Shri Girija Smelters Limited, Visakhapatnam V. Assistant Commissioner of Income Tax, Circle-4(1), , Visakhapatnam

CO 89/VIZ/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 9969 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 30 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 26-09-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 27-08-2018
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: K S DAS
• Keywords: Revision of order; Earning of tax free income
• Section: 143(3); 14A; 263; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL VISAKHAPATNAM BENCH, VISAKHAPATNAM BEFORE SHRI V. DURGA RAO , HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH , HONBLE ACCOUNTANT MEMBER ITA NO. 306 & 307 / VIZ /201 8 (ASST. YEAR : 20 12 - 13 & 2013 - 1 4 ) ACIT, CIRCLE - 4(1), VISAKHAPATNAM. V S . M/S. SHRI GIRIJA SMELTERS LTD., MIG - 225, TPT COLONY, SEETHAMMADHARA , NE LAYOUT, VISAKHAPATNAM. PAN NO. AADCS 1438 A (APPELLANT) (RESPONDENT) C.O. NOS. 89 & 90/VIZ/2018 (ARISING OUT OF ITA NO. 306 & 307 / VIZ /201 8) (ASST. YEAR : 20 12 - 13 & 2013 - 14 ) M/S. SHRI GIRIJA SMELTERS LTD., MIG - 225, TPT COLONY, SEETHAMMADHARA, NE LAYOUT, VISAKHAPATNAM. VS. ACIT, CIRCLE - 4(1), VISAKHAPATNAM. PAN NO. AADCS 1438 A (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI G.V.N. HARI ADV OCATE . DEPARTMENT BY : SHRI K.S. DAS SR. DR DATE OF HEARING : 18 / 0 9 /201 8 . DATE OF PRONOUNCEMENT : 26 / 09 /201 8 . O R D E R PER V. DURGA RAO, JUDICIAL MEMBER TH E ABOVE CAPTIONED APPEAL S BY THE REVENUE AND THE CROSS OBJECTIONS BY THE ASSESSEE ARE DIRECTED AGAINST THE SEPARATE 2 ITA NO S . 306 & 307/VIZ/2018 C.O.NOS. 89 & 90/VIZ/2018 ( M/S. SHRI GIRIJA SMELTERS LTD. ) ORDER S OF COMMISSIONER OF INCOME TAX (APPEALS) - 9 , HYDERABAD , EACH DATED 27 /0 3 /201 8 FOR THE ASSESSMENT YEARS 20 12 - 13 & 20 13 - 1 4 . SINCE FACTS AND ISSUES ARE COMMON, CLUBBED AND HEARD TOGETHER AND DISPOSED OF BY WAY OF THIS CONSOLIDATED ORDER . ITA NO. 306/VIZ/2018 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: - 1. THE LD.CIT(A) HAS NOT TAKEN INTO CONSIDERATION THE CBDT CIRCULAR NO.5/2014 WHILE DISPOSING THE CASE WHICH IS BINDING ON IT AUTHORITIES. 2. FURTHER THE LD. CIT(A) ERRED IN TAKING THE VIEW THAT NO DISALLOWANCE IS NECESSARY WHEN THERE IS NO EXEMPT INCOME DURING THE RELEVANT YEAR WHIC H IS CONTRARY TO CIRCULAR NO.5/2014 DATED 11 - 02 - 2014 ISSUED BY THE CBDT. 3. THE LD. CIT(A) ERRED IN NOT APPRECIATING THE FACT THAT AS PER CBDT CIRCULAR NO.5/2014 WHICH CLARIFIES THAT FOR INVOKING DISALLOWANCE UNDER SECTION 14A, IT IS IMMATERIAL THAT THE TAXPA YER SHOULD HAVE EARNED SUCH EXEMPT INCOME DURING THE FINANCIAL YEAR UNDER CONSIDERATION BECAUSE SECTION 14A OF THE ACT DOES NOT USE THE WORD 'INCOME OF THE YEAR' BUT 'INCOME UNDER THE ACT'. 4. THE LD. CIT(A) ERRED IN NOT FOLLOWING THE CBDT CIRCULAR, WHICH CLA RIFIES THAT, NET INCOME IS ONLY ELIGIBLE FOR EXEMPTION, MEANING THEREBY RELATABLE EXPENDITURE OF EXEMPTED GROSS INCOME NEEDS TO BE DISALLOWED. 5. ANY OTHER GROUNDS THAT MAY ARISE AT THE TIME OF HEARINGS. 3 . FACTS OF THE CASE IN BRIEF ARE THAT ASSESSEE - COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTUR ING OF FERRO ALLOYS, FILED ITS RETURN OF INCOME DECLARING TOTAL INCOME OF RS. 9,13,52,890/ - . THE RETURN FILED BY THE ASSESSEE WAS PROCESSED UNDER SECTION 143(1) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFER RED TO AS 'ACT') . 3 ITA NO S . 306 & 307/VIZ/2018 C.O.NOS. 89 & 90/VIZ/2018 ( M/S. SHRI GIRIJA SMELTERS LTD. ) SUBSEQUENTLY, AFTER FOLLOWING DUE PROCEDURE, ASSESSMENT WAS COMPLETED UNDER SECTION 143(3) OF THE ACT. IN THE ASSESSMENT ORDER, THE ASSESSING OFFICER HAS NOTED TH A T ON VERIFICATION OF THE AUDITED BALANCE SHEET AS ON 31/03/2012, IT IS FOUND THAT ASSESSEE HAS MADE HUGE INVESTMENTS, TOTALLING TO RS. 21,00,44,300/ - IN SHARES OF COMPANIES , INCOME FROM WHICH IS EXEMPT FROM TAX. THE ASSESSING OFFICER HAS ASKED THE ASSESSEE TO EXPLAIN WHY THE EXPENDITURE SHOULD NOT BE DISALLOWED AS PER SECTI ON 14A R.W.R. 18D OF THE IT RULES, 1962 . THE ASSESSEE - COMPANY FILED A LETTER DATED 19/02/2015 , STATING THEREIN THAT THE AMOUNT OF DISALLOWANCE UNDER SECTION 14A OF THE ACT IN ITS CASE WOULD COME TO RS.16,21,582/ - AS CALCULATED UNDER RULE 8D AND OFFERED CO NSENT FOR DISALLOWANCE OF THE SAME. BUT THE SAME WAS RETRACTED VIDE ANOTHER LETTER DATED 16/03/2015 STATING THAT ASSESSEE HAS NOT RECEIVED ANY EXEMPT INCOME DURING THE YEAR AND THEREFORE NO DISALLOWANCE CAN BE MADE IN VIEW OF THE DECISION OF ITAT, CHENNAI BENCHES IN ITA NO. 1717/MDS/2013. THE ASSESSING O FFICER HAS CONSIDERED THE EXPLA N A TION OF THE ASSESSEE AND OBSERVED THAT ASSESSEE S EXPLANATION IS NOT ACCEPTABLE , AS ACTUAL EARNING OF INCOME IS NOT SINE QUA NON FOR DECIDING DEDUCTION OF EXPENDITURE LAID OUT OR EXPENDED WHOLLY OR EXCLUSIVELY FOR THE PURPOSE OF 4 ITA NO S . 306 & 307/VIZ/2018 C.O.NOS. 89 & 90/VIZ/2018 ( M/S. SHRI GIRIJA SMELTERS LTD. ) EARNING SUCH INCOME I.E. DIVIDEND INCOME IS NOT EARNED, IT DOESNT PREVENT THE EXPENSES ON INVESTMENT OF SHARES ETC. FROM BEING DISALLOWED. HE RELIED ON TH E CBDT CIRCULAR NO. 05/2014, DATED 11/02/2014 AND ALSO BY FOLLOWING THE BELOW TWO DECISION S TO COME TO THE ABOVE CONCLUSION. 1) SHANKAR CHEMICAL WORKS (12 TAXMANN.COM 461) (AHD. ITAT) 2) TECHNOPAK ADVISORS P. LTD. ( 18 TAXMANN.COM 146) (DELHI ITAT) T HE ASSESSING OFFICER INVOKED SECTION 14A R.W.R. 18D OF THE IT RULES, 1962 AND ACCORDINGLY DISALLOWED THE EXPENDITURE , AMOUNTING TO RS.1,21,76,456/ - AND THE SAME IS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. 4 . ON APPEAL, LD. CIT(A) DELETED THE ADDITION MADE BY THE ASSESSING OFFICER BY FOLLOWING THE DECISION OF THE ITAT, VISAKHAPATNAM BENCH IN THE CASE OF DCIT VS. RADHA KRISHNA AUTOMOBILES IN ITA NO. 13/VIZ/2013, DATED 22/11/2017. 5. LD. DEPARTMENTAL REPRESENTATIVE HAS RELIED ON THE ORDER OF THE ASSESSING OFFICER. 6 . ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ISSUE INVOLVED IN THIS APPEAL IS COVERED BY THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF 5 ITA NO S . 306 & 307/VIZ/2018 C.O.NOS. 89 & 90/VIZ/2018 ( M/S. SHRI GIRIJA SMELTERS LTD. ) RADHA KRISHNA AUTOMOBILES (SUPRA) AND THE SAME WAS FOLLOWED BY LD. CIT(A) , AND PRAYED THAT ORDER OF THE LD. CIT(A) MAY BE UPHELD AND THE APPEAL FILED BY THE REVENUE MAY BE DISMISSED . 7 . WE HAVE HEARD BOTH THE SIDES, PERUSED THE MATERIAL AVAILABLE ON RECORD AND ORDERS OF THE AUTHORITIES BE LOW. 8 . THE ASSESSEE HAS MADE INVESTMENTS TOTALLING TO RS. 21,00,44,300/ - IN SHARES OF COMPANIES, INCOME FROM WHICH IS EXEMPT FROM TAX. ACCORDING TO THE ASSESSING OFFICER, T HE ASSESSEE HAS INCURRED EXPENSES RELATING TO THE EXEMPT INCOME THEREFORE, HE DISALLOWED THE EXPENDITURE BY INVOKING SECTION 14A R.W.R. 18D OF THE IT RULES, 1962. THE CASE OF THE ASSESSEE IS THAT THE ASSESSEE HAS NOT EARNED ANY DIVIDEND INCOME THEREFORE, NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A R.W.R. 18D OF THE IT RULES, 1962. THE ASSESSING OFFICER HAS NOT AGREED AND BY RELYING CBDT C IRCULAR NO. 05/2014 AND ALSO BY FOLLOWING THE DECISIONS OF THE ITAT, AHMEDABAD & DELHI B ENCHES (SUPRA) DISALLOW ANCE WAS MADE. HOWEVER, LD. CIT(A) BY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF RADHA KRISHNA AUTOMOBILES (SUPRA) DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. THE RELEVANT PORTION OF THE ORDER OF THE LD. CIT(A) IS EXTRACTED AS UNDER: - 6 ITA NO S . 306 & 307/VIZ/2018 C.O.NOS. 89 & 90/VIZ/2018 ( M/S. SHRI GIRIJA SMELTERS LTD. ) 'IN THIS CASE, ADMITTEDLY, NO EXEMPT INC OME IS EARNED BY THE ASSESSEE FOR THE RELEVANT ASSESSMENT YEAR UNDER CONSIDERATION. HOWEVER, THE ASSESSING OFFICER IS OF THE OPINION THAT WHETHER THERE IS AN EXEMPT INCOME OR NOT AS PER SECTION 14A, THE EXPENDITURE WHICH IS RELATABLE TO EARNING OF EXEMPT I NCOME HAS TO BE CONSIDERED FOR DISALLOWANCE, IRRESPECTIVE OF THE FACT WHETHER ANY SUCH INCOME HAS BEEN EARNED DURING THE FINANCIAL YEAR OR NOT. THE L D. CIT(A) BY FOLLOWING THE DECISION OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF M/S. REDINGTON (INDIA) LTD. (SUPRA) HAS DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION. A SIMILAR VIEW HAS BEEN TAKEN BY THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF D. VEERABHADRA REDDY (HUF) VS. DCIT IN ITA NO. 263/VIZ/2014, BY ORDER DATED 23/06/2017 FOR THE ASSE SSMENT YEAR 2009 10, WHEREIN THE TRIBUNAL HAS HELD THAT NO DISALLOWANCE CAN BE MADE WHEN THERE IS EXPENSES INCURRED IN RELATION TO EXEMPT INCOME. THE RELEVANT PORTION OF THE ORDER IS EXTRACTED AS UNDER: - '6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ASSESSEE HAS RENTAL INCOME FROM GODOWNS AND THE BUSINESS LOSS. THE ASSESSING OFFICER HAS COMPLETED THE ASSESSMENT U/S 143(3) BY ORDER DATED 04.11.2011. THE LD. CIT HAS CALLED FOR THE RECORD U/S . 263 AND ISSUED THE NOTICE FOR REVI SION FOR INCORRECT SET OFF OF BUSINESS LOSS AGAINST THE RENTAL INCOME. AFTER VERIFICATION OF THE MATERIAL ON RECORD, THE LD. CIT HAS DROPPED THE ISSUE WITH REGARD TO INCORRECT SET OFF OF BUSINESS LOSS AGAINST THE INCOME FROM PROPERTY WHICH WAS EXAMINED BY THE ASSESSING OFFICER. DURING THE COURSE OF REVISION PROCEEDINGS, IT HAS COME TO THE NOTICE OF LD.CIT THAT THE ASSESSEE HAS MADE INVESTMENTS IN SHARES AND BONDS, AND DID NOT MAKE DISALLOWANCE WHICH WAS REQUIRED TO BE MADE U/ S 1 4A OF IT ACT. THE ASSESSEE EX PLAINED THAT THERE WERE NO EXPENSES INCURRED IN RELATION TO THE EXEMPT INCOME WHICH WAS CLAIMED AS DEDUCTION FOR THE ASSESSMENT YEAR 2009 - 10. HENCE, THE ASSESSEE ARGUED BEFORE THE LD. CIT THAT SECTION 14A IS NOT APPLICABLE IN ASSESSEE S CASE. AS PER THE OB SERVATION OF THE LD.CIT, THE ASSESSEE MADE THE INVESTMENTS TO THE TUNE OF RS. 19,90,625/ - IN SHARES AND B ON DS FROM THE BORROWED FUNDS AND THE INTEREST EXPENDITURE RELATING TO THE E ARNING OF DIVIDEND INCOME IS REQUIRED TO BE DISALLOWED U/S. 1 4A. THOUGH , CIT OPINED THAT THE EXPENDITURE RELATING TO THE EARNING OF DIVIDEND INCOME REQUIRED TO BE DISALLOWED, THERE WAS NO FINDING GIVEN BY 7 ITA NO S . 306 & 307/VIZ/2018 C.O.NOS. 89 & 90/VIZ/2018 ( M/S. SHRI GIRIJA SMELTERS LTD. ) THE CIT IN HIS ORDER WITH REGARD TO EARNING OF DIVIDEND INCOME. THE CIT ALSO DID NOT REBUT THE EXPLANATION OFFERED BY THE A SSESSEE STATING THAT NO EXPENDITURE WAS INCURRED FOR MAKING THE INVESTMENTS. THE LD. DR DID NOT MAKE ANY CLARIFICATION WITH RE GARD TO THE QUANTUM OF DIVIDEND INCOME EARNED BY THE ASSESSEE. THE LD.AR S UB MITTED PAPER BOOK ENCLOSING THE COPY OF STATEMENT OF C OMPUTATION, RETURN OF INCOME , BALANCE SHEET AND PROFIT AND LOSS ACCOUNT. IT IS SEEN FROM THE PROFIT LOSS ACCOUNT AND THE STATEMENT OF COMPUTATION OF INCOME THAT THE A SSESSEE HAS NOT DERIVED ANY DIVIDEND INCOME. WHEN THE ASSESSEE HAS NO EXEMPT INCOME, THE QUESTION OF DISALLOWANCE U/S L4A R.W.RULE 8D IS NOT CALLED FOR. THE SAME VIEW IS E XPRESSED BY THE DECISION OF HON'BLE MADRAS HIGH COURT IN REDINGTON (INDIA) LTD. VS. ADDL.CIT, 77 TAXMAN.COM 257 , HON'BLE DELHI HIGH COURT IN C HEM INVESTMENTS VS. CIT, 61 TAXMAN.COM 118 AND THE HON'BLE GUJRAT HIGH COURT IN PRINCIPAL CIT VS SINTEX INDUSTRIES LTD.,, 82 TAXMAN.COM 171 HELD THAT NO DISALLOWANCE IS CALLED FOR WHEN ASSESSEE MAKES SMALL INVESTMENT FROM THE SURPLUS FUNDS. THERE WAS NO DIVIDEND INCOME EARNED BY THE ASSESSEE AND THE CASE WAS TAKEN FOR REVISION TO DISALLOW THE BUSINESS LOSS CLAIMED AGAINST THE PROPERTY INCOME WHICH WAS EX A MINED BY THE AO AND DROPPED THE ASSESSMENT PROCEEDINGS AND THE LD. CIT ALSO SATISFIED THAT THERE IS NO CASE FOR REVISION ON ACCOUNT OF INCORRECT SET OFF OF BUSINESS LOSS. WITH REGARD TO THE ISSUE OF DISALLOWANCE U/S 14A AS PER THE JUDICIAL PRONOUNCEMENTS NO DISALLOWANCE IS CALLED FOR WHEN THERE IS NO EXEMPT INCOME. THEREFORE, WE ARE OF THE CONSIDERED OPINI ON THAT THERE IS NO CASE FOR REVISION OF ORDER U/S 263 AND ACCORDINGLY WE SET ASIDE THE ORDERS OF THE CIT AND ALLOW THE APPEAL OF THE ASSESSEE.' LD. DEPARTMENTAL REPRESENTATIVE HAS NO T BROUGHT ANY DECISION OF THE J URISDICTIONAL HIGH COURT OR ANY OTHER HIGH COURT WHICH IS CONTRARY TO THE DECISION OF THE HON'BLE MADRAS HIGH COURT. 7. WE, THEREFORE, RESPECTFULLY FOLLOWING THE ORDER OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF M/S. REDINGTON (INDIA) LTD. (SUPRA) AND ALSO THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF D. VEERABHADRA REDDY (HUF) (SUPRA), THIS APPEAL FILED BY THE REVENUE IS DISMISSED. 8 ITA NO S . 306 & 307/VIZ/2018 C.O.NOS. 89 & 90/VIZ/2018 ( M/S. SHRI GIRIJA SMELTERS LTD. ) 8. IN THE RESULT APPEAL F I LED BY THE REVENUE IS DISMISSED.' 6. RESPECTFULLY FOLLOWING THE DECISIONS OF THE HONBIE JURISDICTIONAL ITAT ON THIS ISSUE THE GROUND OF APPEAL ON THE ISSUE OF 14A DISALLOWANCE IS ALLOWED. THE SECOND GROUND WHERE 40(A)(IA) DISALLOWANCE HAS NOT BEEN PRESSED AS THE ISSUE HAS BEEN DECIDED BY THE HON'BLE SUPREME COURT IN THE CASE OF PALAM GAS SERVICE DATED 03.05.2017 AGAINST THE ASSESSEE. THEREFORE, THE SECOND GROUND OF APPEAL IS DISMISSED. 9. WE FIND THAT LD. CIT(A) BY FOLLOWING THE DECISION OF THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE O F RADHA KRISHNA AUTOMOBILES (SUPRA) , WHEREIN THE DECISIONS OF THE HON'BLE MADRAS HIGH COURT IN THE CASE OF REDINGTON (INDIA) LTD ., AND HON'BLE GUJARAT HIGH COURT IN THE CASE OF PR.CIT VS. SINTEX INDUSTRIES LTD ., (82 TAXMAN.COM 171) HAVE BEEN FOLLOWED , AND HELD THAT THERE IS DIVIDEND INCOME AND SECTION 14A R.W.R. 18D OF THE IT RULES, 1962 HAS NO APPLICATION AND DIRECTED THE ASSESSING OFFICER TO DELETE THE ADDITION . LD. DEPARTMENTAL REPRESENTATIVE HAS NOT BROUGHT ANY DECISION OF THE JURISDICTIONAL OR ANY OTHER HIGH COURT WHICH IS CONTRA R Y TO THE DECISION OF THE HON'BLE MADRAS HIGH COURT AS WELL AS GUJARAT HIGH COURT (SUPRA) . THEREFORE, WE FIND NO INFIRMITY IN THE ORDER PASSED BY THE LD.CIT(A). THUS, THIS APPEAL FILED BY THE REVENUE IS DISMISSED. 9 ITA NO S . 306 & 307/VIZ/2018 C.O.NOS. 89 & 90/VIZ/2018 ( M/S. SHRI GIRIJA SMELTERS LTD. ) ITA NO . 307/VIZ/2018 10 . FACTS OF THIS CASE ARE SIMILAR TO THE FACTS INVOLVED IN ITA NO. 306/VIZ/2018, THEREFORE, OUR ABOVE DECISION SHALL APPLY MUTATIS MUTANDIS TO THIS APPEAL ALSO. C.O.NOS. 89 & 90/VIZ/2018 11. SO FAR AS CROSS OBJECTIONS FILED BY THE ASSESSEE ARE CONCERNED, THEY ARE ONLY SUPPORTIVE TO THE ORDERS OF THE LD. CIT(A), T HEREFORE, SAME ARE DISMISSED . 1 2 . IN THE RESULT, APPEAL S FILED BY THE REVENUE AND THE CROSS OBJECTIONS FILED BY THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON TH IS 2 6 T H DAY OF SEP . , 201 8 . S D / - S D / - ( D.S. SUNDER SINGH ) ( V. DURGA RAO ) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 2 6 T H SEP. , 201 8 . VR/ - COPY TO: 1. THE ASSESSEE M/S. SHRI GIRIJA SMELTERS LTD., MIG - 225, TPT COLONY, SEETHAMMADHARA, NE LAYOUT, VISAKHAPATNAM 2. THE REVENUE ACIT, CIRCLE - 4(1), VISAKHAPATNAM. 3. THE PR. CIT - 2, VISAKHAPATNAM. 4. THE CIT(A) - 9, HYDERABAD. 5. THE D.R . , VISAKHAPATNAM. 6. GUARD FILE. BY ORDER (VUKKEM RAMBABU) SR. PRIVATE SECRETARY, ITAT, VISAKHAPATNAM.