ACIT, Ludhiana V. M/s Hero Exports, Ludhiana

ITA 1100/CHANDI/2013

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 86207 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-03-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 24-03-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 29-11-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES A CHANDIGARH BEFORE SHRI H.L.KARWA, HON'BLE, VICE PRESIDENT AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 1100/CHD/2013 ASSESSMENT YEAR: 2009-10 THE ACIT, VS M/S HERO EXPORTS, CIRCLE V, LUDHIANA LUDHIANA PAN NO. AAAFH8092H (APPELLANT) (RESPONDENT) APPELLANT BY : S.K. MITTAL RESPONDENT BY : SHRI SUBHASH AGGARWAL DATE OF HEARING : 24.03.2015 DATE OF PRONOUNCEMENT : 26.03.2015 ORDER PER H.L.KARWA, VP THIS APPEAL FILED BY THE REVENUE IS DIRECTED AGAINS T THE ORDER OF CIT(A)- II, LUDHIANA DATED 6.9.2013 RELATING TO ASSESSMENT YEAR 2009-10. 2. THE ONLY EFFECTIVE GROUND RAISED BY THE REVENUE IN THIS APPEAL READS AS UNDER:- THAT THE LD. CIT(A)-II HAS ERRED IN LAW AND ON FACT S IN DELETING THE DISALLOWANCE OF RS. 13,74,078/- MADE U /S 14A OF THE INCOME-TAX ACT, 1961 READ WITH RULE 8-D OF T HE I.T. RULES, 1962. 3. BRIEFLY STATED, THE FACTS OF THE CASE ARE THAT T HE ASSESSEE IS ENGAGED IN EXPORT OF BI-CYCLE, BI-CYLCE PARTS, MINERAL ORE, AG RO COMMODITIES, ENGG. GOODS ETC. DURING THE YEAR UNDER CONSIDERATION THE ASSESS EE HAD SHOWN INVESTMENT OF RS. 2,96,84,309/- AND RS. 2,52,92,620/- AS ON 31.3. 2008 AND 31.3.2009 RESPECTIVELY. INCOME FROM THIS INVESTMENT DOES NOT FORM PART OF TOTAL INCOME. THE ASSESSEE HAD INCURRED INTEREST EXPENDITURE OF R S. 5,35,62,596/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING OFF ICER ASKED THE ASSESSEE TO 2 EXPLAIN AS TO WHY EXPENDITURE INCURRED IN RELATION TO THE INVESTMENT SHOULD NOT BE DISALLOWED U/S 14A OF THE INCOME-TAX ACT, 1961 ( IN SHORT 'THE ACT'). IN RESPONSE TO THE SAID QUERY, THE ASSESSEE SUBMITTED THAT DURING THE YEAR THERE WAS NO TRANSACTION IN THE INVESTMENT. THE ASSESSEE FURT HER SUBMITTED THAT NO DIVIDEND ON INVESTMENT IN SHARES HAVE BEEN RECEIVED DURING THE YEAR AND, THEREFORE, NO DISALLOWANCE WAS REQUIRED TO BE MADE. THE ASSESSEE REFERRED TO THE DECISION OF THIS BENCH OF THE TRIBUNAL IN THE CASE OF PATIALA FLOUR MILLS VS ACIT IN ITA NO. 346/CHD/2011, WHEREIN IT HAS BEEN HELD T HAT WHEN NO DIVIDEND HAD BEEN RECEIVED DURING THE YEAR, THERE CANNOT BE ANY DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT. THE ASSESSING OFFICER DID NOT F IND ANY MERIT IN THE ABOVE SUBMISSIONS OF THE ASSESSEE AND CONSEQUENTLY HE COM PUTED THE DISALLOWANCE UNDER RULE 8-D OF THE INCOME TAX RULES, 1962 AND MA DE DISALLOWANCE OF RS. 13,74,078/-. 4. AGGRIEVED BY THE ORDER OF ASSESSING OFFICER THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE CIT(A). THE MAIN CONTENTION OF THE ASSESSEE BEFORE THE CIT(A) WAS THAT NO DIVIDEND HAS BEEN RECEIVED DURIN G THE YEAR AND AS SUCH NO DISALLOWANCE CAN BE MADE IN THIS CASE UNDER THE PRO VISIONS OF SECTION 14A OF THE ACT. 5. THE LD. CIT(A) DELETED THE DISALLOWANCE MADE UND ER SECTION 14A READ WITH RULE 8-D HOLDING THAT NO DIVIDEND HAS BEEN REC EIVED DURING THE YEAR AS SUCH NO DISALLOWANCE CAN BE MADE IN THIS CASE. WHIL E HOLDING SO, THE CIT(A) HAS FOLLOWED THE DECISION OF THIS BENCH OF THE TRIB UNAL DATED 20.09.2012 RENDERED IN THE CASE OF GURDAS MANN V DCIT (2013) 2 1 ITR 57(CHD.)(TRIBUNAL) WHEREIN IT HAS BEEN HELD THAT IN THE ABSENCE OF ANY INCOME EARNED BY THE ASSESSEE WHICH IS EXEMPT UNDER THE PROVISIONS OF SE CTION1 14A OF THE ACT, THERE IS NO MERIT IN DISALLOWANCE OF ANY PART OF EXPENDIT URE BEING RELATABLE TO SUCH EXEMPT INCOME WHICH IN THE CASE OF ASSESSEE IS NIL . THE TRIBUNAL DIRECTED THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS. 3,85,172/- MADE U/S 14A READ WITH RULE 8-D OF THE I.T. RULES. 3 6. AGAINST THE AFORESAID ORDER OF THE CIT(A), THE R EVENUE IS IN APPEAL BEFORE THIS BENCH OF THE TRIBUNAL. 7. WE HAVE HEARD THE AUTHORISED REPRESENTATIVES OF BOTH THE PARTIES AT LENGTH. SHRI S.K. MITTAL, LD. DR RELIED ON CIRCULAR NO. 5 O F 2014 DATED 11.2.2014 WHEREIN THE CENTRAL BOARD OF DIRECT TAXES (CBDT) CL ARIFIED THAT RULE 8-D READ WITH SECTION 14A PROVIDES FOR DISALLOWANCE OF EXPEN DITURE EVEN WHERE TAX PAYER IN A PARTICULAR YEAR HAS NOT EARNED ANY EXEMPT INCO ME. HE THEREFORE, SUBMITTED THAT IN VIEW OF THE ABOVE CIRCULAR, THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. HE VEHE MENTLY ARGUED THAT CIRCULAR ISSUED BY THE CBDT U/S 119 OF THE ACT IS B INDING UPON THE INCOME-TAX AUTHORITIES INCLUDING THE CIT(A) AND, THEREFORE, IN VIEW OF THE ABOVE CIRCULAR THE CIT(A) WAS NOT JUSTIFIED IN DELETING THE DISALL OWANCE MADE U/S 14A OF THE ACT. IN OUR OPINION, THERE IS NO MERIT IN THE ABOVE SUBMISSIONS OF THE LD. DR IN VIEW OF THE DECISION OF HON'BLE CALCUTTA HIGH COURT IN THE CASE OF BHARTIA INDUSTRIES LTD. VS CIT (2013) 353 ITR 486(CAL) WHER EIN THE HON'BLE HIGH COURT HAS OBSERVED AS UNDER:- THE CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES UNDER SECTION 119 OF THE INCOME-TAX ACT, 1961IS MEANT FOR GUIDING THE OFFICERS OF THE REVENUE FOR ADMINISTRATIVE PURPOSE OF ENFORCING THE PROVISIONS OF THE ACT. BUT WHEN AN AUTHORITY UNDER THE ACT IS REQUIRED TO PERFORM QUASI-JUDICIAL FUNCTIONS, SUCH AUTHORITIES SHOULD BE GUIDED BY THE LAW OF THE LAND AS ENUNCIAT ED ON THE QUESTIONS INVOLVED BY VARIOUS JUDICIAL AUTHORITIES WHICH HAVE BINDING EFFECT. IF AN EXISTING CIRCULAR IS IN CONFL ICT WITH THE LAW OF THE LAND LAID DOWN BY THE HIGH COURTS OR THE SUPREM E COURT, THE REVENUE AUTHORITIES WHILE ACTING QUASI-JUDICIALLY, SHOULD IGNORE SUCH CIRCULARS IN DISCHARGE OF THEIR QUASI-JUDICIAL FUNCTIONS. IN VIEW OF THE ABOVE, WE ARE OF THE CONSIDERED VIEW THAT CIRCULAR NO 5 OF 2014 RELIED ON BY THE LD. DR IS IN CONFLICT WITH THE LAW LAID DOWN BY THE HIGH COURTS AND, THEREFORE, THE CIT(A) WAS JUSTIFIED IN IGNORIN G THE AFORESAID CIRCULAR WHILE DISCHARGING HIS QUASI-JUDICIAL FUNCTION. THEREFORE, THE ARGUMENTS ADVANCED BY LD. DR IS IRRELEVANT BECAUSE THERE ARE THREE DECISI ONS OF DIFFERENT HIGH COURTS DIRECTLY ON THE ISSUE IN HAND AND AGAINST THE REVEN UE. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT, FARIDABAD V S M/S LAKHANI MARKETING INCL., FARIDABAD IN ITA NO. 970 OF 2008 (O&M) DECI DED ON 2.4.2014 HELD THAT 4 SECTION 14A CANNOT BE INVOKED WHEN NO EXEMPT INCOME WAS EARNED. THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF CIT, FRIDABAD VS M/S LAKHANI MARKETING INCL. (SUPRA) IS BINDING ON THE T RIBUNAL AND, THEREFORE, IN VIEW OF THE ABOVE DECISION, THE CIT(A) WAS JUSTIFIE D IN DELETING THE DISALLOWANCE MADE U/S 14A READ WITH RULE 8-D OF TH E I.T. RULES. 8. THE NEXT DECISION ON THIS ISSUE IS THAT OF THE G UJARAT HIGH COURT IN THE CASE OF CIT V CORRTECH ENGG PVT LTD (2014) 223 TAXM AN 130(GUJ). THE THIRD DECISION ON THIS ISSUE IS OF THE ALLAHABAD HIGH COU RT IN ITA NO. 88 OF 2014 IN THE CASE OF CIT VS SHIVAM MOTORS P. LTD DECIDED ON 5.5.2014. ALL THE ABOVE HIGH COURTS HAVE CATEGORICALLY HELD THAT IN THE ABS ENCE OF ANY TAX FREE INCOME THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED O UT FOR DISALLOWANCE. IN THE ABOVE CASES, THE FINDING OF FACT WAS THAT ASSESSEE HAD NOT EARNED ANY TAX FREE INCOME. IN THE INSTANT CASE ALSO, THE ADMITTED FACT IS THAT ASSESSEE HAD NOT EARNED ANY TAX FREE INCOME, THEREFORE, CIRCULAR NO. 5 OF 2014 DATED 11.2.2014 ISSUED BY CBDT IS CONTRARY TO THE LAW LAID DOWN BY THE DIFFERENT HIGH COURTS DIRECTLY ON THE ISSUE IN HAND. 9. IN VIEW OF THE ABOVE DISCUSSION, WE HOLD THAT DI SALLOWANCE MADE U/S 14A HAS CORRECTLY BEEN DELETED BY THE CIT(A), AS THE A SSESSEE HAS NOT EARNED / RECEIVED EXEMPT INCOME DURING THE PREVIOUS YEAR REL EVANT TO THE ASSESSMENT YEAR UNDER APPEAL. ACCORDINGLY, THE ORDER OF CIT(A) DESE RVES TO BE CONFIRMED. 10. IN THE RESULT, THE APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 26.03.2015 SD/- SD/- (T. R. SOOD) (H.L.KARWA) ACCOUNTANT MEMBER VICE PRESIDENT DATED : 26 TH MARCH, 2015 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 5