IN INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR BEFORE: SHRI VIKRAM SINGH YADAV, AM & SHRI LALIET KUMAR, JM M.A. No. 118 /JP/2016 (Arising out of ITA Nos. 435/JP/2013) Assessment Year : 2009-10 M/s Vijay Solvex Ltd., cuke A.C.I.T., Swami Dayanand Marg, Vs. Circle-2, Alwar. Alwar. PAN/GIR No.: AAACV 6864 Appellant Respondent Assessee by : Shri P.C. Parwal (CA) Revenue by : Shri Raj Mehra (JCIT) Date of Hearing : 16/09/2016 Date of Pronouncement : 04/10/2016 ORDER PER: LALIET KUMAR, J.M. assessee has filed present Misc. application on 25/07/2016 against order of ITAT, Jaipur Bench, Jaipur dated 18/03/2016 passed in ITA No. 435/JP/2013 for A.Y. 2009-10 in respect of ground No. 4, wherein it is alleged that following mistake, which are apparent on record, were crept in order:- 2 MA 118/JP/2016_ Vijay Solvex Vs ACIT 1. applicant begs to submit that order, giving rise to present Miscellaneous Application was passed on 18.03.2016. 2. applicant in Ground No. 4 has challenged disallowance of Rs.19,70,157/- u/s 14A of Income Tax Act, 1961. This disallowance made as per Rule 8D comprises of Rs. 17,31,840/- on account of interest and Rs.2,38,317/- on account of other expenses. 3. In course of hearing, it was submitted that share capital and reserve and surplus of assessee as on 31.03.2009 is Rs.5975.95 lacs whereas investment in shares is of Rs.1120.98 lacs. source of investment in shares is out of non-interest bearing funds of Rs.5975.95 lacs. AO has not established that borrowed funds is utilized for investment in shares and reliance was placed on various cases where it was held that if there are funds available both interest free and borrowed, presumption is that investment is out of interest free funds and therefore disallowance of interest made by AO and confirmed by CIT(A) is not as per law. Further reference was made to decision of Hon ble ITAT in assessee s own case for A.Y. 10-11 in ITA No. 109/JP/14 dated 11.01.2016 wherein it was held that even if interest free funds are available with assessee, disallowance u/s 14A can be made as management as well as staff and other office facilities are used for making 3 MA 118/JP/2016_ Vijay Solvex Vs ACIT investment in shares and on that account disallowance of Rs. 5 lacs was confirmed against disallowance of interest of Rs.23,84,269/- made by AO under Rule 8D. 4. Hon ble ITAT in deciding this issue at Para 33.3 at Page 31 referred to judgment of Supreme Court in case of Hero Cycles Pvt. Ltd. Vs. CIT 63 taxman. com 308/ 379 ITR 347 and observed that in their view assessee may be having reserves/surplus/share capital but what is required by AO was whether on date of making investment in shares, there was credit balance in account of assessee from where investment was made. Assessee has not provided date-wise availability of interest free funds and therefore matter was set aside to AO with direction to assessee to furnish date wise availability of interest free fund when investment is made in shares and if assessee fails to prove such availability of interest free funds, then order of AO shall be final. 5. In giving above direction, following mistakes apparent on record has crept in order of Hon ble ITAT:- (i) Hon ble ITAT has not considered its decision in assessee s own case in ITA No. 109/JP/14 for A.Y. 10- 11 dated 11.01.2016 in which finding is given that where assessee has mixed funds, presumption for interest free fund is applicable in case of assessee but 4 MA 118/JP/2016_ Vijay Solvex Vs ACIT considering that there is involvement of management, staff and other office facilities, disallowance u/s 14A on this account is restricted to Rs. 5 lacs by deleting disallowance made by AO on account of interest. Not considering decision of coordinate bench in assessee s own case having same members is mistake apparent on record as held by Supreme Court in case of Honda Siel Power Products Ltd. Vs. CIT 295 ITR 0466. (ii) Hon ble ITAT has relied on decision of Supreme Court in case of Hero Cycles Ltd. (supra). This decision is neither referred by assessee nor referred by departmental representative. Therefore, order of Hon ble ITAT based on this decision which is not argued before it is mistake apparent on record as held by Hon ble Jaipur Tribunal in case of Late Smt. Radha Devi Agarwal Vs. ITO order dt. 08.07.2011 in MA No. 16/JP/11 arising out of ITA No. 465/JP/10 (copy enclosed). (iii) above decision of Supreme Court is in context of allowance of interest u/s 36(1)(iii) and not with reference to section 14A. Further in this decision facts as found by CIT(A) with reference to loans given to its own directors was that when loan was given there was credit balance in account of assessee from where loan was given and 5 MA 118/JP/2016_ Vijay Solvex Vs ACIT therefore interest liability of assessee towards bank on borrowing had no bearings because otherwise, assessee had sufficient funds of its own which assessee could have advanced and it was for AO to establish nexus between borrowings and advancing to prove that expenditure was for non-business purpose which AO failed to do. On above finding of fact, Hon ble Supreme court in last Para of its order observed that insofar as loans to Directors are concerned, it could not be disputed by Revenue that assessee had credit balance in Bank account when said advance of Rs. 34 lakhs was given. Remarkably, as observed by CIT (Appeal) in his order, company had reserve/surplus to tune of almost 15 crores and, therefore, assessee company could in any case, utilize those funds for giving advance to its Directors. From these findings of Supreme Court, it can be noted that even in this decision, it is held that if assessee has reserve and surplus, then it could utilize those funds for giving interest free advances or at lower interest rate to its directors. No express finding is given in this decision by Hon ble Court that assessee is to prove nexus of advance given to its directors out of interest free fund rather it can be so presumed if it has sufficient reserve and surplus. Thus, this decision rather favours 6 MA 118/JP/2016_ Vijay Solvex Vs ACIT assessee in as much as assessee has reserves/surplus/share capital of Rs.5975.95 lacs against investment in shares of Rs. 1120.98 lacs. Having not considered this finding of Hon ble Court, mistake apparent on record has crept in order of Hon ble ITAT. Since above mistakes are apparent on record, it is requested to suitably modify Para 33.3 of order. Therefore, order passed by Tribunal on 18/03/2016 is required to be modified in respect of paragraph No. 33.3 of order. 2. ld. AR of assessee has drawn our attention to order passed by Tribunal for assessment year 2010-11 in case of assessee, submitting that Tribunal has not followed earlier order passed by Tribunal in case of assessee itself, therefore, order of Tribunal is required to be recalled and modified. order of Tribunal for A.Y. 2010-11, paragraph No. 19 is reproduced hereinbelow for sake of clarity. 19. We have heard rival contentions of both parties and perused material available on record. It is undisputed fact that assessee has reserved and surplus share capital to extent of Rs.5888.76 lacs. assessee has mixed fund, presumption for interest free fund is also applicable in case of assessee but 7 MA 118/JP/2016_ Vijay Solvex Vs ACIT following various decisions on this issue, Section 14A read with Rule 8D becomes redundant. It is also fact that management as well as staff and other office facilities available with assessee are used for making investment in shares, therefore, it cannot be ruled out that no income can be generated without any expenditure. quantum may be variance and depend on investment made by assessee. Therefore, we , in interest of justice, uphold disallowance U/s 14A at Rs. 5 lacs against disallowance confirmed by ld CIT(A) at Rs. 23,84,269/-. Accordingly, we allow this ground of appeal partly. 3. On other hand, ld. DR has submitted that Tribunal in its earlier order for A.Y. 2010-11, has not laid down any law and has merely disallowed Rs. 5.00 lacs on lump sum basis and therefore, said order was on peculiar facts of case and therefore, cannot be relied upon for adjudication of earlier assessment year 2009-10. Moreover, it was also pointed out by ld. DR that Bench constituting same Members have decided both appeals and it is presumed that Bench was conscious of its earlier order and moreover, present order has remanded matter to A.O. for verifying facts in accordance with law of land. It was also pointed out that this Tribunal while deciding appeal, though has 8 MA 118/JP/2016_ Vijay Solvex Vs ACIT referred to judgment in case of Hero cycles Pvt. Ltd. Vs CIT 63 taxman.com 308 but said judgment has not been followed by Bench and Bench has merely remanded back matter for verification of various facts as pointed out by Assessing Officer and reasserted by Tribunal. 4. We have heard rival contentions of both parties and perused material available on record. Third Member in case of Deepak Dalela Vs. ITO (2014) 43 taxman.com 96 has held as under:- 6. I have carefully considered arguments of both sides and perused material placed before me. Let us first consider ratio laid down in two decisions relied upon by learned counsel. 7. In case of Honda Siel Power Products Ltd. (supra), ITAT had allowed assessee's miscellaneous application on ground that decision of Coordinate bench of ITAT was referred by assessee at time of hearing but same had escaped its attention. department preferred appeal to High Court and Hon'ble High Court set aside order of ITAT holding that power to rectify any mistake was not equivalent to power to review or recalling order sought to be rectified. On appeal to Supreme Court, Hon'ble Apex Court held as under: "Held, reversing decision of High Court, that in allowing rectification application Tribunal gave finding that earlier decision of co-ordinate Bench was cited before it but through oversight it had missed judgment while dismissing appeal filed by assessee on question of admissibility/allowability of claim of assessee for enhanced depreciation under section 43A. One of important reasons for giving power of rectification to 9 MA 118/JP/2016_ Vijay Solvex Vs ACIT Tribunal under section 254(2) was to see that no prejudice was caused to either of parties appearing before it. rule of precedent was important aspect of certainty in rule of law, and prejudice had resulted to assessee since precedent had not been considered by Tribunal. Tribunal was justified in rectifying mistake on record." 8. In case of Indenture Growth & Securities Ltd. (supra), ITAT passed order relying on its own decision in another case without giving any opportunity to assessee to deal with said decision. miscellaneous application filed by assessee was dismissed by ITAT. On writ petition by assessee, Hon'ble Bombay High Court held as under: "Held, allowing petition that it could not be laid down as inflexible proposition of law that order of remand on miscellaneous application under section 254(2) would be warranted merely because Tribunal had relied upon judgment which was not cited by either party before it. In each case, ft was for court to consider as to whether prima facie or arguable distinction had been made and which should have been considered by Tribunal. distinguishing features in case of Khandwala Finance Limited which had been pointed out by assessee were sufficient to hold that opportunity should be granted to petitioner to place its case on applicability or otherwise of decision in Khandwala Finance Limited before Tribunal. Therefore appeal and cross-objections were to be restored for fresh consideration on merits before Tribunal." 9. Now, let us examine facts of assessee's case in light of above decisions of Hon'ble Apex Court and Hon'ble Bombay High Court. In this case, ITAT has relied upon plethora of decisions of ITAT, various High Courts and Hon'ble Apex Court from page Nos.10 to 21 of order. Admittedly, those decisions were not cited and argued upon by either side at time of hearing before ITAT. 10. In case of Inventure Growth & Securities Ltd. (supra), Hon'ble Bombay High Court has set aside decision of ITAT because ITAT has relied upon decision while passing order without giving 10 MA 118/JP/2016_ Vijay Solvex Vs ACIT opportunity to assessee to deal with such decision. Though Hon'ble Jurisdictional High Court, while setting aside matter, has held that "it could not be laid down as inflexible proposition of law that order of remand on miscellaneous application under section 254(2) would be warranted merely because Tribunal had relied upon judgment which was not cited by either party before it In each case, it was for court to consider as to whether prima facie or arguable distinction had been made and which should have been considered by Tribunal.", in case under consideration before me, I find that as many as 22 cases of various Benches of ITAT, various High Courts and Hon'ble Apex Court have been relied upon and considered by ITAT. In my opinion, when Bench proposes to rely upon such large number of decisions, it would certainly be expected from it to confront parties with those decisions and give opportunity to them to give their comments on those decisions. As per ratio of above decision of Hon'ble Bombay High Court, if decision relied upon by ITAT without giving opportunity to parties has identical facts, then, perhaps, there may not be any requirement of recalling order of ITAT for giving opportunity of being heard. However, when such large number of decisions are relied upon by ITAT without confronting same to parties, it is not even case of Revenue that facts in all cases were identical to facts in present case. 11. Hon'ble Apex Court in case of Honda Siel Power Products Ltd. (supra) has upheld order of ITAT recalling its own decision where decision of Coordinate Bench referred to by assessee had escaped to be considered. While doing so, their Lordships at page 473 held "'Rule of precedent' is important aspect of legal certainty in rule of law. That principle is not obliterated by section 254(2) of Income-tax Act, 1961. When prejudice results from order attributable to Tribunal's mistake, error or omission, then it is duty of Tribunal to set it right" In my opinion, similar to rule of precedent, rule of natural justice is important aspect of dispensation of justice. In my opinion, when large number of decisions are relied upon by ITAT without giving opportunity to parties to put forth their views on those decisions, it is violation of rule of natural justice and, since, due to such violation prejudice is caused to 11 MA 118/JP/2016_ Vijay Solvex Vs ACIT assessee, it is duty of Tribunal to set it right by recalling its order. 12. I also find that ITAT, in its order at page 7 paragraph 4.1, has discussed decision of ITAT in case of Gems Paradise (supra). Paragraph 5 of such decision was with regard to rejection of books of account. In paragraph 6, ITAT upheld finding of CIT(A) applying gross profit rate on declared sales. However, in present case, though ITAT has relied upon above decision for rejection of books of account but had upheld order of learned CIT(A) disallowing 25% of purchases instead of applying gross profit rate on sales of assessee. Therefore, while one part of order of ITAT in case of Gems Paradise (supra) was considered, but, other part was not considered, for which no specific reason is given in order of ITAT. 13. In view of above factual position and ratio laid down by Hon'ble Apex Court in its decision in case of Honda Siel Power Products Ltd. (supra) and by Hon'ble Bombay High Court in its decision in case of Inventure Growth & Securities Ltd. (supra), I agree with proposed order of learned Judicial Member and, accordingly, hold that miscellaneous application of assessee is liable to be allowed by recalling order of Tribunal. 5. facts of present case before us is almost similar to case decided by Third Member, therefore, in our view, ground No. 4 is required to be reheard and decide by Bench afresh after giving opportunities to parties on following aspect. (i) effect of judgment of Hon'ble Supreme Court in case of Hero cycles Pvt. Ltd. Vs. CIT (supra) and observation made therein on present case. 12 MA 118/JP/2016_ Vijay Solvex Vs ACIT (ii) effect of earlier lump sum disallowance made by Tribunal for assessment year 2010-11. In light of above, this Misc. application is disposed off and matter is directed to be put up before regular hearing for deciding ground No. 4 only on 06/10/2016. 5. This Misc. application is disposed off. Order pronounced in open court on 04/10/2016. Sd/- Sd/- (VIKRAM SINGH YADAV) (Laliet Kumar) Accountant Member Judicial Member Jaipur Dated:- 04th October, 2016 Copy of order forwarded to: 1. Appellant- M/s Vijay Solvex Ltd., Alwar. 2. Respondent- A.C.I.T., Circle-2, Alwar. 3. CIT 4. CIT(A) 5. DR, ITAT, Jaipur 6. Guard File (MA No. 118/JP/2016) By order, Asst. Registrar M/s Vijay Solvex Ltd. v. A.C.I.T., Circle-2, Alwar