Pr. Commissioner Of Income Tax-I, New Central Revenue Building,Statue Circle, Jaipur (Raj v. M/S Om Metals Infra Projects Ltd., Om Tower, Church Road, M.i.road, Jaipur

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 143 / 2016 Pr. Commissioner of Income Tax-I, New Central Revenue Building,Statue Circle, Jaipur (Raj) ----Appellant Versus M/s OM Metals Infra Projects Ltd., Om Tower, Church Road, M.I.Road, Jaipur ----Respondent _____________________________________________________ For Appellant(s) : Mr. Anuroop Singhi with Mr. Aditya Vijay For Respondent(s) : Mr. Sanjay Jhanwar with Ms. Archana, Mr. Mahendra Gargeiya _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE INDERJEET SINGH Order 22/08/2017 1.By way of this appeal, the appellant has challenged thejudgment and order of the Tribunal whereby the Tribunal hasdismissed the appeal of the department. 2.This Court while admitting the matter framed the followingquestion of law:- “i) Whether the Tribunal has erred in deleting thedisallowance of expenditure of Rs. 1,29,52,621/-which was made by the Assessing Officer byapplying the provisions of section 14A r/w Rule8D, ignoring that the said expenditure wasincurred for earning the exempted dividendincome?” ii) Whether the Tribunal was justified in deletingthe addition of Rs. 4,29,098/- by relying upon the provisions of Section 43B, which is not at allapplicable as the said amount was employee’scontribution for ESI and PF which was depositedby the assessee beyond the prescribed date.?” 3.The issue No.1 is regarding 14A. Now the issue is governedby the decision of Supreme Court the case of Godrej & BoyceManufacturing Company Limited vs. Deputy Commissioner ofIncome Tax, Mumbai & Anr. reported in 394 ITR 449 wherein ithas been held as under:- “36. Section 14A as originally enacted by theFinance Act of 2001 with effect from 1.4.1962 isin the same form and language as currentlyappearing in Sub-section (1) of Section 14A ofthe Act. Sections 14A (2) and (3) of the Actwere introduced by the Finance Act of 2006 witheffect from 1.4.2007. The finding of the BombayHigh Court in the impugned order that Sub-sections (2) and (3) of Section 14A isretrospective has been challenged by theRevenue in another appeal which is presentlypending before this Court. The said question,therefore, need not and cannot be gone into.Nevertheless, irrespective of the aforesaidquestion, what cannot be denied is that therequirement for attracting the provisions ofSection 14A(1) of the Act is proof of the fact thattheexpendituresoughttobedisallowed/deducted had actually been incurredin earning the dividend income. Insofar as theAppellant-Assessee is concerned, the issuesstand concluded in its favour in respect of theAssessment Years 1998-1999, 1999-2000 and2001-2002. Earlier to the introduction of Sub-sections (2) and (3) of Section 14A of the Act,such a determination was required to be madeby the Assessing Officer in his best judgment. Inall the aforesaid assessment years referred toabove it was held that the Revenue had failed toestablish any nexus between the expendituredisallowed and the earning of the dividendincome in question. In the appeals arising out ofthe assessments made for some of theassessment years the aforesaid question wasspecifically looked into from the standpoint ofthe requirements of the provisions of Sub- sections (2) and (3) of Section 14A of the Actwhich had by then been brought into force. It ison such consideration that findings have beenrecorded that the expenditure in question boreno relation to the earning of the dividend incomeand hence the Assessee was entitled to thebenefit of full exemption claimed on account ofdividendincome.37. We do not see how in the aforesaid factsituation a different view could have been takenfor the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Actread with Rule 8D of the Rules merely prescribea formula for determination of expenditureincurred in relation to income which does notform part of the total income under the Act in asituation where the Assessing Officer is notsatisfied with the claim of the Assessee. Whethersuch determination is to be made on applicationof the formula prescribed under Rule 8D or inthe best judgment of the Assessing Officer, whatthe law postulates is the requirement of asatisfaction in the Assessing Officer that havingregard to the accounts of the Assessee, asplaced before him, it is not possible to generatethe requisite satisfaction with regard to thecorrectness of the claim of the Assessee. It isonly thereafter that the provisions of Section14A(2) and (3) read with Rule 8D of the Rules ora best judgment determination, as earlierprevailing,wouldbecomeapplicable. 38. In the present case, we do not find anymention of the reasons which had prevailedupon the Assessing Officer, while dealing withthe Assessment Year 2002-2003, to hold thatthe claims of the Assessee that no expenditurewas incurred to earn the dividend income cannotbe accepted and why the orders of the Tribunalfor the earlier Assessment Years were notacceptable to the Assessing Officer, particularly,in the absence of any new fact or change ofcircumstances. Neither any basis has beendisclosed establishing a reasonable nexusbetween the expenditure disallowed and thedividend income received. That any part of theborrowings of the Assessee had been diverted toearn tax free income despite the availability ofsurplus or interest free funds available (Rs.270.51 crores as on 1.4.2001 and Rs. 280.64crores as on 31.3.2002) remains unproved byany material whatsoever. While it is true that the principle of res judicata would not apply toassessment proceedings under the Act, the needfor consistency and certainty and existence ofstrong and compelling reasons for a departurefrom a settled position has to be spelt out whichconspicuously is absent in the present case. Inthis regard we may remind ourselves of whathas been observed by this Court in RadhasoamiSatsang v. Commissioner of Income Tax (1992)193 ITR (SC) 321 [At Page 329]. We are aware of the fact that strictly speakingres judicata does not apply to income taxproceedings. Again, each assessment year beinga unit, what is decided in one year may notapply in the following year but where afundamental aspect permeating through thedifferent assessment years has been found as afact one way or the other and parties haveallowed that position to be sustained by notchallenging the order, it would not be at allappropriate to allow the position to be changedin a subsequent year.” 4.The issue No. 2, the same is now covered by the decision of this Court in CIT vs. State Bank of Bikaner & Jaipur (2014) 363ITR 70 against which SLP is preferred therefore, in view of theearlier decision taken by this Court, the issue is answered infavour of the assessee subject to SLP pending before the SupremeCourt. 5.In that view of the matter, both the issues are answered infavour of the assessee. 6.The appeal stands dismissed. (INDERJEET SINGH)J. (K.S.JHAVERI)J. A.Sharma/