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Revenue is obliged to re-do assessment of income where assessee establishes that the same was erroneously over-assessed: HC

2019-TIOL-1522-HC-AHM-IT

IN THE HIGH COURT OF GUJARAT

AT AHMEDABAD

Case Tracker
DCIT Vs GREENLAND INFRACON PVT LTD    [ITAT]

R/Tax Appeal No. 239 Of 2019

PRINCIPAL COMMISSIONER OF INCOME TAX-2

Vs

GREENLAND INFRACON PVT LTD

J B Pardiwala & A C Rao, JJ

Dated: July 09, 2019

Appellant Rep by: Mr M R Bhatt, Sr. adv. With Mrs Mauna M Bhatt
Respondent Rep by: 
None

Income Tax – Sections 14A

Keywords – Estoppel – Exempt income

THE assessee had filed its return for the relevant AY. During the assessment proceedings, the AO concluded the assessment after making disallowance invoking section 14A. On appeal, the CIT(A) allowed the claim of the assessee. Further, before the Tribunal the Revenue raised two contentions against the order of the CIT(A), first the CIT(A) was not justified in allowing the disallowance u/s 14A where admittedly no exempt income i.e. dividend was earned by the assessee in the relevant assessment year. Second the CIT(A) was not justified in going beyond the return of income and remove the disallowance which the assessee itself has made while filing the return. Rejecting the contentions of the Revenue the Tribunal upheld the order of the CIT(A).

On appeal, the High Court held that,

Whether Revenue is obliged to redo assessment of income correctly, if assessee is ready to show that income is over-assessed by mistake – YES: HC

++ section 14A can be invoked only if the assessee seeks to square off the expenditure against the income which does not form part of the total income. In the instant case, section 14A could not have been invoked, more particularly, when no exempt income was earned in the relevant AYs. Further, the Tribunal also concurred with the findings recorded by the CIT(A) that the mistake or inadvertence on the part of the assessee whereby an income not taxable is wrongly offered for tax, will not operate as any kind of estoppel against the assessee regardless whether the revised return was filed or not. If the assessee is in a position to show that it has been over assessed on account of his own mistake, the Revenue is obliged to assess the correct income. Taking on account to the concurrent findings recorded by the two Revenue authorities, this court does not inclined to disturb such findings

Revenue’s appeal dismissed

JUDGEMENT

Per: J B Pardiwala:

1. This Tax Appeal under Section 260A of the Income Tax Act, 1961, is at the instance of the Revenue and is directed against the order passed by the Income Tax Appellate Tribunal, ‘C’ Bench, Ahmedabad, in the ITA No.2040/AHD/2016 dated 14th November 2018 = 2018-TIOL-2388-ITAT-AHM for the Assessment Year 2013-14.

2. The Revenue has proposed the following question of law:

“Whether the Appellate Tribunal has erred in law and on facts in upholding the decision of CIT(A) directing the Assessing Officer to allow the assessee to withdraw the suo-motu disallowance under section 14A of the Act amounting to Rs.1,47,32,234/- without filing the revised return under section 139(5) of the Act, without properly appreciating the facts of the case and the material brought on record ?”

3. The findings recorded by the Tribunal are as under :

“6. We have carefully considered the rival submissions and perused the orders of the authorities below. The substantive question arises in the Revenue’s appeal is to ascertain the correctness of the action of the CIT(A) in refusing to endorse the action of the AO for resorting to disallowance under s.14A of the Act. Two broad issues emerges in the context of the case; (i) whether the disallowance under s.14A is maintainable where admittedly no exempt income i.e. dividend was earned by the assessee in the relevant assessment year and (ii) whether the CIT(A) was justified in going beyond the return of income and remove the disallowance which the assessee itself has made while filing the return of income. In other words, whether the action of the CIT(A) in bringing down the income returned by the assessee and granting relief on the issues not raised at the time of filing original return of income or by way of revised return at a subsequent stage is justified in law or not.

7. The first issue framed above appears quite simple as we see. While adjudicating the issue, we take note of CBDT Circular No. 5/2014 dated 11/02/2014 which seeks to emphasize that all expenses pertaining to an exempt income is required to be disallowed notwithstanding the fact that no corresponding tax free income has been earned during the financial year. Notwithstanding the aforesaid circular, various Courts have held that Section 14A of the Act disallowance cannot be kicked when there was no exempt income earned by the assessee as is the case in the present appeals. Hon’ble Delhi High Court in PCIT vs IL&FS Energy Development Company Ltd. (2017) 84 Taxman.com 186(Delhi) = 2017-TIOL-1615-HC-DEL-IT and the Hon’ble Madras High Court in CIT v. Chettinad Logistics (P.) Limited (2017) 80 taxmann.com 221(Madras) =2017-TIOL-742-HC-MAD-IT have expressed a clear disagreement with CBDT Circular and held that where there is no exempt income in relevant year there cannot be a disallowance of expenditure under s.14A of the Act. Similar proposition has been laid down by the Hon’ble Gujarat High Court in the case of Corrtech Energy (P.) Ltd (2014) 45 taxmann.com. 116 (Guj) = 2014-TIOL-661-HC-AHM-IT and Pr.CIT vs. India Gelatine and Chemicals Ltd. (2016) 66 taxmann.com 356 (Guj) = 2015-TIOL-1177-HC-AHM-IT. The aforesaid judicial fiat was reiterated by the Hon’ble Delhi High Court in the case of Joint Investments Pvt. Ltd. vs. CIT reported in 372 ITR 692 (Delhi) = 2015-TIOL-574-HC-DEL-IT wherein Hon’ble Delhi High Court has categorically ruled that disallowance under s.14A of the Act cannot exceed the amount of tax exempt income. Notably, the SLP filed against the decision of Hon’ble Madras High Court in Chettinad Logistics (supra) has been dismissed by Hon’ble Supreme Court in CIT vs. Chettinad Logistics (P.) Ltd. (2018) 95 taxmann.com 250 (SC)2018-TIOL-237-SC-IT. Hence, in conformity with the judicial precedents, we find substantial merit in the conclusion drawn by the CIT(A) which essentially holds that Section 14A of the Act can be triggered only if assessee seeks to square off expenditure against the income which does not form part of total income under the Act and Section 14A of the Act cannot be invoked where no exempt income was earned in the relevant assessment years. In consonance with the judicial precedents, we do not see any infirmity in the conclusion drawn by the CIT(A) for non-applicability of Section 14A of the Act in the facts of the case.

8. We shall now turn to the second issue raised on behalf of the Revenue regarding propriety of the action of the CIT(A) in granting relief on the disallowance (suo moto made by the assessee) beyond the return of income and in the absence of any formal revised return. The CIT(A) has discussed this aspect in very great detail in para 2.5 to 2.28 of its order. We are not inclined to reiterate the findings of the CIT(A). However, we fully endorse the observations of the CIT(A) which essentially holds that the mistake or inadvertence on the part of the assessee whereby an income not taxable has been wrongly offered for tax, will not operate as any kind of estoppel against the assessee and regardless of whether the revised return was filed or not. Once the assessee is in a position to show that it has been over assessed under the provisions of the Act even on account of assessee’s own mistake or otherwise, the Revenue is under duty to assess correct income.”

4. Thus, it appears that the Tribunal concurred with the findings recorded by the CIT(A) that Section 14A of the Act can be invoked only if the assessee seeks to square off the expenditure against the income which does not form part of the total income under the Act, and in such circumstances, Section 14A of the Act could not have been invoked, more particularly, when no exempt income was earned in the relevant assessment years.

5. The Tribunal has relied on various decisions including the decision of this Court in the case of Corrtech Energy Private Limited, (2014) 45 Taxmann.com 116 (Gujarat) = 2014-TIOL-661-HC-AHM-IT.

6. The Tribunal also concurred with the findings recorded by the CIT(A) that the mistake or inadvertence on the part of the assessee whereby an income not taxable is wrongly offered for tax, will not operate as any kind of estoppel against the assessee regardless whether the revised return was filed or not. If the assessee is in a position to show that it has been over assessed on account of his own mistake, the Revenue is obliged to assess the correct income.

7. Having regard to the concurrent findings recorded by the two Revenue authorities, we are not inclined to disturb such findings.

8. In our view, there is no substantial question of law involved in the present Tax Appeal.

9. In view of the above, this Tax Appeal fails and is hereby dismissed.

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