M/s Punjab State Industrial Development Corporatin Ltd., Chandigarh V. ACIT, C-2(1), Chandigarh

ITA 1293/CHANDI/2018

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2028 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 6 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-05-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2014-2015
• Appeal Filed On: 11-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DR GULSHAN RAJ CIT DR
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 43B; 14A; 2

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BE NCH B, CHANDIGARH .., ! '# #$ %, & '( BEFORE: SHRI. N.K.SAINI, VP & SHRI , SANJAY GARG, J M ITA NO. 1293/CHD/2018 ASSESSMENT YEAR : 2014-15 M/S PUNJAB STATE INDUSTRIAL DEVELOPMENT CORPORATION LTD. PLOT NO. 18, UDYOG BHAWAN, SECTOR- 17-C, CHANDIGARH THE ACIT C-2(1), AAYAKAR BHAWAN CHANDIGARH PAN NO: AABCP1599F APPELLANT RESPONDENT !' ASSESSEE BY : SHRI ATUL GOYAL, CA #!' REVENUE BY : DR. GULSHAN RAJ, CIT (DR) $ %! & DATE OF HEARING : 26/02/2020 '()*! & DATE OF PRONOUNCEMENT : 06/05/2020 ')/ ORDER PER N.K. SAINI, VICE PRESIDENT THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER DT. 04/07/2018 OF THE LD. CIT(A)-4, LUDHIANA. 2. FOLLOWING GROUNDS HAVE BEEN RAISED IN THIS APPEAL: 1. THAT THE ORDER PASSED BY THE HON'BLE CIT(A) UNDE R PROVISIONS OF SECTION 250(6) OF THE INCOME TAX ACT 1961 IS AGAINST LAW AND FACTS ON THE FILE. 2. THAT THE ASSESSING OFFICER IS ERRED IN LAW FOR N OT RECODING HIS PROPER SATISFACTION WHILE DISALLOWING THE PROPORTIONATE EXPENSES ON EXE MPT INCOME UNDER SECTION 14A. THE AO HAS IGNORED THE FINDINGS OF HON'BLE SUPREME COUR T IN CASE OF MAXOPP INVESTMENT LTD VS. CIT NEW DELHI. THE COURT HAS OBSERVED THAT BEFO RE APPLYING THE THEORY OF APPORTIONMENT, THE AO NEEDS TO RECORD SATISFACTION, SUO MOTO DISALLOWANCE UNDER SECTION 14A WAS NOT CORRECT. 3. WHETHER THE AO AND CIT(APPEAIS) ARE RIGHT IN MAK ING ADDITION / DISALLOWANCE OF RS.237125446/- UNDER SECTION 14A , WHERE THERE IS N O EXEMPT INCOME ON ACCOUNT OF DIVIDEND EARNED BY THE ASSESSEE DURING THE YEAR UND ER CONSIDERATION. 4. WHETHER THE CT(A) WAS RIGHT IN LAW BY CONFIRMING THE DISALLOWANCE OF RS.237125446/- WHEN THE ASSESSEE HAS RECEIVED A DIV IDEND INCOME OF RS.2451907-ONLY DURING THE YEAR UNDER CONSIDERATION AND THE SAME HA S BEEN TAXED AS INCOME FROM OTHER SOURCES THE SAME HAS BEEN OFFERED FOR TAXATION AND HAS BEEN ASSESSED TO TAX UNDER SECTION 56. 2 5. WHETHER THE CIT (A)AND AO WAS RIGHT IN LAW FOR N OT RESTRICTING THE DISALLOWANCE U/S 14A TO THE EXTENT OF EXEMPT INCOME , AS HELD BY ITA T CHANDIGARH IN ASSESSEE ! S OWN APPEALS ITA NO. 991-994 OF 2014 VIDE ORDERS DATED 1 0-11-2016. 6. WHETHER THE CIT (A) IS RIGHT IN LAW IN DISALLOWI NG THE AMOUNT OF RS.22,57,03,986/- UNDER RULE 8D(2)(II) WHEN THE ASSESSEE IS AN NBFC A ND ENGAGED IN THE BUSINESS OF PROVIDING FINANCES AND NOT DEDUCTING THE AMOUNT OF INTEREST INCOME EARNED BY THE ASSESSEE . 7. WHETHER THE CLT(A) AND AO WERE RIGHT IN DISALLOW ING INTEREST BY TAKING THE INTEREST AT RS.49,35,43,611/-WHEN THE ASSESSEE HAD DISALLOWE D AN AMOUNT OF RS 15,81,32,188/- U/S 43B OF INCOME TAX ACT IN THE COMPUTATION CHART FILE D WITH THE ITR.. 8. THAT THE APPELLANT CARVES LEAVE TO ADD OR AMEND ANY GROUND OF APPEAL DURING THE COURSE OF APPELLANT PROCEEDINGS. 3. FROM THE AFORESAID GROUNDS IT IS GATHERED THAT THE G RIEVANCE OF THE ASSESSEE RELATES TO THE SUSTENANCE OF DISALLOWANCE OF RS. 23,7 1,25,446/- MADE BY THE A.O. UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER RE FERRED TO AS ACT) WHEN THE ASSESSEE HAD RECEIVED THE DIVIDEND INCOME OF RS. 2,45,1 90/- ONLY. 4. FACTS OF THE CASE IN BRIEF ARE THAT THE ASSESSEE FIL ED ITS RETURN OF INCOME ON 29/11/2014 DECLARING A LOSS OF RS. 30,64,53,658/-, L ATER ON THE CASE WAS SELECTED FOR SCRUTINY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE A.O. NOTED THAT THE ASSESSEE HAD INVESTMENT OF RS. 2,28,42,92,090/- IN SHARES OF DIF FERENT COMPANIES AS ON 31/03/2013 AND HAD EARNED A DIVIDEND OF RS. 2,45,190/- WHICH WAS C LAIMED TO BE EXEMPT UNDER SECTION 10(34) OF THE ACT. THE A.O. ASKED THE ASSESSEE TO EXPLAIN AS TO WHY THE CORRESPONDING INTEREST EXPENSES CLAIMED BY IT BE NOT DIS ALLOWED. IN RESPONSE, THE ASSESSEE SUBMITTED AS UNDER: THE ASSESSEE HAS EARNED A DIVIDEND INCOME OF RS. 2,45,190/- DURING THE YEAR UNDER CONSIDERATION AND THE SAME HAS BEEN SHOWN AS INCOME FROM OTHER SOURCES AND FORMS PART OF THE TAXABLE INCOME OF THE ASSESSEE. HENCE, NO DI SALLOWANCE UNDER THE PROVISIONS OF SECTION 14A IS LIABLE TO BE MADE IN THE CASE OF THE ASSESSEE. THE A.O. HOWEVER DID NOT FIND MERIT IN THE SUBMISSIONS O F THE ASSESSEE AND MADE THE DISALLOWANCE OF RS. 23,71,25,446/- BY INVOKING THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962. 5. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER T O THE LD. CIT(A) WHO SUSTAINED THE DISALLOWANCE MADE BY THE A.O. 6. NOW THE ASSESSEE IS IN APPEAL. 3 7. LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISS IONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THE DISALL OWANCE CANNOT EXCEED THE AMOUNT OF EXEMPT INCOME. IT WAS ALSO STATED THAT THIS ISSUE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION DT. 10/11/2016 OF THE ITAT, CHANDIGARH BENCH IN ITA NOS. 991 TO 994/CHD/2014 FOR THE A.YS 2007-08 TO 2010-11 IN ASSESSEES OWN CASE, COPY OF THE SAID ORDER WAS FURNISHED WHICH IS PLACED O N THE RECORD. 8. IN HIS RIVAL SUBMISSIONS THE LD. CIT DR STRONGLY SU PPORTED THE ORDERS OF THE AUTHORITIES BELOW BUT COULD NOT CONTROVERT THE AFORESAI D CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE. 9. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIE S AND PERUSED THE MATERIAL AVAILABLE ON THE RECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAVING SIMILAR FACT WAS A SUBJECT MATTER OF THE ASSESSEES APPEAL FOR THE A.Y. 2007-08 TO 2010-11 IN ITA NOS. 991 TO 994/CHD/2014 WHEREIN THE RELEVANT FINDINGS HAS BEEN G IVEN IN PARA 8 TO 9 WHICH READ AS UNDER: 8. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DOUBT ABOUT THE RECORDING OF SATISFACTION BY THE ASSESSING OFFICER IN TERMS OF SECTION 14A(2). INSOFAR AS THE QUANTUM OF DISALLOWANCE IS C ONCERNED, RULE 8D IS ADMITTEDLY APPLICABLE FROM THE ASSESSMENT YEAR 2008-09, WHICH IS THE YEAR UNDER CONSIDERATION. IN THAT VIEW OF THE MATTER, NO FAULT CAN BE FOUND WITH THE ASSESSING OFFICE/CIT(A) RESORTING TO RULE 8D FOR THE PURPOSE OF MAKING DISALLOWANCE. THI S DISALLOWANCE HAS BEEN MADE IN TWO PARTS. THE FIRST IS UNDER CLAUSE (III) OF RULE 8D(2 ) TOWARDS ADMINISTRATIVE EXPENSES AT THE RATE OF ONE HALF PER CENT OF THE AVERAGE OF THE VALUE OF INVESTMENTS, INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME. THE ADDITION TO THIS EXTENT IS UPHELD AS THE SAME IS IN ACCORDANCE WITH THE STATUTORY MANDATE. 9. AS REGARDS THE DISALLOWANCE UNDER CLAUSE (II) OF RULE 8D(2), WE FIND THAT THE ASSESSEE CONTENDED BEFORE THE ID. CIT(A) THAT SUCH DISALLOWA NCE WAS NOT CALLED FOR. IN THIS REGARD WE FIND THAT THE HON'BLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 LTR 340 (BOM) HAS HELD THAT IF THERE ARE INTEREST FREE FUNDS AVAI LABLE WITH THE ASSESSEE SUFFICIENT TO MEET ITS INVESTMENT AND, AT THE SAME TIME, LOAN HAS BEEN RAISED, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM INTE REST FREE FUNDS AND, RESULTANTLY, NO DISALLOWANCE OF INTEREST CAN BE MADE. IN DELETING T HE DISALLOWANCE OF INTEREST, THE HON'BLE BOMBAY HIGH COURT RELIED ON THE JUDGMENT OF HON'BLE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS VS CIT (1997) 224 ITR 627 (SC) . IT IS FURTHER NOTICED THAT THE HON'BLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD. (2014) 366ITR 505 (BOM), HAS HELD THAT WHERE ASSESSEE'S CAPITAL, PROFIT, AND RESERVES ETC. WERE HIGHER THAN THE INVESTMENT IN TAX FREE SECURITIES, IT WOULD HAVE TO BE PRESUMED THAT THE I NVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE AS SESSEE AND, CONSEQUENTLY, NO DISALLOWANCE COULD BE MADE U/S 14A OF THE ACT. SIMI LAR VIEW HAS BEEN TAKEN IN SEVERAL CASES INCLUDING PRINCIPAL CIT VS. INDIA GELATINE & CHEMICALS LTD. ( 2015) 376 ITR 353 (GUJ). IT, ERGO, BECOMES MANIFEST THAT THE DISALLOWANCE OF INT EREST AS PER CLAUSE (II) CANNOT BE MADE STRAIGHT WAY WITHOUT EXAMINING THE IMPORTANT A SPECT AS HAS BEEN DISCUSSED IN THE ABOVE DECISIONS, WHICH THE ID. CIT(A) FAILED TO TAK E NOTE OF. AS NECESSARY INFORMATION ABOUT THE AVAILABILITY OF SHAREHOLDERS' FUND VIS-A-VIS THE AMOUNT INVESTED IN SHARES AND 4 OTHER SECURITIES YIELDING EXEMPT INCOME IS NOT AVAI LABLE ON RECORD, WE SET ASIDE THE IMPUGNED ORDER AND REMIT THE MATTER TO THE FILE OF ASSESSING OFFICER FOR COMPUTING THE DISALLOWANCE UNDER CLAUSE (I) RULE 8D(2), IF ANY, I N CONSONANCE WITH VIEW TAKEN IN RELIANCE UTILITIES (SUPRA) ETC. IT IS HOWEVER MADE CLEAR THAT IN NO CASE, THE TOTAL AMOUNT OF DISALLOWANCE U/S 14A SHOULD EXCEED THE AMOUNT OF EX EMPT INCOME AS HAS BEEN HELD BY THE HON'BLE DELHI HIGH COURT IN CHEMINVEST LTD. VS CIT (2015) 378 ITR 33 (DEL) AND CIT VS. HOLCIM INDIA P. LTD (2014) 90 CCH081 DEL HC. 10. SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRED TO ORDER DT. 10/11/2016 IN ASSESSEES OWN CASE, WE SET ASIDE THIS MATTER TO THE F ILE OF THE A.O. AND DIRECT HIM TO MAKE THE DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME EAR NED BY THE ASSESSEE. 11. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED F OR STATISTICAL PURPOSES. (ORDER PRONOUNCED IN THE OPEN COURT ON 06/05/2020 ) SD/- SD/- #$ % .., (SANJAY GARG ) ( N.K. SAI NI) & '(/ JUDICIAL MEMBER ! / VICE PRESIDENT AG DATE: 06/05/2020 (+! ,-.- COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. $ / CIT 4. $ / 01 THE CIT(A) 5. -2 45&456789 DR, ITAT, CHANDIGARH 6. 8:% GUARD FILE (+ $ BY ORDER, ; # ASSISTANT REGISTRAR