M/s Ind Swift Laboratories Ltd., Chandigarh V. ACIT, Chandigarh

CO 4/CHANDI/2017

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 3039 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 20 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 12-07-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 23-01-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Assessee Lawyers: VRIND JAIN
• Keywords: Search and seizure; Earning of tax free income
• Section: 143(3); 153A; 14A; 115JB

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NOS.1270, 1271 & 1272/CHD/2016 ASSESSMENT YEARS: 2009-10 TO 2011-12 THE ACIT VS. M/S IND SWIFT LABORATORIES LTD. CENTRAL CIRCLE II, SCO 850, NAC MANIMAJRA, CHANDIGARH CHANDIGARH PAN NO. AAACI6306G CROSS OBJECTION NO. 4/CHD/2017 (IN ITA NO. 1270/CHD/2017) ASSESSMENT YEAR: 2009-10 M/S IND SWIFT LABORATORIES LTD. VS. THE ACIT SCO 850, NAC MANIMAJRA CENTRAL CIRCLE II, CHANDIGARH CHANDIGARH (APPELLANT) (RESPONDENT) ASSESSEE BY : SH.VRIND JAIN DEPARTMENT BY : SH. SUSHIL KUMAR DATE OF HEARING : 06/07/2017 DATE OF PRONOUNCEMENT : 12 /07/2017 ORDER PER ANNAPURNA GUPTA A.M. ALL THE ABOVE THREE APPEALS FILED BY THE REVENUE AR E DIRECTED AGAINST SEPARATE ORDERS OF THE LD. CIT(A)-3, GURGAO N ALL DT. 30/09/2016 AND RELATING TO A.Y 2009-10, 2010-11 & 2011-12. THE CROSS OBJECTION OF THE ASSESSEE PERTAINS TO A.Y 2009-10. 2. AT THE OUTSET IT MAY BE STATED THAT THE CASE W AS INITIALLY HEARD ON 27.3.2017 WHEN THE LD. COUNSEL FOR ASSESSE E SHRI VED JAIN 2 ARGUED AT LENGTH. THEREAFTER IT WAS FIXED FOR HEAR ING ON 6.7.2017 FOR SEEKING CLARIFICATION WHEN SHRI VRIND APPEARED FROM THE OFFICE OF THE LD. COUNSEL FOR ASSESSEE. 3. IT WAS COMMON GROUND BETWEEN BOTH THE PARTIES TH AT THE ISSUE INVOLVED IN ALL THE ABOVE APPEALS WAS IDENTICAL. TH EREFORE THEY WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. FOR THE SAKE OF CONVENIENCE WE SHALL BE DEAL ING WITH THE FACTS IN APPEAL NO. 1270/CHD/2016 ALONGWITH THE CO NO. 4/CHD /2017. ITA NO.1270/CHD/2016 & CO NO.4/CHD/17 A.Y-2009-10 4. BRIEFLY STATED SEARCH AND SEIZURE OPERATIONS WER E CARRIED OUT ON THE BUSINESS AND RESIDENTIAL PREMISES OF THE ASSESSEE. RETURN DECLARING LOSS OF RS.7,83,78,602/- WAS FILED BY THE ASSESSEE. BOOK PR OFITS U/S 115JB WERE SHOWN AT RS.51,43,21,151/- AND TAXES PAID THEREON U NDER MAT. SUBSEQUENTLY ASSESSMENT U/S 153A R.W.S 143(3) OF T HE ACT WAS FRAMED MAKING ADDITIONS/DISALLOWANCES U/S 35(2AB),14A &145 A AND THE LOSS WAS REDUCED AND ASSESSED AT RS.17,91757/-. APPEAL WAS FILED AGAINST THE SAID ORDER TO THE LD.CIT(A) WHO ALLOWED THE ASSESSEES A PPEAL DELETING ALL THE ADDITIONS /DISALLOWANCES MADE. BEFORE THE LD.CIT(A ) THE ASSESSEE HAD CHALLENGED THE VALIDITY OF THE ASSESSMENT FRAMED U/ S 153A WHICH WAS NOT ADJUDICATED BY THE LD.CIT(A) SINCE ON MERITS RELIEF HAD BEEN GRANTED TO THE ASSESSEE. AGGRIEVED BY THE ORDER OF TH E LD. CIT (A) THE REVENUE HAS FILED THE PRESENT APPEAL BEFORE US WHIL E THE ASSESSEE HAS FILED CROSS OBJECTIONS ON THE ISSUE OF VALIDITY OF THE ORDER PASSED U/S 153A. AT THE OUTSET IT MAY BE STATED THAT CO FILED BY TH E ASSESSEE WAS WITHDRAWN BY THE LD.COUNSEL FOR THE ASSESSEE DURING THE COURSE OF HEARING 3 BEFORE US. THEREFORE THE CROSS OBJECTION OF THE ASS ESSEE IS TREATED AS DISMISSED. WE SHALL NOW DEAL WITH THE REVENUES APPEAL IN ITA N O 1270/CHD/2016 5. GROUND NO.1 RAISED BY THE REVENUE READS AS UNDE R: 1. THAT ON FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITI ON OF RS. 6,15,98,522/- MADE BY THE ASSESSING OFFICER BY INVOKING THE PROVISIONS OF SECTION 145A OF THE INCO ME TAX ACT, 1961. 6. BRIEF FACTS RELATING TO THE ISSUE ARE THAT DURIN G ASSESSMENT PROCEEDINGS THE AO FOUND FROM THE TAX AUDIT REPORT ATTACHED WITH RETURN OF INCOME THAT THE ASSESSEE WAS NOT ROUTING VARIOUS DUTIES / TAXES THROUGH ITS PROFIT & LOSS ACCOUNT. THE AO OBSERVED THAT THO UGH SALES AND FINISHED GOODS IN CLOSING STOCK WERE INCLUSIVE OF EXCISE DUT Y, RAW MATERIAL PURCHASE AND RAW MATERIAL IN CLOSING STOCK DID NOT INCLUDE CENVAT. THE AO THEREFORE CONFRONTED THE ASSESSEE AS TO WHY, AS PER THE PROVISION OF SECTION 145A, INCLUSIVE METHOD OF ACCOUNTING BE NOT FOLLOWED AND THE P&L ACCOUNT REDRAWN BY FOLLOWING SUCH METHOD. THE ASSESSEE, IN ITS REPLY, SUBMITTED THAT IT HAD FOLLOWED EXCLUS IVE METHOD IN RESPECT OF MODVAT/CENVAT CREDIT AND FURTHER RELIED ON THE DECI SION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT-3, LUDHIANA VS. NAHAR SPINNING MILLS LTD., IN ITA NO. 507, 370, 387, AND 399 OF 2007 IN SUPPORT O F ITS CONTENTION. THE ASSESSEE FURTHER SUBMITTED THAT EVEN IF THE INCLUSI VE METHOD WAS FOLLOWED, VIS A VIS MODVAT, THERE WOULD BE NIL IMPACT ON THE PROFIT OF THE ASSESSEE. THE ASSESSEE REFERRED TO CERTIFICATE OF TAX AUDITOR IN HIS REPORT IN THIS REGARD. THE AO REJECTED THE CONTENTIONS OF THE ASSE SSEE AND HELD THAT THE PROVISION OF SECTION 145A WERE TO BE FOLLOWED A S PER WHICH THE 4 ASSESSEE WAS REQUIRED TO FOLLOW THE INCLUSIVE METHO D FOR DETERMINING ITS INCOME FOR INCOME TAX PURPOSES. THE AO THEREAFTER A PPLIED THE SAME TO ITS P&L ACCOUNT AND WORKED OUT THE NET EFFECT ON AC COUNT OF THE ADJUSTMENT MADE AS A CONSEQUENCE THEREOF AT RS. 6,1 5,98,552/-. HE THEREFORE MADE AN ADDITION OF THE SAME TO THE INCOM E OF THE ASSESSEE. 7. AGGRIEVED BY THE SAME THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) WHERE THE ASSESSEE REITERATED THE CONTENTION S MADE BEFORE THE AO, STATING THAT EVEN AFTER APPLYING THE INCLUSIVE METHOD PRESCRIBED UNDER SECTION 145A THE IMPACT ON THE PROFIT OF THE ASSESSEE WOULD BE NIL. THE ASSESSEE RELIED ON A NUMBER OF DECISIONS OF THE ITAT AND ALSO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF CI T VS. INDO NIPPON CHEMICALS REPORTED IN 245 ITR 384, IN SUPPORT OF IT S CONTENTION. THE ASSESSEE ALSO POINTED OUT ANOMALIES IN THE ADJUSTM ENT MADE BY THE AO WHILE APPLYING THE INCLUSIVE METHOD PRESCRIBED UNDE R SECTION 145A.THE SAME FIND MENTION IN THE WRITTEN SUBMISSIONS OF THE ASSESSEE REPRODUCED IN THE CIT(A) ORDER AT PAGE 14. BRIEFLY STATED THE ASSESSEE POINTED OUT THAT WHILE APPLYING INCLUSIVE METHOD OF ACCOUNTING THE A O HAD EFFECTED NO CHANGE TO THE OPENING STOCK, WHICH AS PER THE ASSES SEE WAS A FUNDAMENTAL MISTAKE, SINCE THE INCLUSIVE METHOD SH OULD HAVE BEEN APPLIED TO ALL ITEMS OF THE P&L ACCOUNT. ASSESSEE F URTHER SUBMITTED THAT THE ISSUE IN ANY CASE HAD ALREADY BEEN DECIDED BY T HE ITAT IN THE CASE OF THE ASSESSEE FOR AY 2006-07 IN FAVOUR OF THE ASS ESSEE DELETING THE ADDITION MADE ON ACCOUNT OF ADJUSTMENT MADE BY INVO KING THE PROVISION OF SECTION 145A OF THE INCOME TAX ACT. 5 8. LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF T HE ASSESSEE DELETED THE ADDITION MADE FOLLOWING THE ORDER OF THE TRIBUN AL IN THE ASSESSEES OWN CASE IN PRECEDING YEAR. 9. AGGRIEVED BY THE SAME THE REVENUE HAS CAME UP IN APPEAL BEFORE US. 10. DURING THE COURSE OF HEARING BEFORE US LD. COUN SEL FOR THE ASSESSEE RELIED ON THE ORDER OF THE CIT(A) AND POINTED OUT THAT THE ISSUE HAD BEEN DECIDED IN THE ASSESSEES FAVOUR BY THE ITAT IN ASS ESSEES OWN CASE IN AY 2006-07. LD COUNSEL FOR THE ASSESSEE FURTHER POINT ED OUT THAT IN A.Y 2007- 08 ALSO IDENTICAL ADDITION MADE HAD BEEN DELETED BY THE CIT(A) AND THE REVENUES APPEAL AGAINST THE SAME WAS DISMISSED BY T HE ITAT VIDE ITS ORDER DATED 28-04-14 IN ITA NO.799/CHD/2012. IT WA S FURTHER POINTED OUT THAT THE ORDER OF THE CIT(A) DELETING IDENTICAL ADD ITION MADE IN A.Y 2005- 06 WAS ALSO UPHELD BY THE ITAT IN ITS ORDER DT 21-0 2-09 IN ITA NO.797/CHD/2008. 11. LD. DR ON THE OTHER HAND RELIED ON THE ORDER OF THE AO. 12. WE HAVE HEARD THE RIVAL CONTENTION OF BOTH THE PARTIES AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. 13. WE FIND NO INFIRMITY IN THE ORDER OF THE LD. CI T(A).THE ISSUE WE FIND HAS ALREADY BEEN DECIDED BY THE ITAT IN FAVOUR OF T HE ASSESSEE REPEATEDLY IN A.Y 2005-06, 2006-07 & 2007-08.WE HAV E PERUSED THE ORDER OF THE ITAT AND FIND THAT THE ISSUE HAS BEEN ADJUDI CATED IN FAVOUR OF THE ASSESSEE FOLLOWING THE DECISION OF THE PUNJAB & HAR YANA HIGH COURT IN THE CASE OF CIT VS NAHAR SPINNING MILLS LTD. IN ITA.NO. 503 OF 2007 DT.25-02- 08.THE REVENUE HAS NOT POINTED OUT ANY DISTINGUISHI NG FACTS IN THE PRESENT 6 CASE VIS A VIS THE PRECEDING YEARS NOR HAS BROUGHT ANY OTHER LATER DECISION OF THE JURISDICTIONAL HIGH COURT OR THE SUPREME COU RT TAKING A CONTRARY VIEW TO THAT IN NAHAR SPINNING MILLS (SUPRA). IN VI EW OF THE SAME WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD. CIT(A ) DELETING THE ADDITION MADE U/S 145A AMOUNTING TO RS.6,15,98,522/-. GROUND NO. 1 RAISED BY THE REVENUE IS THEREFORE D ISMISSED. 14. GROUND NO. 2 RAISED BY THE REVENUE READS AS UN DER: 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE LD. CIT(A) HAS ERRED IN DELETIN G THE ADDITION MADE BY THE ASSESSING OFFICER BY DISALLOWING THE SUM OF RS. 67,79,267/-BY INVOKING PROVISIONS OF SECTION 14A OF THE ACT IGNORING THE BOARD CIRCULAR NO. 5/2014 DATED 11/02/2014. THE REVENUE IN THE PRESENT GROUND IS AGGRIEVED BY T HE ACTION OF THE LD. CIT(A) IN DELETING THE DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961. 15. BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT DURI NG THE COURSE OF ASSESSMENT PROCEEDINGS THE AO NOTICED THAT THE ASSE SSEE HAD MADE INVESTMENT IN VARIOUS DOMESTIC COMPANIES AMOUNTING TO RS.13,79,50,000/-. THE AO ALSO NOTICED THAT THAT THE ASSESSEE HAD NOT SHOWN ANY INCOME FROM THE SAME, BUT AT THE SAME TIME IT WAS REGULA RLY BEARING INTEREST ON ITS BORROWED FUNDS. ON CONFRONTING THE ASSESSEE AS TO WHY DISALLOWANCE UNDER THE PROVISIONS OF SECTION 14A BE NOT MADE, TH E ASSESSEE REPLIED THAT NO INTEREST BEARING FUNDS HAD BEEN UTILIZED FO R INVESTMENT IN THE SHARES AND NO ADMINISTRATIVE OR OTHER EXPENSES HAD BEEN INCURRED TO EARN ANY INCOME FROM THESE INVESTMENT DURING THE YEAR. T HE ASSESSEE STATED THAT THERE WAS THEREFORE NO REASON TO MAKE ANY DIS ALLOWANCE UNDER 7 SECTION 14A OF THE ACT. THE AO REJECTED THE ASSESSE ES CONTENTION AND HELD THAT DISALLOWANCE OF INTEREST UNDER SECTION 14 A HAD TO BE MADE FOLLOWING THE DECISION OF THE JURISDICTIONAL HIGH C OURT IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD. REPORTED IN 288 ITR 1(P&H) FOR THE REASON THAT THE ASSESSEE HAD NOT FILED ANY EXPLANATION SHOWING THAT INTEREST EXPENSES HAD BEEN INCURRED FOR ANY SPECIFIC ITEM. THE LD. AO THEREAFTER COMPUTED THE DISALLOWANCE BY APPLYING RULE 8D AND WORKED OUT THE SAME AS UNDER: UNDER RULE 8D(2)(I) ON ACCOUNT OF INTEREST RS. 60,89,517/- UNDER RULE 8D(2)(III) ON ACCOUNT OF ADMINISTRATIVE EXPENSES RS. 6,89,750/- TOTAL DISALLOWANCE RS. 67,79,267/- ACCORDINGLY THE AO DISALLOWED THE ABOVE AMOUNT, TRE ATING THE SAME AS HAVING BEEN INCURRED IN RELATION TO EARNING EXEMPT INCOME. 16. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD. CIT(A) WHERE THE ASSESSEE PLEADED THAT SINCE NO EXEMPT INCOME HAD BE EN EARNED BY IT NO DISALLOWANCE UNDER SECTION 14A COULD BE MADE. TH E ASSESSEE RELIED UPON A NUMBER OF DECISIONS OF THE HIGH COURT IN SU PPORT OF ITS ABOVE CONTENTION INCLUDING THE DECISION OF JURISDICTIONAL HIGH COURT IN CIT VS. LAKHANI MARKETING IN ITA NO. 970 OF 2008 DT. 02/04/ 2014 AND THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CIT VS. HOLC IM INDIA P. LTD. ITA NO. 486/2014 AND ITA NO. 299/2014 DT. 05/09/2014 AND TH E FINDINGS OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. SUZLON ENERGY LTD . (2013) 354 ITR 630 (GUJ). 17. LD. CIT(A), AFTER CONSIDERING THE ASSESSEES SU BMISSION, HELD THAT NO DISALLOWANCE UNDER SECTION 14A IS WARRANTED IN THE PRESENT CASE, IN THE ABSENCE OF ANY EXEMPT INCOME EARNED. LD. CIT(A) DRE W SUPPORT FROM VARIOUS DECISIONS OF THE HIGH COURT RELIED UPON BY THE ASSESSEE IN THIS REGARD. 8 18. BEFORE US LD. COUNSEL FOR THE ASSESSEE RELIED U PON THE ORDER OF THE LD. CIT(A) WHILE THE LD. DR RELIED UPON ORDER OF TH E AO. 19. HAVING HEARD THE CONTENTION OF BOTH THE PARTIES WE ARE IN AGREEMENT WITH THE LD. CIT(A) THAT IN THE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WHERE NO EXEMPT INCOME HAS BEEN EARNE D BY THE ASSESSEE, THERE IS NO CASE FOR MAKING ANY DISALLOWA NCE UNDER SECTION 14A OF THE ACT. RELIANCE PLACED BY THE LD. CIT(A) ON T HE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF LAKHANI MA RKETING (SUPRA) IS APT WHEREIN THE HIGH COURT HAS LAID DOWN THE AFORESTATE D PROPOSITION CATEGORICALLY. SINCE NO DISTINGUISHING FACTS HAVE BEEN BROUGHT TO OUR NOTICE BY THE LD. DR, WE FIND NO REASON TO DISAGREE WITH THE FINDINGS OF THE LD. CIT(A) ON THIS ISSUE. IN VIEW OF THE ABOVE WE UPHELD THE ORDER OF THE LD. CIT(A) HOLDING THE DISALLOWANCE MADE UNDER SECTION 14A AMOUNTING TO RS. 67,79,267/-. GROUND NO. 2 OF APPEA L RAISED BY THE REVENUE IS DISMISSED. 20. THE APPEAL OF THE REVENUE IN ITA NO.1270/CHD/20 16 IS DISMISSED. ITA NOS. 1271 & 1272/CHD/2014 21. SINCE THE ISSUES INVOLVED AND FACTS OF THE CASE IN ALL THE ABOVE APPEALS OF THE REVENUE WERE IDENTICAL TO THAT IN ITA NO. 1270/CHD/2016, AS ALSO THE SUBMISSIONS OF BOTH THE PARTIES ARE SIMILAR, THEREFORE, THE DECISION RENDERED ABOVE IN ITA NO. 1270/CHD/2016 FOR ASSESSMENT YEAR 2009-10, WILL APP LY MUTATIS MUTANDIS TO THESE APPEALS ALSO. 22. BOTH THESE APPEALS OF REVENUE ARE DISMISSED. 9 23. IN THE RESULT, ALL THE APPEALS OF THE REVENUE A RE DISMISSED AND CROSS OBJECTION NO.4/CHD/2017 FILED BY THE ASSE SSEE IS ALSO DISMISSED. SD/- SD/- (DIVA SINGH) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBE R DATED : 12/07/2017 AG/RKK COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT, TH E CIT(A), THE DR