above said income tax 3 ITA NO. 1511/MUM/2021 (A.Y: 2018-19) M/s. Aachman Vanijya Pvt. Ltd., refund in its computation of income. Accordingly, he added to the income of the assessee to the extent of interest on refund received by the assessee. 5. Further, Assessing Officer observed that assessee has received dividend income of ₹.31,09,110/- and claimed it as exempt income. During the assessment proceedings assessee was asked to submit working of disallowance u/s. 14A r.w. Rule 8D of I.T. Rules. Accordingly, assessee furnished its submissions on disallowance u/s. 14A of the Act. After considering the submissions made by the assessee, Assessing Officer calculated the disallowance u/s. 14A r.w. Rule 8D of I.T. Rules as under: - 8D(2)(i) Direct Expenses : ₹.81,694/- 8D(2)(ii) 1% of average investments: ₹.26,55,11,063/- : ₹.26,55,110/- Total Disallowance u/s. 14A r.w. Rule 8D : ₹.27,36,804/- 6. Since assessee has already made suomoto disallowance u/s. 14A to the extent of ₹.5,50,497/-. Therefore, the balance amount of ₹.21,86,307/- was disallowed by the Assessing Officer. 7. Aggrieved assessee preferred an appeal before the Ld.CIT(A)-50, Mumbai. Before the Ld.CIT(A) assessee has submitted as under: - 4 ITA NO. 1511/MUM/2021 (A.Y: 2018-19) M/s. Aachman Vanijya Pvt. Ltd., “1. The appellant company did not receive any interest on IT refund during the year under consideration. The refund alongwith interest was adjusted against outstanding demand of various assessment years invoking provisions of sec 245 of the Act. 2. As the appellant company did not receive any interest in its bank account, so it has not offered the same during the year under consideration. Secondly, the appellant company neither received any communication from the Department in respect of interest on IT refund nor was it reflected in 26AS at the time of filing R/I. 3. In absence of any mechanism, the appellant company did not offer the said interest in the ROI filed.” 8. After considering the submissions of the assessee, Ld.CIT(A) sustained the additions made by the Assessing Officer with the following observations: - “6.4.1 I have considered the submissions of the appellant and perused the materials available on record. The appellant has requested to delete the impugned addition of Rs.9,64,816/-, being amount of interest received on IT refund omitted to be included in the total income. The appellant has made elaborate submissions and the same are considered carefully. The main contention of the appellant is that since said interest on IT refund was not received in Bank account but the same was adjusted against the outstanding demand, so the appellant has not offered the same to tax in R/I filed. The contentions of the appellant is devoid of merits as it is admitted fact that during the year under consideration, the appellant did receive interest of Rs.9,64,816/- on IT refund and the appellant itself has confirmed that the same was adjusted against the outstanding demands. The outstanding demands were liabilities of the appellant and adjustment of said interest on IT refund against the outstanding demand liabilities would tantamount to payment made on behalf of the appellant for which due credit will be allowed to the appellant. Mere fact that said interest income on IT refund was adjusted against 5 ITA NO. 1511/MUM/2021 (A.Y: 2018-19) M/s. Aachman Vanijya Pvt. Ltd., outstanding demands would not change its character and the same remains income in the hands of the appellant. In view of the facts and the circumstances of the case, no fault can be found with the action of the Ld. AO in making addition on account of interest received on IT refund. Hence, the impugned addition of Rs.9,64,816/- is CONFIRMED. Therefore, the Ground No.1 raised in appeal is DISMISSED.” 9. With regard to 14A disallowance assessee has filed detailed submissions as under: - “1. The appellant is a company registered with ROC and also with the RBI as NBFC. 2. During the year under consideration the appellant company has earned dividend income of Rs.31,09,110/- and the appellant made suo motto disallowance u/s 14A of the Act at Rs.5,50,497/- However, the Ld. AO made disallowance in addition to the disallowance already made by the appellant. 3. Though, the appellant has made suo motto disallowance of Rs.5,50,497/- u/s 14A rw Rule 8D, the Ld. AO has made further disallowance after arbitrarily invoking the provisions of 14A. 4. The application and computation of disallowance under Rule 8D is unjust, unreasonable and uncalled for, as once the appellant has made suo motto disallowance, then no further disallowance is needed. The appellant has also placed reliance on various judicial pronouncements, wherein it has been held that where the Ld. AO has not expressed dissatisfaction with the assessee's claim u/s 14A was incorrect, no disallowance can be made therein. 5. The Ld. AO has applied the provisions of sec 14A rw Rule 8D, mechanically. 6. The appellant has also placed reliance on the decision of the Ld. CIT(A) in its own case for AY 2012-13, wherein similar disallowance made was deleted.” 6 ITA NO. 1511/MUM/2021 (A.Y: 2018-19) M/s. Aachman Vanijya Pvt. Ltd., 10. After considering the submissions of the assessee, Ld.CIT(A) dismissed the ground raised by the assessee observing that the Assessing Officer has recorded the satisfaction and gave a clear factual finding in the Assessment Order that the working of disallowance made by the assessee is not proper. Accordingly, he calculated the disallowance u/s.14A r.w. Rule 8D. The methodology adopted by the assessee for computation of suomoto disallowance u/s. 14A is without any basis and totally arbitrary and hardly the same can be considered as scientific. With the support of various cases law, he justified the disallowance calculated by the Assessing Officer and accordingly, dismissed the ground raised by the assessee. 11. Aggrieved assessee is in appeal before us raising following grounds in its appeal: - “1. On the facts and in the circumstances of the case and in the Hon'ble CIT(A) erred in Rs.9,64,816/- made by the Ld AO by wrongly concluding that actual interest has been received on refund without appreciating the fact that assessee never received any intimation nor any communication from the department in respect of credit of refund and its corresponding interest and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and rules made there under. 2. On the facts and in the circumstances of the case and in law the Hon'ble CIT(A) erred in upholding addition of Rs.21,86,307/- made by the Ld AO by wrongly invoking provisions 7 ITA NO. 1511/MUM/2021 (A.Y: 2018-19) M/s. Aachman Vanijya Pvt. Ltd., of section 14A r.w.r 8D of the Act and the reason assigned for doing so are wrong and contrary to the provision of Income Tax Act and rules made there under. 3. Your appellant craves leave to add to, amend alter or delete any of the above grounds of appeal on before the date of hearing.” 12. Considered the submissions of the Ld.DR and material placed on record, with regard to interest received by the assessee on income tax refund u/s. 244A of the Act , the Assessing Officer during the assessment proceedings observed that assessee has received interest on refund to the extent of ₹. 9,64,816/-. However, it is brought to our notice assessee is not aware of the fact that it has received any interest on refund and also it is not clear in which assessment year the refund was made or the interest is credited. Since the refund is not credited to the account of the assessee it is not possible for the assessee to declare the above said income as its income. The Assessing Officer adjusted the refund as well as interest in the subsequent assessment year without there being any intimation to the assessee. Ld.CIT(A) sustained the addition with the fact that assessee has not informed about the receipt of the above interest on refund and this fact cannot be denied that assessee has received the above interest. Therefore, the said interest has to be declared as income of the assessee. After careful consideration we observe that the 8 ITA NO. 1511/MUM/2021 (A.Y: 2018-19) M/s. Aachman Vanijya Pvt. Ltd., adjustment of refund as well as interest was never communicated to the assessee and it is only a surprise to the assessee that the Assessing Officer has adjusted the refund as well as interest to that extent against the demand of the subsequent Assessment Years. 13. We observe that as per section 245 of the Act a refund is found to be due to the assessee, the Assessing Officer, setoff the amount to be refunded or any part of that amount, against the sum, if any, remain payable under this Act to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under section 245 of the Act. 14. Therefore, in the given case no such intimation was communicated to the assessee. Therefore, assessee has not offered the same to its income and further, we observe that the Assessing Officer has adjusted the refund as well as interest in the demand of the subsequent assessment year without clearly explaining or intimating for which assessment year the demand was adjusted. As and when the intimation is communicated to the assessee the assessee comes to know of the adjustment then only the Assessing Officer can enforce the demand. Therefore, in the interest of justice, we remit this issue back to the file of 9 ITA NO. 1511/MUM/2021 (A.Y: 2018-19) M/s. Aachman Vanijya Pvt. Ltd., the Assessing Officer to communicate all the details to the assessee and if the refund is given to the assessee in this assessment year the relevant tax may be adjusted first for the above stated demand i.e. tax on interest on refund and balance may be adjusted for the other Assessment Years. Accordingly, ground raised by the assessee is partly allowed for statistical purpose. 15. With regard to disallowance made u/s. 14A we observe from the record that the Assessing Officer has calculated the disallowance u/s. 14A by adopting 1% of the average investments even though there is a scientific method of calculation clearly given in Rule 8D. The Assessing Officer cannot deviate from the method of calculation of disallowance as per Rule 8D and he cannot reinvent or come up with a new way of disallowing the expenditure u/s. 14A. 16. Further, we observe that assessee has suomoto disallowed ₹.5,50,497/- and Assessing Officer has not recorded satisfaction how the method adopted by the assessee is not proper. In absence of proper satisfaction recorded by the Assessing Officer in our considered view the suomoto disallowance made by the assessee is held to be proper disallowance and additional disallowance made by the Assessing Officer 10 ITA NO. 1511/MUM/2021 (A.Y: 2018-19) M/s. Aachman Vanijya Pvt. Ltd., is accordingly deleted. Ground raised by the assessee in this regard is allowed. 17. In the result, appeal filed by the assessee is partly allowed for statistical purpose. Order pronounced in the open court on the 22 nd November, 2022 Sd/- Sd/- (KULDIP SINGH) (S. RIFAUR RAHMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER Mumbai / Dated 22/11/2022 Giridhar, Sr.PS Copy of the Order forwarded to: 1. The Assessee 2. The Respondent. 3. The CIT(A), Mumbai. 4. CIT 5. DR, ITAT, Mumbai 6. Guard file. //True Copy// BY ORDER (Asstt. Registrar) ITAT, Mum