The Principal Commissioner of Income-tax-1 v. CIMS Hospital Pvt. Ltd
[Citation -2020-LL-0225-79]

Citation 2020-LL-0225-79
Appellant Name The Principal Commissioner of Income-tax-1
Respondent Name CIMS Hospital Pvt. Ltd.
Court HIGH COURT OF GUJARAT AT AHMEDABAD
Relevant Act Income-tax
Date of Order 25/02/2020
Assessment Year 2012-13
Judgment View Judgment
Keyword Tags expenditure incurred • tax free income • exempted income • satisfaction • book profit
Bot Summary: The Revenue has proposed the following two questions as substantial questions of law: 2(A) Whether Appellate Tribunal has erred in law and on facts in deleting the disallowance of Rs.35,825/ made under Section 14A r.w. Rule 8D Whether Appellate Tribunal has erred in law and on facts deleting the addition of disallowance made under Section 14A to the book profit under Section 115JB of the Act Page 1 of 6 Downloaded on : Thu Apr 02 13:07:23 IST 2020 C/TAXAP/101/2020 ORDER 3. Considering the provisions of Section 14A of the Act 1961 read with Rule 8D of the Rules 1962, the Tribunal came to the conclusion that in order to make disallowance, the Assessing Officer has to be satisfied with regard to correctness of the claim of the assessee having regard to the amounts of expenditure in relation to his income which does not Page 2 of 6 Downloaded on : Thu Apr 02 13:07:23 IST 2020 C/TAXAP/101/2020 ORDER form part of the total income under the Act 1961. The Tribunal, in the facts of the case, found that the Assessing Officer has not recorded any satisfaction in terms of Section 14Aof the Act 1961 so as to apply Rule 8D of the Rules 1962 for computation of amount of expenditure to be disallowed under Section 14A of the Act 1961. In order to consider whether the Tribunal has the correctly deleted disallowance made under Section 14A of the Act 1961 read with Rule 8D of the Rules 1962, it would be germane to refer section 14A of the Act 1961, which reads thus: Expenditure incurred in relation to income not includible in total income: 14A. For the purposes of computing the total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under this Act. The provisions of sub section shall also apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form Page 3 of 6 Downloaded on : Thu Apr 02 13:07:23 IST 2020 C/TAXAP/101/2020 ORDER part of the total income under this Act : Provided that nothing contained in this section shall empower the Assessing Officer either to reassess under section 147 or pass an order enhancing the assessment or reducing a refund already made or otherwise increasing the liability of the assessee under section 154, for any assessment year beginning on or before the 1st day of April, 2001. On perusal of the aforesaid provisions, it is clear that to determine the amount of expenditure incurred by the assessee in relation to the income which does not form part of the total income under the Act 1961, the Assessing Officer can apply the method to calculate such expenditure as provided under Rule 8D of the Rules 1962 only if the Assessing Officer having regard to accounts of the assessee is not satisfied with the correctness of the claim made by the assessee in respect of such expenditure in relation to the exempted income under the Act 1961. So far as Question No.2(B) is concerned, as the Question No.2(A) is answered in favour of the assessee to the effect that the Tribunal has not erred in deleting the disallowance under Section 14A of the Act 1961 read with 8D of the Rules 1962, question of making addition of disallowance made under Section 14A by the Assessing Officer to the book profit under Section 115JB of the Act 1961 would not arise.


C/TAXAP/101/2020 ORDER IN HIGH COURT OF GUJARAT AT AHMEDABAD R/TAX APPEAL NO. 101 of 2020 PRINCIPAL COMMISSIONER OF INCOME TAX-1 Versus CIMS HOSPITAL PVT. LTD. Appearance: MRS MAUNA M BHATT(174) for Appellant(s) No. 1 for Opponent(s) No. 1 CORAM: HONOURABLE MR.JUSTICE J.B.PARDIWALA and HONOURABLE MR. JUSTICE BHARGAV D. KARIA Date : 25/02/2020 ORAL ORDER (PER : HONOURABLE MR. JUSTICE BHARGAV D. KARIA) 1. This Tax Appeal is filed under Section 260A of Income Tax Act 1961 (for short Act 1961 ) at instance of revenue and is directed against order dated 05.09.2019, passed by Income Tax Appellate Tribunal, Ahmedabad Bench 'B', Ahmedabad (for short Tribunal )in ITA No.3213/Ahd/2016 for Assessment Year 2012 13. 2. Revenue has proposed following two questions as substantial questions of law: 2(A) Whether Appellate Tribunal has erred in law and on facts in deleting disallowance of Rs.35,825/ made under Section 14A r.w. Rule 8D? (B) Whether Appellate Tribunal has erred in law and on facts deleting addition of disallowance made under Section 14A to book profit under Section 115JB of Act? Page 1 of 6 Downloaded on : Thu Apr 02 13:07:23 IST 2020 C/TAXAP/101/2020 ORDER 3. Assessing Officer, during course of proceedings, disallowed amount of Rs.35,825/ under Section 14A of Act 1961. Assessing Officer was of view that though assessee has disallowed amount of Rs.5500/ under Section 14A of Act 1961 in statement of income, assessee did not correctly work out disallowance. According to Assessing Officer, correct working for purpose of disallowance under Section 14A of Act 1961 r.w. Rule 8D of Income tax Rules,1962 (for short Rules 1962)was Rs.41,325/ as against Rs.5500/ calculated by assessee. Assessing Officer, therefore, made addition of Rs.35,285/ to total income of assessee. 4. assessee being aggrieved preferred appeal before CIT(A). CIT(A) rejected appeal qua disallowance made by Assessing Officer under Section 14A of Act 1961. 5. assessee being dissatisfied with order of CIT(A) preferred appeal before Tribunal. Considering provisions of Section 14A of Act 1961 read with Rule 8D of Rules 1962, Tribunal came to conclusion that in order to make disallowance, Assessing Officer has to be satisfied with regard to correctness of claim of assessee having regard to amounts of expenditure in relation to his income which does not Page 2 of 6 Downloaded on : Thu Apr 02 13:07:23 IST 2020 C/TAXAP/101/2020 ORDER form part of total income under Act 1961. Tribunal, in facts of case, found that Assessing Officer has not recorded any satisfaction in terms of Section 14A (2)of Act 1961 so as to apply Rule 8D of Rules 1962 for computation of amount of expenditure to be disallowed under Section 14A of Act 1961. Tribunal, therefore, allowed appeal filed by assessee deleting disallowance made under Section 14A of Act 1961 by Assessing Officer. 6. In order to consider whether Tribunal has correctly deleted disallowance made under Section 14A of Act 1961 read with Rule 8D of Rules 1962, it would be germane to refer section 14A of Act 1961, which reads thus: Expenditure incurred in relation to income not includible in total income: 14A. (1) For purposes of computing total income under this Chapter, no deduction shall be allowed in respect of expenditure incurred by assessee in relation to income which does not form part of total income under this Act. (2) Assessing Officer shall determine amount of expenditure incurred in relation to such income which does not form part of total income under this Act in accordance with such method as may be prescribed, if Assessing Officer, having regard to accounts of assessee, is not satisfied with correctness of claim of assessee in respect of such expenditure in relation to income which does not form part of total income under this Act. (3) provisions of sub section (2) shall also apply in relation to case where assessee claims that no expenditure has been incurred by him in relation to income which does not form Page 3 of 6 Downloaded on : Thu Apr 02 13:07:23 IST 2020 C/TAXAP/101/2020 ORDER part of total income under this Act : Provided that nothing contained in this section shall empower Assessing Officer either to reassess under section 147 or pass order enhancing assessment or reducing refund already made or otherwise increasing liability of assessee under section 154, for any assessment year beginning on or before 1st day of April, 2001. 7. On perusal of aforesaid provisions, it is clear that to determine amount of expenditure incurred by assessee in relation to income which does not form part of total income under Act 1961, Assessing Officer can apply method to calculate such expenditure as provided under Rule 8D of Rules 1962 only if Assessing Officer having regard to accounts of assessee is not satisfied with correctness of claim made by assessee in respect of such expenditure in relation to exempted income under Act 1961. Thus, pre condition for applying Rule 8D of Rules 1962, Assessing Officer is required to be satisfied as provided in sub section 2 of Section 14A of Act 1961. 8. In aforesaid context, we may refer recent pronouncement of this Court in case of Principal Commissioner of Income Tax Vs. Gujarat State Fertilizer and Chemical Ltd [(2019) 416 ITR 13 (Guj)], wherein this Court has observed as under: 17. This Court, in Shreno Limited (supra), has taken view that Maxopp Investment Limited Page 4 of 6 Downloaded on : Thu Apr 02 13:07:23 IST 2020 C/TAXAP/101/2020 ORDER (supra) cannot be seen or understood to be fundamentally changing understanding and interpretation of Section 14A and Rule 8D. It went on to hold that judgment of Supreme Court does not lay down proposition that, requirement of sub rule (1) of Rule 8D of recording satisfaction by Assessing Officer before applying formula given in sub rule (2) of Rule 8D is done away with. It clarifies that judgment in case of Maxopp Investment Limited does not lay down proposition that moment it is demonstrated that assessee had availed of mixed funds and utilized them for making investment into securities earning tax free income, Section 14A read with Rule 8D would be attracted automatically. assessee has further relied on judgment in case of Principal Commissioner of Income Tax v. Gujarat State Financial Services Limited in Tax Appeals Nos.1252, 1253 and 1255 of 2018 decided on 15th August 2018, which has followed decision in case of Shreno Limited (supra) dealing with same issue and also identical argument taken by department. 18. language of Section 14A of Act is plain and clear Before invoking Rule 8D, Assessing Officer is obliged to indicate that having regard to accounts of assessee, he is not satisfied with correctness of claim of assessee in respect of such expenditure in relation to income which does not form part of total income under Act. To put it in other words, condition precedent of recording requisite satisfaction which is safeguard provided in Section 14A should not be overlooked before going to Rule 8. In such circumstances we are not impressed by submission canvassed on behalf of Revenue that once there are mixed funds, Rule 8 would be attracted automatically. 9. Tribunal has arrived at finding of fact that as Assessing Officer did not record any satisfaction under Section 14A(2) OF Act 1961 prior to invoking Rule 8D, he could not have made any disallowance by applying Rule 8D of Rules Page 5 of 6 Downloaded on : Thu Apr 02 13:07:23 IST 2020 C/TAXAP/101/2020 ORDER 1962. 10. We are in agreement with finding of facts arrived at by Tribunal. Therefore, Question No.2(A) as proposed by Revenue cannot be termed as substantial question of law arising from impugned order of Tribunal. 11. So far as Question No.2(B) is concerned, as Question No.2(A) is answered in favour of assessee to effect that Tribunal has not erred in deleting disallowance under Section 14A of Act 1961 read with 8D of Rules 1962, question of making addition of disallowance made under Section 14A by Assessing Officer to book profit under Section 115JB of Act 1961 would not arise. Therefore, Question No.2(B) is also rejected. In result, appeal fails and stands dismissed. Registry is directed to permit Mrs.Mauna Bhatt, learned Standing Counsel for Revenue to replace papers of Tax Appeal No.101 of 2020. (J. B. PARDIWALA, J) (BHARGAV D. KARIA, J) GIRISH Page 6 of 6 Downloaded on : Thu Apr 02 13:07:23 IST 2020 Principal Commissioner of Income-tax-1 v. CIMS Hospital Pvt. Ltd
Report Error