Unison Metals Ltd., Ahmedabad V. The DCIT, Circle-4(1)(1), Ahmedabad

ITA 114/AHD/2022

• Counselvise Citation: [2023] 101 COUNSELVISE.COM (IT) 9564 (ITAT-AHMEDABAD)
• Duration Of Justice: 1 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-12-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Next Hearing Date: 05-12-2023
• Assessment Year: 2015-2016
• Appeal Filed On: 24-04-2022
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: KRISHAN M MEHTA
• Keywords: Earning of tax free income; Period of limitation; Rule 8D
• Section: 2; 143(3); 14A; 143(2); 22; 20

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “B” BENCH, AHMEDABAD BEFORE SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER & SHRI SIDDHARTHA NAUTIYAL, JUDICIAL MEMBER I .T .A . No .1 14 /A h d / 20 22 ( A s se ss m e nt Y e a r : 20 15- 16 ) U n is on M eta ls L td . , Pl ot N o . 50 1 5 , Ph as e- I V , N r . R a m o l C h a r R a s t a, G .I .D .C ., V at va , A h m e da ba d- 38 24 4 2 V s. D e p ut y Co m m i ss io n er o f I nc o m e Ta x , C ir cl e - 4( 1) ( 1) , A h m e d a b ad [ P A N N o. A A A C U 2 4 8 9A ] (Appellant) .. (Respondent) Appellant by : Shri Krishan M Mehta, A.R. Respondent by: Shri Yogesh Mishra, Sr. D.R. D a t e of H ea r i ng 06.12.2023 D a t e of P r o no u n ce me nt 13.12.2023 O R D E R PER SIDDHARTHA NAUTIYAL - JUDICIAL MEMBER: This appeal has been filed by the Assessee against the order passed by the Ld. Commissioner of Income Tax (Appeal), (in short “Ld. CIT(A)”), National Faceless Appeal Centre, (in short “NFAC”), Delhi in DIN & Order No. ITBA/NFAC/S/250/2021-22/1037961771(1) vide order dated 20.12.2021 passed for Assessment Year 2015-16. 2. The assessee has taken the following grounds of appeal:- “1. That the learned CIT (A) erred in not appreciating that from the investment in partnership firm of Rs.15851106/-, the assessee has already earned interest income of Rs. 897576/-and paid tax thereon and therefore it can not be said that the income does not form part of total income pertaining to investment in partnership firm. 2. Without prejudice to (1) above, the income earned at Rs. 897576/- as interest from partnership firm is much higher than the amount of interest expense calculated and disallowed by assessing officer in order of assessment at Rs. 737193/- as per ITA No. 114/Ahd/2022 Unison Metals Ltd. vs. DCIT Asst.Year –2015-16 - 2– rule 8D, the question of any disallowance does not arise as against interest income, the interest paid is allowable deduction and otherwise it would be taxing the income and disallowing the expense incurred to earn such income is beyond the provisions of income tax act. 3. That the observation of the assessing officer in para (c) of page 9 of the order Viz. "The payment of interest has brought two incomes to the assessee one of which is exempt. So, part of the interest expenditure is attributable to earning of exempt income" is not correct, as even if considering that the share of partnership brought two incomes (1) interest income than the same is already taxed and (2) share from firm which is not an income earned but rather a incurred loss of Rs. 450942/- and therefore firstly the overall income earned should be considered against expense, and even if, two incomes are considered separately, than also on the facts of the case of the assessee, no amount is disallowable as interest. 4. That the learned CIT (A) erred in not appreciating that the investment in 4 companies totaling to Rs. 13000/- are since several past years and being out of owned funds no interest expense is relatable to investment in shares. 5. That in view of the fact that there being no exempt income and no claim of exemption made of any income on investment in firm and shares, the learned CIT (A) ought to have accepted the Gujarat High Court decision in Cortech Energy Pvt Ltd. 6. That the learned CIT (A) erred in upholding the disallowance, as in view of the aforesaid Gujarat High Court decision, provision of section 14A do not apply and otherwise also there being no transaction during the year with the partnership firm as well as no new investment in shares, the administrating expenses disallowed Rs. 2500/- by the assessee is reasonable and no further disallowance should be made.” 3. At the outset, we observe that the appeal is time barred by 66 days. Before us, the Counsel for the assessee submitted that in view of the decision of the Hon’ble Supreme Court in the case of Cognizance For Extension of Limitation, In re 441 ITR 722 (SC), the period of limitation had been extended for a period of 90 days from March 01, 2022. Accordingly, in view of the aforesaid decision, the appeal is not time barred and is falling within the extended period of filing appeal. It would be useful to reproduce the relevant extracts of the aforesaid ruling for ready reference:- ITA No. 114/Ahd/2022 Unison Metals Ltd. vs. DCIT Asst.Year –2015-16 - 3– “(iii) In cases where the limitation would have expired during the period between March 15, 2020 till February 28, 2022 notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from March 1, 20227. In the even the actual balance period of limitation remaining, with effect from March 1, 2022 is greater than 90 days, that longer period shall apply.” 4. In the instant facts, we observe that the receipt of order against which appeal was sought to be filed was communicated on 20.12.2021. The assessee filed appeal on 25.04.2022. As per the aforesaid ruling, a period of 90 days was provided to all persons from March 01, 2022 where the limitation expired during the period March 15, 2020 till February 28, 2022 notwithstanding the actual balance period of limitation remaining. Accordingly, the present appeal is not time barred in view of the aforesaid decision passed by Hon’ble Supreme Court. On merits: 5. The facts of the case, in brief, are that the assessee company is engaged in the business of manufacturing of Stainless Steels Sheets and other allied products. It e-filed the return of income for the AY 2015-16 on 30-09-2015, declaring the total income at Rs. 44,24,820/-. The assessee's case was selected for scrutiny and notice u/s. 143(2) of the Act was issued on 21- 03-2016. After hearing the assessee, the AO completed the assessment u/s. 143(3) of the Act on 20-12-2017, determining the assessee's total income at Rs. 52,40,060/- by making an addition of Rs. 8,15,234/- on account of disallowance u/s. 14A of the Act. The AO noted that the assessee had claimed finance cost of Rs. 1,28,71,314/- and in the balance sheet it had shown investment of Rs. 1,58,64,106/-, income from which does not form part of total income. Since the assessee did not make any disallowance u/s. 14A on its own, therefore, the AO worked out the amount of Rs. 8,15,235/- ITA No. 114/Ahd/2022 Unison Metals Ltd. vs. DCIT Asst.Year –2015-16 - 4– as per second and third limbs of Rule 8D(2) as expenditure attributable to earning of exempt income and added the same to the total income of the assessee. 6. Aggrieved, the assessee preferred appeal before Ld. CIT(A) on the issue of disallowance of Rs. 8,15,234/- u/s. 14A of the Act. The Ld. CIT(A) confirmed the additions made by the Ld. Assessing Officer with the following observations: “the words being used "income from which does not or shall not" clearly implies that income need not be earned in the present year only, the investments income from which SHALL BE earned in future years which shall not form part of the total income are liable to be considered for calculating the disallowance as per requirement of Rule 8D(2)(ii) & (iii). The AO applied the second and third limbs of Rule 8D(2) and computed the disallowance u/s 14A r.w. Rule 8D at Rs.8,15,234/-. The values of interest and average values of investments and assets have not been disputed by the appellant. Thus, considering the facts and circumstances of the case and authoritative judicial precedents as discussed in preceding paras 6.1 to 6.5 ( Supra), it is held that the amount of Rs. 8,15,234/- worked out as per second and third limbs of Rule 8D(2) is the expenditure attributable to earning of exempt income. The disallowance made by the AO at Rs. 8,15,234/- is upheld. The grounds raised by the appellant regarding this issue are dismissed.” 7. The assessee is in appeal before us against the aforesaid order passed by Ld. CIT(A). Ld. Counsel for the assessee submitted that the assessing officer as per the order of assessment has considered for disallowance, investment of Rs.1,58,64,106/- being investment in Partnership Firm and shares in domestic company as per Note-11 of Audited Financial Statement other than investment in foreign company. However, the assessee has no income of share from Partnership Firm as there if loss from Partnership Firm of Rs. 4,50,942/- as per Note -24" Other Expenses" to the Audited Financial Statement and there is no dividend income also. As there is no share income from partnership firm and dividend, no exempted income has ITA No. 114/Ahd/2022 Unison Metals Ltd. vs. DCIT Asst.Year –2015-16 - 5– formed part of total income or otherwise to say no income is claimed exempt from Partnership Firm & dividend and therefore provisions of Section 14Aof IT Act are not applicable. Ld. Counsel for the assessee relied on the decision of Gujarat High Court Decision in CIT Vs. Corrtech Energy Private Ltd. (372 ITR 97), as there is no claim of exempted income by the assessee from investment in Partnership Firm and from shares, no exempted income form part of total income and therefore provisions of section 14A are not applicable. Without prejudice to above, it was submitted that the assessee received interest on investment made in aforesaid partnership firm amounting to Rs. 8,97,576/-which is a taxable income and is not exempted and fact is clear that the Income of interest of Rs 8,97,576/- is appearing as income as part of interest in Note-20 to Financial Statement and further explained in Note - 24b of the Financial Statement. The said sum of Rs. 8,97,576/- forms part of Net Profit as well as income taxed as per computation of income. The assessing officer has disallowed the expenditure of Rs. 8,15,234/- for Interest etc. applying section 14A while the income credited in profit and loss account is higher at Rs. 8,97,576/- and therefore also no disallowance of expense can be made. In view of the aforesaid facts, position in law and the decision of the high court of Gujarat the disallowance made of Rs. 8,15,234/- u/s 14A of IT Act. 8. In response, Ld. Departmental Representative relied on the observations made by the assessing officer in Ld. CIT(A) in their respective orders. It was further submitted that the law has been amended to provide that even if exempt income has been earned by the assessee, even then disallowance under Section 14A of the Act can be made. ITA No. 114/Ahd/2022 Unison Metals Ltd. vs. DCIT Asst.Year –2015-16 - 6– 9. On going to the facts of the instant case, it is observed that it has not been disputed by the Department that no exempt income has been earned by the assessee during the impugned year under consideration. The assessee earned no income from it’s share in the partnership firm since the partnership firm had incurred losses amounting to Rs. 4,50,942/- during the year under consideration and further the assessee also did not earn any dividend income during the impugned year under consideration. It would be useful to reproduce the relevant extracts of the Gujarat High Court in the case of Corrtech Energy (P.) Ltd.45 taxmann.com 116 (Gujarat), wherein the jurisdictional High Court held that where assessee has not sought any income exemption, there cannot be any expense there against to be disallowed. The following observations made by the Gujarat High Court are noteworthy: “Section 14A(1) provides that for the purpose of computing total income under chapter IV, no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the instant case, the Tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the Tribunal held that disallowance under section 14A could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed that where the assessee did not make any claim for exemption, section 14A could have no application.” 10. Again the Gujarat High Court in the recent case of Gujarat Flurochemicals Ltd. 155 taxmann.com 135 (Gujarat) held that disallowance made under Section 14A r.w.r 8D could not exceed exempt income. 11. Again the Gujarat High Court in the recent case of Dipesh Lalchand Shah143 taxmann.com 419 (Gujarat) held that when income of assessee ITA No. 114/Ahd/2022 Unison Metals Ltd. vs. DCIT Asst.Year –2015-16 - 7– from partnership was negative and no dividend income was earned disallowance under Section 14A could not be made as assessee did not claim any exempt income in relevant assessment year. 12. We further observe that on similar facts the ITAT in the assessee’s own case for Assessment Year 2014-15 in ITA Nos. 169 and 170/AHD/2019 allowed relief to the assessee on this issue, with the following observations: “8. Though this aspect does not throw much light on the reasoning what weighed with the Assessing Officer while calculating the disallowance for the purpose of Section 14A; however, a perusal of his reliance upon the decision of Special Bench of the Tribunal in the case of Cheminvest Ltd vs. ITO, reported in 124 TTJ 577 (Del) (SB) as well as his findings in AY 2014-15, we find that the learned Assessing Officer was for the view that the disallowance under Section 14A of the Act is to be made by keeping in mind the reasoning that the expenditure in relation to the exempt income is required to be disallowed and not to examine whether the expenditure incurred by the assessee has resulted into exempt income or taxable income. According to him, what is relevant is to work out the expenditure in relation to the exempt income and not to examine whether the expenditure incurred by the assessee has resulted into exempt income or taxable income. Firstly the Special Bench decision of the Tribunal put into service by the Assessing Officer at serial no. 1 amongst other decisions in the findings extracted supra is concerned, this decision has been reversed by the Hon’ble Delhi High Court. Similarly, in the grounds of appeal, the assessee has pleaded that it has no exempt income; and, in view of the decision of Hon’ble jurisdictional High Court in the case of CIT vs. Corrtech Energy Pvt Ltd, reported in 372 ITR 97, no disallowance should have been made. The investment in the shares has been pleaded by the assessee at Rs.32,000/- in this year. Though it is not verifiable from the findings of any of the authorities below, but, considering the pleadings of the assessee that it has no taxable income, we allow this ground of appeal and delete the disallowance. We are doing this because in Assessment Year 2014-15, the assessee has exempt income of Rs.1,81,315/- whereas the Assessing Officer has worked out the disallowance at Rs.2,21,640/-, i.e. more than the exempt income. This aspect gives us guidance that the Assessing Officer has not considered the figure; he simply proceeded with the formula of Rule 8D i.e. 0.5% of the total investment. He disallowed taking a lead from there. We, therefore, find force in the ground of appeal raised by the assessee and the statement of facts made therein. Therefore, the Ground No.2 & 3 of the appeal are allowed. The disallowance made under Section 14A of the Act and confirmed by the learned CIT(A) in Assessment Year 2013-14 is thus deleted.” ITA No. 114/Ahd/2022 Unison Metals Ltd. vs. DCIT Asst.Year –2015-16 - 8– 13. Accordingly, looking into the instant facts and in light of the aforesaid judicial precedents cited above, we are of the considered view that no addition was called for under Section 14A of the Act for the reason that during the impugned year under consideration, no income from share in partnership firm was earned since there were losses in the partnership form and further no dividend income was earned by the assessee. 14. In the result, the appeal of the assessee is allowed. This Order pronounced in Open Court on 13/12/2023 Sd/- Sd/- (ANNAPURNA GUPTA) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad; Dated 13/12/2023 TANMAY, Sr. PS TRUE COPY आदेश क त ल प अ े षत/ Copy of the Order forwarded to : 1. अपीलाथ / The Appellant 2. यथ / The Respondent. 3. संबं धत आयकर आय ु त / Concerned CIT 4. आयकर आय ु त(अपील) / The CIT(A)- 5. वभागीय त न ध, आयकर अपील!य अ धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 6. गाड' फाईल / Guard file. आदेशान ु सार/ BY ORDER, उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 11.12.2023(Dictated by Hon’ble Member on his Dragon Software) 2. Date on which the typed draft is placed before the Dictating Member 11.12.2023 3. Other Member..................... 4. Date on which the approved draft comes to the Sr.P.S./P.S .12.2023 5. Date on which the fair order is placed before the Dictating Member for pronouncement .12.2023 6. Date on which the fair order comes back to the Sr.P.S./P.S 13.12.2023 7. Date on which the file goes to the Bench Clerk 13.12.2023 8. Date on which the file goes to the Head Clerk.......................................... 9. The date on which the file goes to the Assistant Registrar for signature on the order.......................... 10. Date of Despatch of the Order..........................................