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2022 Supreme(Del) 528
IN THE HIGH COURT OF DELHI AT NEW DELHI
Manmohan, Manmeet Pritam Singh Arora, JJ.
PR. CIT -1, Delhi - Appellant
Versus
M/s. Crystal Crop Protection Pvt. Ltd. - Respondent
ITA 173 of 2022
Decided On : 25-07-2022
Advocate Appeared:
For the Appellant : Mr.Ajit Sharma, Sr.Standing Counsel
Point of Law : The CBDT Circular and the history of the legislative provision of Section 143 (3) of the Act. Pertinently, no submission has been advanced by department on merits of the claim of subsidy allowed by the ITAT.
Headnote:
Income Tax Act, 1961 - Section 143(3) - Income Tax Rules, 1962 - Section 14A r/w Rule 8D(2)(iii) - Assessment proceedings - No exempt income - “New Industrial Policy and Other Concessions Scheme” - Capital receipt - Present appeal are that during course of assessment proceedings initiated by Assessing Officer under Section 143(3) of Act, 1961 AO made an addition of Rs. 2,50,000/- under Section 14A of Act read with Rule 8D(2)(iii) of Rules, 1962 - Assessee opposed aforesaid addition on ground that since no exempt income was earned during relevant assessment year there cannot be any disallowance, Whether amount of subsidy is taxable or not? ITAT held that this issue has to be decided by appellate authority notwithstanding fact that assessee has suo moto offered amounts for taxation already - No error was committed by the ITAT by permitting the assessee to raise additional ground at the stage of appeal because there is no dispute raised by department to the fact that the said subsidy given by State of Jammu & Kashmir to assessee is liable to be treated as a capital receipt. (Para 15)
Finding of the court :
The circular of the CBDT cannot override the provisions of Section 14A of the Act. The ITAT accordingly set aside the disallowance made by the AO under Section 14A of the Act read with Rule 8D(iii) - Department has reiterated its objection to ITAT admitting additional ground raised by the assessee regarding the treatment of subsidy - In opinion of this Court, no error was committed by ITAT by permitting the assessee to raise the additional ground at the stage of the appeal because there is no dispute raised by department to the fact that the said subsidy given by State of Jammu & Kashmir to the assessee is liable to be treated as a capital receipt in view of judgment of Shri Balaji Alloys (supra) - Issue of deletion of education cess was not pressed during the course of arguments.
Result : Appeal dismissed.
JUDGMENT :
Manmeet Pritam Singh Arora, J.
CM APPL. 26193/2022
In view of the averments made in the application, the delay of 40 days in filing the present appeal is condoned.
Accordingly, this application is disposed of.
ITA 173/2022
1. The present Income Tax Appeal has been filed impugning the order dated 19th December, 2019 passed by the Income Tax Appellant Tribunal (hereinafter referred to as ‘ITAT’) in ITA No. 1539/Del/2016 for assessment year 2011-12.
2. The facts giving rise to the present appeal are that during the course of assessment proceedings initiated by the Assessing Officer (hereinafter referred to as ‘AO’) under Section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the ‘Act’), the AO made an addition of Rs. 2,50,000/- under Section 14A of the Act read with Rule 8D(2)(iii) of the Income Tax Rules, 1962. The assessee opposed the aforesaid addition on the ground that since no exempt income was earned during the relevant assessment year there cannot be any disallowance, which plea was not accepted by the AO. The AO had then relied upon the CBDT Circular No. 5/2014 dated 11th February, 2014 to hold that even if in the relevant assessment year, no exempt income has been earned by the taxpayer, disallowance of expenditure is to be provided.
3. The assessee had then filed an appeal before the CIT(A)against the aforesaid order dated 11th February, 2014, which was dismissed and the aforesaid addition made by the AO was upheld.
4. The assessee being aggrieved by the order of the CIT(A) had approached the ITAT and challenged the addition made in consequence of disallowance under Section 14A of the Act read with Rule 8D(iii). Pertinently, in the said appeal, the assessee further raised an additional ground with respect to subsidy received by it from the State of Jammu & Kashmir. It was stated that the subsidy received by the assessee under the “New Industrial Policy and Other Concessions Scheme” from the State of Jammu & Kashmir is to be treated as ‘capital receipt’. It was stated that the subsidy was wrongly reported as revenue receipt instead of a capital receipt in the return of income in view of the decision of the Jammu & Kashmir High Court though it was wrongly treated as ‘revenue receipt’ by the payer in its return of income.
5. The ITAT permitted the assessee to raise the additional ground after considering the legislative intent of section 143 (3) of the Act and by relying upon the judgments of the Supreme Court in the case of National Thermal Power Co. Ltd. v. CIT (229 ITR 383) and Anchor Pressings P. Ltd. Vs. CIT 161 ITR 159. The ITAT also placed reliance on a CBDT Circular No. 14(XL-35) dated 11th April, 1955 to note that it is the obligation of the assessing officers to make the assessee aware about any refund or relief which may be due to the assessee and not to take advantage of the ignorance of the assessee of its rights.
6. Therefore, the ITAT held that the additional ground raised by the assessee cannot be excluded from consideration as the issue to be determined is whether the amount of subsidy is taxable or not? The ITAT held that this issue has to be decided by the appellate authority notwithstanding the fact that the assessee has suo moto offered the amounts for taxation already. The ITAT accordingly concluded that the assessee is eligible to raise additional issues at the appellate stage.
7. The ITAT in its impugned order after relying upon the judgment of this Court reported in the case of Cheminvest Ltd. v. CIT (2015) 378 ITR 33 set aside the disallowance made by the AO, holding that since no exempt income was earned by the assessee, no disallowance was called for. With respect to the Circular No. 5/2014 dated 11th February, 2014, relied upon by the AO, the ITAT relied upon the judgment dated 16th August, 2017 of this High Court in the case of IL&FS Energy Development Company Ltd (2017) 399 ITR 483 wherein this Court has held that the circular of the CBDT cannot override the provisions of Sect
