Sh. Shiv Parshad Aggarwal, Ludhiana V. ACIT, Ludhiana

CO 46/CHANDI/2014

• Counselvise Citation: [2015] 123 COUNSELVISE.COM (IT) 1409 (ITAT-CHANDIGARH)
• Duration Of Justice: 11 month(s) 26 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 16-11-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 25-06-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 20-11-2014
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SUBHASH AGGARWAL
• Assessee Lawyers: MANJIT SINGH
• Keywords: Business income; Salary income; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE VICE PRESIDENT & MS. ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO. 810/CHD/2014 ASSESSMENT YEAR: 2011-12 THE ACIT, CIRCLE-V, V SH. SHIV PARSHAD AGGARWAL, LUDHIANA C/O M/S SALIGRAM SHIVPARSAD, LUDHIANA PAN NO. ABKPA7653E & C.O. NO. 46/CHD/2014 (IN ITA NO. 810/CHD/2014) ASSESSMENT YEAR: 2011-12 SH. SHIV PARSHAD AGGARWAL, VS. THE ACIT, CIRCLE-V C/O M/S SALIGRAM SHIVPARSAD, LUDHIANA LUDHIANA PAN NO. ABKPA7653E (APPELLANT) (RESPONDENT) APPELLANT BY : SH. MANJIT SINGH RESPONDENT BY : SH. SUBHASH AGGARWAL DATE OF HEARING : 15.10.2015 DATE OF PRONOUNCEMENT : 16.11.2015 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE REVENUE AND CROSS OBJECTI ON BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER OF CIT(A)-II. LUDHIANA D ATED 17.07.2014 RELATING TO ASSESSMENT YEAR 2011-12. 2. THE ONLY GROUND RAISED BY THE REVENUE IN THIS AP PEAL, READS AS UNDER:- 2 1. (A) THAT THE LD. CIT(A)-II, LUDHIANA HAS ERRED I N LAW AS WELL AS ON FACTS IN DELEING THE DISALLOWANCE OF RS.52,32,561/- MADE BY ASSESSING OFFICER U/S 14A OF THE INCOME-TAX ACT, 1961 WHEN THE SAID ADDITION WAS LEGALLY JUSTIFIED UNDER THE PROVISIONS OF SECTION I 4A OF THE INCOME-TAX ACT, 1961 AND WAS CORRECTLY WORKED OUT AS PER RULE 8D(2)(II) OF THE INCOME-LAX RULES. 1962. (B) THAT THE LD. CIT(A) HAS ERRED IN LAW AND ON FAC TS IN APPLYING THE RATIO OF JUDGEMENT OF THE HON'BLE ITAT, CHANDIGARH IN THE ASSESSEE'S OWN CASE FOR TH E AY 2009-10 IN ITA NO. 927/CHD/2012 DATED 27.7.2014 WHEREIN IT HAS BEEN HELD THAT THERE IS NO MERIT IN MAKING DISALLOWANCE U/S 14A WHERE THE ASSESSEE HAD INCURRED INTEREST EXPENDITURE WHICH IS SET OFF AGAI NST THE INTEREST INCOME OFFERED BY HIM UNDER THE HEAD INCOME FROM OTHER SOURCES AND WHERE NO INTEREST EXPENDITURE IS REMAINING TO BE SET OFF WHILE AS THE SAID DECISION WAS NOT ACCEPTED BY THE REVENUE AND FURTHE R CONTESTED BEFORE THE HON'BLE PUNJAB & HARYANA HIGH COURT. C) THAT THE LD. CIT(A) HAS FAILED TO APPRECIATE TH E DECISION OF THE ITAT, SPECIAL BENCH, DELHI IN THE C ASE OF CHEMIVEST LTD VS. ITO (2009) WHEREIN IT HAS BEE N HELD THAT THE DISALLOWANCE HAS TO BE ENTIRE AMOUNT OF EXPENDITURE SO RELATED AND CANNOT BE REDUCED BY THE RECEIPT OF INTEREST WHICH HAS NO RELATION TO SUCH EXPENDITURE. [PAART 43] D) THAT THE LD. CIT(A) HAS ALSO FAILED TO CONSIDER HIS OWN DECISION DATED 9.6.2014 ON IDENTICAL ISSUE IN T HE CASE OF M/S HERO CYCLES LTD FOR ASSESSMENT YEAR 201 0- 11 IN WHICH THE PLEA OF THE ASSESSEE REGARDING NET TING OF INTEREST EXPENDITURE AGAINST INTEREST INCOME WAS REJECTED . 3 3. IN CROSS OBJECTION NO. 46/CHD/2014, THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS:- 1. THAT THE LEARNED CIT (A) - II, LUDHIANA, HAS ERRED IN SUSTAINING A DISALLOWANCE OF RS. 9,65,168/- U/S 14A OF THE INCOME TAX ACT, 1961 R.W. RULE 8D (III) OF THE INCO ME TAX RULES IN AS MUCH AS :- A) THAT NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE DIVIDEND INCOME. B) THAT THE CIT(A) HAS COMPLETELY IGNORE D THE JUDGMENT OF THE JURISDICTIONAL HIGH COURT IN TH E CASE CIT, JALANDHAR VS. DEEPAK MITTAL REPORTED IN 3 61 ITR 131 (P&H) WHICH LAYS DOWN THAT IF NO EXPENDITUR E HAS BEEN INCURRED NO DISALLOWANCE IS CALLED FOR U/S 14A / RULE 8D (III), 2. THAT IN ANY CASE THE CONFIRMATION OF DISAL LOWANCE OF RS. 9,65,168/- IS AGAINST THE LAW AND FACTS OF THE CASE AND IGNORING THE SUBMISSIONS MADE BY THE APPELLANT. 3. THAT WITHOUT PREJUDICE THE LEARNED CIT(A) HAS CONFIRMED THE ACTION OF THE AO IN MAKING A DISALL OWANCE OF RS. 9,65,168/- BY TAKING THE AVERAGE VALUE OF TOT AL INVESTMENTS AS ON THE 1 ST T DAY OF THE PREVIOUS YEAR AND ON THE LAST DAY OF THE PREVIOUS YEAR IGNORING THE FACT THAT THE MAJOR INVESTMENTS WERE IN THE COMPANIES FROM WHIC H NO DIVIDEND INCOME WAS EARNED THAT THE INVESTMENTS WER E MADE FOR THE PURPOSE OF HAVING CONTROLLING INTEREST IN T HOSE COMPANIES. 4. THAT IN ANY CASE THE INVESTMENTS IN THE C OMPANIES FROM WHICH NO DIVIDEND INCOME WAS RECEIVED HAD TO BE EXCLUDED FOR MAKING DISALLOWANCE UNDER RUL E 8D(III) OF IT RULES. 4. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN CONSIGNMENT AGENCY TISCO (IRON & STEEL PRODUCTS). WHILE PERUSING THE 4 BALANCE SHEET RELEVANT TO ASSESSMENT YEAR UNDER CON SIDERATION, THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD SHOWN INVESTMENTS AND HAD INCURRED INTEREST EXPENDITURE OF RS. 1,12,37,015/-. THE ASSESSING OFF ICER REQUIRED THE ASSESSEE TO EXPLAIN AS TO WHY EXPENDITURE INCURRED IN RELATION TO THE EARNING OF EXEMPT INCOME SHOULD NOT BE DISALLOWED U/S 14A READ WITH RULE 8D. IN RESPONSE TO THE SAID QUERY, THE ASSESSEE SUBMITTED THAT INVESTMENTS WERE MADE FROM INTERNAL CASH ACCRUALS. AFTER CONSIDERING THE ASSESSEES REPLY, T HE ASSESSING OFFICER REACHED AT THE CONCLUSION THAT IN THIS CASE, THE EXPENDITURE I NCURRED IN RELATION TO EARNING EXEMPT INCOME SHOULD BE DISALLOWED U/S 14A OF THE A CT. THE DISALLOWANCE UNDER RULE 8D (II) WAS COMPUTED AT RS. 52,32,561/- AND DI SALLOWANCE UNDER RULE 8D(III) WAS AT ABOUT 9,65,168/-. THUS, ASSESSING OF FICER DISALLOWED RS. 61,97,729/- AND ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CIT(A) AND THE LD. CIT (A) FOLLOWING THE DECISION OF THIS BENCH OF THE TRIBUNAL PASSED IN ASSESSEES OWN CASE IN ITA NO. 927/CHD/2012 DATED 27.3.2014 RELATING TO ASSESSME NT YEAR 2009-10 DELETED THE DISALLOWANCE OF RS. 52,32,561/- MADE UNDER RULE 8D( II) AND CONFIRMED DISALLOWANCE OF RS. 9,65,168/- MADE UNDER RULE 8-D( III), OBSERVING AS UNDER:- 3.3. I HAVE CAREFULLY CONSIDERED THE APPELLANT'S S UBMISSIONS. SIMILAR DISALLOWANCE OF RS. 39,80,7077- WAS MADE IN THE APPELLANT'S OWN CASE FOR ASSESSMENT YEAR 2009-10. T HE DISALLOWANCE WAS CONFIRMED BY ME VIDE ORDER DATED 2 3.08.2012. THE APPELLANT FILED AN APPEAL BEFORE THE HON'BLE 1T AT. THE HON'BLE ITAT VIDE ITS ORDER DATED 27.03.2014 IN ITA NO.927/CHD/2012 HELD AS UNDER:- 'WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED TH E RECORD. THE ASSESSEE IS THE SOLE PROPRIETOR OF M/S SALIGRAM SHIV PARSHAD AND IS CARRYING ON THE BUSINESS OF CONSIGNMENT AGENT OF M/S TATA STEELS LTD. IN ADDITI ON TO THE 5 BUSINESS INCOME DECLARED BY THE ASSESSEE AT RS. 2.1 3 CR., THE ASSESSEE HAS DECLARED SALARY INCOME FROM M/S AA RTI STEELS AT RS. 61.69.5J5/-. THE ASSESSEE HAS ALSO DE CLARED INTEREST INCOME EARNED FROM M/S AARTI STEELS LTD. A T RS. 1,18,29,523/- AGAINST WHICH IT HAD CLAIMED THE EXPE NDITURE OF INTEREST AT RS. 77,72,9IO/-. THE SAID INTEREST I NCOME AND INTEREST EXPENDITURE HAS BEEN DECLARED UNDER THE HE AD INCOME FROM OTHER SOURCES IN THE COMPUTATION OF INC OME FILED FOR THE YEAR UNDER CONSIDERATION PLACED AT PA GES 8 TO 10 OF THE PAPER BOOK. ON THE OTHER HAND, THE ASSESS EE HAD SHOWN INVESTMENT OF RS. 13.45 CR. IN THE SHARES AND MUTUAL FUNDS, WHICH THE ASSESSEE CLAIMS TO HAVE MADE OUT O F ITS OWN FUNDS I. E. ITS CAPITAL OF RS. 25.02 CR. THE SA ID INVESTMENT IN SHARES AND MUTUAL FUNDS, INCOME FROM WHICH IS EXEMPT WAS MADE IN THE PRECEDING YEARS AND DURIN G THE YEAR UNDER CONSIDERATION, ONLY INVESTMENT OF RS. 35 ,749 WAS MADE. IN THE TOTALITY OF THE ABOVE SAID FACTS AND CIRCUMS TANCES, WHERE THE ASSESSEE HAD INCURRED INTEREST EXPENDITUR E WHICH IS SET-OFF AGAINST THE INTEREST INCOME OFFERED UND ER THE HEAD 'INCOME FROM OTHER SOURCES' AND WHERE NO INTER EST EXPENDITURE IS REMAINING TO BE SET OFF THERE IS NO MERIT IN THE ORDERS OF THE AUTHORITIES BELOW IN MAKING THE DISALLOWANCE UNDER SECTION 14A OF THE ACT IN LINE W ITH RULE 8D(II) OF THE IT RULES. THE ASSESSEE DURING THE YEA R UNDER CONSIDERATION HAD EARNED DIVIDEND INCOME OF RS. 3,0 5,730/- AGAINST WHICH DISALLOWANCE OF RS. 39,80,707/- WAS M ADE BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT. WE DELETE THE ADDITION MADE UNDER SECTION 14A READ WITH RULE 8D(II) AT RS. 33,08,071/-. HOWEVER, IN VIEW OF THE ASSESSE E HAVING INCURRED VARIOUS EXPENDITURES, THE DISALLOWANCE WAR RANTED UNDER RULE 8D(III) AT % OF THE AVERAGE OF THE VA LUE OF INVESTMENT AT RS. 6,72,635/- IS UPHELD. THE GROUNDS OF APPEAL NO. 1 TO 4 RAISED BY THE ASSESSEE ARE THUS, PARTLY ALLOWED.' 6 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. IT IS STATE D THAT THE FACTS OF THE PRESENT YEAR ARE SIMILAR TO THAT OF ASSESSMENT YEAR 2009-10. IN OUR VIEW, THE COMMISSIONER OF INCOME TAX (APPEALS) HAS CORRECTLY FOLLOWED THE DECISION OF THIS BENCH OF THE TRIBUNAL DATED 27.3.2014 PASSED I N ASSESSEES CASE IN ITA NO. 927/CHD/2012. THE CIT(A) HAS REPRODUCED THE OPERATI ONAL PART OF THE TRIBUNALS ORDER IN PARA 3.3 OF THE IMPUGNED ORDER. THUS, CONS IDERING THE ENTIRE FACTS AND CIRCUMSTANCES OF THE PRESENT CASE, WE HOLD THAT CIT (A) WAS FULLY JUSTIFIED IN DELETING THE DISALLOWANCE OF RS. 52,32,561/- AND IN CONFIRMING THE DISALLOWANCE OF RS. 9,65,185/- MADE UNDER RULE 8D(III) OF THE I. T. RULES, 1962. ACCORDINGLY, WE UPHOLD THE ORDER OF CIT(A) AND DISMISS THE APPEA L OF THE REVENUE AND CROSS OBJECTIONS SUBMITTED BY THE ASSESSEE. 7. BEFORE PARTING WITH THIS CASE, IT IS MADE CLEAR THAT WHILE WORKING OUT THE DISALLOWANCE UNDER RULE 8D(III), IT IS ONLY THE INV ESTMENTS WHICH YIELD EXEMPT INCOME ARE TO BE TAKEN INTO CONSIDERATION AND NOT A VERAGE OF ALL THE INVESTMENTS. THE ASSESSING OFFICER IS DIRECTED TO TAKE INTO CONS IDERATION THE ABOVE OBSERVATIONS WHILE WORKING OUT THE DISALLOWANCE UND ER RULE 8D(III) OF THE I.T. RULES, 1962. 8. IN THE ABOVE TERMS, THE APPEAL OF THE REVENUE AN D CROSS OBJECTION BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 16.11.2015 SD/- SD/- (ANNAPURNA MEHROTRA) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED 16 TH NOV.,, 2015 RKK 7 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR