M/s BCL Industries and Infrastructures Ltd., Bathinda V. DCIT, Ludhiana

ITA 1002/CHANDI/2013

• Counselvise Citation: [2016] 121 COUNSELVISE.COM (IT) 2558 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 2 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-01-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 16-12-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 28-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS RAJINDER KAUR
• Assessee Lawyers: N K GARG
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.1002/CHD/2013 (ASSESSMENT YEAR : 2010-11) M/S BCL INDUSTRIES & VS. THE D.C.I.T., INFRASTRUCTURES LTD., CENTRAL CIRCLE-1, HAZI RATTAN, LINK ROAD, LUDHIANA. BATHINDA. PAN: AAACB5510B (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI N.K. GARG DEPARTMENT BY : MRS.RAJINDER KAUR, DR DATE OF HEARING : 16.12.2015 DATE OF PRONOUNCEMENT : 13.01.2016 O R D E R PER RANO JAIN, A.M . : THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCO ME TAX (APPEALS)-I, LUDHIANA DATED 20.8.2013 FOR ASSESSMEN T YEAR 2010-11. 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAD INVESTMENTS AMOUNTING TO RS.908.29 LACS ON WHICH THE INCOME IF EARNED WILL B E FREE FROM TAXATION. THE ASSESSEE REPLIED THAT IT HAD SU FFICIENT INTEREST FREE FUNDS FOR MAKING SUCH AN INVESTMENT A ND THE 2 INTEREST DEBITED IN PROFIT & LOSS ACCOUNT HAD BEEN USED DIRECTLY FOR RUNNING THE BUSINESS, INCOME FROM WHIC H IS INCLUDED IN THE TOTAL INCOME. REJECTING THE CONTEN TION OF THE ASSESSEE, THE ASSESSING OFFICER INVOKED THE PRO VISIONS OF RULE 8D AND MADE DISALLOWANCE OF AN AMOUNT OF RS.25,99,000/- UNDER SECTION 14A OF THE ACT. 3. BEFORE THE LEARNED CIT (APPEALS), THE ASSESSEE REITERATED THE SUBMISSION MADE BEFORE THE ASSESSING OFFICER. IN ADDITION, IT WAS STATED THAT DURING TH E YEAR, NO DIVIDEND HAS BEEN DECLARED BY THE COMPANY IN WHI CH THESE INVESTMENTS HAVE BEEN MADE. THEREFORE, THERE IS NO INCOME EARNED OR RECEIVED DURING THE YEAR, WHICH HA S NOT BECOME PART OF THE TOTAL INCOME. THE LEARNED CIT (APPEALS), REJECTING THE CONTENTION OF THE ASSESSEE HELD THAT SINCE IT IS CLEAR THAT THE ASSESSEE HAD INCURR ED EXPENDITURE IN THE FORM OF INTEREST WHICH IS NOT DI RECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME OR RECEIPT. IN SUCH A SITUATION, IT IS EVITABLE THAT THE INTEREST BEARI NG FUNDS HAVE BEEN USED BY THE ASSESSEE TO MAKE SUCH INVESTM ENTS. IN THIS WAY, THE LEARNED CIT (APPEALS) DISMISSED TH E APPEAL OF THE ASSESSEE. 4. AGGRIEVED BY THE ORDER OF THE LEARNED CIT (APPEALS), THE ASSESSEE HAS COME IN APPEAL BEFORE U S. THE LEARNED COUNSEL FOR THE ASSESSEE MADE SUBMISSION TW O FOLD. FIRSTLY, IT WAS STATED THAT DURING THE YEAR UNDER CONSIDERATION, NO TAX FREE INCOME HAS BEEN EARNED, 3 THEREFORE, IN SUCH CIRCUMSTANCES, NO DISALLOWANCE U NDER SECTION 14A OF THE ACT CAN BE MADE. RELIANCE IN TH IS REGARD WAS PLACED ON THE JUDGMENT OF HON'BLE JURISDICTIONAL PUNJAB & HARYANA HIGH COURT IN THE C ASE OF CIT VS. WINSOME TEXTILES (&H) 319 ITR 204. SECONDLY, IT WAS SUBMITTED THAT SINCE THE ASSESSEE HAD SUFFICIEN T NON INTEREST BEARING FUNDS IN THE FORM OF CAPITAL AND R ESERVES TO MAKE SUCH INVESTMENTS, NO DISALLOWANCE OF INTERE ST CAN BE MADE. IN THIS REGARD, RELIANCE WAS PLACED ON TH E JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE IN THE CASE OF CIT VS. LAKHANI MARKETING INCL (P&H)(2014) 272 CTR 265 AND CIT VS. HERO CYCLES LTD . (2010) 323 ITR 518. 5. THE LEARNED D.R. RELIED ON THE ORDERS OF THE LOWER AUTHORITIES, PARTICULARLY LAST PARA OF THE LE ARNED CIT (APPEALS) ORDER. 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOTH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHO RITIES BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECO RD. THE CLAIM OF THE ASSESSEE IS THAT IT HAS NOT EARNED ANY TAX FREE INCOME DURING THE YEAR. IN THE EVENT OF NO T AX FREE INCOME, DISALLOWANCE OF EXPENSES ATTRIBUTABLE TO AN Y SUCH INCOME ANTICIPATED TO ARISE IN FUTURE CANNOT BE MAD E. FOR THIS, WE ARE GUIDED BY THE JUDGMENT OF HON'BLE JURISDICTIONAL PUNJAB & HARYANA HIGH COURT IN THE C ASE OF LAKHANI MARKETING INCL (SUPRA), WHEREBY IT HAS BE EN HELD 4 THAT IN CASE THERE IS NO EXEMPT INCOME, NO DISALLOW ANCE SHOULD BE MADE. THE HON'BLE DELHI HIGH COURT IN TH E CASE OF CIT VS. HOLCIM INDIA PVT. LTD. (2014) ITA NO.48 6 OF 2014 AND ITA NO.299 OF 2014 DATED 5.9.2014 HAS ALSO HELD THE SAME. THOUGH THE JUDGMENTS ARE FOR ASSESSMENT YEAR PRIOR TO THE ASSESSMENT YEAR 2008-09, I.E. THE YEAR IN WHICH RULE 8D OF THE INCOME TAX RULES WAS BROUGHT I N THE INCOME TAX RULES. BUT THE PROPOSITION LAID DOWN BY THE HON'BLE HIGH COURT IS WITH REGARD TO SECTION 14A OF THE INCOME TAX ACT, WHICH IS TO BE APPLIED EVEN AFTER T HE INSERTION OF RULE 8D OF THE INCOME TAX RULES. IT I S A TRITE LAW THAT THE PROVISIONS OF ACT PREVAIL OVER THE RUL ES. ONCE THE TAXABILITY OF AN AMOUNT IS DECIDED AS PER THE PROVISIONS OF THE ACT, ONLY THEN A RULE CAN BE INVO KED. RULE 8D OF THE INCOME TAX RULES IS JUST A MACHINERY OR A METHOD PROVIDES TO COMPUTE THE DISALLOWANCE UNDER SECTION 14A OF THE ACT, IF ANY. THEREFORE, IN THE PRESENT CASE, WE ARE BOUND BY THESE JUDGMENTS OF THE HIGH C OURT. NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MADE IF THERE IS NO TAXABLE INCOME EARNED DURING THE YEA R. 7. THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT BEEN ABLE TO DEMONSTRATE BEFORE US WITH THE HELP OF DOCUMENTS THAT NO TAX FREE INCOME HAS ACTUALLY BEEN EARNED DURING YEAR. IN VIEW OF THIS, WE THINK IT P ROPER TO SEND THE CASE BACK TO THE FILE OF THE ASSESSING OF FICER. IF 5 THERE IS NO TAX FREE INCOME DURING THE YEAR, THE AS SESSING OFFICER IS DIRECTED NOT TO MAKE DISALLOWANCE UNDER SECTION 14A OF THE ACT. OTHERWISE, HE HAS TO DECIDE THE CA SE AS PER LAW. 8. FURTHER, ON THE ARGUMENT OF THE ASSESSEE THAT I T HAD SUFFICIENT OWNED FUNDS TO MAKE INVESTMENT, WE S EE, THAT FOR THE PROPOSITION THAT IN CASE OF MIXED FUND S, THE ASSESSEE HAVING SUFFICIENT OWNED FUNDS TO MAKE INVESTMENT, IT CAN BE PRESUMED THAT THE INVESTMENTS ARE MADE OUT OF OWNED FUNDS, WE ARE GUIDED BY THE JUDGM ENTS OF HON'BLE JURISDICTIONAL PUNJAB & HARYANA HIGH COU RT IN THE CASE OF BRIGHT . ENTERPRISES PVT. LTD. VS. CIT IN ITA NO.624 OF 2013 (O&M) DATED 24.7.2015 AND CIT VS. KAPSONS ASSOCIATES, ITA NO.354 OF 2013 (O&M) DATED 4.8.2015. THOUGH THE SAID JUDGMENTS WERE DELIVERED IN THE CONTEXT OF SECTION 36(1)(III) OF THE ACT, BUT T HE PROPOSITION LAID DOWN IS THAT IN THE EVENT OF MIXED FUNDS AVAILABLE WITH THE ASSESSEE, IT CAN SAFELY BE PRESU MED THAT THE INVESTMENTS ARE MADE OUT OF OWNED FUNDS. HOWEV ER, SINCE WE ARE SENDING BACK THE CASE TO THE FILE OF T HE ASSESSING OFFICER ON THE FIRST ISSUE, WE THINK IT P ROPER TO SEND THIS ISSUE ALSO TO THE FILE OF THE ASSESSING O FFICER AND DECIDE THE SAME AS PER LAW EXPLAINED HEREINABOV E. 6 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 13 TH DAY OF JANUARY, 2016. SD/- SD/- (BHAVNESH SAINI) (RANO JAIN) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 13 TH JANUARY, 2016 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/THE CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 7