DEPUTY COMMISSIONER OF INCOME TAX, JAIPUR V. M/S SONALI POLYMERS PVT. LTD., JAIPUR

ITA 1011/JPR/2018

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 1977 (ITAT-JAIPUR)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 31-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J C KULHARI
• Keywords: Audit objection; Earning of tax free income; Tax effect; Rule 8D
• Section: 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRAM SINGH YADAV, AM VK;DJ VIHY LA-@ ITA. NO. 1011 & 1012/JP/2018 FU/KZKJ.K O'K Z@ ASSESSMENT YEARS : 2013-14 & 2014-15 THE DCIT, CIRCLE-7, JAIPUR. CUKE VS. M/S SONALI POLYMERS PVT. LTD. G-1/17, RIICO INDUSTRIAL AREA, BASSI, AGRA ROAD, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAICS 8912 L VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI MUKESH KHANDELWAL (CA) JKTLO DH VKSJ LS @ REVENUE BY : SHRI J.C. KULHARI (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 06/11/2018 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT : 06/11/2018 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THESE ARE TWO APPEALS FILED BY THE REVENUE AGAINST THE ORDER OF LD. CIT (A)-3, JAIPUR DATED 18.06.2018 FOR ASSESSME NT YEARS 2013-14 & 2014-15 RESPECTIVELY WHEREIN THE REVENUE HAS TAKEN THE FOLLOWING GROUNDS OF APPEAL:- ITA NO. 1011/JP/2018 (REVENUES APPEAL) ITA NO.1011 &1012/JP/2018 DCIT VS. M/S SONALI POLYMERS PVT. LTD. 2 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, WHETHER FINDING GIVEN BY THE LD. CIT(A) IN DELETING THE ENT IRE DISALLOWANCE OF RS. 4,92,950/- MADE U/S 14A R.W. RULE 8D, WAS NO T IN CONTRAVENTION TO THE PROVISIONS OF SECTION 14A OF T HE INCOME TAX ACT, 1961 AND CLARIFICATION ISSUED BY THE CBDT VIDE CIRCULAR 05/2014 DATED 11.02.2014? 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, WHETHER LD. CIT(A) WAS JUSTIFIED IN DELETING THE ENTIRE DISALLO WANCE EVEN WHEN THE AO HAS ESTABLISHED A DIRECT NEXUS BETWEEN BORROWED FUNDS & THE INVESTMENT IN SHARES AND HAS GIVEN A FI NDING OF FACT THAT THE INTEREST EXPENSES PERTAINED TO THE INVESTM ENT OF ASSETS WHICH IS RELATED TO THE EXEMPT INCOME? 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, WHETHER LD. CIT(A) WAS JUSTIFIED IN DELETING THE ENTIRE DISALLO WANCE OF RS. 4,92,950/- MADE U/S 14A R.W. RULE 8D BY STATING THA T NO EXEMPT INCOME WAS RECEIVED OR RECEIVABLE IN THE YEAR UNDER CONSIDERATION EVEN THOUGH THIS FINDING WAS IN CONTR AVENTION TO THE CBDT'S CIRCULAR 05/2014 DATED 11.02.2014 WHEREI N IT HAS BEEN CLEARLY MENTIONED THAT DISALLOWANCE U/S 14A IS APPLICABLE EVEN WHERE TAXPAYER IN A PARTICULAR YEAR HAS NOT EA RNED ANY EXEMPT INCOME? 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, WHETHER LD. CIT(A) WAS JUSTIFIED IN DELETING THE ENTIRE DISALLO WANCE MADE U/S 14A R.W. RULE 8D BY IGNORING THE RATIO OF DECISION AWARDED BY VARIOUS COURTS INCLUDING THE HON'BLE APEX COURT IN THE CASE OF M/S MAXOPP INVESTMENT LTD. VS CIT (2018) 91 TAXMANN.COM 154 WHEREIN IT IS CLEARLY HELD THAT THE DOMINANT PURPOS E FOR WHICH INVESTMENT IS MADE BY THE ASSESSEE IS NOT RELEVANT SINCE THIS INVESTMENT IN SHARES RESULTED IN EXEMPT INCOME? ITA NO.1011 &1012/JP/2018 DCIT VS. M/S SONALI POLYMERS PVT. LTD. 3 ITA NO. 1012/JP/2018 (REVENUES GROUND) 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE, WHETHER FINDING GIVEN BY THE LD. CIT(A) IN DELETING THE ENT IRE DISALLOWANCE OF RS. 6,13,059/- MADE U/S 14A R.W. RULE 8D, WAS NO T IN CONTRAVENTION TO THE PROVISIONS OF SECTION 14A OF T HE INCOME TAX ACT, 1961 AND CLARIFICATION ISSUED BY THE CBDT VIDE CIRCULAR 05/2014 DATED 11.02.2014? 2. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, WHETHER LD. CIT(A) WAS JUSTIFIED IN DELETING THE ENTIRE DISALLO WANCE EVEN WHEN THE AO HAS ESTABLISHED A DIRECT NEXUS BETWEEN BORROWED FUNDS & THE INVESTMENT IN SHARES AND HAS GIVEN A FI NDING OF FACT THAT THE INTEREST EXPENSES PERTAINED TO THE INVESTM ENT OF ASSETS WHICH IS RELATED TO THE EXEMPT INCOME? 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, WHETHER LD. CIT(A) WAS JUSTIFIED IN DELETING THE ENTIRE DISALLO WANCE OF RS. 6,13,059/- MADE U/S 14A R.W. RULE 8D BY STATING THA T NO EXEMPT INCOME WAS RECEIVED OR RECEIVABLE IN THE YEAR UNDER CONSIDERATION EVEN THOUGH THIS FINDING WAS IN CONTR AVENTION TO THE CBDT'S CIRCULAR 05/2014 DATED 11.02.2014 WHEREI N IT HAS BEEN CLEARLY MENTIONED THAT DISALLOWANCE U/S 14A IS APPLICABLE EVEN WHERE TAXPAYER IN A PARTICULAR YEAR HAS NOT EA RNED ANY EXEMPT INCOME? 4. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E, WHETHER LD. CIT(A) WAS JUSTIFIED IN DELETING THE ENTIRE DISALLO WANCE MADE U/S 14A R.W. RULE 8D BY IGNORING THE RATIO OF DECISION AWARDED BY VARIOUS COURTS INCLUDING THE HON'BLE APEX COURT IN THE CASE OF M/S MAXOPP INVESTMENT LTD. VS CIT (2018) 91 TAXMANN.COM 154 WHEREIN IT IS CLEARLY HELD THAT THE DOMINANT PURPOS E FOR WHICH INVESTMENT IS MADE BY THE ASSESSEE IS NOT RELEVANT SINCE THIS INVESTMENT IN SHARES RESULTED IN EXEMPT INCOME? ITA NO.1011 &1012/JP/2018 DCIT VS. M/S SONALI POLYMERS PVT. LTD. 4 2. AT THE OUTSET, THE LD. AR OF THE ASSESSEE HAS RA ISED AN OBJECTION REGARDING MAINTAINABILITY OF THE APPEAL OF THE REVE NUE DUE TO THE TAX EFFECT NOT EXCEEDING RS. 20 LACS AS PER THE CBDT CI RCULAR NO. 3 OF 2018 DATED 11 TH JULY, 2018. 3. THE LD. D/R HAS FAIRLY SUBMITTED THAT THE TAX EF FECT INVOLVED IN THE REVENUES APPEAL IS LESS THAN RS 20 LACS WHICH IS P RESCRIBED THRESHOLD LIMIT IN TERMS OF THE CBDT CIRCULAR NO. 3/2018 DATE D 11 TH JULY, 2018 ISSUED IN SUPERSESSION OF ITS EARLIER CIRCULAR NO. 21 OF 2015 DATED 10.12.2015. AT THE SAME TIME, HE SUBMITTED THAT THE MATTER FALLS IN EXCEPTION (B) TO PARA 10 OF THE SAID CIRCULAR WHICH READS AS UNDER: 10. ADVERSE JUDGMENTS RELATING TO THE FOLLOWING IS SUES SHOULD BE CONTESTED ON MERITS NOTWITHSTANDING THAT THE TAX EF FECT ENTAILED IS LESS THAN THE MONETARY LIMITS SPECIFIED IN PARA 3 ABOVE OR THERE IS NO TAX EFFECT: (A) WHERE THE CONSTITUTIONAL VALIDITY OF TH E PROVISIONS OF AN ACT OR RULE IS UNDER CHALLENGE, OR (B) WHERE BOARD'S OR DER, NOTIFICATION, INSTRUCTION OR CIRCULAR HAS BEEN HELD TO BE ILLEGAL OR ULTRA VIRES, OR (C) WHERE REVENUE AUDIT OBJECTION M THE CASE HAS BEEN A CCEPTED BY THE DEPARTMENT, OR (D) WHERE THE ADDITION RELATES TO UN DISCLOSED FOREIGN ASSETS/ BANK ACCOUNTS. ITA NO.1011 &1012/JP/2018 DCIT VS. M/S SONALI POLYMERS PVT. LTD. 5 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IT IS OBSERVED THAT THE DEMAN D/ TAX EFFECT IN THE REVENUES APPEAL IN QUESTION ARISING OUT OF SEPARAT E ORDERS PASSED BY THE LD CIT(A) IN BOTH THE YEARS IS BELOW RS. 20.00 LACS . UNDER THE POWERS VESTED BY SECTION. 268A(1) OF THE I T ACT, C BDT HAS RECENTLY ISSUED CIRCULAR NO. 3/2018 DATED 11 TH JULY, 2018 (F NO. 279/MISC. 142/2007-ITJ(PT) INSTRUCTING THE AUTHORIT IES BELOW THAT DEPARTMENTAL APPEAL SHOULD NOT BE FILED BEFORE ITAT WHERE THE DEMAND/TAX EFFECT DOES NOT EXCEED RS. 20 LACS. THE CIRCULAR IS SPECIFICALLY MENTIONED TO BE APPLICABLE FOR ALL PENDING APPEALS. 5. SUBJECT TO SOME EXCEPTIONS, IT IS FURTHER DIREC TED BY CBDT THAT ALL THE DEPARTMENTAL APPEALS PENDING BEFORE ITAT WHERE THE DEMAND/TAX EFFECT IS NOT EXCEEDING RS 20 LACS SHOULD BE EITHER WITHDRAWN OR NOT PRESSED BY THE DEPARTMENTAL REPRESENTATIVES. 6. REGARDING THE CONTENTION OF THE LD DR THAT THE PRESENT CASE OF THE REVENUE FALLS IN EXCEPTION 10(B) OF THE AFORESA ID CBDT CIRCULAR, WE FIND THAT THE SAID EXCEPTION TALKS ABOUT CASES WHER E BOARD'S ORDER, ITA NO.1011 &1012/JP/2018 DCIT VS. M/S SONALI POLYMERS PVT. LTD. 6 NOTIFICATION, INSTRUCTION OR CIRCULAR HAS BEEN HELD TO BE ILLEGAL OR ULTRA VIRES. IN THE PRESENT CASE, THE LD CIT(A) HAS DECI DED TO FOLLOW THE RATIO LAID DOWN BY VARIOUS COURTS THAT SECTION 14A DISALL OWANCE NOT TO BE MADE WHERE THERE IS NO EXEMPT INCOME AND HAS NOT FO LLOWED THE CBDT CIRCULAR NO. 5/2014 DATED 11.2.2014. THE LD CIT(A) FIRSTLY IS NOT AN AUTHORITY TO HOLD SUCH CIRCULAR AS ILLEGAL OR ULTRA VRES AND SECONDLY, AS WE HAVE NOTED ABOVE, HE HAS DECIDED NOT TO FOLLOW THE SAID CIRCULAR AND HAS FOLLOWED THE RATIO LAID DOWN BY VARIOUS COURTS. THERE IS THUS A DISTINCTION BETWEEN HOLDING A CIRCULAR AS ILLEGAL A ND NOT FOLLOWING THE SAID CIRCULAR. IN LIGHT OF THE SAME, THE PRESENT A PPEALS ARE NOT COVERED BY ANY EXCEPTIONS MENTIONED IN THE SAID CBDT CIRCUL AR. SINCE THE TAX DEMAND IN DISPUTE IN THESE TWO DEPARTMENTAL APPEALS IS BELOW THE LIMIT SET OUT BY CBDT FOR THE APPEAL, BOTH THE APPEALS OF THE DEPARTMENT ARE NOT MAINTAINABLE IN VIEW OF CBDT CIRCULAR NO. 3 OF 2018 DATED 11.07.2018. ACCORDINGLY, THE APPEALS OF THE DEPARTM ENT ARE DISMISSED AS NOT PRESSED/WITHDRAWN. ORDER PRONOUNCED IN THE OPEN COURT ON 06/11/2018. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER ITA NO.1011 &1012/JP/2018 DCIT VS. M/S SONALI POLYMERS PVT. LTD. 7 TK;IQJ@ JAIPUR FNUKAD@ DATED:- 06/11/2018. *SANTOSH VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- DCIT, CIRCLE-7, JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- M/S SONALI POLYMERS PVT. LTD., JAIP UR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE { ITA NO. 1011 & 1012/JP/2018} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR