Delhi HC: Assessee Can Raise Additional Grounds At The Stage Of Appeal

The Delhi High Court, on July 25, observed that no error was committed by Income Tax Appellate Tribunal (ITAT) in permitting the asessee to raise additional ground at the stage of appeal because there was no dispute raised by the department.

A Division Bench of Justices Manmeet Pritam Singh Arora and Manmohan heard an Income Tax Appeal which challenged the order passed by the ITAT for assessment year 2011-2012 wherein the Tribunal had 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.

Issues

During the course of assessment proceedings initiated by the Assessing Officer under Section 143(3) of the Income Tax Act, 1961 (IT 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 could not be any disallowance, which plea was not accepted by the AO. The AO had then relied upon a CBDT circular to hold that even if in the relevant assessment year, no exempt income had been earned by the taxpayer, disallowance of expenditure was to be provided. 

The assessee had then filed an appeal before the CIT(A) against the aforesaid order, which was dismissed and the aforesaid addition made by the AO was upheld. 

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. 

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 had 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 was eligible to raise additional issues at the appellate stage.

ITAT relied upon Cheminvest Ltd. v. CIT (2015) 378 ITR 33 and set aside the disallowance made by the AO and held that since no exempt income was earned by the assessee, no disallowance was called for. The judgment held that, “23. In the context of the facts enumerated hereinbefore the Court answers the questions framed by holding that the expression ‘does not form part of the total income’ in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.”

Decision

The Court noted that the department had reiterated its objection to the ITAT admitting additional ground raised by the assessee regarding the treatment of subsidy. It was further observed that, “in the impugned order, the ITAT has given detailed reasoning for permitting the additional ground after relying upon the judgments of the Supreme Court, the CBDT Circular and the history of the legislative provision of Section 143 (3) of the Act.”

“No error was committed by the ITAT by permitting the assessee to raise the additional ground at the stage of the appeal because there is no dispute raised by the 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..,” the Court observed.

The appeal was dismissed on the ground that no substantial question of law arose for being considered.