DCIT 10(1), MUMBAI V. SONATA INVESTMENTS LTD, MUMBAI

ITA 6931/MUM/2013

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 9907 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 7 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-07-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2009-2010
• Appeal Filed On: 28-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: B PRUSETH
• Keywords: Business income; Earning of tax free income; Question of law; Bad and doubtful debts; Right to appeal; Revised return; Bonafide mistake; Revenue expenditure
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH D, MUMBAI BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER ITA NO.7177/M/2013 ASSESSMENT YEAR: 2009-10 M/S. CREST LOGISTICS AND ENGINEERS PRIVATE LIMITED, (ERSTWHILE REL UTILITY ENGINEERS LTD. FORMERLY KNOWN AS REL UTILITY ENGINEERS LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.), DEVIDAS LANE, NEAR MTNL, OFF SVP ROAD, BORIVALI (W) 400 103 PAN: AACCR 7266A VS. ADDL. CIT - 10(1), [NEW JURISDICTION ADDL. CIT 14(3)(1)] AAYAKAR BHAVAN, M.K. ROAD, MUMBAI - 400020 (APPELLANT) (RESPONDENT) ITA NO.6931/M/2013 ASSESSMENT YEAR: 2009-10 DY. COMMISSIONER OF INCOME TAX-14(1)(2), ROOM NO.470, 4 TH FLOOR, AAYAKAR BHAVAN, MAHARSHI KARVE ROAD, MUMBAI - 400020 VS. M/S. CREST LOGISTIC & ENGINEERING LTD., (FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 307, CHARTED HOUSE, 297/299, DR. CAWASJI HORMOSJI STREET, NEW MARINE LINES, MUMBAI 400 002 PAN: AACCR 7266A (APPELLANT) (RESPONDENT) PRESENT FOR: ASSESSEE BY : SHRI JITENDRA SANGHVI, A.R. REVENUE BY : SHRI B. PRUSETH, D.R. DATE OF HEARING : 05.06.2017 DATE OF PRONOUNCEMENT : 14.07.2017 O R D E R PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 24.09.2013 OF THE COMMISSIONER OF INCOME TAX (APPEALS) [HEREINAFTER REFERRED TO AS THE CIT(A)] RELEVANT TO ASSESSMENT Y EAR 2009-10. ITA NO.7177/M/2013 & ITA NO.6931/M/2013 M/S. CREST LOGISTIC & ENGINEERING PVT. LTD., (FORMERLY KNOWN AS REL UTILITY ENGINEERS PVT. LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 2 2. THE ASSESSEE ORIGINALLY HAS TAKEN ONLY ONE SUBST ANTIVE GROUND. LATER ON, THE ASSESSEE MOVED AN APPLICATION FOR ADMISSION OF ADDITIONAL GROUNDS OF APPEAL. ARGUMENTS WERE HEARD IN RESPECT OF ORIGINA L GROUND NO.1 OF THE APPEAL AS WELL AS ON THE ISSUE OF ADMISSION OF APPLICATION FOR TAKING ADDITIONAL GROUNDS OF APPEAL AND ALSO ON THE MERITS OF ADDITIO NAL GROUNDS OF APPEAL. FIRST WE TAKE UP THE GROUND NO.1 OF THE APPEAL. GROUND NO.1 GROUND NO.1 OF THE APPEAL READ AS UNDER: 1. A) THE LEARNED COMMISSIONER OF INCOME TAX (APPE ALS) [HEREINAFTER REFERRED TO AS CIT(A) ERRED IN DISALLOWING THE CLAI M FOR LOSS ON ASSIGNMENT OF LOANS AMOUNTING TO RS.69,53,99,282/-) 5. THE ASSESSEE, IN THIS GROUND, HAS AGITATED THE A CTION OF THE LOWER AUTHORITIES IN DISALLOWING THE CLAIM FOR LOSS ON AS SIGNMENT OF LOANS AMOUNTING TO RS.69,53,99,282/-. THE BRIEF FACTS RELEVANT TO THE ISSUE UNDER CONSIDERATION ARE THAT THE ASSESSEE COMPANY IS ENGAGED IN THE BUS INESS OF INVESTMENT AND NON BANKING FINANCIAL ACTIVITIES. THE ASSESSEE DURING THE YEAR HAD GRANTED LOANS AND EARNED INTEREST THEREUPON. DURING THE YEAR, TH E ASSESSEE VIDE AGREEMENT DATED 23.02.2007 PURCHASED FROM ANOTHER COMPANY M/ S RELIANCE CAPITAL LTD. AN OUTSTANDING LOAN STANDING AGAINST ONE PAR VATI TRADING AND FINANCE CO. PVT. LTD.. THE LOAN ORIGINALLY GRANTED BY REL IANCE CAPITAL TO PARVATI TRADING FROM TIME TO TIME WAS RS.64,38,00,000/- AN D ALONG WITH INTEREST THEREON RELIANCE CAPITAL HAD TO RECEIVE AN AMOUNT OF RS.69,53,99,282/- AS ON 31.12.2006. THIS LOAN OF RS.69,53,99,282/- WAS ASSI GNED BY RELIANCE CAPITAL TO THE ASSESSEE. THE ASSESSEE ALSO HAD EARLIER GIVE N LOAN OF RS.6,66,00,000/- TO PARVATI TRADING. THUS THE TOTAL OUTSTANDING AMOUN T RECEIVABLE BY THE ASSESSEE FROM PARVATI TRADING AND FINANCE CO. PVT. LTD. WA S RS.76,19,99,282/-. ON ACCOUNT OF NON REPAYMENT OF THE INTEREST & LOAN GRA NTED TO PARVATI TRADING AND FINANCE CO. PVT. LTD, THE ASSESSEE ASSIGNED TH E LOAN TO PEARL HOUSING ITA NO.7177/M/2013 & ITA NO.6931/M/2013 M/S. CREST LOGISTIC & ENGINEERING PVT. LTD., (FORMERLY KNOWN AS REL UTILITY ENGINEERS PVT. LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 3 FINANCE (INDIA) LTD. AS PER THE LETTER OF ASSIGNME NT DATED 31.03.2009 FOR AN AMOUNT OF RS.1,00,00,000/-. THUS THE LOSS IN RESPEC T OF THE ABOVE LOAN ASSIGNMENT TRANSACTION AMOUNTING TO RS.75,19,99,282 /- WAS DEBITED TO PROFIT AND LOSS ACCOUNT AND WAS CLAIMED AS BUSINESS LOSS. THE AO DISALLOWED THE SAID LOANS TREATING IT AS CA PITAL IN NATURE OBSERVING THAT THE SAME REPRESENTS THE LOSS OF PRIN CIPAL AMOUNT OF LOAN AND DOES NOT CONSTITUTE WRITE OFF OF INCOME BY WAY OF I NTEREST. 6. IN APPEAL, THE LD. CIT(A) CONFIRMED THE ABOVE OB SERVATIONS OF THE AO OBSERVING AS UNDER: 3.3. I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE. RELIANCE CAPITAL HAS LENT A LOAN OF RS.64,38,00,000/- TO PAR VATI TRADING AND FINANCE CO. P. LTD. AND ALONGWITH INTEREST THE AMOUNT COMES TO RS. 69,53,99,282/-. THIS LOAN WAS ASSIGNED TO THE APPELLANT ON 23.02.2007. THE APPELL ANT HAD EARLIER GIVEN LOAN OF RS.6,66,00,000/- TO PARVATI TRADING AND FINANCE CO. PVT. LTD.. THUS THE TOTAL OUTSTANDING AMOUNT RECEIVABLE FROM PARVATI TRADING AND FINANCE CO. PVT. LTD. WAS RS.76,19,99,282/-. ON ACCOUNT OF NON REPAY MENT OF THE LOAN GRANTED TO PARVATI TRADING AND FINANCE CO. PVT. LTD., THE APPE LLANT ASSIGNED THE LOAN TO PEARL HOUSING FINANCE (INDIA) LTD. FOR AN AMOUNT OF RS.1, 00,00,000/- AS PER ASSIGNMENT LETTER DATED 31.03.2009. THE REST OF THE AMOUNT I.E. RS.75,19,99,282/- IS WRITTEN OFF AS LOSS. THE A.O. DISALLOWED THIS LOSS TREATING IT AS CAPITAL IN NATURE. IF WE EXAMINE THE ABOVE TWO TRANSACTIONS WHICH WERE WRITTEN OFF BY THE APPELLANT AND WAS ASSIGNED BY THE APPELLANT TO PEAR L HOUSING FINANCE (INDIA) LTD. FOR RS.1,00,00,000/-, IN ONE TRANSACTION THE APPELL ANT HAD PURCHASED LOAN FROM RELIANCE CAPITAL LTD. OF RS.69,53,99,282/- ON 23.02.2007. ON EXAMINATION OF DETAILS IT IS CLEAR THAT PARVATI TRA DING AND FINANCE CO. PVT. LTD. WAS NOT EVEN PAYING INTEREST AND PRINCIPLE TO RELIANCE CAPITAL. THIS LOAN WAS SHIFTED BY RELIANCE CAPITAL TO ITS SISTER CONCERN FOR THE SAME AMOUNT WHICH WAS DUE IN THEIR BOOKS. THUS SHIFTING OF THE LOAN CLEARLY SHOWS THAT APPELLANT HAD NO CHANCE OF RECEIVING ANY INTEREST FROM THAT LOAN AS PARVATI TR ADING AND FINANCE CO. PVT. LTD. IS NOT PAYING SINGLE PAISA AS INTEREST TO RELIANCE CAP ITAL LTD. APPELLANT HAD PURCHASED THIS LOAN ONLY TO RECOVER THE CAPITAL AS THERE IS N O REVENUE RECEIVING POTENTIAL IN THE CASE OF PARVATI TRADING AND FINANCE CO. PVT. LT D. THE AIM OF THE APPELLANT IS TO RECOVER THE CAPITAL. THIS LOAN WHICH WAS PURCHAS ED BY THE APPELLANT IS ONLY FOR THE PURPOSE OF CAPITAL PURPOSES AND ANY LOSS INCURR ED BY THE APPELLANT IS CAPITAL LOSS. HENCE, A.OS TREATING THIS LOAN AS CAP ITAL IN NATURE IS CORRECT AND DISALLOWANCE OF RS.69,53,99,282/- IS UPHELD. THE APPELLANT HAD RELIED ON THE CASE LAWS OF KOTAK SECURITIES LTD. V ADDL. CIT 318 ITR (AT) 268, CIT V D B (INDIA) SECURITIES 318 ITR 26 (DELHI), MADHUR ITA NO.7177/M/2013 & ITA NO.6931/M/2013 M/S. CREST LOGISTIC & ENGINEERING PVT. LTD., (FORMERLY KNOWN AS REL UTILITY ENGINEERS PVT. LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 4 SHARES & STOCK (P.) LTD. V ACIT 41 SOT 373 (AHD). O N EXAMINATION OF THE FACTS OF THE ABOVE CASE LAWS, THEY ARE ALL IN THE CASE OF ON LY FIRST ASSIGNMENT OF LOAN I.E. APPELLANT ASSIGNED THE LOAN TO SOME OTHER PURCHASES BUT IN OUR CASE THE LOAN WAS SHIFTED TO APPELLANT BY RELIANCE CAPITAL THIS I N TURN WAS ASSIGNED TO PEARL HOUSING FINANCE (INDIA) LTD. HENCE, THE FACTS ARE T OTALLY DIFFERENT AND THE ISSUE INVOLVED IS DISTINGUISHABLE. REGARDING SECOND TRANSACTION WHERE THE APPELLANT HA D EXTENDED RS.6,66,00,000/- LOAN TO PARVATI TRADING AND FINANC E CO. PVT. LTD. WHICH WAS ASSIGNED BY THE APPELLANT TO PEARL HOUSING FINANCE (INDIA) LTD. FOR THIS AMOUNT DEDUCTION CAN BE ALLOWED FOLLOWING THE ABOVE MENTIO NED THREE DECISIONS. HENCE, A.O'S ADDITION IS RESTRICTED TO RS.69,53,99, 282/-. THESE GROUNDS OF APPEAL ARE PARTLY ALLOWED . 7. BEING AGGRIEVED BY THE ABOVE CONFIRMATION OF DIS ALLOWANCE BY THE LD. CIT(A) OF LOSS ON LOAN ASSIGNMENT, THE ASSESSEE HAS COME IN APPEAL BEFORE US. 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE ALS O GONE THROUGH THE RECORD. ADMITTEDLY, THE LOAN ADVANCED BY RELIANCE CAPITAL TO PARVATI TRADING AND FINANCE CO. PVT. LTD. HAD BEEN ASSIGNE D TO THE ASSESSEE ON 23.02.07 WHICH WAS TWO YEARS BACK, THE GENUINENESS OF THE SAID TRANSACTION HAS NOT BEEN DOUBTED BY THE AO. MOREOVER, IT WILL NOT B E PROPER TO LOOK INTO THE GENUINENESS OR OTHERWISE OF THE SAID TRANSACTION DU RING THE SUBSEQUENT YEAR. EVEN, IT IS ALSO AN ADMITTED FACT THAT THE ASSESSEE COMPANY HAD ALREADY BEEN RUNNING INTO LOSSES WHEREAS AS PER THE VERSION OF L D. D.R., HIMSELF, THE ASSIGNER COMPANY RELIANCE CAPITAL HAS A GOOD FINA NCIAL STATUS. THE LOAN WAS ASSIGNED AT ITS ACTUAL COST WITHOUT ANY LOSS BY THE RELIANCE CAPITAL TO THE ASSESSEE COMPANY. HENCE, UNDER THE CIRCUMSTANCES T HERE WAS NO ATTEMPT ON THE PART OF THE ASSIGNER COMPANY TO REDUCE ITS TAX LIABILITY. THUS THE SAID ASSIGNMENT TRANSACTION BETWEEN ASSESSEE AND RELIANC E CAPITAL, CAN NOT BE SAID TO BE A COLOURABLE DEVICE AT THIS STAGE. NOW COMING TO THE ASSIGNMENT OF LOAN BY THE ASSESSE E COMPANY TO PEARL HOUSING FINANCE (INDIA) LTD. THE SAME HAS BEEN AS SIGNED FOR AN AMOUNT OF RS.1,00,00,000/- AND THE REST OF THE AMOUNT OF RS.7 5,19,99,282/- HAS BEEN WRITTEN OFF AS LOSS. ADMITTEDLY, THE ASSESSEE IS A FINANCE COMPANY AND IS IN THE ITA NO.7177/M/2013 & ITA NO.6931/M/2013 M/S. CREST LOGISTIC & ENGINEERING PVT. LTD., (FORMERLY KNOWN AS REL UTILITY ENGINEERS PVT. LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 5 OPERATION OF LENDING ACTIVITY. IT IS ALSO AN ADMIT TED FACT THAT THE ASSESSEE COULD NOT RECOVER THE SAID AMOUNT FROM PARVATI TRADING A ND FINANCE CO. PVT. LTD. AND HENCE HAS ASSIGNED THE SAID LOAN AT A LOSS TO PEARL HOUSING FINANCE (INDIA) LTD. THE ASSESSEE GOT ASSIGNMENT OF LOAN FROM RELI ANCE CAPITAL IN THE ORDINARY COURSE OF BUSINESS AND HENCE, THE ASSESSEE BECOME LENDER OF THE MONEY ADVANCED TO PARVATI TRADING AND FINANCE CO. PVT. LTD. THE MONEY LENT, THUS, HAS TO BE TREATED AS LENT BY THE ASSESS EE IN THE ORDINARY COURSE OF MONEY LENDING ACTIVITY CARRIED OUT BY THE ASSESSEE. SINCE THE AMOUNT WAS NOT RECOVERABLE, THE LOAN WAS TRANSFERRED/ASSIGNED TO T HE THIRD PARTY AT A LOSS AND THE NATURE AND CHARACTER OF SUCH A LOSS IS THAT OF A BUSINESS LOSS. EVEN OTHERWISE, SAID LOSS CAN ALSO BE SAID TO BE OF THE NATURE OF BAD DEBT WRITTEN OFF. SUCH BAD DEBT WRITTEN OFF OF THE MONEY LENT IN OR DINARY COURSE OF BUSINESS OF MONEY LENDING IS ALLOWABLE AS DEDUCTION UNDER SEC TION 36(1)(VIII) READ WITH SECTION 36(2)(I) OF THE INCOME TAX ACT. UNDER THE CIRCUMSTANCES, THE ASSESSEE BEING A NBFC (NON-BANKING FINANCIAL COMPANY), THE L OSS WRITTEN OFF IS ALLOWABLE AS A REVENUE EXPENDITURE BEING IN THE NAT URE OF BAD DEBTS WRITTEN OFF. IT CANNOT BE SAID TO BE A CAPITAL LOSS. EVEN OTHER WISE, THE OBSERVATION OF THE LD. CIT(A) THAT THE ASSESSEE HAD PURCHASED THIS LOA N ONLY TO RECOVER THE CAPITAL HAS NO BASIS OR RELEVANCE AT ALL SO FAR AS THE ISSU E UNDER CONSIDERATION IS CONCERNED. EVEN THE LD. CIT(A) HAS TRIED TO DISTIN GUISH THE VARIOUS CASE LAWS RELIED UPON BY THE ASSESSEE OBSERVING THAT IN THOSE CASES THERE WAS ONLY FIRST ASSIGNMENT OF LOAN. HOWEVER, IN THE CASE OF THE AS SESSEE THERE WAS SECOND ASSIGNMENT OF LOAN. IN OUR VIEW, THIS CANNOT BE HE LD TO BE A DISTINGUISHABLE FACT FOR THE APPLICATION OF LAW. IF THE ASSIGNMENT IS IN THE REGULAR COURSE OF BUSINESS, IT IS IMMATERIAL FOR THE PURPOSE OF APPLI CATION OF LAW AS WHETHER THE ASSIGNMENT WAS FOR THE FIRST TIME OR SECOND TIME. WE, THEREFORE, DO NOT FIND ANY JUSTIFICATION ON THE PART OF LOWER AUTHORITIES IN DISALLOWING THE CLAIM OF THE ASSESSEE ON THIS ISSUE. THE ORDERS OF THE LOWER AU THORITIES ON THIS ISSUE ARE SET ASIDE AND THE AO IS DIRECTED TO ALLOW THE LOSS AS R EVENUE LOSS TO THE ASSESSEE. ITA NO.7177/M/2013 & ITA NO.6931/M/2013 M/S. CREST LOGISTIC & ENGINEERING PVT. LTD., (FORMERLY KNOWN AS REL UTILITY ENGINEERS PVT. LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 6 9. NOW COMING TO THE ADDITIONAL GROUNDS OF APPEAL. THE ASSESSEE HAS MOVED AN APPLICATION FOR ADMISSIO N OF ADDITIONAL GROUNDS OF APPEAL. THE ADDITIONAL GROUNDS SOUGHT T O BE PRESSED BY THE ASSESSEE READ AS UNDER: 1. WITHOUT PREJUDICE TO GROUND NO. 1 IN THE ORIGINAL MEMO OF APPEAL ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEA RNED CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LEARNED ADDITIONAL COM MISSIONER OF INCOME TAX, CIRCLE -10(1), MUMBAI ('ASSESSING OFFICER') IN DISA LLOWING AND ACCEPTING THE CLAIM OF BUSINESS LOSS OF RS.69,53,99,282/- ON ASSIGNMENT OF LOAN AND HOLDING THE SAME AS CAPITAL LOSS AND THEREAFTER ALLOWING NOT SHORT TERM CAPITAL LOSS ON ASSIGNMENT OF SAID LOAN WHILE COMPUTING THE INCOME UNDER THE HEAD OF 'CAPITAL GAIN'. THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIR ECTED TO ALLOW THE SHORT TERM CAPITAL LOSS OF RS.69,53,99,282/- ON ASSIGNMENT OF LOAN WHILE COMPUTING THE INCOME UNDER THE HEAD 'CAPITAL GAIN'. 2. DISALLOWANCE ULS.14A ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED ASSESSING OFFICER ERRED IN NOT RESTRICTING THE DISA LLOWANCE U/S. 14A OF THE ACT R.W. RULE 8D OF THE RULES TO THE EXTENT OF EXEMPT INCOME OF RS. 15,27,01,737/- EARNED BY THE APPELLANT DURING THE YEAR. THE APPELLANT SUBMITS THAT THE ASSESSING OFFICER BE DIRECTED TO RESTRICT THE DISALLOWANCE U/S. 14A OF THE ACT TO TH E EXTENT OF EXEMPT INCOME OF RS.15,27,01,737/- EARNED BY THE APPELLANT DURING THE YEAR AS AGAINST THE DISALLOWANCE OF RS. 140,66,66,996/- MAD E IN THE ASSESSMENT ORDER. 10. A PERUSAL OF THE ABOVE GROUNDS OF APPEAL REVEAL S THAT NO NEW FACTS HAVE TO BE ESTABLISHED FOR THE ADJUDICATION OF THE ABOVE GROUNDS, RATHER THE ASSESSEE HAS SOUGHT TO TAKE THESE LEGAL GROUNDS ON THE BASIS OF THE RELEVANT FACTS WHICH ARE ALREADY ON THE FILE. ADDITIONAL GROUND NO.1, SOUGHT TO BE PRESSED BY THE ASSESSEE, IS IN THE SHAPE OF AN ALTERNATE GROUND . THIS GROUND OF APPEAL, IN OUR VIEW, IS NOT AN ADDIT IONAL GROUND OF APPEAL, RATHER THE ASSESSEE JUST HAS PRAY ED FOR CONSEQUENTIAL BENEFITS OF CLAIM OF CAPITAL LOSS UNDER THE RELEVANT HEAD C APITAL GAINS EVEN IF, THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES IS CONFI RMED AS CAPITAL LOSS; WHICH OBVIOUSLY THE AO OTHERWISE IS BOUND TO GIVE. ITA NO.7177/M/2013 & ITA NO.6931/M/2013 M/S. CREST LOGISTIC & ENGINEERING PVT. LTD., (FORMERLY KNOWN AS REL UTILITY ENGINEERS PVT. LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 7 HOWEVER, AS DISCUSSED ABOVE, WE HAVE ALREADY ALLOWE D THE MAIN CLAIM OF THE ASSESSEE FOR TREATING THE LOSS ON ACCOUNT OF ASSIGN MENT OF LOAN AS BUSINESS LOSS, HENCE THIS ADDITIONAL GROUND TAKEN BY THE AS SESSEE, EVEN OTHERWISE, HAS BECOME INFRUCTUOUS AND DOES NOT REQUIRE ANY ADJUDIC ATION. THE SECOND ADDITIONAL GROUND SOUGHT TO BE RAISED BY THE ASSESSEE IS REGARDING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE SAID GROUND BY THE ASSESSEE HAS BEEN TAKEN AT THIS STAGE, BECAUSE OF T HE SUBSEQUENT EVOLUTION OF LAW THROUGH JUDICIAL INTERPRETATION OF THE RELEVANT PROVISIONS OF SECTION 14A. THE QUESTION AS TO WHETHER THE ASSESSEE CAN TAKE AN ADDITIONAL GROUND AT APPELLATE STAGE EVEN WHEN THE SAME HAS NOT BEEN RAI SED BEFORE THE LOWER AUTHORITIES HAS BEEN THOROUGHLY DISCUSSED BY THIS T RIBUNAL IN THE CASE OF PANDOO P. NAIG IN ITA NO.7089/MUM/2011 DECIDED ON 24.06.2016 [2016 (9) TMI 1062]. THE TRIBUNAL, WHILE RELYING UPON TH E DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWE R COMPANY LTD. VS. CIT 229 ITR 383, FULL BENCH OF THE HONBLE HIGH CO URT IN THE CASE OF AHMEDABAD ELECTRICITY CO. LTD. VS. CIT 1993 (199) ITR 351, ANOTHER DECISION OF THE HONBLE BOMBAY HIGH COURT IN THE CA SE OF CIT VS. CIT VS. PRUTHVI BROKERS AND SHAREHOLDERS PVT. LTD. (2012) 349 ITR 336 (BOM.) HAS HELD THAT THE APPELLATE AUTHORITIES HAVE JURISDICTI ON TO DEAL NOT MERELY WITH ADDITIONAL GROUND WHICH BECAME AVAILABLE ON ACCOUNT OF CHANGE OF CIRCUMSTANCES OR LAW, BUT WITH ADDITIONAL GROUNDS W HICH WERE AVAILABLE WHEN THE RETURN WAS FILED. EVEN IT HAS BEEN HELD BY THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF SHRI CHANDRASHEKHAR BAHIRW ANI ITA NO.7810/M/2010 AND 6599/M/2011 DECIDED ON 17.06.201 5 THAT THE ADDITIONAL GROUNDS CAN BE ADJUDICATED EVEN IN THE CIRCUMSTANCE S, WHERE, IF SUCH GROUNDS ARE ALLOWED, THE RESULTANT INCOME ASSESSED WILL BE LESS THAN THE RETURNED INCOME. THE RELEVANT PART OF THE ORDER OF THE TRIB UNAL IN THE CASE OF PANDOO P. NAIG FOR THE PURPOSE OF REFERENCE IS REPRODUCED AS UNDER: 19. NOW COMING TO THE POINT, WHETHER, THE CLAIM PU T BY THE ASSESSEE SHRI PANDOO P. NAIG BY WAY OF ADDITIONAL GROUND BEFORE T HE LD. CIT(A) REGARDING THE ITA NO.7177/M/2013 & ITA NO.6931/M/2013 M/S. CREST LOGISTIC & ENGINEERING PVT. LTD., (FORMERLY KNOWN AS REL UTILITY ENGINEERS PVT. LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 8 DELETION OF ADDITION OF RS.4 CRORE OFFERED DURING T HE SURVEY ACTION AND THEREBY OFFERED IN THE RETURN OF INCOME CAN BE ALLOWED AT T HIS STAGE? THE LD. COUNSEL FOR THE ASSESSEE IN THIS RESPECT HA S PLACED RELIANCE ON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF NATION AL THERMAL POWER CO. LTD. VS. CIT 229 ITR 383. THE FACTS BEFORE THE HONBLE SUP REME COURT WERE THAT THE ASSESSEE IN THAT CASE OFFERED THE INTEREST AMOUNT F OR TAXATION AND THE ASSESSMENT WAS COMPLETED ON THAT BASIS. BEFORE THE LD. CIT(A) , THE ASSESSEE THOUGH HAD TAKEN A NUMBER OF GROUNDS OF APPEAL, HOWEVER, THE INCLUSI ON OF THE SAID AMOUNT OF INTEREST WAS NOT CHALLENGED. THE INCLUSION OF THE SAID AMOUNT OF INTEREST WAS NOT OBJECTED TO EVEN IN THE GROUNDS OF APPEAL AS ORIGIN ALLY FILED BEFORE THE TRIBUNAL. HOWEVER, THE ASSESSEE BY WAY OF SUBSEQUENT LETTER R AISED THE ADDITIONAL GROUND IN RELATION TO THE SAID INCLUSION OF INTEREST INTO THE INCOME OF THE ASSESSEE. IN THE ABOVE CIRCUMSTANCES, THE QUESTION BEFORE THE HONBL E SUPREME COURT WAS WHERE ON THE FACTS FOUND BY THE AUTHORITIES BELOW A QUEST ION OF LAW ARISES (THOUGH NOT RAISED BEFORE THE AUTHORITIES) WHICH BEARS ON THE T AX LIABILITY OF THE ASSESSEE, WHETHER THE TRIBUNAL HAS JURISDICTION TO EXAMINE TH E SAME? THE HONBLE SUPREME COURT WHILE ANSWERING THE SAID QUESTION OBSERVED TH AT UNDER SECTION 254 OF THE INCOME TAX ACT, THE POWER OF THE TRIBUNAL IN DEALIN G WITH THE APPEALS IS EXPRESSED IN THE WIDEST POSSIBLE TERMS; THE POWER OF THE TRIB UNAL UNDER SECTION 254 IS NOT RESTRICTED ONLY TO DECIDE THE GROUNDS WHICH ARISE F ROM THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS); THAT BOTH THE ASSESSEE AS WELL AS THE DEPARTMENT HAVE A RIGHT TO FILE AN APPEAL/CROSS OBJ ECTION BEFORE THE TRIBUNAL AND THE TRIBUNAL IS NOT PREVENTED FROM CONSIDERING QUES TIONS OF LAW ARISING IN ASSESSMENT PROCEEDINGS ALTHOUGH NOT RAISED EARLIER. WHILE ANSWERING THE QUESTION IN AFFIRMATIVE, THE HONBLE SUPREME COURT CONCLUDED THAT THE TRIBUNAL HAS JURISDICTION TO EXAMINE A QUESTION OF LAW WHICH ARI SES FROM THE FACTS AS FOUND BY THE AUTHORITIES BELOW AND HAVING A BEARING ON THE T AX LIABILITY OF THE ASSESSEE. 20. THE FACTS OF THE CASE IN HAND ARE ON BETTER FOO TING. IN THE CASE IN HAND, THOUGH UNDER CONSISTENT PRESSURE, THE ASSESSEE OFFE RED THE ADDITIONAL INCOME FOR TAXATION IN THE ASSESSMENT PROCEEDINGS BUT WHEN HE WAS BURDENED WITH MANY MORE ADDITIONS, HE AT THE FIRST INSTANCE DURING THE APPEAL BEFORE THE LD. CIT(A), CHALLENGED THE OFFER OF ADDITIONAL INCOME ON THE BA SIS OF STATEMENT RECORDED UNDER SECTION 133A. EVEN THE SAID GROUND WAS ALSO ADMITT ED BY THE LD. CIT(A) FOR ADJUDICATION THOUGH FINALLY DECIDED AGAINST THE ASS ESSEE. THE FULL BENCH OF THE HONBLE BOMBAY HIGH COURT IN THE CASES OF AHMEDABA D ELECTRICITY COMPANY LTD. VS. CIT AND GODAVARI SUGAR MILLS LTD. VS. CIT BY WAY OF A COMMON ORDER DATED 30.04.1992 (1993) 199 ITR 351 HAS OBSERVED THAT THE BASIC PURPOSE OF AN APPEAL PROCEDURE IN AN INCOME TAX MATTER IS TO ASCERTAIN T HE CORRECT TAX LIABILITY OF THE ASSESSEE IN ACCORDANCE WITH LAW. THEREFORE, AT BOT H THE STAGES, EITHER BY THE APPELLATE ASSISTANT COMMISSIONER OR BEFORE THE APPE LLATE TRIBUNAL, THE APPELLATE AUTHORITY CAN CONSIDER THE PROCEEDINGS BEFORE IT AN D THE MATERIAL ON RECORD BEFORE IT FOR THE PURPOSE OF DETERMINING THE CORRECT TAX L IABILITY OF THE ASSESSEE. THE APPELLATE AUTHORITIES, OF COURSE, CANNOT TRAVEL BEY OND THE PROCEEDINGS AND EXAMINE NEW SOURCE OF INCOME, FOR THAT PURPOSE OTHER SEPARA TE REMEDIES ARE PROVIDED TO THE DEPARTMENT UNDER THE INCOME TAX ACT. THE HONB LE FULL BENCH OF THE BOMBAY HIGH COURT OBSERVED THAT APART FROM THE ABOVE, THER E WAS NOTHING IN SECTION 254 OR SECTION 251 WHICH WOULD INDICATE THAT THE APPELLATE AUTHORITIES ARE CONFINED TO ITA NO.7177/M/2013 & ITA NO.6931/M/2013 M/S. CREST LOGISTIC & ENGINEERING PVT. LTD., (FORMERLY KNOWN AS REL UTILITY ENGINEERS PVT. LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 9 CONSIDERING ONLY THE OBJECTIONS RAISED BEFORE THEM OR ALLOWED TO BE RAISED BEFORE THEM EITHER BY THE ASSESSEE OR BY THE DEPARTMENT, A S THE CASE MAY BE. THEY CAN CONSIDER THE ENTIRE PROCEEDINGS TO DETERMINE THE TA X LIABILITY OF THE ASSESSEE. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT V S. PRUTHVI BROKERS AND SHAREHOLDERS PVT. LTD. (2012) 349 ITR 336 (BOM.) H AS OBSERVED THAT THE ASSESSEE IS ENTITLED TO RAISE NOT MERELY ADDITIONAL LEGAL SUBMI SSIONS BEFORE THE APPELLATE AUTHORITIES, BUT IS ALSO ENTITLED TO RAISE ADDITION AL CLAMS BEFORE THEM. THE APPELLATE AUTHORITIES HAVE JURISDICTION TO DEAL NOT MERELY WI TH ADDITIONAL GROUNDS, WHICH BECAME AVAILABLE ON ACCOUNT OF CHANGE OF CIRCUMSTAN CES OR LAW, BUT WITH ADDITIONAL GROUNDS WHICH WERE AVAILABLE WHEN THE RETURN WAS FI LED. THE WORDS COULD NOT HAVE BEEN RAISED MUST BE CONSTRUED LIBERALLY AND N OT STRICTLY. THERE MAY BE SEVERAL FACTORS JUSTIFYING THE RAISING OF A NEW PLE A IN AN APPEAL AND EACH CASE MUST BE CONSIDERED ON ITS OWN FACTS. THE CO-ORDINATE BE NCH OF THE TRIBUNAL IN THE CASE OF SHRI CHANDRASHEKHAR BAHIRWANI ITA NO.7810/M/2010 AND 6599/M/2011 VIDE ORDER DATED 17.06.2015 WHILE DECIDING THE QUESTION AS TO WHETHER THE INCOME CANNOT BE ASSESSED LESS THAN THE RETURNED INCOME HA S OBSERVED AS UNDER: 5. NOW COMING TO THE FINDING OF THE LD. CIT(A), TH AT INCOME CANNOT BE ASSESSED LESS THAN THE RETURNED INCOME, THE LD. A.R . OF THE ASSESSEE HAS SUBMITTED BEFORE US THAT THE ACTION OF THE LD. CIT( A) IN REJECTING THE CLAIM OF THE ASSESSEE ON THIS GROUND WAS NOT JUSTIFIED. HE HAS FURTHER RELIED UPON THE DECISION OF THE HONBLE GUJARAT HIGH COURT IN T HE CASE OF GUJARAT GAS LTD. VS. JCIT (2000) 245 ITR 84. IN THE SAID CASE , THE WORDS OF THE CIRCULAR NO.549, PARA 5.12, DT. 31 ST OCTOBER, 1989, PROVIDING THAT THE ASSESSED INCOME UNDER SECTION 143(3) SHALL NOT BE LESS THAN THE RETURNED INCOME WAS CONSIDERED BY THE HONBLE HIGH COURT AND IT WAS HEL D THAT AS PER PROVISO TO SECTION 119 OF THE ACT, THE BOARD CANNOT ISSUE INST RUCTIONS TO THE INCOME TAX AUTHORITY TO MAKE A PARTICULAR ASSESSMENT OR TO DISPOSE OF A PARTICULAR CASE IN A PARTICULAR MANNER AS WELL AS NOT TO INTER FERE WITH THE DISCRETION OF THE COMMISSIONER IN EXERCISE OF HIS APPELLATE FUNCT IONS. IT WAS FURTHER HELD THAT THE AO, WHILE EXERCISING HIS QUASI JUDICIAL PO WERS, WAS NOT BOUND BY THE SAID CIRCULAR AND SHOULD HAVE EXERCISED HIS POWERS INDEPENDENTLY. THE HONBLE HIGH COURT, THEREFORE, DIRECTED THE AO TO M AKE THE ASSESSMENT WITHOUT KEEPING IN MIND THE SAID CIRCULAR. IT MAY BE FURTHER OBSERVED THAT THE HONBLE BOMBAY HIGH COURT IN THE CASE OF PRUTH VI BROKERS & SHAREHOLDERS PVT. LTD. ITA NO.3908 OF 2010 DECIDED ON 21.06.12, WHILE RELYING UPON THE VARIOUS DECISIONS OF THE HONBLE S UPREME COURT AND OTHER HONBLE HIGH COURTS HAS HELD THAT EVEN IF A CLAIM I S NOT MADE BEFORE THE AO, IT CAN BE MADE BEFORE THE APPELLATE AUTHORITIES. TH E JURISDICTION OF THE APPELLATE AUTHORITIES TO ENTERTAIN SUCH A CLAIM IS NOT BARRED. THE HONBLE HIGH COURT HAS FURTHER OBSERVED THAT THE DECISION O F THE HONBLE SUPREME COURT IN THE CASE OF GOETZE (INDIA) LIMITED V. CIT (2006) 157 TAXMAN 1, RELATING TO THE RESTRICTION OF MAKING THE CLAIM THR OUGH A REVISED RETURN WAS LIMITED TO THE POWERS OF THE ASSESSING AUTHORITY AN D THE SAID JUDGMENT DOES NOT IMPINGE ON THE POWER OR NEGATE THE POWERS OF TH E APPELLATE AUTHORITIES TO ENTERTAIN SUCH CLAIM BY WAY OF ADDITIONAL GROUND . EVEN OTHERWISE, THE LD. CIT(A) OUGHT TO HAVE CONSIDERED THE CLAIM OF THE AS SESSEE IN EXERCISE OF HIS ITA NO.7177/M/2013 & ITA NO.6931/M/2013 M/S. CREST LOGISTIC & ENGINEERING PVT. LTD., (FORMERLY KNOWN AS REL UTILITY ENGINEERS PVT. LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 10 APPELLATE JURISDICTION UNDER SECTION 250 OF THE ACT . MOREOVER, IF THE ASSESSEE IS, OTHERWISE, ENTITLED TO A CLAIM OF DEDU CTION BUT DUE TO HIS IGNORANCE OR FOR SOME OTHER REASON COULD NOT CLAIM THE SAME IN THE RETURN OF INCOME, BUT HAS RAISED HIS CLAIM BEFORE THE APPE LLATE AUTHORITY, THE APPELLATE AUTHORITY SHOULD HAVE LOOKED INTO THE SAM E. THE ASSESSEE CANNOT BE BURDENED WITH THE TAXES WHICH HE OTHERWISE IS NO T LIABLE TO PAY UNDER THE LAW. EVEN A DUTY HAS ALSO BEEN CAST UPON THE IN COME TAX AUTHORITIES TO CHARGE THE LEGITIMATE TAX FROM THE TAX PAYERS. THEY ARE NOT THERE TO PUNISH THE TAX PAYERS FOR THEIR BONAFIDE MISTAKES. IN VIE W OF OUR ABOVE OBSERVATIONS, IT IS HELD THAT THE ASSESSEE IS NOT L IABLE TO PAY CAPITAL GAINS TAX, THOUGH ORIGINALLY HE HAD SUBJECTED HIMSELF TO THE SAID TAX AS PER HIS RETURN OF INCOME. THE AO IS DIRECTED TO PROCESS THE CLAIM OF REFUND IN THIS RESPECT AS PER PROVISIONS OF THE LAW. 21. IN VIEW OF THE ABOVE OBSERVATION, WE HOLD THAT THE LD. CIT(A) THOUGH, RIGHTLY ADMITTED THE QUESTION OF LAW AS TO WHETHER THE INCO ME OFFERED BY THE ASSESSEE IN THE RETURN OF INCOME CONSEQUENT TO OFFER MADE IN HI S STATEMENT RECORDED DURING THE SURVEY ACTION CAN BE CHALLENGED BEFORE THE APPE LLATE AUTHORITY, BUT WRONGLY DECIDED THE SAME IN FAVOUR OF REVENUE. IN VIEW OF OUR FINDINGS GIVEN ABOVE AND IN VIEW OF THE VARIOUS CASE LAWS AS DISCUSSED ABOVE, W E HAVE NO HESITATION TO HOLD THAT THE ADDITIONAL INCOME WAS RETURNED BY THE ASSE SSEE PERHAPS UNDER FORCE, PRESSURE, THREAT OR COERCION AND UNDER THE MISTAKEN BELIEF. THE ASSESSEE, IN OUR VIEW, WAS NOT LIABLE TO PAY TAX ON THE SAID ADDITIO NAL INCOME RETURNED. WE ACCORDINGLY DIRECT THE DEPARTMENT TO REFUND THE TAX ES, IF ANY, PAID BY THE ASSESSEE IN RESPECT OF ADDITIONAL INCOME OFFERED DURING THE SURVEY ACTION. 11. EVEN IN A RECENT DECISION OF THIS TRIBUNAL IN T HE CASE OF M/S. DISTRIBUTORS (BOMBAY) PVT. LTD. IN ITA NO.3069/M/2 016 DECIDED ON 09.06.2017 AN IDENTICAL ISSUE OF RAISING OF ADDITIO NAL GROUND PRAYING FOR RESTRICTING THE DISALLOWANCE UNDER SECTION 14A UP T O THE EXTENT OF EXEMPT INCOME HAS BEEN RAISED FOR THE FIRST TIME BY THE AS SESSEE BEFORE THIS TRIBUNAL AND THE TRIBUNAL WHILE ADJUDICATING THE ISSUE HAS O BSERVED AS UNDER: 7. WE HAVE CONSIDERED THE RIVAL CONTENTIONS. IT IS TO BE NOTED HERE THAT THE DISALLOWANCE SUO MOTO OFFERED BY THE ASSESSEE AT RS.7.40 LAKHS IS MUCH M ORE THAN THE TOTAL EXEMPT INCOME EARNED BY THE ASSESSEE OF RS.4.38 LAKHS. IT IS FURTHER TO BE NOTED THAT THE SPECIAL BENCH DECISION OF THE TRIBUNAL IN THE CASE OF CHEM INVEST LTD. (SUPRA) HAS BEEN REVERSED BY THE HONBLE DELHI HIGH COURT. THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEM INVES TMENTS VS. CIT (2015) 61 TAXMAN.COM 118 HAS HELD THAT SECTION 14A WILL NOT A PPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR AND THAT THE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME, IN SECTIO N 14A OF THE ACT ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME WHICH I S NOT INCLUDED IN THE TOTAL INCOME DURING THE RELEVANT PREVIOUS YEAR FOR THE PU RPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME . ALMOST IDENTICAL ISSUE HAS ITA NO.7177/M/2013 & ITA NO.6931/M/2013 M/S. CREST LOGISTIC & ENGINEERING PVT. LTD., (FORMERLY KNOWN AS REL UTILITY ENGINEERS PVT. LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 11 BEEN TAKEN BY THE HONBLE ALLAHABAD HIGH COURT IN T HE CASE OF CIT KANPUR VS. M/S. SHIVAM MOTORS PVT. LTD. IN ITA NO.88 OF 2014 VIDE ORDER DATED 05.05.2014; BY THE HONBLE GUJARAT HIGH COURT IN THE CASE OF CIT VS. CORRTECTH ENERGY PVT. LTD. IN ITA NO.239 OF 2014 VIDE ORDER DATED 24.03.2014 AND BY T HE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. DELITE ENTERPRISES IN ITA NO.110 OF 2009 VIDE ORDER DATED 26.02.09. FURTHER, THE HONBLE DELHI HIGH CO URT IN THE CASE OF JOINT INVESTMENT PRIVATE LIMITED REPORTED IN 372 ITR 694 HAS HELD THAT SECTION 14 OF THE ACT OR RULE 8D CANNOT BE INTERPRETED SO AS TO MEAN THAT THE ENTIRE TAX EXEMPT INCOME OF THE ASSESSEE IS TO BE DISALLOWED. THAT T HE WINDOW FOR DISALLOWANCE IS INDICATED IN SECTION 14A, AND IS ONLY TO THE EXTENT OF DISALLOWING EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE TAX EXE MPT INCOME. THIS PROPORTION OR PORTION OF THE TAX EXEMPT INCOME SURELY CANNOT SWAL LOW THE ENTIRE AMOUNT OF TAX EXEMPT INCOME. 8. ADMITTEDLY, THE ASSESSEE BEFORE THE LOWER AUTHOR ITIES HAS NOT CLAIMED THAT THE DISALLOWANCE BE RESTRICTED UP TO THE EXTENT OF TAX EXEMPT INCOME EARNED BY THE ASSESSEE, THAT WAS BECAUSE THE BENEFIT OF THE LEGAL PROPOSITIONS LAID DOWN IN THE ABOVE STATED CASE LAWS WAS NOT AVAILABLE TO THE ASS ESSEE AT THAT TIME. THE ASSESSEE HAS RAISED THE ABOVE STATED LEGAL PLEA DURING THE C OURSE OF ARGUMENTS ON THE BASIS OF SUBSEQUENT EVOLUTION OF LAW THROUGH JUDICIAL INT ERPRETATIONS OF THE RELEVANT PROVISIONS BY THE HIGHER COURTS. WE ARE OF THE VIEW THAT THE PROPOSITION OF LAW ON THE ISSUE UNDER CONSIDERATION AS HAS BEEN EVOLVED A S ON TODAY THROUGH VARIOUS JUDICIAL DECISIONS SHOULD BE APPLIED TO THE CASE OF THE ASSESSEE AS THE RELEVANT ISSUE OF DISALLOWANCE U/S 14A IS THE SUBJECT MATTER OF AD JUDICATION BEFORE THIS TRIBUNAL AND THE SAME HAS NOT ATTAINED FINALITY. THE ASSESSE E CAN NOT BE PUT TO A DISADVANTAGEOUS POSITION BECAUSE OF A MERE TECHNICA LITY, WHEN THERE IS NO BAR TO RAISE A PURE LEGAL ISSUE AT ANY STAGE OF LITIGATION . EVEN OTHERWISE, THIS TRIBUNAL IS SUPPOSED TO APPLY THE LAW TO AN ISSUE UNDER CONSIDE RATION AS IT HAS EMERGED IN LIGHT OF VARIOUS JUDICIAL DECISIONS AS REFERRED TO ABOVE. THE DISALLOWANCE U/S 14A OF THE ACT IS, ACCORDINGLY, RESTRICTED TO THE EXTENT OF EX EMPT INCOME EARNED BY THE ASSESSEE. 12. THE ABOVE FINDINGS OF THE TRIBUNAL IN THE ABOVE CASE ARE SQUARELY APPLICABLE TO THE CASE OF THE ASSESSEE ALSO. AT TH IS STAGE, WE MAY POINT OUT THAT THE LD. D.R. HAS RELIED UPON THE FOLLOWING DECISION S TO STRESS THE POINT THAT EVEN THOUGH NO EXEMPT INCOME IS EARNED BY THE ASSES SEE, STILL THE DISALLOWANCE UNDER SECTION 14A HAS TO BE COMPUTED AS PER THE PRO VISIONS OF SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RULES. 1. GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT [ (2017) 81 TAXMANN.COM 111 (SC)] 2. DISTRIBUTORS BARODA PVT. LTD. VS. UNION OF INDIA AND OTHERS (1985) 22 TAXMAN 0049 ITA NO.7177/M/2013 & ITA NO.6931/M/2013 M/S. CREST LOGISTIC & ENGINEERING PVT. LTD., (FORMERLY KNOWN AS REL UTILITY ENGINEERS PVT. LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 12 3. CIT VS. WALFORT SHARE & STOCK BROKERS (P) LTD. ( 2010) 192 TAXMAN 0211. 13. WE HAVE GONE THROUGH THE ABOVE CASE LAWS RELIED UPON BY THE LD. D.R. SO FAR AS THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF GODREJ & BOYCE MANUFACTURING CO. LTD. VS. DCIT (SUPRA) IS CO NCERNED, THE ISSUE BEFORE THE HONBLE SUPREME COURT WAS THAT AS TO WHETHER TH E PROVISIONS OF SECTION 14A WOULD APPLY TO DIVIDEND INCOME ON WHICH TAX IS PAYABLE UNDER SECTION 115-O. THE HONBLE SUPREME COURT, AFTER ANALYZING THE PROVISIONS OF THE SECTION 14A READ WITH SECTION 115-O, HAS HELD THAT SECTION 14A OF THE ACT WOULD APPLY TO DIVIDEND INCOME ON WHICH TAX IS PAYA BLE UNDER SECTION 115-O OF THE ACT. FURTHER, IN THE CASE OF M/S. DISTRIBUT ORS BARODA PVT. LTD. (SUPRA) THE ISSUE BEFORE THE HONBLE SUPREME COURT WAS AS T O WHETHER THE DEDUCTION UNDER SECTION 80M OF THE INCOME TAX ACT, 1961 IS TO BE ALLOWED IN RESPECT OF GROSS DIVIDEND INCOME RECEIVED BY THE ASSESSEE OR I S TO BE RESTRICTED TO THE NET DIVIDEND INCOME RECEIVED BY THE ASSESSEE. THE HON BLE SUPREME COURT CONCLUDED THAT DEDUCTION UNDER SECTION 80M IS TO BE CALCULATED WITH REFERENCE TO THE AMOUNT OF DIVIDEND COMPUTED IN ACCORDANCE WI TH THE PROVISIONS OF THE ACT AND FORMING PART OF THE GROSS TOTAL INCOME AND NOT WITH REFERENCE TO THE FULL AMOUNT OF DIVIDEND RECEIVED BY THE ASSESSEE. IN THE CASE OF WALFORT SHARE & STOCK BROKERS (P) LTD. (SUPRA) THE ISSUE BEFORE T HE HONBLE SUPREME COURT WAS AS TO WHETHER THE LOSS ON ACCOUNT OF DIVIDEND S TRIPPING CAN BE DISALLOWED UNDER SECTION 14A OF THE ACT. THE HONBLE SUPREME COURT HAS HELD THAT BEFORE INSERTION OF SECTION 94(7) VIDE FINANCE ACT, 2001 W.E.F. 01.04.2002 THE CLAIM OF LOSS ON ACCOUNT OF DIVIDEND STRIPPING COUL D NOT BE DISALLOWED. HOWEVER, AFTER 01.04.02, SUCH LOSSES TO THE EXTENT OF DIVIDEND RECEIVED BY THE ASSESSEE COULD BE IGNORED BY THE AO IN VIEW OF SECT ION 94(7). HOWEVER, IT MAY BE POINTED OUT HERE THAT IN NONE O F THE ABOVE CASE LAWS RELIED UPON BY THE LD. D.R. THE ISSUE AS TO WHETHER THE DI SALLOWANCE OF EXPENDITURE UNDER SECTION 14A CAN EXCEED THAN THE TOTAL EXEMPT INCOME EARNED BY THE ITA NO.7177/M/2013 & ITA NO.6931/M/2013 M/S. CREST LOGISTIC & ENGINEERING PVT. LTD., (FORMERLY KNOWN AS REL UTILITY ENGINEERS PVT. LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 13 ASSESSEE HAS BEEN CONSIDERED OR ADJUDICATED. THE ISSUE AS ON DATE IS SQUARELY COVERED BY THE VARIOUS DECISIONS OF DIFFERENT HONB LE HIGH COURTS INCLUDING THAT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF CHEM INVESTMENTS VS. CIT (SUPRA), HONBLE ALLAHABAD HIGH COURT IN THE C ASE OF CIT KANPUR VS. M/S. SHIVAM MOTORS PVT. LTD. (SUPRA), HONBLE GUJA RAT HIGH COURT IN THE CASE OF CIT VS. CORRTECTH ENERGY PVT. LTD. (SUPRA ), OF THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PRIVATE LIMITED(SUPRA) AND THAT OF THE JURISDICTIONAL HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. M/S. DELITE ENTERPRISES (SUPRA), WHICH HOLDS BINDING PR ECEDENT UPON THIS TRIBUNAL. IN VIEW OF THE ABOVE DISCUSSION AND IN THE LIGHT O F THE VARIOUS CASE LAWS AS DISCUSSED ABOVE, THE DISALLOWANCE UNDER SECTION 14A FOR THE YEAR UNDER CONSIDERATION IS ORDERED TO BE RESTRICTED UP TO THE EXTENT OF EXEMPT INCOME EARNED BY THE ASSESSEE. 14. IN VIEW OF OUR OBSERVATIONS MADE ABOVE, THE APP EAL OF THE ASSESSEE IS TREATED AS ALLOWED. ITA NO.6931/M/2013 (REVENUES APPEAL) THE REVENUE IN ITS APPEAL HAS TAKEN THE FOLLOWING G ROUNDS OF APPEAL: 1.1 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE C ASE AND IN LAW, THE LD. CIT(A) ERRED IN TREATING THE PROFIT ON SALE OF MUTUAL FUND AMOUNTING TO RS.75,06,93,279/- UNDER THE HEAD 'CAPITAL GAINS' INSTEAD OF 'PROFITS AND GAINS OF BUSINESS OR PROFESSION.' 1.2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW, THE LD. CIT(A) ERRED IN ALLOWING THE CLAIM OF THE ASSESSEE ON TREA TMENT OF PROFITS ON SALE OF MUTUAL FUNDS BEING 'CAPITAL GAINS' INSTEAD OF 'BUSINESS IN COME' WITHOUT APPRECIATING THE FACT THAT THE ASSESSEE CANNOT MAKE CLAIM FOR DEDUCT ION OTHER THAN BY FILING A REVISED RETURN OF INCOME. 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW, THE LD. CIT(A) ERRED IN DELETING THE ADDITION OF LOAN OF RS.6,66,0 0,000/- EXTENDED TO PARVATI TRADING AND FINANCIAL CO. PVT. LTD., WHEREAS THE AM OUNT REPRESENTS THE LOSS OF PRINCIPAL AMOUNT OF LOAN AND DOES NOT INCLUDE WRITE OFF OF INCOME BY WAY OF INTEREST. ITA NO.7177/M/2013 & ITA NO.6931/M/2013 M/S. CREST LOGISTIC & ENGINEERING PVT. LTD., (FORMERLY KNOWN AS REL UTILITY ENGINEERS PVT. LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 14 3. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, VARY, OMIT OR SUBSTITUTE ANY OF THE AFORESAID GROUNDS OF APPEAL AT ANY TIME BEFORE OR AT THE TIME OF HEARING OF APPEAL. 4. THE APPELLANT PRAYS THAT THE ORDER OF CIT(A) ON THE ABOVE GROUND BE SET ASIDE AND THAT OF THE ASSESSING OFFICER HE RESTORED . GROUND NOS.1 & 2 15. THE ISSUE RAISED IN GROUND NOS.1 & 2 IS AS TO W HETHER THE PROFIT ON SALE OF MUTUAL FUND IS TO BE ASSESSED UNDER THE HEAD CA PITAL GAINS OR AS BUSINESS INCOME OF THE ASSESSEE AND IN ITS RETURN OF INCOME TREATED THE SAID PROFIT AS ITS BUSINESS INCOME. HOWEVER, DURING THE ASSESSMENT PR OCEEDINGS, THE ASSESSEE CLAIMED THAT THE INVESTMENT IN MUTUAL FUNDS WAS NOT RELATING TO THE BUSINESS ACTIVITY OF THE ASSESSEE; THAT THE ASSESSEE WAS MAI NTAINING TWO PORTFOLIOS I.E. TRADING AS WELL AS INVESTMENT; THAT THE MUTUAL FUND S WERE IN RELATION TO THE INVESTMENT ACTIVITY OF THE ASSESSEE. THE AO, HOWEV ER, REJECTED THE CLAIM OF THE ASSESSEE OBSERVING THAT THE ASSESSEE COULD HAVE PUT UP ITS CLAIM BY WAY OF REVISED RETURN ONLY. IN THE APPELLATE PROCEEDINGS BEFORE THE LD. CIT(A), THE LD. CIT(A) RELIED UPON THE DECISION OF THE HONBLE SUPREME COURT IN THE CASE OF NATIONAL THERMAL POWER CO. LTD. VS. CIT (SUPRA ) AND JUTE CORPORATION OF INDIA LTD. 187 ITR 688 AND HELD THAT IF THE CLA IM IS A LEGAL CLAIM THEN NO VERIFICATION OF FACTS IS REQUIRED, SO THE CLAIM CAN BE ALLOWED DURING THE APPELLATE PROCEEDINGS. HE, ACCORDINGLY, VERIFIED T HE FACTS ON THE FILE AND ALLOWED THE CLAIM OF THE ASSESSEE IN THIS RESPECT A ND DIRECTED THE AO TO ASSESS THE PROFITS FROM MUTUAL FUNDS UNDER THE HEAD CAPIT AL GAINS. THE RELEVANT PART OF THE FINDING OF THE LD. CIT(A) IS REPRODUCED AS UNDER: 2.3 I HAVE CONSIDERED THE FACTS AND CIRCUMSTANCES OF THE CASE. THE APPELLANT HAS INVESTED IN FOLLOWING MUTUAL FUNDS AND PROFITS & GAINS OF MUTUAL FUNDS ARE AS UNDER: NAME SHORT TERM/LONG TERM DATE OF PURCHASE DATE OF SALE B. RELIANCE LIQUIDITY FUND GROWTH OPTION 1,90,13,279 SHORT TERM -- -- ITA NO.7177/M/2013 & ITA NO.6931/M/2013 M/S. CREST LOGISTIC & ENGINEERING PVT. LTD., (FORMERLY KNOWN AS REL UTILITY ENGINEERS PVT. LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 15 B(I) RELIANCE FIXED HORIZON FUND SERIES 4 INSTITUTIONAL GROWTH PLAN 55,06,80,000 LONG TERM 19/11/2007 20/11/2008 (II) RELIANCE FIXED HORIZON FUND SERIES 6 INSTITUTIONAL GROWTH PLAN 18,10,00,000 LONG TERM 23/11/2007 20/01/2009 WHILE FLING THE ORIGINAL RETURN APPELLANT OFFERED R S.75,06,93,279/- AS INCOME IN PROFIT & GAINS OF BUSINESS OR PROFESSION. LATER DU RING ASSESSMENT PROCEEDINGS APPELLANT VIDE LETTER CLAIMED THAT THIS HAS TO BE A SSESSED UNDER CAPITAL GAINS. A.O. REJECTED APPELLANTS CLAIM FOLLOWING THE CASE OF GO ETZE INDIA LTD. NOW THE ISSUE HAS COME INTO CONSIDERATION THAT WHET HER APPELLANTS CLAIM CAN BE CONSIDERED DURING APPELLATE PROCEEDINGS. TH IS ISSUE HAS COME INTO CONSIDERATION OF SUPREME COURT IN THE CASE OF NATIO NAL THERMAL POWER CO. LTD. V. CIT 229 ITR 383 AND JUTE CORPORATION INDIA LTD. 187 ITR 688 WHERE IT WAS HELD THAT IF THE CLAIM WAS LEGAL AND NO VERIFICATION OF FACTS IS REQUIRED, THE CLAIM CAN BE ALLOWED DURING THE APPELLATE PROCEEDINGS. FOLLOWIN G THE ABOVE DECISION, I AM CONSIDERING THE CLAIM OF THE APPELLANT. ON EXAMINA TION OF THE INVESTMENT OF APPELLANT, APPELLANT HAD INVESTED IN RELIANCE LIQUI DITY FUND GROWTH OPTION AND EARNED PROFIT OF RS.1,90,13,279/-. THE TIME ELAPSE D FOR EARNING OF THE PROFIT IS LESS THAN 365 DAYS, HENCE, THIS AMOUNT CAN BE CONSIDERED AS SHORT TERM CAPITAL GAIN. WITH REGARD TO RELIANCE FIXED HORIZON FUND SERIES 4 AND SERIES 6 INSTITUTIONAL GROWTH PLAN, APPELLANT HAD EARNED PROFIT OF RS.73,1 6,80,000/- AND TIME INVESTED IN THIS TWO ISSUES IS ABOVE 365 DAYS AND THERE WERE NO MULTIPLE TRANSACTIONS. ALL THE FUNDS WERE PURCHASED AT A TIME AND SOLD AFTER THE E ND OF THE YEAR. HENCE, APPELLANT IS ELIGIBLE TO TREAT THIS PROFIT AS LONG TERM CAPITAL GAIN. THE AO IS DIRECTED TO ASSESS THESE TWO ITEMS UNDER LONG TERM CAPITAL G AIN AND OTHER ITEM IN SHORT TERM CAPITAL GAINS. THESE GROUNDS OF APPEAL ARE ALLOWED . 16. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF TH E LD. CIT(A) AS TO THE APPLICATION OF LAW AS WELL AS TO THE FACTUAL FINDIN G ARRIVED AFTER CONSIDERING THE EVIDENCES ON THE FILE. EVEN WE HAVE ALREADY DISCUS SED AND HELD IN THE LIGHT OF VARIOUS DECISIONS OF THE HIGHER COURTS THAT THE ADD ITIONAL LEGAL CLAIM CAN BE RAISED AT THE APPELLATE STAGE. WE, THEREFORE, DO N OT FIND ANY MERIT IN GROUND NOS.1 & 2 OF THE REVENUES APPEAL AND THE SAME ARE ACCORDINGLY DISMISSED. ITA NO.7177/M/2013 & ITA NO.6931/M/2013 M/S. CREST LOGISTIC & ENGINEERING PVT. LTD., (FORMERLY KNOWN AS REL UTILITY ENGINEERS PVT. LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 16 GROUND NO.3 17. IN GROUND NO.3, THE REVENUE HAS AGITATED THE AC TION OF THE LD. CIT(A) IN DELETING THE ADDITION OF LOAN OF RS.6,66,00,000/- E XTENDED TO PRUTHVI TRADING AND FINANCIAL CO. LTD. THIS ISSUE HAS BEEN THOROUG HLY DISCUSSED BY US WHILE ADJUDICATING GROUND NO.1 OF THE ASSESSEES APPEAL. THE LD. CIT(A) HAD ALLOWED THE LOSSES ON ASSIGNMENT IN RESPECT OF THE LOANS THAT WERE ORIGINALLY ADVANCED BY THE ASSESSEE ITSELF TO PRUTHVI TRADING AND FINANCIAL CO. LTD. HE, HOWEVER, HAS REJECTED THE LOSSES INCURRED WHICH WAS IN RELATION TO THE LOANS ASSIGNED TO THE ASSESSEE BY RELIANCE CAPITAL (SUPRA ) AND THAT WERE FURTHER ASSIGNED BY THE ASSESSEE TO PEARL HOUSING FINANCE ( INDIA) LTD. SINCE WE HAVE ALREADY HELD THAT THE LOSS ON ASSIGNMENT OF LOANS H AS TO BE TREATED AS BUSINESS LOSS, HENCE, WE DO NOT FIND ANY INFIRMITY IN THE OR DER OF THE LD. CIT(A) IN ALLOWING THE CLAIM OF THE ASSESSEE REGARDING THE LO SS ON ASSIGNMENT OF LOAN. THIS GROUND OF REVENUES APPEAL IS ACCORDINGLY DISM ISSED. 18. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED AND THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 14.07.2017. SD/- SD/- (RAJESH KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATED: 14.07.2017. * KISHORE, SR. P.S. COPY TO: THE APPELLANT THE RESPONDENT THE CIT, CONCERNED, MUMBAI THE CIT (A) CONCERNED, MUMBAI THE DR CONCERNED BENCH //TRUE COPY// [ BY ORD ER DY/ASSTT. REGISTRAR, ITAT, MUMBAI. ITA NO.7177/M/2013 & ITA NO.6931/M/2013 M/S. CREST LOGISTIC & ENGINEERING PVT. LTD., (FORMERLY KNOWN AS REL UTILITY ENGINEERS PVT. LTD. FORMERLY KNOWN AS SONATA INVESTMENTS LTD.) 17 DATE INITIAL WHETHER DICTATION PAD ENCLOSED WITH THE FILE : YES/NO (AS THE ORDER HAS BEEN TYPED WITH THE HELP OF MANUSCRIPT) 1. DRAFT DICTATED ON 09.06.17 SR.PS 2. DRAFT PLACED BEFORE AUTHOR SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS SR.PS 6. DATE OF PRONOUNCEMENT SR.PS 7. FILE SENT TO THE BENCH CLERK SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER