DCIT, Ludhiana V. M/s Vardhman Holding Limited, Ludhiana

ITA 1135/CHANDI/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8407 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-01-2017
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 04-11-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K MITTAL
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Earning of tax free income; Onus to prove
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.1135/CHD/2016 (ASSESSMENT YEAR : 2013-14) THE D.C.I.T., VS. M/S VARDHMAN HOLDING LIMITED, CIRCLE-1, CHANDIGARH ROAD, LUDHIANA. LUDHIANA. PAN: AABCV8088P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K. MITTAL, DR RESPONDENT BY : SHRI SUBHASH AGGARWAL DATE OF HEARING : 03.01.2017 DATE OF PRONOUNCEMENT : 10.01.2017 O R D E R PER ANNAPURNA GUPTA, A.M . : THE APPEAL FILED BY THE REVENUE IS DIRECTED AGAINST THE ORDER OF LD. COMMISSIONER OF INCOME TAX (APPEALS)-1, LUDHIANA DATED 24.8.2016 RELATING TO ASSESSMENT YEAR 2013-14. 2. THE ONLY ISSUE IN THE PRESENT APPEAL RELATES TO DELETION OF DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 3. BRIEF FACTS RELATING TO THE CASE ARE THAT DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSING 2 OFFICER NOTICED THAT THE ASSESSEE COMPANY HAD MADE INVESTMENTS AMOUNTING TO RS.18,090/- LACS FROM WHIC H EXEMPT INCOME ACCRUED. THE ASSESSEE WAS ASKED TO S HOW CAUSE AS TO WHY DISALLOWANCE UNDER SECTION 14A SHOU LD NOT BE MADE. IN RESPONSE THE ASSESSEE SUBMITTED TH AT DURING THE YEAR IT HAD EARNED DIVIDEND INCOME OF RS.7,48,55,204/- AND TAX FREE INTEREST INCOME OF RS.2,47,69,624/- WHICH WAS CLAIMED EXEMPT UNDER THE ACT. THE ASSESSEE FURTHER SUBMITTED THAT IT HAD SU O-MOTO ALLOCATED RS.44,47,195/- OUT OF TOTAL EXPENSES OF RS.91,35,462/- ON PROPORTIONATE BASIS IN THE RATIO OF EXEMPT INCOME TO TAXABLE INCOME. THE ASSESSING OFF ICER WAS NOT SATISFIED WITH THE REPLY OF THE ASSESSEE BE CAUSE THE ASSESSEE WAS NOT ABLE TO PROVE THAT ANY SPECIFIC/SEPARATE BOOKS OF ACCOUNT HAVE BEEN MAINTA INED BY IT. THE ASSESSING OFFICER, THEREFORE, DISALLOWED AN AMOUNT OF RS.88,11,782/- UNDER SECTION 14A OF THE A CT READ WITH RULE 8D OF THE INCOME TAX RULES BY STATIN G THAT THE ONUS TO PROVE THAT IT HAD NOT INCURRED ANY EXPE NDITURE TO EARN THE EXEMPT INCOME WAS ON THE ASSESSEE, WHIC H THE ASSESSEE HAD FAILED TO DISCHARGE. 4. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD. CIT (APPEALS), WHO VIDE HIS ORDER DATED 24.8.2016 A LLOWED ASSESSEES APPEAL FOLLOWING THE DECISION OF THE LD. CIT (APPEALS) IN ASSESSEES OWN CASE FOR ASSESSMENT YEA R 2011-12, WHICH HE NOTED WAS RENDERED FOLLOWING THE DECISION OF THE I.T.A.T. IN ASSESSEES CASE FOR ASS ESSMENT 3 YEAR 2008-09. IN EFFECT, THE ADDITION MADE WAS DEL ETED FOLLOWING THE DECISION OF THE I.T.A.T. IN ASSESSEE S OWN CASE FOR ASSESSMENT YEAR 2008-09. 5. AGGRIEVED BY THE SAME, THE REVENUE HAS NOW COME UP IN APPEAL BY, RAISING THE FOLLOWING GROUNDS : 1. WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE C ASE IN LAW, WAS LD.CIT(A) JUSTIFIED IN DELETING THE ADDITION MADE BY THE AO U/S 14A READ WITH RULE 8D OF THE INCOME TAX ACT, 1961? 2. THAT THE ORDER OF THE LD. CIT (A) BE SET ASIDE AND THAT OF THE ASSESSING OFFICER BE RESTORED. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL BEFORE IT IS FINALLY DISPOSED OFF. 6. DURING THE COURSE OF HEARING, THE LD. DR CONTENDED THAT THE FACTS IN THE PRESENT CASE WERE DISTINGUISHABLE FROM ASSESSMENT YEAR 2008-09 AND, THEREFORE, COULD NOT BE COVERED BY THAT DECISION. T HE LD. DR POINTED OUT THAT IN ASSESSMENT YEAR 2008-09 THE I.T.A.T. HAD FOUND THAT NO SATISFACTION HAD BEEN RE CORDED BY THE ASSESSING OFFICER ON THE ISSUE AS TO HOW THE DISALLOWANCE COMPUTED BY THE ASSESSEE WAS INCORRECT . THE LD. DR POINTED OUT THAT IN THE PRESENT CASE THE RE WAS RELEVANT SATISFACTION BY THE ASSESSING OFFICER, WHO AT PARA 4.3 OF HIS ORDER HAD STATED THAT IN THE ABSENCE OF SEPARATE BOOKS OF ACCOUNT MAINTAINED BY THE ASSESSEE HE WAS NOT SATISFIED WITH THE CORRECTNESS OF THE EXPENSES ALLO CATED. 4 THE LD. DR FURTHER POINTED OUT THAT WHILE IN ASSESS MENT YEAR 2008-09 THE ASSESSEE HAD ALLOCATED EXPENSES ATTRIBUTABLE TO EARNING OF INCOMES EXEMPT FROM TAXA TION BY DIVIDING THE SAME IN THE PROPORTION OF EXEMPT IN COME AND TAXABLE INCOME EARNED BY IT,THE SAME METHOD WAS NOT ADOPTED IN THE PRESENT CASE, SINCE THE RATIO OF EXE MPT INCOME TO TAXABLE INCOME WAS FAR MORE THAN THE RATI O IN WHICH THE EXPENSES WERE ALLOCATED. 7. THE LD. COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, STATED THAT THE ISSUE WAS SQUARELY COVERED BY THE DECISION OF THE I.T.A.T. IN THE CASE OF THE ASSESS EE IN ASSESSMENT YEAR 2008-09. 8. 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. WE HAVE ALSO GONE THROUGH THE ORDER OF THE I.T.A.T. IN ASSESSMENT YEAR 2008-09 WHEREIN WE FIND THAT THE I. T.A.T. HAD DELETED THE DISALLOWANCE BY HOLDING THAT WHILE THE ASSESSEE IS EARNING BOTH EXEMPT AS WELL AS NON-EXE MPT INCOME, THE ENTIRE EXPENSE CANNOT BE ATTRIBUTED TO EARNING OF INCOME EXEMPT FROM TAX BY RESORTING TO RULE 8D O F THE INCOME TAX RULES. THE I.T.A.T. FURTHER HELD THAT T HE ASSESSEE HAD SUO MOTO MADE DISALLOWANCE OF EXPENSES ATTRIBUTABLE TO EARNING OF EXEMPT INCOME BY ADOPTIN G A SCIENTIFIC BASIS I.E. IN THE PROPORTION OF TAX FREE INCOME EARNED TO TAXABLE INCOME, THE CORRECTNESS OF WHICH HAD NOT BEEN CHALLENGED BY THE ASSESSING OFFICER. THE I.T.A.T. 5 FURTHER STATED THAT RULE 8D OF THE INCOME TAX RULES CANNOT BE STRETCHED TO THE EXTENT SO AS TO ALLOCATE EXPENSES OF EARNING EXEMPT INCOME IN A DIS-PROPORTI ONATE MANNER ATTRIBUTING NO EXPENSES TO EARNING TAXABLE I NCOME AT ALL. THE RELEVANT FINDINGS OF THE I.T.A.T. AT P ARA 7 OF THE ORDER ARE AS FOLLOWS : 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE ARE IN AGREEMENT WITH THE FINDINGS OF THE LEARNED CIT (APPEALS), WHO HAS GIVEN VERY CATEGORICALLY THE FINDINGS TO THE FACTS OF THE CASE THAT THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING WHOLE OF THE EXPENSES CLAIMED BY THE ASSESSEE IN ITS COMPUTATION OF INCOME. THE ASSESSEE HAS EARNED THE TAXABLE INCOME AMOUNTING TO RS.2,17,56,363/- WHILE NON-TAXABLE INCOME EARNED BY HIM IS ONLY RS.2,96,383/-, WHICH IS A VERY SMALL PORTION OF THE TAXABLE INCOME THE TOTAL EXPENSES CLAIMED BY THE ASSESSEE DURING THE YEAR ARE RS.20,07,688/-. BY DISALLOWING ALL THESE EXPENSES, IT APPEARS THAT THE ASSESSEE HAS EARNED THIS HUGE TAXABLE INCOME OF MORE THAN RS.2 CRORES WITHOUT INCURRING ANY EXPENSES. THE CONCLUSION DRAWN BY THE ASSESSING OFFICER HAS REACHED TO A VERY WEIRD SITUATION, WHEREBY IT INFERRED AS IF TO EARN A VERY SMALL NON-TAXABLE INCOME AMOUNTING TO RS.2,96,383/-, THE ASSESSEE HAS INCURRED EXPENSES TO THE EXTENT OF RS.20,32,695/-, WHILE FOR EARNING THE TAXABLE INCOME AMOUNTING TO RS.2,17,56,363/-, NO EXPENSES HAVE BEEN INCURRED AT ALL. BY NO STRETCH OF IMAGINATION, THI S SITUATION CAN BE TRUE. THUS, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS NOT AS PER LAW. 6 FURTHER, THE ASSESSEE ITSELF MAKING DISALLOWANCE OF AN AMOUNT OF RS.25,007/- FOR EARNING NON- TAXABLE INCOME, THE ASSESSING OFFICER HAS NOT COMMENTED UPON THE CORRECTNESS OF THE SAID CLAIM. IT WAS DEMONSTRATED BEFORE US THAT THIS AMOUNT SUO MOTO DISALLOWED BY THE ASSESSEE HAS SOME SCIENTIFIC BASIS I.E. THESE HAVE BEEN COMPUTED IN PROPORTION TO THE TAX-FREE INCOME TO THE TAXABLE INCOME. FURTHER, THE ASSESSING OFFICER HAS NOWHERE RECORDED HIS SATISFACTION ON THE ISSUE THAT HOW THE DISALLOWANCE COMPUTED BY THE ASSESSEE IS WRONG. IT IS TRUE THAT RULE 8D HAS BEEN PRESCRIBED BY THE INCOME TAX RULES FOR MAKING COMPUTATION OF DISALLOWANCE UNDER SECTION 14A OF THE ACT W.E.F. ASSESSMENT YEAR 2008-09 BUT IT CAN NEVER BE ENVISAGED THAT IN COMPLIANCE TO THESE, PROVISIONS CAN BE STRETCHED TO SUCH AN EXTENT AS HAS BEEN DONE BY THE ASSESSING OFFICER IN THE PRESENT CASE. THE INTENTION OF LEGISLATURE CAN NEVER BE TO DISALLOW THE EXPENSES CLAIMED BY THE ASSESSEE FOR EARNING NON-TAXABLE INCOME IN SUCH A DISPROPORTIONATE MANNER. THE INCOME TAX ACT PROVIDES TO ALLOW EXPENSES INCURRED BY THE ASSESSEE FOR EARNING TAXABLE INCOME ALSO. HOWEVER, IN THE PRESENT CASE, THE ASSESSING OFFICER HAS CREATED A SITUATION WHERE NO EXPENDITURE WAS ALLOWED TO THE ASSESSEE AGAINST THE TAXABLE INCOME IN THE GARB OF COMPUTING DISALLOWANCE TO BE MADE INVOKING PROVISIONS OF SECTION 14A AS PRESCRIBED UNDER RULE 8D. IN THIS MANNER, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER IS TOTALLY BAD IN LAW. IN VIEW OF THE ABOVE, WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT (APPEALS). 7 9. IN THE PRESENT CASE, THE FACTS ARE THAT THE INCOME EXEMPT FROM TAX EARNED BY THE ASSESSEE AMOUN TED TO RS.9,96,24,828/- AS FOLLOWS : DIVIDEND INCOME = RS.7,48,55,204/- INTEREST INCOME = RS.2,47,69,624/- TOTAL = RS.9,96,24,828/- 10. THE TAXABLE INCOME EARNED BY THE ASSESSEE AMOUNTED TO RS.4,35,43,741/- AS PER ASSESSEES SUBMISSIONS. THE TOTAL EXPENSES INCURRED BY THE AS SESSEE AMOUNTED TO RS.91,35,462/-, OUT OF WHICH THE ASSESS EE ITSELF ALLOCATED RS.44,47,195/- TO THE EARNING OF E XEMPT INCOME AND DISALLOWED THE SAME. THE CASE OF THE RE VENUE IS THAT THE EXPENSES TO THE TUNE OF RS.88,71,782/- ARE DISALLOWABLE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES. CLEARLY, THE CASE IS I DENTICAL TO THAT IN ASSESSMENT YEAR 2008-09 AS IN ALMOST TH E ENTIRE EXPENSES INCURRED BY THE ASSESSEE, ARE BEING TREATED AS ATTRIBUTABLE TO HAVING BEEN INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME, BY APPLYING RULE 8D OF THE INCOME TAX ACT RULES AND THEREBY DISALLOWING EXPENSES TO THE TUNE OF RS.88,71,782/- AS AGAINST EXPENSES INCURRED BY THE ASSESSEE AMOUNTING IN ALL TO RS.91,35,462/- THE DECISION OF THE I.T.A.T. IN THE ASSESSEES CASE FOR ASSESSMENT YEAR 2008-09, THEREFO RE, SQUARELY APPLIES TO THE PRESENT CASE WHERE IT WAS S TATED THAT SUCH DIS-PROPORTIONATE DISALLOWANCE CANNOT BE MADE LEAVING NO EXPENSES AS HAVING BEEN INCURRED FOR EAR NING 8 TAXABLE INCOME. MOREOVER, IN THE PRESENT CASE ALSO , WE FIND THAT THE ASSESSING OFFICER HAD NOT DISLODGED T HE CORRECTNESS OF THE CLAIM OF THE ASSESSEE OF COMPUTI NG THE EXPENSES INCURRED ON THE TAX FREE INCOME ON PROPORT IONATE BASIS. THE ASSESSING OFFICER HAS NOT POINTED OUT A S TO HOW THE SAME WAS INCORRECT, BUT HAS MERELY STATED T HAT SINCE NO SEPARATE BOOKS ARE MAINTAINED, THE EXPENSE S INCURRED ARE NOT CORRECT. THERE IS NO REQUIREMENT UNDER THE LAW TO MAINTAIN SEPARATE BOOKS FOR TAXABLE AND TAX FREE INCOME AND, THEREFORE, THIS CANNOT BE THE BASI S FOR QUESTIONING/DISBELIEVING THE CORRECTNESS OF THE ALL OCATION MADE BY THE ASSESSEE. WE, THEREFORE, HOLD THAT THE LD. CIT (APPEALS) HAS RIGHTLY APPLIED THE DECISION OF T HE I.T.A.T. IN THE CASE OF THE ASSESSEE FOR ASSESSMEN T YEAR 2008-09 TO THE PRESENT CASE. BUT AT THE SAME TIME W E FIND THAT THE ALLOCATION MADE BY THE ASSESSEE NEEDS TO B E EXAMINED ON THE BASIS OF PARAMETERS WHICH WERE APPL IED IN ASSESSMENT YEAR 2008-09 AND HELD AS REASONABLE B Y THE I.T.A.T., IN THE LIGHT OF THE CONTENTIONS OF THE LD . DR MADE BEFORE US. FOR THIS LIMITED PURPOSE, WE RESTORE THE ISSUE TO THE FILE OF THE LD. CIT (APPEALS) TO VERIFY WHET HER THE DISALLOWANCE COMPUTED IN THE PRESENT CASE IS ON THE SAME BASIS WHICH WAS APPLIED IN ASSESSMENT YEAR 2008-09. THE LD. CIT (APPEALS) AFTER VERIFICATION MAY RE-WORK DISALLOWANCE TO BE MADE FOLLOWING CALCULATION APPRO VED BY THE I.T.A.T. IN ASSESSMENT YEAR 2008-09. 9 11. THE GROUND OF APPEAL RAISED BY THE REVENUE IS , THEREFORE, PARTLY ALLOWED FOR STATISTICAL PURPOSES. 12. IN THE RESULT APPEAL OF THE REVENUE STANDS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 10 TH JANUARY, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH