UTI Bank Ltd., Ahmedabad V. The ACIT., Circle-8, Ahmedabad

ITA 152/AHD/2006

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 94674 (ITAT-AHMEDABAD)
• Duration Of Justice: 9 year(s) 9 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-10-2015
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 19-10-2015
• Assessment Year: 2002-2003
• Appeal Filed On: 18-01-2006
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R I PATEL
• Assessee Lawyers: ARVIND SONDE
• Keywords: Earning of tax free income; Question of law; Revised return
• Section: 143(3); 14A; 260A; 139(5)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: S H RI ANIL CHATURVEDI, ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER UTI BANK LIMITED, TRISHUL, OPP. SAMARTHESHWAR MAHADEV TEMPLE, NEAR LAW GARDEN, ELLISBRIDGE, AHMEDABAD - 380006 (APPELLANT) VS ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE - 8, AHMEDABAD (RESPONDE NT) REVENUE BY : S H RI R.I. PATEL, CIT - D . R. ASSESSEE BY: S H RI ARVIND SO NDE , A.R. DATE OF HEARING : 19 - 10 - 2 015 DATE OF PRONOUNCEMENT : 28 - 10 - 2 015 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THESE THREE ASSESSEE S APPEALS FOR ASSESSMENT YEA RS 2002 - 03, 2004 - 05 AND 2005 - 06 , ARISE FROM DIFFERENT ORDER S OF THE CIT(A) - I T A NO . 152 & 2572 / A HD/20 06 & 65 /AHD/2009 A SSESSMENT YEAR 200 2 - 03 , 04 - 05 & 2005 - 06 I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 2 XIV , AHMEDABAD DATED 18 - 11 - 2005, 25 - 09 - 2006 AND 20 - 11 - 2008 IN APPEAL NO S. CIT (A) - XIV/AC.C.8/81 & 241/2005 - 06 AND CIT(A) - XIV/ADDL. RANGE - 8/246/07 - 08 RESP ECTIVELY , IN PROCEEDINGS UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . 2. WE NOTICE AT THE OUTSET THAT ALL THESE THREE CASE FILES CONTAIN HON BLE JURISDICT IONAL HIGH COURT S REMAND ORDERS IN TAX APPEAL NOS. 307, 4 59 AND 1288 OF 2014 DECIDED ON 15 TH APRIL, 23 RD JUNE AND 17 TH NOVEMBER, 2014. BOTH PARTIES TAKE US TO THE FIRST CASE CO MPRISING OF THE FOLLOWING ORDER : - 1. REVENUE HAS FILED THIS APPEAL AGAI NST THE ORDER OF THE INCOME - TAX APPELLATE TRIBUNAL (HEREINAFTER REFERRED TO AS 'THE TRIBUNAL') DATED 30 TB AUGUST, 2013, RAISING THE FOLLOWING QUESTIONS FOR OUR CONSIDERATION: [A] WHETHER THE APPELLATE TRIBUNAL HAS SUBSTANTIALLY ERRED IN DIRECTING THE ASSES SING OFFICER TO ADMIT ASSESSEE'S CONTENTION FOR DELETING THE SUO MOTO DISALLOWANCE OF RS.6.32 CRORES U/S 14A MADE BY THE ASSESSEE IN THE RETURN OF INCOME? [B] WHETHER THE APPELLATE TRIBUNAL HAS ERRED IN NOT APPRECIATING THE FACT THAT THE ASSESSEE CAN ONLY MAKE A NEW CLAIM WHICH WAS NOT MADE IN THE ORIGINAL RETURN BY WAY OF FILING A REVISED RETURN U/S. 139(5)?' 2. WE HAVE HEARD THE LEARNED COUNSEL FOR THE PARTIES AND IN THE FACTS OF THE CASE, PROPOSE TO DISPOSE OF THIS TAX APPEAL AT THIS STAGE. 3. BRIEF LY STATED THE FACTS ARE THAT THE ASSESSING OFFICER BY HIS ORDER OF ASSESSMENT FOR THE ASSESSMENT YEAR 2002 - 03 MADE ADDITION OF RS.30.45 CRORE (ROUNDED OFF) BY WAY OF I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 3 ADDITIONAL DISALLOWANCE UNDER SECTION 14A OF THE INCOME - TAX ACT, 1961 ('THE ACT', FOR SHOR T). THE AASESSEE CARRIED THE MATTER IN APPEAL. CIT (APPEALS) RESTRICTED THE ADDITIONS, BUT STILL CONFIRMED THE VIEW OF THE ASSESSING OFFICER THAT SECTION 14A OF THE ACT WOULD APPLY. 4. THE ASSESSEE CARRIED THE MATTER IN FURTHER APPEAL BEFORE THE TRIBUNAL . THE TRIBUNAL RELIED UPON ITS OWN DECISION FOR THE SUBSEQUENT ASSESSMENT YEAR 2003 - 2004, IN CASE OF THIS VERY ASSESSES, WHERE SOMEWHAT SIMILAR QUESTION HAD COME UP. THE TRIBUNAL CONCLUDED AS UNDER: '20. BEFORE US , THE LEARNED A.R. HAS RAISED A NEW ARGUMEN T WHEREIN IT WAS SUBMITTED THAT EVEN THE SUO MOTU DISALLOWANCE MADE BY THE ASSESSEE WHILE COMPUTING THE INCOME SHOULD BE DELETED AND FOR WHICH HE PLACED RELIANCE THE DECISION OF HON. CALCUTTA HIGH COURT AND THE DECISION OF SUPREME COURT. WE FIND THAT THIS GROUND WAS NOT TAKEN BY THE ASSESSEE BEFORE A.O. AND CIT(A). AO HAD PROCEEDED ON THE BASIS OF THE SUO - MOTO DISALLOWANCE MADE BY THE ASSESSEE. THUS THE AO OR CIT(A) DID NOT HAD ANY OPPORTUNITY TO EXAMINE THE AFORESAID CONTENTION AND THEREFORE THERE IS NO FI NDING ON IT EITHER BY THE A.O. AND CIT (A). IN VIEW OF THESE FACTS, WE ARE OF THE VIEW THAT THE MATTER WITH RESPECT TO NIL DISALLOWANCE UNDER 14A BE REMITTED BACK TO THE FILE OF AO FOR EXAMINING IT AFRESH. THUS THE MATTER IS REMITTED TO THE FILE OF AO AND HE IS DIRECTED TO ADMIT THE ISSUE AND DECIDE THE ISSUE AFRESH ON MERITS AS PER LAW AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AND AFTER GIVING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ASSESSEE IS ALSO DIRECTED AND FURNISH PROMPTLY T HE DETAILS CALLED FOR BY THE AO TO DECIDE THE ISSUE. THUS THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES.' 5. IN THIS CONTEXT, THE REVENUE HAS QUESTIONED THE TRIBUNAL S DECISION TO PERMIT THE ASSESSEE TO ARGUE BEFORE THE TRIBUNAL THAT EV EN SUO MOTU DISALLOWANCE OF RS.6.32 CRORE (ROUNDED OFF) MADE BY THE ASSESSEE IN THE RETURN FILED WAS NOT JUSTIFIED. THE STAND OF THE REVENUE IS THAT WHEN THE ASSESSEE I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 4 HAD FILED A RETURN IN WHICH THE DISALLOWANCE NOTED ABOVE WAS OFFERED SUO MOTU, THE ASSESS EE COULD NOT HAVE RESILED FROM SUCH POSITION WITHOUT FILING A REVISED RETURN . THE TRIBUNAL DID NOT ACCEPT THIS CONTENTION AND REMITTED THE ENTIRE ISSUE BACK FOR CONSIDERATION BEFORE THE ASSESSING OFFICER. 6. IN OUR OPINION, WHEN ALL MATERIALS NECESSARY TO EXAMINE THE NATURE OF DISALLOWANCE TO BE MADE, IF AT ALL, UNDER SECTION 14A OF THE ACT ARE ALREADY ON RECORD AND WHEN ONCE ASSESSING OFFICER AS WELL AS CIT (APPEALS) HAVE ALREADY CONSIDERED THE ISSUE AND GIVEN DETAILED FINDINGS. IT WOULD BE APPROPRIATE FOR THE TRIBUNAL TO GIVE ITS FINAL CONCLUSIVE OPINION ON THE ENTIRE ISSUE. 7. LEARNED COUNSEL FOR THE REVENUE PLACED HEAVY RELIANCE ON THE DECISION OF THE SUPREME COURT IN THE CASE OF GIETZE (INDIA) LIMITED VS. COMMISSIONER OF INCOME - TAX, REPORTED IN [20 06] 284 ITR 323 (SC), WHEREAS COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE JUDGMENT OF THIS COURT DATED 02.04.2014 IN TAX APPEAL NO.2562/2009 AND CONNECTED APPEALS IN THE CASE OF COMMISSIONER OF INCOME - TAX VS. MITESH IMPEX. 8. WHEN WE ARE PLACING THE ENTIRE ISSUE FOR CONSIDERATION BEFORE THE TRIBUNAL, WE WOULD NOT LIKE TO MAKE ANY CONCLUSIVE OBSERVATIONS ON THE RIVAL CONTENTIONS. WE LEAVE IT FOR THE TRIBUNAL TO HEAR BOTH THE PARTIES AND GIVE ITS CONCLUSIVE FINDINGS AS FOUND APPROPRIATE IN LAW. 9. UND ER THE CIRCUMSTANCES , THE APPEAL IS PARTLY - ALLOWED. THE TRIBUNAL'S JUDGMENT ON THE ISSUE ON HAND IS SET ASIDE. THE ENTIRE ISSUE IS PLACED BACK BEFORE THE TRIBUNAL FOR DECISION ON MERITS. 3. BOTH PARTIES INFORM US THAT THE SOLE SUBSTANTIVE ISSUE IDENTICAL IN ALL THREE CASE S FOR OUR ADJUDICATION IS THA T OF SECTION 14A DISALLOWANCE. WE ACCORDINGLY TREAT ASSESSEE S APPE AL ITA 152/AHD/2006 AS THE LEAD CASE. I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 5 4. THE ASSESSEE COMPANY M/S UTI BANK LTD IS NOW KNOWN AS M/S AXIS BANK LTD. IT STARTED ITS BANKING OPERATIONS IN 1995. THE ASSESSEE FILED ITS RETURN ON 30 - 10 - 2002 ADMITTING INCOME OF RS. 208, 83,29,510/ - AND CLAIMED REFUND OF RS. 42,15,67,337/ - . THIS WAS FOLLOWED BY A REVISED RETURN OF INCOME READING A SUM OF RS. 208,95,81,108/ - WITH REFUND OF RS. 41 ,76,27,996/ - . THE ASSESSING OFFICER TOOK UP SCRUTINY. HE NOTICED EXEMPT INCOME OF RS. 39.65 CRORES ARISING FROM TAX FREE BONDS, DEBENTURE S AND DIVIDEND S . THE ASSES SEE HAD INVESTED A SUM OF RS. 4 , 14 CRORES IN THESE INSTRUMENTS AS PER PAGE 275 OF THE PAPER BOOK. THE ASSESSMENT ORDER DATED 30 - 03 - 2005 STATES THIS FIGURE AS RS. 413.6 CRORES. THE ASSESSEE HAD SUO MOTO DISALLOWED A SUM OF RS. 6.23 CRORES COMPRISING OF INTEREST PERTAINING TO INCREMENTAL DEMAND DEPOSITS . THE ASSESSING OFFICER IN ASSESSMENT ORDE R COMPUTED SECTION 14A DISALLOWANCE OF RS. 36.68 CRORE S I.E. NET FIGURE OF RS. 30.45 CRORES OVER AND ABOVE RS. 6.23 CRORES ADDED BACK SUO MOTO. 5. THE ASSESSEE PREFERRED APPEAL. THIS CIT(A) PARTLY ACCEPTED ITS CONTENTIONS AS FOLLOWS: - 6.3 AFTER CO NSIDERING THE SUBMISSIONS OF THE APPELLANT AND THE CASE LAWS RELIED UPON, I AM OF THE OPINION THAT THE ACTION OF THE A.O. IS NOT CORRECT AS REGARDS DISALLOWING INTEREST EXPENSES AMOUNT AFTER ALLOCATING IT TO THE INVESTMENTS FOR EXEMPTED INCOME. THE APPELLA NT HAS FILED THE DETAILS BEFORE THE A.O. ADMITTING THAT ONLY PART OF THE INTEREST BEARING FUNDS IS USED FOR INVESTING IN THE INVESTMENTS GIVING TAX EXEMPTED INCOME. THE I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 6 INTEREST COST IS CALCULATED AT RS. 6.23 CR. WHICH IS OFFERED FOR TAXATION. HENCE, THE A .O. IS NOT JUSTIFIED IN FURTHER ALLOCATING THE INTEREST EXPENDITURE FOR THIS PURPOSE DISREGARDING THE FACT THAT THE APPELLANT HAS SURPLUS FUNDS. HOWEVER AS REGARDS THE OTHER OPERATING EXPENSES ARE CONCERNED, APPELLANT HAS NOT FILED ANY DETAILS AS TO HOW MU CH EXPENDITURE IS TO BE APPORTIONED FOR EARNING THE EXEMPT INCOME. THE TOTAL OPERATING EXPENSES ARE RS. 205.47 CR. AND THE EXEMPT INCOME CLAIMED BY THE APPELLANT IS RS. 39.65 CR. WHEREAS THE TOTAL INCOME EARNED BY APPELLANT IS RS. 1595.40 CR. HENCE THE EXE MPTED INCOME IS 2.485% OF THE TOTAL INCOME. THEREFORE, BY ALLOCATING THE OPERATING EXPENSES OF RS. 205.47 CR. IN THIS RATIO, THE EXPENSE ALLOCABLE TO THE EXEMPT INCOME COMES TO RS. 5. 11 CR. (205.47 X 2.485%) THEREFORE, THIS EXPENDITURE HAS TO BE DISALLOWED OUT OF THE TOTAL EXPENDITURE FOR EARNING THE EXEMPT INCOME UNDER THE PROVISIONS OF SEC. 14A. THIS VIEW IS SUPPORTED BY THE DECISION OF ITAT CHENNAI BENCH IN THE CASE OF SOUTHERN PETRO CHEMICALS INDUSTRIES V. DCIT, 93 TTJ 161. AS PC THIS DECISION, THE INVE STMENT DECISIONS ARE VERY STRATEGIC DECISIONS IN WHICH TOP MANAGEMENT IS INVOLVED AND, THEREFORE, PROPORTIONATE MANAGEMENT EXPENSES ARE REQUIRED TO BE DEDUCTED WHILE COMPUTING THE EXEMPTED INCOME. ON SIMILAR LOGIC, THE OTHER OPERATING EXPENSES ARE ALSO TO BE DEDUCTED. THE APPELLANT HAS ALREADY DISALLOWED RS. 6.23 CR. OUT OF INTEREST EXPENDITURE. THE DISALLOWANCE OUT OF OPERATING EXPENSES COMES TO RS. 5.11 CR. WHICH IS JUSTIFIED. HENCE, THE DISALLOWANCE IS CONFIRMED TO THE EXTENT OF RS. 5.11 CR. AND THE BAL ANCE AMOUNT OF RS. 25.34 CR. IS DELETED. 6. THIS LOWER APPELLATE ORDER LE FT BOTH PARTIES AGGRIEVED. THE ASSESSEE FILED THE INSTANT APPEAL ITA 152/AHD/2006. THE REVENUE PREFERRED CROSS APPEAL ITA 233/AHD/2006. A CO - ORDINATE BENCH DECIDED THESE APPEAL S ON 30 - 08 - 2013. THE ASSESSEE RAISED AN ADDIT IONAL ARGUMENT THEREIN THAT ITS SUO MOTO DISALLOWANCE OF RS. 6.23 CRORES IS ALSO NOT SUSTAINABLE. THE LEARNED CO - ORDINATE BENCH IN ITS I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 7 ORDER ADMITTED THIS NEW PLEA AND REMITTED THE ENTIRE ISSUE OF SECTION 14A DISALLOWANCE RAISED IN CROSS APPEALS BACK TO THE ASSESSING AUTHORITY AS UNDER: - GROUND NO. 3.1 TO 3.7 ARE WITH RESPECT TO DISALLOWANCE U/S. 14A. 15. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, AO NOTICED THAT ASSESSEE HAD SUBMITTED THAT IT HAD INVEST MENTS TO THE TUNE OF RS. 413.60 CRORE ON WHICH THE ASSESSEE HAS EARNED TAX FREE INCOME. ASSESSING OFFICER A LSO NOTICED THAT ASSESSEE HAS CLAIMED EXEMPTION OF RS. 39.65 CRORE ON ACCOUNT OF INTEREST ON TAX FREE BONDS AND DEBENTURES AND DIVIDEND INCOME AND H AD FURTHER CALCULATED EXPENSES DISALLOWABLE U/S 14A AT RS. 6.32 CRORE. THE ASSESSEE WAS ASKED TO JUSTIFY ITS CLAIM AND ALLOCATE TAX FRE E INCOME TO TAX FREE INVESTMENT. ASSESSEE INTERALIA SUBMITTED THAT THE INVESTMENTS WERE TOTALLY FUNDED OUT OF INTEREST FR EE FUNDS WHICH WERE AVAILABLE WITH IT IN THE FORM OF CAPITAL, - RESERVES AND SURPLUS, BALANCE IN CURRENT ACCOUNT DEPOSITS ETC. ON THE BASIS OF ITS COMPUTATION, THE ASSESSEE HAD SHOWN INCREMENTAL POSITI ON OF TAX FREE INVESTMENT OF RS. 13 CRORE FOR THE YEAR UN DER APPEAL. ON THE AFORESAID INVESTMENT IT HAD COMPUTED THE TOTAL INTEREST COST OF RS. 6.23 CRORE WHICH WAS ADDED BACK TO COMPUTATION INCOME. THE SUBMISSION MADE BY THE ASSESSEE WERE NOT FOUND ACCEPTABLE TO THE AO FOR THE REASON THAT THE ASSESSEE HAD NOT CONFIRMED THE DATE OF PURCHASE OF INVESTMENTS AND THEREFORE HE WAS OF THE VIEW THAT THE ASSESSEE CANNOT CLAIM THAT THE INVESTMENTS WERE HELD BY IT PERMANENTLY FOR 8 LONG YEARS. HE ALSO NOTED THAT ASSESSEE HAD OPENING BALANCE OF TAX F REE INVESTMENT OF RS. 4 01 CRORE, HAD ENTERED INTO PURCHASE AND SALE OF INVESTMENT WORTH HUNDREDS OF CRORES IN THE TAX FREE INVESTMENT, THE TOTAL TRANSACTIONS IN SHARES AND BONDS AND DEBENTURES INCLUDING TAXABLE AND T AX FREE INSTRUMENTS WAS TO THE T UNE OF RS. 6,818 CRORE . HE ACC ORDINGLY CONCLUDED THAT THE ASSESSEE WAS TRADING HEAVILY I N TAX FREE INSTRUMENTS. HE FURTHER NOTICED THAT ASSESSEE HAS CONSIDERED ONLY THE INTEREST COST OF I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 8 FUNDS FOR THE P URPOSE OF DISALLOWANCE. HE WAS O F THE VIEW THAT SINCE THE BANK WAS ' CARRYING ON DIFF ERENT ACTIVITIES WHICH EARNED TAXABLE AS WELL AS TAX FREE INCOME THE BUSINESS OF THE ASSESSEE CANNOT BE TERMED AS INDIVISIBLE BUSINESS AND THEREFORE ALLOCATION OF EXPENSES IN PROPORTION BASIS NEEDS TO BE DONE TAKING INTO ACCOUNT, THE TOTAL FUNDS, INTEREST BEARING AND NON - INTEREST BEARING FUNDS WITH THE ASSESSEE . HE THEREAFTER WORKED OUT DISALLOWANCE U/S 14A AS UNDER: - TOTAL TAX - FREE INVESTMENTS A T 31 /3/2002 (RS. 414 CRORES + 14.92 CRORES) RS. 428. 92 CRORES PROPORTION OF TOTAL FUNDS TO INTEREST HEARING FUNDS 91%. PROPORTION OF INTEREST BEARING FUNDS USED FOR TAX FREE INVESTMENT (91% OF RS . 428. 92 CRORES) RS. 390.32 CRORES EXPENSES ALLOCATED TO SUCH AMOUNT OF RS. 390.32 CRORES @ 9 .4% ON THE BASIS OF AVERAGE COST OF BORROWAL - 9.4% OF RS.390.32CR . RS. 36.68CR OR ES TOTAL EXPENSES INCURRED FOR EARNING TAX - FREE INCOME IS RS. 36.68CR OR ES DISALLOWANCES U/S 14A RS. 36.68 CRORES ALREADY DISALLOWED BY ASSESSE E RS. 6.23 CRORES BALANCE DISAL LOWABLE RS. 30.45 CRORES I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 9 16. THE DISALLOWANCE WORK ED OUT BY THE AO WAS RS. 36.68 CRORE BUT SINCE THE ASSESSEE HAD ALREADY SUO MOTU DISALLOWED RS . 6.23 CRORE, HE MADE DISALLO WANCE OF BALANCE AMOUNT OF RS. 30.45 CRORE. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE CIT(A). CIT(A) AFTER CONS IDERI NG THE SUBMISSIONS MADE BY THE AS SESSEE GRANTED PARTIAL RELIEF TO THE ASSESSEE BY HOLDING AS UNDER: 6.3 AFTER CONSIDERING THE SUBMISSIONS OF THE APPELLANT AND THE CASE LAWS RELIED UPON, I AM OF THE OPINION THAT THE ACTION OF THE A. O. IS NOT CORRECT AS REGARDS DISALLOWING INTEREST EXPENSES AMOUNT AFTER ALLOCATING IT TO THE INVESTMENTS FOR EXEMPTED INCOME. THE APPELLANT HAS FILED THE DETAILS BEFORE THE A.O. ADMITTING THAT ONLY PART OF THE MEREST BEARING FUNDS IS USED FOR INVESTING IN THE INVESTMENTS, GIVING TAX EXEMPTED INCOME. THE INTEREST COST IS CALCULATED AT RS. 6.23 CR. WHICH IS OFFERED FOR TAXATION. HENCE, THE A.O. IS NOT JUSTIFIED IN FURTHER ALLOCATING THE INTEREST EXPENDITURE FOR THIS PURPOSE DISREGARDING THE FACT THAT THE APPELLANT HAS SURPLUS FUNDS. HOWEVER AS REGARDS THE OTHER OPERATING EXPENSES ARE CON CERNED, THE APPELLANT HAS NOT FILED ANY DETAILS AS TO HOW MUCH EXPENDITURE IS TO BE APPORTIONED FOR EARNING THE EXEMPTED INCOME. THE TOTAL OPERATING EXPENSES ARE RS. 205 .47 CR. AND THE EXEMPT INCOME CLAIMED BY THE APPELLANT IS RS. 39,65 CR. WHEREAS THE TOTAL INCOME EARNED BY THE APPELLANT IS RS. 1595.40 CR. HENCE THE EXEMPTED INCOME IS 2.485% OF THE TOTAL INCOME. THEREFORE, BY ALLOCATING THE OPERATING EXPENSES OF RS. 205.47 CR. IN THIS RATI O, THE EXPENSE ALLOCABLE TO THE EXEMPT INCOME COMES TO RS. 5.11 CR. (205.47 X 2.485%) THEREFORE, THIS EXPENDITURE HAS TO BE DISALLOWED OUT OF THE TOTAL EXPENDITURE FOR EARNING THE EXEMPT INCOME UNDER THE PROVISIONS OF SEC. 14A. THIS VIEW IS SUPPORTED BY TH E DECISIO N OF ITAT CHENNAI BENCH IN THE CASE OF SOUTHERN PET RO CHEMICALS INDUSTRIES V. DCI T, 93 TTJ 161 . AS PT THIS DECISIO N THE INVESTMENT DECISIONS ARE VERY STRATEGIC DECISIONS IN WHIC H TOP MANAGEMENT IS INVO LVED AND, THEREFORE, PROPORTIONAL MANAGEMENT EXPENSES ARE I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 10 REQUIRED TO BE DEDUCTED WHI L E COMPUTING THE EXEMPTED IN COME. ON SIMILAR LOGIC, THE OT HER OPERATING EXPENSES ARE AL SO TO BE DEDUCTED. THE APPELLANT HAS ALREADY DISALLOWED RS. 6.23 CR. OUT OF INTEREST EXPENDITURE. THE DISALLOWANCE OU T OF OPERATING EXPENSES COMES TO RS. 5.11 CR. WHICH IS JUSTIFIED. HENCE, THE DISALLOWANCE IS CONFIRMED TO THE EXTENT OF RS. 5.11 CR. AND THE BALANCE AMOUNT OF RS. 25.34 CR. IS DELETED. 17. AGGRIEVED BY THE ORDER OF CIT(A), THE ASSESSES AND REVENUE, BOTH ARE IN APPEAL BEFORE US: - 18 . BEFORE US, THE LEARNED A.R. PLACE D AT PAGE 61 OF THE PAPER BOOK THE CHART SHOWING OPENING POSITION OF INTE REST FREE FUNDS VIS - A - VIS TAX FREE INVESTMENT FOR VARIOUS YEARS STA RTING FROM 31ST MA RCH, 1995 TO 31ST MARCH, 2003. FR OM THE AFORESAID CHART, HE POINTED THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE IN THE FORM OF CAPITAL, RESERVES AND INTEREST FREE DEMAND DEPOSITS AGGREGATED TO RS. 1766 CRORE AS AGAINST WHICH THE TAX FREE INVESTMENT AT THE END OF THE YEAR WAS RS. 414 CRORE. HE THUS SUBMITTED THAT THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE FAR IN EXCESS OVER THE TAX FREE INVESTMENT AND I N PERCENTAGE TERMS, THE INTERES T FREE DEPOSITS IN RELATION TO TAX FREE FUNDS WORKED OUT TO 327%. HE FURTHER SUBMI TTED THAT IN VIEW OF THE FACT THAT INTEREST FREE FUNDS WAS FAR IN EXCESS OF TAX FREE INVESTMENTS, NO DISALLOWANCE U/S 14A WAS CALLED FOR. HE FURTHER SUBMITTED THAT THE DISALLOWANCE MADE SUO MOTO BY THE ASSESSEE OF RS. 6.23 CFORE SHOULD ALSO BE REVERSED FOR THE REASON THAT ON IDENTICAL FACTS IN THE CASE OF ASSESSEE, THE HON. TRIBUNAL HAD DELETED THE ADDITION MADE U/S 14A AND WHICH WAS ALSO UPHELD BY HON. GUJARAT HIGH COURT IN TAX APPEAL NO. 118/AHD/2013. HE PLACED ON RECORD AT PAGE 335 TO 372 THE ORDER OF TR IBUNAL FOR A. Y. 2003 - 04 AND AT PAGE 373 TO 378 THE ORDER OF GUJARAT HIGH COURT. THE LEARNED A.R. FURTHER SUBMITTED THAT SINCE NO AMOUNT OF DISALLOWANCE U/S 14A CAN BE MADE IN THE CASE OF THE ASSESSEE AND THEREFORE URGED TO DELETE THE ENTIRE DISALLOWANCE U/ S 14A. HE FURTHER SUBMITTED THAT THE DELETION OF ENTIRE DISALLOWANCE U/S 14A CAN BE RAISED BY THE ASSESSEE FOR THE FIRST TIME BEFORE TRIBUNAL AND FOR WHICH HE I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 11 PLACED RELIANCE ON THE DECISIONS IN THE CASE OF NATION AL THERMAL POWER COMPANY LIMITED VS. CIT 19 98 229 383 ITR (SC), JUTE CORPORATION OF INDIA VS. CIT (1991) 187 ITR 688 (SC) . HE ALSO PLACED RELIANCE ON THE DECISION IN THE CASE OF ASIT KUMAR GHOSH VS. CIT (1953) 24 ITR 576 FOR THE PROPOSITION THAT ESTOPPEL IS ONLY A RULE OF EVIDENCE AND NOT A CAUSE OF ACTION. IN ANY EVENT ESTOPPEL IS NOT A BASIS OF LIABILITY TO ASSESSMENT UNDER THE INCOME TAX ACT AND THEREFORE THE ASSESSMENT OF A PERSON FOR AN AMOUNT OF INCOME TO WHICH HE IS A STRANGER CANNOT BE BASED ON THE GROUND THAT HE HIMSELF WANTED TO BE AS SES SED ON IT. THE LEARNED D.R. ON THE OTHER HAND POINTED TO THE RELEV ANT PARAGRAPHS OF THE ORDER OF AO AND RELIED ON THE ORDER OF AO AND FURTHER SUBMITTED THAT THE AO HAS RIGHTLY MADE THE DISALLOWANCE U/S 14A AND THUS SUPPORTED HIS I ORDER. 19. WE HAV E HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL V ON RECORD. IT IS AN UNDISPUTED FACT THAT THE ASSESSEE HAS EARNED RS. 39.65 CRORE ON ACCOUNT OF INTEREST ON TAX FREE BONDS, DEBENTURES AND DIVIDEND INCOME WHICH HAS BEEN CLAIME D AS EXEMPT. IT IS ALSO A FACT THAT THE ASSESSEE WHILE COMPUTING THE TOTAL INCOME HAS SUO MOTO DISALL OWED RS. 6.32 CRORE U/S 14A. AO WORKED OUT THE DISALLOWANCE UNDER SECTION 14A AT RS. 36.68 CRORE AND AFTER SETTING OFF DISALLOWANCE MADE BY THE ASSESSEE, HE DISALLOWED RS. 30.45 CRORE. WE FIND THAT BEFORE AO, ASSESSEE HAS NOT RAISED THE CONTENTION ABOUT NO DISALLOWANCE U/S 14A AND THEREFORE THE AO HAD PROCEEDED AHEAD ON THE BASIS OF SUO MOTO DISALLOWANCE MADE BY THE ASSESSEE. CIT(A) HAD DELETED THE ADDITION TO THE EXTENT OF RS. 2 5.35 CRORE. WE FURTHER FIND THAT ON IDENTICAL FACTS FOR A.Y. 2003 - 04, (ITA NO 2571/AND/2006), THE CO - ORDINATE BENCH OF TRIBUNAL HAD RESTRICTED THE DISALLOWANCE TO THAT MADE BY THE ASSESSEE BY HOLDING AS UNDER: 33. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD. THE UNDISPUTED FACTS ARE THAT DURING THE YEAR THE ASSESSEE HAS EARNED INTEREST OF RS 17.45 CRORE ON TAX FREE BOND AND DEBENTURES AS AGAI NST WHICH THE ASSESSEE HAD SUO MOTO DISALLOWED RS 5.53 I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 12 CRORE BEING THE INTEREST EXPENSES U/S 14A AS AGAINST WHICH THE AO HAS WORKED OUT THE DISALLOWANCE OF RS 32.76 CRORE. AFTER GIVING THE CREDIT OF DISALLOWANCE OF RS 5.53 CRORE MADE BY THE - ASSESSES, THE AO DISALLOWED RS 27.23 CRORE U/S 14A. AS ON 31 MARCH 2003, THE INTEREST FREE FUNDS AVAILA BLE WIT H THE ASSESSEE WAS TO THE TUNE OF RS 3404 CRORE (COMPRISING OF SHARE CAPITAL OF RS 230 CRORE, RESERVES OF RS 689 CRORES AND INTEREST FREE DEMAND DEPOSITS OF RS 2485 CRORES) AS AGAINST WHICH THE TAX FREE INVESTMENTS WERE TO THE TUNE OF RS 589 CRORE. THUS THE INTEREST FREE FUNDS WERE, FAR IN EXCESS OF THE INVESTMENTS. CIT (A) HAS GIVEN A FINDING THAT THE FACTS IN AY 2003 - 04 ARE IDENTICAL TO THE FACTS OF THE CASE IN AY 2002 - 03 AND ACCORDINGLY HE HAS FOLLOWED THE DECISION OF CIT (A) FOR AY 2002 - 03. THESE FACTS HAVE NOT BEEN CONTROVERTED BY THE LD. D.R. NOR HAVE THEY BROUGHT ON RECORD ANY FACTS TO THE CONTRARY. HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES & POWER LTD (SUPRA) HAS HELD THAT IF THERE ARE INTEREST FRE E FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAS RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM INTEREST FREE FUNDS AVAILABLE. IN THE PRESENT CASE, SINCE THE ASSESSES HA S SUO MOTO DISALLOWED RS 5,53 CROR E U/S 14A, RESPECTFULLY FOLLOWING THE DECISION OF BOMBAY HIGH COURT, WE ARE OF THE VIEW THAT IN THE FACTS OF THE PRESENT CASE, NO FURTHER DISALLOWANCE OVER AND ABOVE THAN WHAT HAS BEEN DISALLOWED BY THE ASSESSEE IS CALLED FOR. AS FAR AS DISALLOWANCE OF OTH ER ADMINISTRATIVE EXPENSES IS CONCERNED, THE UNDISPUTED FACT IS THAT THE DISALLOW ANCE HAS BEEN MADE BY THE AO WITHOUT GIVING A FINDING AS TO HOW MUCH ADMINISTRATIVE EXPENDITURE HAS BEEN INCURRED TO EARN THE EXEMPT INCOME. IN THE CASE OF HERO CYCLES (SUPRA) THE HON'BLE HIGH COURT HAS HELD THAT THE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDIRECTLY SOME EXPENDITURE IS ALWAYS INCURRED WHICH MUST BE DISALLOWED U/S 14A CANNOT BE ACCEPTED. DISALLOWANCE U/S 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE. IN T HE PRESENT CASE, THE AO HAS PRESUMED THAT THE ASSESSEE MIGHT HAVE I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 13 INCURRED EXPENDITURE TO EARN THE EXEMPT INCOME. HE HAS NOT GIVEN ANY FINDING OF INCURRING OF EXPENDITURE. IN VIEW OF THESE FACTS AND RESPECTFULLY FOLLOWING THE DECISION OF HIGH COURT, WE ARE OF THE VIEW THAT NO DISALLOWANCE OF ADMINISTRATIVE EXPENSES CAN BE M ADE. WE ACCORDINGLY DIRECT FOR THE DELETION OF THE ADDITION MADE BY THE AO AND ALLOW THIS GROUND OF THE ASSESSEE. 20. BEFORE US, THE LEARNED A. R. HAS RAISED A NEW ARGUMENT W HEREIN IT WAS SUBMITTED THAT EVEN THE SUO MOTU DISALLOWANCE MADE BY THE ASSESSEE WHILE COMPUTING THE INCOME SHOULD BE DELETED AND FOR WHICH HE PLACED RELIANCE THE DECISION OF HON. CALCUTTA HIGH COURT AND THE DECISION OF SUPREME COURT. WE FIND THAT THIS GROUND WAS N OT TAKEN BY THE ASSESSEE BEFORE A.O. AND CIT(A). AO H AD PROCEEDED ON THE BASIS OF THE SUO - MOTO DISALLOWANCE MADE BY THE ASSESSEE. THUS THE AO OR CI T(A) DID NOT HAD ANY OPPORTUNITY TO EXAMINE THE AFORESAID CONTENTION AND THEREFORE THERE IS NO FINDING ON IT EITHER BY THE A.O. AND CIT(A). IN VIEW OF THESE FACTS, WE ARE OF THE VIEW THAT THE M ATTER WITH RESPECT TO NIL DISALL OWANCE UNDER 14A B E REMITTED BACK TO THE FILE OF AO FOR EXAMINING IT AFRESH. THUS THE MATTER IS REMITTED TO THE FILE OF AO AND HE IS DIRECT ED TO ADMI T T HE ISSUE AND DECIDE THE ISSU E AFRESH O N MERITS, AS PER LAW AFTER CONSIDERING THE SUBMISSIONS MADE BY THE ASSESSEE AND AFTER GIVING A REASONABLE OPPORTUNITY OF HEARING TO THE ASSESSEE. ASSESSEE IS ALSO DIRECTED AND FURNISH PROM PTLY THE DETAILS CALLED FOR BY THE AO TO DECIDE THE ISSUE. THUS THIS GROUND OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. T HE REVENUE S CORRESPONDING GROUND IN ITS CROSS APPEAL ALSO FOLLOWED SUIT. IT PREFERRED THE ABOVE STATED TAX APPEAL NO. 307 OF 2014 BEFORE THE HON BLE JURISDICTIONAL HIGH COURT. THEIR LORDSHIPS HAVE DIRECTED US TO DECIDE THE ENTIRE ISSUE AFTE R HEARING BOTH PARTIES I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 14 7. THE AS SESSEE SUBMITS THAT OUR ADJUDICATION IN THE INSTANT APPEAL IS CONFINED TO THE ISSUE OF SUO MOTO DISALLOWANCE ONLY AND NOT TO DECIDE THE CORRECTNESS OF ENTIRE DISALLOWANCE OF RS. 36.68 CRORES MADE IN THE COURSE OF ASSESSMENT. IT REFERS TO SECTION 260A (1) OF THE ACT AND TAKES US TO THE REVENUE S TWO SUBSTANTIAL QUESTIONS OF LAW . THE ASSESSEE ARGUES THAT THEIR LOR D SHIPS HAVE NOT FRAMED ANY ADDITIONAL SUBSTAN TIAL QUESTION OF LAW U/S. 260(4 ) OF THE ACT. IT CONTENDS THAT THE HON BLE JURISDICTIONAL HIGH COURT IN CASE OF MITESH IMPEX (SUPRA) HAS SETTLED THE LAW THAT FILLING OF A REVISED RETURN U/S. 139(5) OF THE ACT IS NOT MA NDATORY IF IT IS FOUND THAT THE CLAIM IN QUESTION IS VERY MUCH ADMISSIBLE UNDER THE LAW BUT NOT RAISED EITHER INADVERTENTLY OR ON ACCOUNT ERRONEOUS BELIEF BEFORE THE LOWE R AUTHORITIES . 8. THE ASSESSEE S SUBMISSIONS ON MERITS ARE THAT ITS SUO MOTO DISALL OWANCE OF RS. 6.23 CRORES IS QUA INTEREST SUMS ONLY. OUR ATTENTION IS INVITED TO PAGE 275 OF THE PAPER BOOK CONTAINING DETAILS OF ITS INTEREST FREE FUNDS VIS - - VIS TAX FREE INVESTMENT RIGHT FROM ITS INITIAL YEAR OF BUSINESS I.E. UP TO 31 - 03 - 1995 TO 31 - 03 - 2003. THE ASSESSEE S INTEREST FREE DEPOSITS IN THE IMP UGNED ASSESSMENT YEAR ARE RS. 1, 766 CRORES IN CAPITAL RESERVES AND DEPOSITS. TAX FREE INTEREST INVESTMENT IN QUESTION ARE OF RS. 4,14 CRORES LEAVING BEHIND A SURPLUS OF RS. 1,352 CRORES. THIS RESULT S IN SURPLUS PERCENTAGE OF INTEREST FREE FUNDS @ 327%. THE ASSESSEE THEN TAKES US TO ITS SUO MOTO DISALLOW ANCE COMPUTATION AT PAGE 274 OF THE PAPER BOOK. IT PLEADS THAT ITS INTEREST FREE FUNDS ARE MUCH MORE THAN TAX FREE I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 15 INVESTMENTS. THE TRIBUNAL IN ASS ESSMENT YEAR 2003 - 04 RELIED UPON THE CASE LAW OF CIT VS. RELIANCE UTILITIES AND POWER LTD 313 ITR 340 FOR DELETING AN IDENTICAL DISALLOWANCE. THE ONLY DIFFERENCE BEING THAT THE ASSESSEE THEREIN HAD NOT CHALLENGED SUO MOTO DISALLOWANCE. THE REVENUE FILED TAX APPEAL NO. 119 OF 2013 BEFORE THE HON BLE JURISDICTIONAL HIGH COURT. THE SAME STOOD DISMISSED O N 22 - 03 - 2013. THE REVENUE PREFERRED SPECIAL LEAVE PETITION (CIVIL) NO. 468 OF 2014. THE HON BLE APEX COURT IN ITS ORDER DATED 07 - 02 - 2014 ADMITTED IT ONLY QUA DISALLOWANCE OF ADMINISTRATIVE EXPENSES. THE ASSESSEE ACCORDINGLY SUBMITS THAT EVEN ON MERITS, IT DESERVES TO SUCCEED QUA THE ENTIRE ISSUE AS WELL. 9. THE REVENUE STRONGLY SUPPORTS ASSESSING OFFICER S ACTION IN MAKING THE ABOVE DISALLOWANCE OF RS. 36.68 CRORES. ITS CASE IS THAT THE CIT(A) HAS ERRED IN GRANTING PART REL IEF TO ASSESSEE. IT OPPOSES ASSESSEE S ARGUMENTS THAT OUR ADJUDICATION IS CONFINED TO THE LIMITED ISSUE OF SUO MOTO DISALLOWANCE ONLY BY REFERRING TO THE CRUCIAL EXPRESSION OF ENTIR E ISSUE USED IN THE HON BLE HIGH COURT REMAND DIR ECTIONS REPRODUCED HEREINABOVE. IT ACCORDINGLY PRESS ES FOR RESTORATION OF ENTIRE DISALLOWANCE AS AGAINST THAT ADDED SUO MOTO AND SEEKS REJECTION OF THE INS TANT APPEAL. CASE LAW OF (2014) 363 ITR 1 1 (KERA LA), SOU T H INDIAN BAN K LTD VS. CIT , (2011) 16 TAXMANN.COM 289 (KERLA) CIT VS. STATE BANK OF TRAVANCORE, (2015) TAXMANN.COM 297 (PAN) AVON CYCLES LTD VS. CIT IS ALSO QUOTED I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 16 10. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE CASE FILE. RELEVANT FACTS STAN D NARRATED IN THE PRECEDING PARAGRAPHS. THE ASSESSEE SUO MOTO DISALLO WED A SUM OF R S. 6.23 CRORES QUA ITS EXEMPT INCOME IN QUESTION. THIS AMOUNT IS ONLY INTEREST SUM QUA INCREMENTAL DEMAND DEPOSITS. THE ASSESSING OFFICER IN ASSESSMENT DISALLOWED A SUM OF RS. 36.68 CRORES MAINLY ON PROPORTIONATE BASIS BETWEEN TOTAL FUNDS VIS - - VIS INTEREST BEARING ONES . THE CIT(A) GRANTED PART RELIEF TO THE EXTE NT INDICATED HEREINABOVE. BOTH PARTIES CAME IN APPEAL. THE CO - ORDINATE BENCH IN FIRST ROUND REMITTED THE ENT IRE ISSUE BACK TO THE ASSESSING AUTHORITY . THE REVENUE CHALLENGED THIS ORDER BEFORE THE HON BLE JURISDICTIONAL HIGH COURT . THEIR LORDSHIPS OBSERVE IN ABOVE EXTRACTED ORDER THAT THE TRIBUNAL OUGHT TO HAVE GIVEN CONCLU SIVE OPINION . THIS BAC KDROP OF FACTS C ULMINATED IN THIS SECOND ROUN D OF PROCEEDINGS BEFORE US . 11. NOW WE COME TO FIRST DISPUTE BETWEEN THE PARTIES AS TO WHETHER OUR INSTANT ADJUDICATION IS CONFINED TO CORRECTNESS OF SUO MOTO DISALLOWANCE OF RS. 6.2 3 CRORES MADE TOWARDS EXEMPT INCOME OR THAT TO THE ENTIRE ISSUE OF SECTION 14A DISALLOWANCE MADE BY THE ASSESSING OFFICER TO THE TUNE OF 36.68 CRORES. IT HAS COME ON RECORD THAT THE TRIBUNAL IN FIRST ROUND HAD REMITTED THE ISSUE OF THIS DISALLOWANCE BACK TO THE ASSESSING AUTHORITY FOR AFRESH ADJUD ICATION . THE NET RESULT WAS THAT CORRESPONDING GROUND IN ASSESSEE S INSTANT APPEAL AS WELL AS THAT FILED AT REVENUE S BEHEST STOOD RE STORED FOR AFRESH ADJUDICATION. THE REVENUE S LIMITED GRIEVANCE WAS ACCORDINGLY CONFINED TO THE ISSUE OF SUO MOTO DISALLOW ANCE OF RS. 6.23 CRORES IN I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 17 ASSESSEE S APPEAL AS IT COULD NOT HAVE BEEN AGGRIEVED AGAINST THE TRIBUNAL S DECISION IN RESTORING THE ISSU E IN APPEAL. I T FRAMED ONLY TWO SUBSTANTIAL QUESTIO NS OF LAW BEFORE THE HO N BLE JURISDICTIONAL HIGH COURT I.E. SUO MOTO D ISALLOWANCE AND CORRECTNESS OF CO - ORDINATE BENCH DECISION IN ADMITTING ADDITIONAL GROUND (SUPRA). THEIR LORDSHIPS HON BLE JURISDICTIONAL HIGH COURT CONSIDERED TRIBUNAL S COMMON ORDER IN CROSS APPEAL FOR USING THE CRUCIAL EXPRESSION ENTIRE ISSUE IN THE OPE RATIVE PART OF PARA NO. 8 HEREINABOVE. WE REJECT ASSESSEE S FIRST ARGUMENT SEEKING TO RESTRICT OUR ADJUDICATION IN THESE FACTS AND CIRCUMSTANCES. AND PROCEED TO DECIDE THE ENTIRE ISSUE OF SECTION 14A DISALLOWAN CE . 12. WE COME TO MERITS NOW . WE HAVE ALREA DY NARRATED IN THE PRECEDING PARAGRAPHS THAT ASSESSEE S INTEREST FREE DEMAND DEPOSITS COMPRISING OF CAPITAL, RESERVES ETC READ A FIGURE OF RS. 1,766/ - CRORES AS AGAINS T TAX FREE INVESTMENTS OF RS. 4 14 CRORES (SUPRA). THIS RESULTS IN SURPLUS OF RS. 1352 CR ORES . THE ASSESSEE S SUO MOTO DISALLOWED SUM IS RS. 6.25 CRORES. WE NOTICE FROM PAGE 274 OF THE PAPER BOOK THAT THE SAME PERTAINS TO INCREMENTAL TERM DEPOSITS INTEREST COMPUTED ON V OLUNTARY BASIS. WE FIND THAT THE ASSESSEE S INTEREST FREE DEPOSITS EXCE ED ITS TAX FREE INVESTMENT IN SUCCEEDING ASSESSMENT YEAR 2003 - 04 AS WELL. THE TRIBUNAL AND HON BLE JURISDICTIONAL HIGH COURT DELETED AN IDENTICAL SECTION 14A DISALLOWANCE BASED ON THE VERY PRESUMPTION. THE HON BLE JURISDICTIONAL HIGH COURT IN TAX APPEAL NO. 119 OF 2013 DECIDES THE VERY QUESTION IN ASSESSEE S FAVOUR AS UNDER: - I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 18 2. QUESTION 1 ARISES OUT OF TWO CROSS APPEALS FILED BY THE REVENUE AND ASSESSEE BEFORE THE TRIBUNAL AGAINST THE ORDER OF THE APPELLATE COMMISSIONER. THIS ISSUE WAS CUMULATIVELY CO NSIDERED BY US IN TAX APPEAL NO. 118 OF 2013 IN WHICH ALSO ORDER HAS BEEN PASSED TODAY. WE HAD DECLINED THE QUESTION MAKING FOLLOWING OBSERVATIONS: '2. WE MAY NOTICE THAT THE APPELLANT HAS ALSO SUGGESTED AN ADDITIONAL ISSUE IN THE FOLLOWING MANNER: 'WHE THER THE APPELLATE T RIBUNAL HAS SUBSTANTIALLY ERRED IN HOLDING THAT DISALLOWANCE U/S. 14A REQUIRED 'FINDING OF INCURRING O F EXPENDITURE' FOR DISALLOWANCE OF PART OF ADMINISTRATIVE EXPENDITURE U/S. 14A, IN THE FACE OF FACTS THAT INFRASTRUCTURE AND HUMAN RES OURCES OF BANK WERE EMPLOYED FOR INVESTING ACTIVITIES WHICH EARNED EXEMPT INCOME, PARTICULARLY, WHEN THE ASSESSEE ITSELF DISALLOWED CERTAIN PART OF INTEREST EXPENDITURE U/S. 14A?' 3. THE ISSUE PERTAINS TO DISALLOWANCE UNDER SECTION 14A OF THE ACT MADE BY THE ASSESSING OFFICER WHICH WAS PARTIALLY DELETED BY THE CIT(A). SUCH ORDER OF CIT(A) GAVE RISE TO CROSS APPEALS AT THE HANDS OF THE ASSESSEE AS WELL AS THE REVENUE. TRIBUNAL CONFIRMED THE VIEW OF THE CIT(A) MAKING FOLLOWING OBSERVATIONS: '33. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL ON RECORD, THE UNDISPUTED FACTS ARE THAT DURING THE YEAR THE ASSESSEE HAS EARNED INTEREST OF RS. 17.45 CRORE ON TAX FREE BOND AND DEBENTURES AS AGAINST WHICH THE ASSESSEE HAD SUO MOTU DISALLOWED RS. 5.5 3 CRORE BEING THE INTEREST EXPENSES U/S. 14A AS AGAINST WHICH THE AO HAS WORKED OUT THE DISALLOWEANCE OF RS. 32.76 CRORE. AFTER GIVING THE CREDIT OF DISALLOWANCE OF RS. 5.53 CRORE MADE BY THE ASSESSEE, THE AO DISALLOWED RS. 27.23 CRORE U/S. 14A. AS ON 31 ST MARCH, 2003, THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WAS TO THE TUNE OF RS. 3404 CRORE (COMPRISING OF SHARE CAPITAL OF RS. 230 CRORE RESERVES OF RS. 689 CRORES AND INTEREST FREE DEMAND I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 19 DEPOSITS AND RS. 2485 CRORES) AS AGAINST WHICH THE TAX FR EE INVESTMENTS WERE TO THE TUNE OF RS. 589 CRORE. THUS THE INTEREST FREE FUNDS WERE FAR IN EXCESS OF THE INVESTMENTS. CIT(A) HAS GIVEN A FINDING THAT THE FACTS IN AY 2003 - 04 ARE IDENTICAL TO THE FACTS OF THE CASE IN AY 2002 - 03 AND ACCORDINGLY HE HAS FOLL OWED THE DECISION OF CIT(A) FOR AY 2002 - 03. THESE FACTS HAVE NOT BEEN CONTROVERTED BY THE LD. D.R. NOR HAVE THEY BROUGHT ON RECORD ANY FACTS TO THE CONTRARY. HON'BLE BOMBAY HIGH COURT IN CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. (SUPRA) HAS HELD THA T IF THERE ARE INTEREST FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAS RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM INTEREST FREE FUNDS AVAILABLE . IN THE PRESENT CASE, SINCE T HE ASSESSEE HAS SUO MOTO DISALLOWED RS. 5.53 CRORE U/S. 14A, RESPECTFULLY FOLLOWING THE DECISION OF BOMBAY HIGH COURT, WE ARE OF THE VIEW THAT IN THE FACTS OF THE PRESENT CASE, NO FURTHER DISALLOWANCE OVER AND ABOVE THAN WHAT HAS BEEN DISALLOWED BY THE ASS ESSEE IS CALLED FOR. AS FAR AS DISALLOWANCE OF OTHER ADMINISTRATIVE EXPENSES IS CONCERNED, THE UNDISPUTED FACT IS THAT THE DISALLOWANCE HAS BEEN MADE BY THE AO WITHOUT GIVING A FINDING AS TO HOW MUCH ADMINISTRATIVE EXPENDITURE HAS BEEN INCURRED TO EARN THE EXEMPT INCOME. IN THE CASE OF HERO CYCLES (SUPRA) THE HON'BLE HIGH COURT HAS HELD THAT THE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDIRECTLY SOME - EXPENDITURE IS ALWAYS INCURRED WHICH MUST BE DISALLOWED U/S. 14A CANNOT BE ACCEPTED. DISALLOWANCE U/S. 1 4A REQUIRES FINDING OF INCURRING OF EXPENDITURE, THE PRESENT CA SE, THE AO HAS PRESUMED THAT THE ASSESSEE MIGHT HAVE INCURRED EXPENDITURE TO EARN THE EXEMPT INCOME. HE HAS NOT GIVEN ANY FINDING OF INCURRING OF EXPENDITURE. IN VIEW OF THESE FACTS AND RESPECT FULLY FOLLOWING THE DECISION OF HIGH COURT, WE ARE OF THE VIEW THAT NO DISALLOWANCE OF ADMINISTRATIVE EXPENSES CAN BE MADE. WE ACCORDINGLY DIRECT FOR THE DELETION OF THE ADDITION MADE BY THE AO AND ALLOW THIS GROUND OF THE ASSESSEE. ' 4. IN OUR OPINION TH E TRIBUNAL HAS COMMITTED NO ERROR. BASICALLY THE ENTIRE DISALLOWANCE HAS BEEN MADE ON THE BASIS OF FACTS EMERGING ON RECORD. THE TRIBUNAL ALSO RELIED ON THE I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 20 DECISION OF THE BOMBAY HIGH COURT IN CASE OF CIT VS. RELIANCE UTILITIES & POWER LTD. REPORTED IN 31 3 ITR 340 . ADDITIONALLY, WE FIND THAT THE ASSESSING OFFICER HAD, WITHOUT GIVING A FINDING AS TO HOW MUCH ADMINISTRATIVE EXPENDITURE HAVE BEEN INCURRED TO EARN THE EXEMPT INCOME, HAD MADE DISALLOWANCE. IN THE EARLIER YEARS ALSO, SIMILAR POSITION OBTAINED. T HAT BEING THE FACT, NO QUESTION OF LAW ARISES. 5. IN THE RESULT, TAX APPEAL IS ADMITTED ONLY FOR ABOVE NOTED QUESTION.' T HE REVENUE S SPECIAL LEAVE P ETITION (SUPRA) STAND ADMITTED QUA ADMINISTRATIVE EXPENSES ONLY . THE ONLY DISTINCTION THAT IS TO BE SEEN IN THESE TWO ASSESSMENT YEARS IS THAT THE ASSESSEE HAS SUO MOTO DISALLOWED RS. 6.23 CRORES IN THE IMPUGNED ASSESSMENT YEAR. TH E REVENUE SEEKS TO APPLY ESTOP P EL PRINCIPLE . WE ARE OF T HE VIEW THAT PURPOSE OF SCRUTINY ASSESSMENT IS TO DETERMINE CORRE CT TAXABLE INCOME AS PER LAW AND NOT TO RELY ON SUCH TECHNICALITIES. THE SAME PRINCIPLE APPLIES EVEN IN APPELLATE PROCEEDINGS BEING IN THE NATURE OF CONTINUITY OF ORIGINA L PROCEEDINGS. THEREFORE, WE FOLLOW CONSISTENCY AND HOLD THAT THE IMPUGNED DISALLOWA NCE OF RS. 36.68 CRORES MADE IN THE COURSE OF ASSESSMENT PARTLY SUSTAINED IN LOWER APPELLATE PROCEEDINGS; SUO MOTO OR THE ONE COMPUTED BY THE LOWER AUTHORITIES, IS NOT LIABLE TO BE SUSTAINED. THE REVENUE S RELIANCE PLACED ON CASE LAW GOETZE INDIA LTD VS. CIT (2006) 284 ITR 323 (SC) THAT THE ASSESSEE OUGHT TO HAVE FILE A REVISED RETURN FOR DELETING THIS SUO MOTO ADDITION ALSO STANDS DECIDED IN ASSESSEE S FAVOUR BY HON BLE JURISDICTIONAL HIGH COURT IN CASE OF MITESH IMPEX (SUPR A) FOR HOLDING THAT IF A CLAI M THOUGH AVAILABLE IN LAW IS NOT MADE EITHER INADVERTENTLY I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 21 OR ON ACCOUNT OF ERRONEOUS OF BELIEF OF COMPLEX LEGAL POSITION , SUCH CLAIM CANNOT BE SHUT OUT FOR ALL TIMES TO COME MERELY BECAUSE IT IS RAISED FOR THE FIRST TIME BEFORE THE APPELLATE AUTHORITY WIT HOUT RESORTING TO REVISING THE RETURN BEFORE THE ASSESSING AUTHORITY. WE DRAW SUPPORT FROM THIS DECISION FOR ACCEPTING THE ASSESSEE S ADDITIONAL GROUND LEADING TO OUR ADJUDICATION IN ITS FAVOUR ON MERITS. THE ENTIRE DISALLOWANCE OF RS. 36.68 CRORES MADE BY THE ASSESSING OFFICER INCLUDING THAT ADDED SUO MOTO AT ASSESSEE S BEHEST OF RS. 6.23 CRORES IS DELETED BY PLACING RELIANCE ON THE HON BLE JURISDICTIONAL HIGH COURT DECISION FOR SUCCEEDING ASSESSMENT YEAR. THE ASSESSEE S ARGUMENTS ON MERITS ARE ACCEPTED . THE REVENUE S CASE LAW (SUPRA) DOES NOT HOLD GROUND IN VIEW OF HON BLE JURISDICTIONAL HIGH COURT S DECISION IN ASSESSEE S OWN CASE FOR SUCCEEDING ASSESSMENT YEAR. T HE LD. ASSESSING OFFICER NEED NOT PROCEED WITH THE EARLIER REMAND DIRECTIONS. ITA 152/AH D/2006 IS ALLOWED ON THE ISSUE OF SECTION 14A DISALLOWANCE . 13. SAME ORDER TO FOLLOW IN REMAINING TWO ASSESSEE S APPEALS ITA 2572/AHD/2006 AND ITA 65/AHD/2009. 14. THESE THREE ASSESSEE S APPEALS ARE ALLOWED. ORDER PR ONOUNCED IN THE OPEN C O URT ON 28 - 10 - 2015 SD/ - SD/ - ( ANIL CHATURVE DI ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 28 /10 /2015 I.T.A NO S . 152 & 2572 /AHD/20 06 & 65/AHD/2009 A. Y. 2002 - 03 ,04 - 05 & 05 - 06 PAGE NO UTI BANK LTD VS. ACIT 22 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,