IT-I: In case of unreported judgment, which was neither cited by parties nor that was brought to notice of Bench nor to notice of Member proposing order, it should not be used by another Member for passing appellate order, without allowing any opportunity in this behalf to parties
IT-II: Assessee was entitled to exemption under section 10(34) in respect of dividend received on shares held in subsidiary company and reflected in balance sheet under head 'investments'
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[2013] 36 taxmann.com 90 (Rajkot - Trib.) (TM)
IN THE ITAT RAJKOT BENCH (THIRD MEMBER)
Deputy Commissioner of Income-tax, Circle -1 Rajkot
v.
Atul Auto Ltd.*
G.C. GUPTA, VICE-PRESIDENT (AZ) (AS A THIRD MEMBER)
T.K. SHARMA, JUDICIAL MEMBER
AND D.K. SRIVASTAVA, ACCOUNTANT MEMBER
T.K. SHARMA, JUDICIAL MEMBER
AND D.K. SRIVASTAVA, ACCOUNTANT MEMBER
IT APPEAL NO. 921 (RJT.) OF 2010
[ASSESSMENT YEAR 2007-08]
[ASSESSMENT YEAR 2007-08]
MAY 13, 2013
I. Section 254 of the Income-tax Act, 1961 - Appellate Tribunal - Procedure of [Binding Precedent] - Assessment year 2007-08 - Whether in case of an unreported judgment, which was neither cited by parties nor that was brought to notice of Bench nor to notice of Member proposing order, it should not be used by another Member for passing appellate order, without allowing any opportunity in this behalf to parties - Held, yes [Para 6]
II. Section 10(34) of the Income-tax Act, 1961 - Dividend - Exemption to [Shares held in subsidiary company] - Assessment year 2007-08 - Whether assessee was entitled to exemption under section 10(34) in respect of dividend received on shares held in subsidiary company and reflected in balance sheet under head 'investments' - Held, yes [Para 6] [In favour of assessee]
CASE REVIEW
CIT v. Arvind Mills Ltd. [IT Appeal No. 1407 of 2011, dated 5-7-2012] [Para 6] followed.
CASES REFERRED TO
Goetze (India) Ltd. v. CIT [2006] 157 Taxman 1 (SC), Orissa Rural Housing Development Corpn. Ltd. v. Asstt. CIT [2012] 17 taxmann.com 186/204 Taxman 673 (Ori.) and CIT v. Arvind Mills Ltd. [Tax Appeal No. 1407 of 2011, dated 5-7-2012].
Ankur Garg for the Appellant. Prashant Maharishi for the Respondent.
ORDER
D. K. Srivastava, Accountant Member -The appeal filed by the Department is directed against the order passed by the CIT (A) on 19-02-2010. The appeal relates for assessment year 2007-08. The assessee is a private limited Company. It is engaged in the business of manufacturing and sale of three wheelers auto rickshaw (passenger/loading) under the trade name "Atul Shakti" and their spare parts. It is also engaged in the generation of electricity with turbine generator at village Soda Mada, Rajasthan and at village Gandhavi, Gujarat. The assessee filed its return of income for the year under appeal on 21-10-2007 returning total income at Rs.2,30,85,640/- which was subsequently revised by filing revised return on 27-09-2008 in which total income was declared at Rs.2,35,55,260/-. After processing, the return was selected for scrutiny pursuant to which assessment was competed on 21-12-2009 assessing the total income of the assessee at Rs.2,76,18,524/- after disallowing a sum of Rs.39,40,016/- claimed by the assessee as expenditure on scientific research. The claim made by the assessee seeking exemption of dividend amounting to Rs.22,96,155/- u/s 10(34), which had the effect of reducing the total income returned by the assessee, was also rejected by the AO. Aggrieved by the aforesaid actions of the AO, the assessee filed appeal before the CIT (A). The appeal filed by the assessee on the aforesaid issues was allowed by the CIT (A). The Department is now in appeal against the order passed by the CIT (A) on 19-02-2010.
2. Ground Nos.1 and 2 taken by the Department read as under:
| "(1) | The learned CIT (A)-I, Rajkot has erred in law and on facts in deleting addition of Rs.39,40,016/- on account of disallowance of expenditure on Scientific Research and Development. | |
| (2) | The learned CIT (A)-I, Rajkot has erred in law and on facts in further holding that these expenses are allowable u/s 37(1) ignoring the fact that the said expenditure were capital in nature which is evident form the fact that the assessee has taken it in the balance sheet in schedule 5 under the head capital work in progress." |
3. The Assessing Officer has disallowed the impugned expenditure with the following observations
'4. Expenditure for Scientific Research:
In the computation of Income the assessee has claimed Rs.39,40,016/- as product development expenditure within the meaning of Sec.35(1)(i). Section 35(1) (i) provides for allowing deduction in respect of expenditure not being in the nature of capital expenditure, on scientific research related to the business of the assessee. However, it was found that the expenses claimed by the assessee under the said provision are capital expenses and same has been taken in the balance-sheet as capital work in progress and has subsequently been claimed as an expenditure within the meaning of above section. During the course of assessment proceedings, the assessee was asked to furnish details of these expenses. On a perusal of the details furnished, it is evident that these are the regular expenses pertaining to setting up an office at Pune, as the same includes AC repairing, computer repairing, electricity expenses, electric repairing, flat maintenance expenses, flat rent, internet charges, mobile expenses, office building repairing, office furniture repairing, office staff salary etc. for the Pune office. The assessee was therefore, asked to justify how these expenses are allowable as expenses for the purpose of scientific research. In reply to the above, the explanation furnished by the assessee is as below:-
"Please find attached herewith the details of Research & Development Expenses incurred by the company. These are revenue expenditure of the Pune office of the company. These expenses are revenue in nature. Assessee has claimed this amount as deduction and no weighted deduction on these expenses have been claimed. These expenses are shown as product development expenses. As there is continuous development on the existing product of the company these are classified as research and development expenses. They are not eligible for weighted deduction but are eligible for deduction u/s. 28 vis a vis section 37(1) of the Act."
Since, the expenses claimed by the assessee under the said provision are capital expenses and same has been taken in the balance-sheet as capital work in progress the same is not allowable within the meaning of sec. 35(1)(i). The claim of the assessee was also considered within the meaning of Section 35(1)(iv) which provides for allowing capital expenditure for scientific research. The provision of the said section is as under:
"Sec.35(1) In respect of expenditure on scientific research, the following deductions shall be allowed—
| (iv) | in respect of any expenditure of a capital nature on scientific research related to the business carried on by the assessee, such deduction as may be admissible under the provisions of sub-section (2)" |
It is therefore, evident that for allowing any expenditure within the meaning of this section, the expenditure should be in the nature of capital expenses and it should be spent on scientific research related to the business carried on by the assessee. In this case, although the expenditure are capital in nature as shown in the balance-sheet of the assessee, there is no reason to believe that these expenses are pertaining to any scientific research related to the business carried on by the assessee. In the case of deductions claimed under any specific provision, the onus is on the assessee to prove that the expenses have actually been incurred for the purpose as provided in the said section. However, in this case, it is apparent that the expenses claimed by the assessee are general in nature pertaining to setting up a regular administrative office at Pune and in no way justify allowability as expenses pertaining to any scientific research. The claim of the assessee in this regard is therefore disallowed and Rs. 39,40,016/- is accordingly added back to the total income of assessee.
(Addition: Rs. 39,40,016/-)
4.1 The assessee has made an alternate claim in the submission that the above deduction are allowable u/s.28 vis a vis Sec.37(1) of the Act. This claim of the assessee was examined. Sec.37(1) provides for following expenditure which are not being in the nature of capital expenditure or personal expenses of the assessee laid out or expended only and exclusively for the purpose of the business or profession of the assessee. In this case, it is evident that the expenses are capital in nature which is evident from the fact that the assessee has taken it in the balance-sheet as fixed asset under Schedule-5 under the head capital work in progress. It is, therefore, obvious that the assessee itself has treated these expenditure as capital in nature. Further from verification of the details submitted during the course of assessment proceedings in respect of the said expenditure, it is evident that the expenses have been incurred for setting up a new office at Pune and hence the expenses are likely to bring enduring benefit to the business of the assessee. The assessee has therefore, rightly considered the same as capital expenditure which is justified considering the nature of the expenditure. The alternative claim of the assessee to allow these expenses u/s.37(1) is found incorrect in view of the facts of the case and hence, rejected.'
4. On appeal, the ld. CIT (A) has directed the AO to allow the impugned expenditure, with the following observations:
"4. I have carefully considered the submission made as well as reasoning given by the AO. Regarding ground No.1, appellant has incurred an expenditure of Rs.39,40,016/- as scientific research expenditure at its Pune office. This amount was shown as product development expenses in the balance sheet as capital work in progress. The nature of expenses submitted by the appellant vide its letter dated 11/12/2009 shows that these expenses are office maintenance of its Pune office, purchases of miscellaneous raw material for its activities for constant development of the existing as well as new products variant of three wheelers, etc. These expenses are not capital in nature and the AO has rightly stated these expenses are in the nature of setting up and running of its regular office at Pune. Appellant has incurred these expenses for the purposes of making changes in existing product line and for its new variant. The justification given for incurring these expenses by the appellant is that as the Pune is the major Automobile hub of the country, it has distinct advantage in constant development of its product. It is further stated that all the necessary condition for claiming these deduction u/s. 35(1) (i) has been fulfilled by the appellant. Claim of the assessee is u/s. 35(1) (i) of the Act. According to the provision section 35 (1) (i) deduction of expenditure which is of revenue in nature and is laid and out and expended for the purposes of scientific research expenditure relating to the business of the assessee. It is pertinent to note that the deduction is not a weighted deduction but a normal deduction. Had these expenses not been claimed by the appellant u/s. 35(1) (i) same would also have been allowable to the appellant u/s. 37(1) of the Act. Section 35(1) (i) does not define the word scientific research for the purpose of claiming deduction u/s.35(1) (i) of the Act. The constant review of the existing product line of the appellant and its new variant classify these expenses as scientific expenditure. There is not need to claim these expenses u/s. 35(1) (i) to have any approval or recognition. The AO has wrongly applied the provisions of section 35(1) (i) of the Act as the expense incurred are not at all capital in nature. Appellant has not derived any benefit of enduring nature and no asset has been created. Such types of expenditure are common where the technological changes are rapid. They do not give any enduring benefit to the appellant. Further on examination of the nature of expenditure incurred by the appellant that they are not capital in nature but are of general in nature. Simply because these expenses have been shown under the head product development expense in the balance sheet does not alter the basic edifice of the nature of expenditure. As this expenditure on verification shows that they are revenue in nature does not become capital expenses for allowability of the expenses u/s.35(1) (i) of the Act is that the revenue expenditure towards repairs relating to the business of the appellant is allowable @ 100%. These expenses are also otherwise allowable u/s. 37(1) of the Act. Before me the appellant has submitted the copy of page No. 2895 to 2898 of Vol. 2 of "The law of Income-tax" by Sampath Iyengar, which also shows that contention of the appellant is correct. Manner of recording a transaction in the books of the accounts does not determine the nature of expenses whether that is capital or revenue in nature. Alternatively also these expenses are deductible u/s.37(1) of the Act . For this appellant has relied on page no.2897 of the above book where in it is stated that such deduction may otherwise be also allowable u/s.37(1) of the Act. Appellant has relied on the decision of Hon'ble Supreme Court in the case of CIT v. Ciba of India Limited 69 ITR 692 (SC) as well as decision of Honourable Calcutta high Court in the case of CIT v. Indian Oxygen Limited [1978] 113 ITR 109 (Cal) where it is held that deduction if a not allowable u/s. 35 (1) (i), they are allowable u/s.37(1) of the Act. Therefore, I am of the view that appellant is entitled to deduction u/s.35(1) (i) of the Act with respect to expenditure of Rs.39,40,016/- incurred by the appellant as scientific research expenditure and alternatively it is also entitled to deduction u/s.37(1) of the Act. Therefore disallowance of Rs.39,40,016/- of scientific research expenditure incurred by the appellant is deleted."
5. The Assessing Officer has filed Statement of Facts alongwith Appeal Memo before us, which reads as under:
"(1) Regarding addition of Rs.39,40,016/- on account of revenue exp:
During the course of assessment proceedings, AO observed that the assessee had claimed Rs.39,40,016/- as Product Development Expenses u/s.35(1)(i) of the IT Act. The AO disallowed the same the expenditure was general in nature pertaining to setting up a regular administrative office at Pune, such as, AC repairing, computer repairing, flat rent, internet charges, mobile expenses, office building repairing, office staff salary, etc. for Pune office. Thus, the type & nature of all these expenses in no way justified allowability as exp. pertaining to scientific research.
On page No.10 of the appeal order, the ld. CIT (A) has stated that "These expenses are not capital in nature and the AO has rightly stated that these expenses are in the nature of setting up and running of its regular office at Pune…." Thus, the ld. CIT (A) grossly misplaced himself in deleting the addition after having agreed with the finding of the AO that the expenses were in the nature of setting up regular office are bound to be bearing of capital in nature, and therefore, is in contravention of claiming deduction u/s.35(1) (i) of the IT Act. Further, the ld. CIT (A) erred in giving the finding that the expenses were also otherwise allowable u/s.37(1) of the Act because, it was undisputedly agreed by the ld. CIT (A) that the expenses were for setting up of office at Pune, thus, the characteristic of the expenses itself establishes that it holds the nature of capital expenditure, which has also been discussed at length by the AO in para No.4.1 of assessment order. Thus it is prayed that the decision of the ld. CIT (A) be deleted and that the finding of the AO may kindly be upheld."
6. In support of appeal, the ld. Departmental Representative supported the order passed by the Assessing Officer. He submitted that the assessee had claimed the impugned expenditure as deduction u/s 35(1)(i) of the Income-tax Act according to which any expenditure (not being in the nature of capital expenditure) laid or expended on scientific research related to the business was eligible for deduction. According to the ld. DR, the expenses incurred by the assessee were such that they could not be said to have been laid out or expended on scientific research and therefore they were not eligible for deduction u/s.35(1)(i). His next submission was that the deduction in respect of "capital expenditure" made on scientific research was not permissible u/s 35(1)(i). Referring to sec.35(1)(iv), he submitted that expenses of capital nature were also not eligible for deduction unless they were incurred on scientific research related to the business carried on by the assessee subject to the provisions of sub-section (2) of section 35. He submitted that the nature of expenses claimed by the assessee were such that they could not be classified as expenditure on scientific research and therefore they were not eligible for deduction even under Clause (iv) of sub-section (1) of section 35. He also took us through the nature of expenses claimed by the assessee. According to him, the ld. CIT (A) has failed to appreciate the aforesaid aspects of the case and therefore his order should be vacated and that of the AO restored.
7. In reply, the ld. Authorized Representative for the assessee submitted that an office at Pune was set up for undertaking product development, which was part of scientific research. He took us through the provisions of section 43 (4) which defines 'scientific research'. He submitted that "scientific research" according to section 43 (4) (iii) (a), refers to any scientific research which may lead to or facilitate an extension of that business or, as the case may be, all business of that class. He submitted that the activities undertaken by the assessee at Pune office were in the nature of scientific research within the meaning of section 43 (4) and therefore CIT(A) has rightly accepted the claim of the assessee in this behalf. He further submitted that product development expenses were otherwise eligible for deduction u/s 37 of the Income-tax Act.
8. We have heard both the parties. Section 35 deals with "expenditure on scientific research". According to sec.35(1)(i), any expenditure (not being in the nature of capital expenditure) laid out or expended on scientific research related to the business of an assessee is eligible for deduction. According to section 35(1)(iv), any expenditure of capital nature on scientific research related to the business carried on by the assessee is also eligible for deduction subject to the provisions of sub-section (2) of section 35. Section 35 can be pressed into service only when it is established that the expenditure claimed as deduction has been incurred on scientific research. In the case before us, the Department has taken the view that Pune office of the assessee is only an administrative unit. According to the Revenue, the nature of expenditure incurred in respect of Pune office is such that it could not be said to be expenditure on scientific research. The ld. CIT (a) has however accepted the claim of the assessee for deduction u/s.35 without proper scrutiny and examination to find out as to whether Pune office of the assessee was an office engaged in scientific research or as to whether the expenditure incurred by the assessee for Pune office could be said to be expenditure laid out or expended on scientific research related to the business of the assessee. In this view of the matter, the order of the CIT (A) cannot be sustained. Similarly, the ld. CIT (A) has also come to a conclusion that the impugned expenditure was eligible for deduction u/s.37 of the Income-tax Act without recording any finding as to whether the impugned expenses were in revenue field or capital field. Section 37 allows deduction of those expenses only which are not in the nature of capital expenditure or personal nature and which are otherwise not in the nature of expenditure described in sections 30 to 36. In the absence of proper finding with regard to the satisfaction of the conditions laid down in section 37 of the Income-tax Act, the order of the CIT(A) regarding allowability of impugned expenditure as deduction u/s 37 cannot be sustained.
9. In view of the foregoing, the order of the CIT (A) deserves to be vacated and is accordingly vacated. The matter is restored to his file for a fresh decision in conformity with the provisions of sections 35 and 37 of the Income-tax Act after giving reasonable opportunity of hearing to both the parties. Ground Nos.1 and 2 taken by the Department are treated as allowed for statistical purposes.
10. Ground Nos.3 and 4 taken by the Department read as under:
"(3). The learned CIT (A)-I, Rajkot has erred in law and on facts in deleting disallowance of Rs.22,96,155/- by holding the same as exempt u/s.10(34) of the I T Act.
(4) The ld. CIT (A)-I, Rajkot by giving exemption u/s. 10(34) has traveled beyond his statutory powers as by doing so he has reduced the revised return income from Rs.2.35 crores to Rs.217 crores (income after appeal effect of exemption of dividend - appeal effect order is enclosed for ready reference)."
11. The Assessing Officer has rejected the claim of the assessee for exemption of dividend, with the following observations:
"5. Expenses pertaining to exempt income:
During the course of assessment proceedings, the assessee filed a detailed calculation within the meaning of Rule 8D of IT Rules giving details of expenses relating to exempt income. As per the details submitted by the assessee, interest expenses up to Rs.4,75,238/- is to be disallowed claiming that the same pertain to dividend income exempt income u/s.14A. However, on a perusal of the Profit & Loss Account of the assessee, it is found that there is no income under the head 'dividend' appearing in the Profit & Loss Account of the assessee. In Schedule-14 of the P & L Account under the head 'other income', no income has been shown as dividend income. However, Rs.22,96,155/- has been shown as dividend from subsidiary company. The computation of proportionate expenses to be disallowed u/s.14A submitted during the course of assessment proceedings relates to this income received from the subsidiary companies. However, it is found that these are the receipts from the subsidiary company which the assessee itself has taken into Profit & Loss Account and has offered for taxation. The income is therefore not an exempt income within the meaning of 14A and, hence, there is no reason to disallow any proportionate expenses out of the interest claimed by the assessee. No disallowance is, therefore, made on this account."
12. On appeal, the ld. CIT (A) has accepted the claim of the assessee, with the following observations:
"6. Ground No. 3 is against not granting exemption of Rs.22,96,155/-to the appellant u/s. 10(34) of the Act on receipt of dividend from its subsidiary company. Appellant has shown this amount under the head income from other sources in profit and loss account. However same was inadvertently forgot to claim exemption u/s.10(34) of the Act. Appellant has received this dividend from its subsidiary company and all the companies are required to pay dividend distribution tax before they distribute dividend out of their profits. Same way such dividend is exempt in the hand of shareholder. According to the provision of section 10(34) dividend income is exempt if dividend distribution tax there on is payable. Therefore in my view there is no reason why appellant should not be given this exemption. Appellant has submitted that same before AO while submitting working of disallowable expenditure u/s.14A, however the AO has not given this exemption as well as not disallowed the amount u/s.14A of the Act. In my view appellant is entitled to exemption u/s.10 (34) of the Act of Rs.22,96,155/- on dividend income received from its subsidiary. AO is directed to grant this exemption of Rs.22,96,155/- u/s.10 (34) to the appellant."
13. In support of appeal, the Assessing Officer has filed a Statement of Facts in this behalf before us, which reads as under:
"(2) Regarding addition of Rs.22,96,155/-:
During the course of assessment proceedings, the assessee claimed exemption of Rs.22,96,155/- being dividend income. In fact, the assessee had filed return of income on 21-10-07 declaring total income of Rs.2,30,85,640/- and in the said return the assessee had not claimed dividend income as exempt. Thereafter, the assessee revised its return of income on 27-10-2008 declaring total income of Rs.2,35,55,260/- and even in the revised return also the assessee did not claim the dividend income as exempt. Therefore, this proved the conscious attempt on the part of the assessee itself that the amount of Rs.22,96,155/- was not in the nature of exempt dividend income. Apart from this during the assessment proceedings, the same was denied by the AO as he found the dividend was from the subsidiary company as the said amount was receipts from the subsidiary company which the assessee itself had taken into P & L Account and offered for taxation.
It may be mentioned that the revised return income of the assessee was Rs.2.35 crores and after giving effect to the appeal order of the ld. CIT (A) on the issue of Rs.22,96,155/- as exempt dividend, the revised returned income has reduced to Rs.2.17 crores. In fact the ld. CIT (A) has reduced even the returned income declared by the assessee company, and thereby, by reducing the returned income, the ld. CIT (A) has traveled beyond his statutory powers. Therefore, it is prayed that the decision of the ld. CIT (A) be deleted and that the finding of the AO may kindly be upheld."
14. In support of appeal, the ld. Departmental Representative submitted that the assessee had filed its return of income twice in which the assessee did not claim any exemption for dividend amounting to Rs.22,96,155/-. He submitted that it was not open to the assessee to claim the impugned exemption by simply making a claim before the Assessing Officer without making a claim in the return of income. In support of his submissions, he relied upon the judgment of the Hon'ble Supreme Court in Goetze (India) Ltd. v. CIT [2006] 157 Taxman 1. He has further submitted that the order of the CIT (A) directing the AO to reduce the impugned dividend from total income would have the effect of asking the AO to assess the total income of the assessee below the income returned by him which, according to him, is not permissible in law.
15. In reply, the ld. Authorized Representative for the assessee supported the order passed by the CIT (A). He submitted that the assessee was entitled to exemption of impugned dividend u/s.10 (34) after he had made a claim to that effect before the AO. According to him, the judgment in Goetze India Ltd (supra) was applicable to the AO and not to the CIT (A) and therefore the CIT (A) was justified in directing the AO to exempt the dividend income u/s.10 (34).
16. We have heard both the parties. It is not in dispute that the assessee has not claimed exemption u/s 10 (34) in respect of dividend either in the original return of income or in the revised return of income. It is also not in dispute that the assessee was well aware of all the relevant facts while filing the original return of income and also the revised return of income. The assessee however chose not to claim exemption in respect of dividend u/s.10 (34) in both the returns of income filed before the Assessing Officer. The short issue therefore arise is whether the assessee can claim exemption outside the original return or the revised return and in spite of the fact that all the relevant facts were known to the assessee while filing the original return of income as also revised return of income. As rightly pointed out by the ld. CIT-DR, this issue has been considered by the Hon'ble Supreme Court in Goetze India Ltd.'s case (supra) in which the Hon'ble Supreme Court has held as under:
| "1. | Leave granted. | |
| 2. | The question raised in this appeal relates to whether the appellant assessee could make a claim for deduction other than by filing a revised return. The assessment year in question was 1995-96. The return was filed on November 30, 1995, by the appellant for the assessment year in question. On January 12, 1998, the appellant sought to claim a deduction by way of a letter before the Assessing Officer. The deduction was disallowed by the Assessing Officer on the ground that there was no provision under the Income-tax Act to make amendment in the return of income by modifying an application at the assessment stage without revising the return. | |
| 3. | This appellant's appeal before the Commissioner of Income- tax (Appeals) was allowed. However, the order of the further appeal of the Department before the Income-tax Appellate Tribunal was allowed. The appellant has approached this Court and has submitted that the Tribunal was wrong in upholding the Assessing Officer's order. He has relied upon the decision of this court in National Thermal Power Company Ltd. v. CIT [1998] 229 ITR 383, to contend that it was open to the assessee to raise the points of law even before the Appellate Tribunal. | |
| 4. | The decision in question is that the power of the Tribunal under section 254 of the Income-tax Act, 1961, is to entertain for the first time a point of law provided the fact on the basis of which the issue of law can be raised before the Tribunal. The decision does not in any way relate to the power of the Assessing Officer to entertain a claim for deduction otherwise than by filing a revised return. In the circumstances of the case, we dismiss the civil appeal. However, we make it clear that the issue in this case is limited to the power of the assessing authority and does not impinge on the power of the Income-tax Appellate Tribunal under section 254 of the Income-tax Act, 1961. There shall be no order as to costs." |
17. Following the aforesaid judgment, the Hon'ble Orissa High Court has held in Orissa Rural Housing Development Corpn. Ltd. v. Asstt. CIT[2012] 17 taxmann.com 186/204 Taxman 673 as under:
"13. There is a distinction between a revised return and a correction in the originally filed return. If an assessee files an application for correcting a return already filed or for making some amendments therein, it would not certainly mean that he has filed a revised return. Such a petition is not recognized under the Income-tax Act. The basis of assessment is the return filed by the assessee. If a revised return is filed under Section 139(5) of the I.T. Act the assessment can be completed only on the basis of revised return and not otherwise.
14. Where an assessee, following mercantile system of accounting, furnishes a return of income on the basis of accrued income, the filing of a revised statement of income, on the ground that such interest income had not been received during the relevant previous year, is of no avail. In absence of the revised return as provided under Section 139(5), the Assessing Officer is bound to make assessment on the basis of original return. Further, a change over from mercantile system to cash system is not permissible by filing a revised return much less a revised statement of income.
15. There is no provision under the Income-tax Act to enable an assessee to revise his income by way of filing a revised statement of income as has been done by the petitioner. In the instant case, a revised statement of income was filed on 08-12-2008 before the Assessing Officer after commencement of assessment proceedings. If such revised statement of income is accepted, then the very purpose of enacting Section 139(5) under the I.T. Act for filing revised return shall be frustrated and provision of said section becomes redundant. During the relevant time, as the assessee had maintained the accounts on mercantile basis, it was bound to file the returns on that basis.
16. The Hon'ble Supreme Court in the case of Goetze (India) Ltd. (supra), held that the Assessing Officer has no power to entertain fresh claim made by the assessee after filing of the original return other than by filing of revised return.
17. Law is well-settled that when the statute requires to do certain thing in certain way, the thing must be done in that way or not at all. Other methods or mode of performance are impliedly and necessarily forbidden. The aforesaid settled legal proposition is based on a legal maxim "Expressio unius est exclusion alteris", meaning thereby that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and in no other manner and following of other course is not permissible. (See Taylor v. Taylor [1876] 1 Ch.D.426; Nazir Ahmed v. King Emperor AIR 1936 PC 253; Ram Phal Kundu v. Kamal Sharma [2004] 2 SCC 759 and Indian Bank's Association v.Devkala Consultancy Service AIR 2004 SC 2615).
18. Therefore, we are of the view that the learned Assessing Officer is fully justified in completing the assessment under Section 143(3) of the I.T. Act on the basis of the original return filed under Section 139(1) without taking into consideration the revised statement filed on 08-12-2008 in absence of the revised return as contemplated under Section 139(5) of the I.T. Act and the CIT is also justified in confirming the view of the learned Assessing Officer."
18. The material facts in the present case are exactly identical with those in Goetze (India) Ltd. (supra). Since the facts in the present appeal or identical with those in Goetze India Ltd.'s case (supra), we have no option except to follow the aforesaid judgment. Respectfully following the aforesaid judgment, the order of the CIT(A) in this behalf is reversed and that of the AO reversed. In view of the foregoing, Ground Nos. 3 and 4 are allowed.
19. Before parting with the issue, we would like to deal with the argument advanced by the ld. authorized representative that the judgment of the Hon'ble Supreme Court in Goetze India Ltd.'s case (supra) applies to AO and not to CIT(A). It is no longer res integra that the powers of the CIT(A) are co-terminus with the AO. If the AO cannot do something, the CIT(A) is also precluded from doing that thing.
20. In view of the foregoing, appeal filed by the Department is partly allowed.
T. K. Sharma, Judicial Member - I have carefully gone through the proposed order of learned brother and I have not been able to agree with the reasoning and conclusion arrived at in the proposed order in respect of ground Nos.3 and 4. I, therefore, propose to write my separate order only in respect of these two grounds.
2. The facts in brief, are that in the Return of income, assessee through inadvertently forget to claim exemption u/s.10(34) of the I. T. Act, 1961 in respect of dividend income of Rs.22,96,155/- from its subsidiary company. The assessee holds following shares of Indian Companies:-
| a. | Khushbu Auto Finance Limited 22,96,000/- shares of Rs.10 each | |
| b. | 62 shares of Suzlon Limited. |
3. The aforesaid shares are shown in Schedule-6 to the balance-sheet (refer page No.62 of the paper book where Schedule-6 of the investment is placed). In the assessment under appeal, assessee has received dividend of 10% from Khushbu Auto Finance Ltd. amounting to Rs.22,96,000/- and Rs.155/- from Suzlon Limited. The copy of the dividend account is available at page 223 of the paper book. In Schedule No.14 which is place at page 75 of the paper book at Sr. No.4 of other income schedule, the amount of Rs.22,96,000/- received from subsidiary is mentioned. Both these companies are Indian Companies and at the time of distribution of dividend are liable to pay dividend distribution tax u/s.115 O of the I. T. Act, 1961. Khushbu Auto Private Limited being the subsidiary company, the consolidate accounts are also available with the AO at the time of assessment of the assessee-company and Suzlon Limited is a listed company. There is no dispute that dividend received from these two companies is exempt u/s.10 of the I. T. Act, 1961. During the course of assessment proceedings, the AO noted that assessee has invested in subsidiary company and therefore, provision of sec.14A of the Act applies to the company. Therefore, AO asked the assessee to furnish the working of disallowance u/s.14A of the Act. While working out the disallowance u/s.14A of the Act, it came to the knowledge of the assessee that it has exempt income of Rs.22,96,155/- which was inadvertently left out at the time of filing of the return of income. Assessee therefore during the course of hearing requested the AO to allow the claim of exemption u/s.10(34) of the Act of Rs.22,96,155/- and disallowance u/s.14A which is worked out at Rs.4,75,238/- vide letter dated 11-12-2009 which is place at pages 144 and 145 of the paper book. In the assessment order, AO has not granted the exemption and simultaneously did not disallow Rs.4,75,238/- u/s.14A of the Income-tax Act, 1961.
4. On appeal, in the impugned order, the ld. CIT (A) for the detailed reasons given in para-6 on page-12, directed the AO to grant this exemption of Rs.22,96,155/- u/s. 10(34) and in para-7 on the same page confirmed the disallowance u/s.14A of the Act amounting to Rs.4,75,238/-. Aggrieved with this, the revenue is in appeal before the Tribunal
5. In my opinion, the view taken by ld. CIT(A) is fair and reasonable keeping in view the Circular No.14 (XI-35) dated 11-04-1955 of CBDT which provides that "Officers of the Department must not take advantage of ignorance of an assessee as to his rights. As per this Instruction, the Officers of the Department should -
| (a) | draw their attention to any refunds or reliefs to which they appear to be clearly entitled but which they have omitted to claim for some reason or other; | |
| (b) | freely advise them when approached by them as per their rights and liabilities and as to the procedure to be adopted for claiming refunds and reliefs." |
6. The judgment of Hon'ble Supreme Court in the case of Goetze (India) Ltd. (supra) reproduced by learned brother wherein Hon'ble Supreme Court made it clear that issue in that case is limited to the power of Assessing Officer and does not impinge on power of Appellate Tribunal u/s. 254 of the I. T. Act, 1961. Recently, the Hon'ble Gujarat High in Tax Appeal No.1407 of 2011 in the case of CIT v. Arvind Mills Ltd. in judgment delivered on 05-07-2012 also held that Appellate Commissioner acted within its powers and rightly allowed the claim in letter filed during the course of assessment proceedings which was not allowed by the AO following the decision of Apex Court in the case of Goetze (India) Ltd. (supra). The view taken by ld. CIT(A) is consonance with the Circular of CBDT dated 11-04-1955 (supra) and ratio of the judgment of Hon'ble jurisdictional High Court in the case ofArvind Mills Ltd. (supra). Therefore, I am of the view that ld. CIT (A) is legally and factually correct in directing the AO to grant the exemption of Rs.22,96,155/- u/s.10(34) of the I. T. Act. The ground Nos. 3 and 4 of the revenue appeal is accordingly dismissed.
7. Before parting with, I may add that the ld. CIT(A) in para-7 on page-12 of the impugned order has directed the AO to disallow Rs.4,75,238/- u/s.14A of the I. T. Act being direct or indirect expenses incurred or earning the tax free income of Rs.22,96,155/- on investment of Rs.22991620/- (Schedule-6 of Balance-sheet) in subsidiary company. This is being accepted by the revenue as is evident from the grounds of appeal raised by the Revenue before the Tribunal. In this view of the matter also, I am of the view that view taken by ld. CIT(A) directing the AO to grant the exemption of Rs.22,96,155/- u/s.10(34) of the I. T. Act is fair and reasonable.
ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961
As there is a difference of opinion, we state the following point of difference to Hon'ble President, Income-tax Appellate Tribunal for necessary action as envisaged u/s.255(4) of the Income-tax Act:-
Whether on the facts and circumstances of the case, the ld. CIT (A) is justified in directing the AO to grant the exemption of Rs.22,96,155/- u/s.10(34) of the I.T. Act, 1961 in respect of dividend received by the assessee in respect of shares held in subsidiary company and reflected in the balance-sheet under the head investments.
ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961
The point of difference proposed by my esteemed Brother does not bring out the true difference of opinion for the reasons stated here-in-after. Two appeals involving identical issues were heard around the same time. Appeal bearing ITA No.921/Rjt./2010 was heard on 20-9-2012 while the other appeal bearing ITA No.227/Rjt./2011 was heard on 18-9-2012. Both the appeals involved, inter-alia, the applicability of judgment rendered by the Hon'ble Supreme Court in Goetze India Ltd. v. CIT, 284 ITR 323. Draft orders taking identical view in both the appeals were simultaneously sent to the Hon'ble Judicial Member for his perusal so as to maintain consistency in decision. Order proposed in appeal bearing ITA No.227/Rjt./2011 met the approval of the Hon'ble Judicial Member and was resultantly pronounced on 28-9-2012. However, the draft order in ITA No.921/Rjt./2010, which was simultaneously sent with the draft order in ITA No.227/Rjt./2010, is now the subject matter of dissent by the Hon'ble Judicial Member for the reasons stated in his dissenting opinion. He has written dissenting order in ITA No. 921/Rjt./2010 on the basis of judgment dated 5-7-2012 of the Hon'ble jurisdictional High Court in CIT v. Arvind Mills, Tax Appeal No.1407 of 2011.
The aforesaid judgment was never cited by any of the parties either at the time of hearing or even thereafter before the Bench. The parties did not have the occasion to address both the Members on the issue. The aforesaid judgment is unreported. The author of the order in ITA No.921/Rjt./2010 was neither aware of the said judgment nor was he apprised of the same till he proposed the order and therefore he proceeded to propose the order on the same basis on which order was passed by both the Members in the other appeal bearing ITA No.227/Rjt./2010 so as to maintain consistency in decision. Thus the difference of opinion between both of us revolves around only one issue, which is as under:
Whether unreported judgment, which was never cited by the parties nor otherwise brought to the notice of the Bench nor to the notice of the Member proposing the order, can be used by another Member for passing dissenting order without giving any opportunity in this behalf to the parties?
THIRD MEMBER ORDER
G.C. Gupta, Vice-President (AZ) (As a Third Member) - On account of difference in opinion between the learned Judicial Member and learned Accountant Member of ITAT, Rajkot Bench, this matter has been referred to me by the Hon'ble President, ITAT for consideration and disposal under Section 255(4) of the Income-tax Act, 1961. The learned AM has framed the following question on account of difference of opinion between two Members, which is reproduced hereunder:
"Whether unreported judgment, which was never cited by the parties nor otherwise brought to the notice of the Bench nor to the notice of the Member proposing the order, can be used by another Member for passing dissenting order without giving any opportunity in this behalf to the parties ?"
While, the learned JM has framed the following question on account of difference between the learned Members:
"Whether on the facts and circumstances of the case, the ld.CIT(A) is justified in directing the AO to grant the exemption of Rs.22,96,155/-u/s.10(34) of the I.T. Act, 1961 in respect of dividend received by the assessee in respect of shares held in subsidiary company and reflected in the balance sheet under the head investments."
2. I have carefully considered the above questions drawn by the learned Members of the Rajkot Bench separately and have perused the proposed orders of the learned JM and the learned AM. I have heard the learned CIT-DR and the learned counsel of the assessee.
3. Both the parties before me have submitted that on merits, the issue is covered in favour of the assessee with the decision of the Hon'ble jurisdictional High Court in the case of Arvind Mills Ltd. (supra) Tax Appeal No.1407 of 2011, judgment delivered on 5-7-2012, and therefore the only issue left for adjudication before me is that whether the unreported judgment, which was never cited by the parties or was not brought to the notice of the Members, could be used by the Tribunal for passing appellate order without giving any opportunity to the parties.
4. The learned CIT-DR fairly submitted that the issue in the ground of the appeal of the Revenue is covered in favour of the assessee with the decision of the Hon'ble jurisdictional High Court in Arvind Mills Ltd. (supra). However, he vehemently argued that unreported judgment, which was never cited by any of the parties at the time of hearing of the appeal, should not have been cited or relied upon by the learned JM while passing the appellate order without giving any opportunity to the parties, and submitted that law should be fairly laid down on this very vital issue.
5. The learned counsel for the assessee submitted that the learned AM has also cited one judgment of the Hon'ble Orissa High Court in Orissa Rural Housing Development Corpn. Ltd. (supra) in para 17 of his appellate order, which was never cited by any of the parties, and was never confronted to the assessee.
6. I have considered rival submissions and have perused the proposed orders of the learned JM and the AM on this issue. On merits of the case, I find that both the parties before me have submitted that the issue is covered in favour of the assessee with the decision of the Hon'ble jurisdictional High Court in the case of Arvind Mills Ltd. (supra), and therefore, I agree with the view taken by the learned JM that the learned CIT(A)'s view directing the AO to grant exemption of Rs.22,96,155/- under Section 10(34) of the IT. Act is fair and reasonable. Accordingly on the question framed by ld. JM and referred to me as Third Member, I agree with the view taken by the ld. JM and the question is answered in favour of the assessee and against the Revenue. However, other question framed by the learned AM in his point of reference reproduced above, I am in agreement with the view of the ld. AM and is of the considered view that in case of unreported judgment, which was never cited by the parties nor that was brought to the notice of the Bench nor to the notice of the Member proposing the order, should not be used by the another member for passing the appellate order, without allowing any opportunity in this behalf to the parties. It is embedded in the basic features of the principles of natural justice that the effected party has a right to be heard before an order is passed, which may cause prejudice to its interest in any manner whatsoever. Unreported judgment of the Hon'ble Courts in all fairness should have been confronted to the parties before the Tribunal. The effort should be made not to get the parties before the Tribunal by surprise, and accordingly question referred to me by the learned AM is disposed of accordingly.
7. The matter will now go back to the Division Bench for passing order in accordance with majority view.
ORDER UNDER SECTION 255(4) OF THE INCOME-TAX ACT, 1961
T. K. Sharma, Judicial Member -On account of difference of opinion between the member constituting the regular bench, the following questions were referred for consideration of Third Member:-
"Whether on the facts and circumstances of the case, the ld. CIT (A) is justified in directing the AO to grant the exemption of Rs.22,96,155/- u/s. 10(34) of the I. T. Act, 1961 in respect of dividend received by the assessee in respect of shares held in subsidiary company and reflected in the balance-sheet under the head investments."
2. In respect of other grounds namely; grounds No.1 and 2, there was no difference of opinion. In respect of aforesaid question referred, the Hon'ble Zonal Vice President sitting as Third Member vide his order dated 2nd May, 2013 agreed with the view taken by ld. Judicial Magistrate upholding the view ld. CIT (A)'s directing the AO to grant exemption of Rs.22,96,155/- u/s. 10(34) of the IT. Act.
3. The ld. A.M. framed the following question separate question for consideration of Third Member :-
"Whether unreported judgment, which was never cited by the parties nor otherwise brought to the notice of the Bench nor to the notice of Member proposing the order, can be used by another Member for passing dissenting order without giving any opportunity in this behalf to the parties? "
4. The Hon'ble Zonal Vice President, sitting as Third Member answered the aforesaid question raised by ld. A.M. in affirmative. As per majority view, the view taken by ld. CIT (A) deleting the disallowance of Rs.22,96,155/- by holding the same as exempt u/s.10 (34) of the I.T. Act is upheld. The grounds No. 3 and 4 are accordingly dismissed.
5. In the result, the appeal of the Revenue is partly allowed.
Regards
Prarthana Jalan
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