Haryana Financial Corporation, Chandigarh V. DCIT, Circle , Pachkula

ITA 1352/CHANDI/2019

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 3329 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 25-07-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2014-2015
• Appeal Filed On: 13-10-2019
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Business expenditure; Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

These are three appeals filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-3, Ludhiana, even dated 01.06.2019 and pertain to assessment years 2013-14 to 2015-16 respectively. Since common issues are involved in these three appeals, these were heard together and are being disposed off by this consolidated order. 2. At the outset, it is noted that an adjournment application dated 20.07.2022 has been moved by CA B K Nohria on behalf of the assessee stating that due to unavoidable urgent work, he has to go out of station. आयकर अपील य अ धकरण, ‘ए’ यायपीठ, च डीगढ़। IN THE INCOME TAX APPELLATE TRIBUNAL ‘A’ BENCH: CHANDIGARH BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER AND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER आयकर अपील सं./ITA Nos.1351 to 1353/Chd/2019 नधा रण वष /Assessment Years: 2013-14 to 2015-16 M/s.Haryana Financial Corporation, 30 Bays Building, Ground Floor, Sector 17-C, Chandigarh-160 017. v. The Asst. Commissioner – of Income Tax, Circle, Panchkula. [PAN: AAACH 4685 B] (अपीलाथ /Appellant) (!"यथ /Respondent) अपीलाथ क# ओर से/ Appellant by : Mr.Sanjay Kanwar for Mr.B.K.Nohira, CA !"यथ क# ओर से /Respondent by : Mr.Vivek Nangia, CIT DR स ु नवाई क# तार ख/Date of Hearing : 21.07.2022 घोषणा क# तार ख /Date of Pronouncement : 26.07.2022 आदेश / O R D E R PER VIKRAM SINGH YADAV, ACCOUNTANT MEMBER: ITA Nos.1351-1353/Chd/2019 :: 2 :: Further, he has stated in the application that he has requested the assessee to provide power of attorney to represent before the Tribunal and in view of the same, the proceedings may be adjourned to another suitable date. We find that similar submissions have been made in the past and the Coordinate Benches have adjourned the matter from time to time however till date, the power of attorney has not been issued by the assessee in favour of CA B K Nohria. It thus appears that the assessee is not serious in pursuing the present appeals. Neither the Counsel has been properly authorized to represent the assessee nor any application has been moved by the assessee stating its position and the reasons thereof. In absence of power of attorney in favour of CA B K Nohria, we are unable to take on record the adjournment application so moved on behalf of the assessee and accede to the request for adjournment so made. Given that these appeals were filed way back in year 2019 and the matter has been adjourned from time to time due to lack of seriousness and casual approach on part of the assessee in making the necessary representation, no useful purpose would be served in adjourning the matter any further and it was decided to hear the matter ex-parte qua the assessee and to decide based on material available on record. 3. In ITA No.1351/Chd/2019, the assessee has taken the following grounds of appeal: 1. That on the facts and in the circumstances of the case the learned CIT(A) has erred in law and facts in upholding the contention of the learned A 0 in addition under Section 14A(2) of the Income Tax Act, 1961 without recording ITA Nos.1351-1353/Chd/2019 :: 3 :: any satisfaction that the expenses claimed by the appellant are incorrect and restricting the disallowance to Rs.3,50,000/- 2. That on the facts and in the circumstances of the case the Learned CIT (A) Panchkula has erred in law and facts in upholding the contention of the learned A 0 in adding in disallowing Rs.4,29,72,691/- under Section 36(1)(viia) on account of provision of NPA written back which has not been claimed as expenditure by the assessee during the assessment year 2013-14 and in any earlier years. 3. That on the facts and in the circumstances of the case the Learned CIT (A) Panchkula has erred in law and facts in upholding the contention of the learned AO in adding Rs.35,60,752/- on account of interest on seed money belonging to Govt. of India while acting as nodal agency of the Govt. being an undertaking of Govt. of Haryana which is a deviation from consistent view taken in past by the department on account of no addition in earlier years. 4. That the appellant reserves the right to add, amend or delete one or more of the grounds of appeal before the appeal is disposed off 4. In Ground No.1, the assessee has challenged the sustenance of addition of Rs.3.5 lakhs by the ld.CIT(A) u/s.14A of the Act. In this regard, the brief facts of the case are that during the course of assessment proceedings, the AO observed that the assessee has made investments to the tune of Rs.1,49,76,44,180/- and has also earned exempt dividend income to the tune of Rs.3.5 lakhs and has paid interest on various secured loans taken from the banks and accordingly, a show cause notice was issued as to why the disallowance u/s.14A of the Act, should not be made. Thereafter, considering the submissions of the assessee but not finding the same acceptable, addition of Rs.1,03,76,520/- was made by the AO u/s.14A of the Act r.w.r.8D of the Income Tax Rules, 1962. 5. Being aggrieved, the assessee carried the matter in appeal before the ld.CIT(A) and various contentions were raised, which have been thoroughly examined by the ld.CIT(A) as can be seen from his findings ITA Nos.1351-1353/Chd/2019 :: 4 :: which are contained at Para Nos.4.2 to 4.5 of the impugned order and following the decision of the Hon’ble Punjab & Haryana High Court in case of Tractors Ltd. v. CIT reported in [2017] 78 taxmann.com 65 as well as the decision of the Hon’ble Supreme Court in case of Max opp Investment Ltd. v. CIT, the ld.CIT(A) has upheld the application of Rule 8D and at the same time has restricted the disallowance to the extent of exempt income of Rs.3.5 lakhs. The relevant findings of the ld.CIT(A) are contained at Para Nos.4.10 to 4.12 of the impugned order which reads as under: 4.10 I have gone through the appellant contention w.r.t. assessee’s plea of breaking up of expenditure incurred from its own funds and non incurring of expenses to earn exempt income. Respectfully considering the decisions of case laws relied upon by Ld.assessing officer, after giving due consideration to all the facts do not see any need to interfere with the view taken by Id. A.O. However, while placing reliance on the decision of Hon’ble Punjab and Haryana high court in the case of Punjab Tractors Ltd versus Commissioner of income tax particulars [2017] 78 taxmann.com 65 (Punjab & Haryana) dated FEBRUARY 3, 2017 , it will also be relevant to consider the decision of apex court in the case of Max Opp Investment Ltd. vs. CIT, New Delhi with Others [Civil Appeal Nos. 104-109 of 2015]/ [2018] 91 taxmann.com 154 (SC). 4.11 The aforesaid decision of Hon’ble Punjab and Haryana high court in the case of Punjab tractors Ltd vs Commissioner of income tax [2017] 78 taxmann.com 65 of has been furthered by apex court in the case of Max opp Investment Ltd. vs. CIT, New Delhi with Others [Civil Appeal Nos. 104-109 of 2015]/ [2018] 91 taxmann.com 154 (SC). The decision of honable apex court , reiterates the principle as laid down by various High Courts and Supreme Courts, that the principle behind enacting Section 14A in the Act, is to disallow any expenditure incurred 'in relation to the income which does not form part of the total income under this Act'. The apex court held that in determining the disallowance, what is to be considered in law is not the intention or the dominant intention while making the purchase of such investment, which results in earning non-taxable income. It is only to the extent of not considering the intention or dominant intention that the SC has held, that one would need to consider the law, and disallow such expenditure in relation to such non-taxable income. However, one would need to keep in mind certain extremely critical observations of the SC, which are important in determining the law as regards 'what is the expenditure that is in relation to the income which does not form part of the total income'. The honable court states that, only that expenditure which has been incurred in relation to non-taxable income has to be disallowed. If an expenditure incurred has no 'principal connection' with the exempted income, then such an expenditure would clearly be treated as not 'in relation to the income which does not form part of the total income' and thus, such expenditure would be allowed as business expenditure. The SC further observed that the action of the AO in the case of State Bank of Patiala , by restricting the disallowance of expenditure to ITA Nos.1351-1353/Chd/2019 :: 5 :: the amount which was claimed as exempt income, by applying Section 14A r.w. Rule 8D was reasonable. 4.12 After giving due consideration to all the facts, I do not see any need to iterfere with the view taken by Id. A.O., as far as application of rule 8D, is concerned while placing reliance on the decision of honable Punjab and Haryana high court in the case of Punjab tractors Ltd versus Commissioner of income tax particulars [2017] 78 taxmann.com 65 (Punjab & Haryana) dated FEBRUARY 3, 2017 and in the case of Max opp Investment Ltd. vs. CIT, New Delhi with Others [Civil Appeal Nos. 104-109 of 2015]/ [2018] 91 taxmann.com 154 (SC), the 'disallowance is restricted to the amount which was claimed as exempt income, i.e. dividend income of Rs.3,50,000/-. Accordingly the stand taken by the A.O. of applying rule 8D and making disallowance of Rs.1,03,76,520/- u/s 14A of the Act, is partly confirmed. The appeal on this ground is partly allowed. 6. After hearing the ld. DR and considering the material available on record, in absence of any contrary material on record, we do not see any infirmity in the said findings of the ld.CIT(A) who has followed the decisions of the Hon’ble High Court and Hon’ble Supreme Court in upholding the applicability of disallowance and restricting the same to the extent of exempt income. The ground taken by the assessee is accordingly dismissed. 7. In Ground No.2, the assessee has challenged the sustenance of disallowance of Rs.4,29,72,691/- u/s.36(1)(viia) of the Act, on account of provision of NPA written back. In this regard, the brief facts of the case are that during the course of assessment proceedings, the AO on perusal of the P&L A/c observed that an income of Rs.4,29,72,691/- has been shown as provision against NPA written back in the P&L A/c. However, in the computation of income, the same has been reduced from the taxable income and accordingly, a show cause notice was issued and after taking into consideration the submissions of the assessee, the addition of ITA Nos.1351-1353/Chd/2019 :: 6 :: Rs.4,29,72,691/- was made in the hands of the assessee. During the appellate proceedings before the ld.CIT(A), the assessee took various contentions, however, the same were not found acceptable and the ld.CIT(A) by following the order of the ld. predecessor for the AY 2012- 13, has confirmed the disallowance on account of NPA u/s.36(1)(viia) of the Act. 8. After hearing the ld DR and pursuing the material available on record, we do not see any infirmity in the findings of the ld.CIT(A) where a consistent position has been adopted by the ld CIT(A) and nothing has been brought on record to contest the said findings for the earlier years and for the year under consideration. Hence, the findings of the ld CIT(A) are hereby confirmed and the ground of appeal is dismissed. 9. In Ground No.3, the assessee has challenged the sustenance of addition of Rs.35,60,752/- on account of interest on seed money. In this regard, we find that the ld.CIT(A) has elaborately discussed the matter in Para Nos.6.3 to 6.7 of the impugned order and has held that the assessee was entitled to collect and recover the seed money from entrepreneurs during the course of its business and therefore, the interest income on such seed money accrued to the assessee on its own right. It has been further held by the ld CIT(A) that besides retaining the seed money, the assessee, the interest accruing on the seed money has been retained by the assessee and nothing has been brought on record to demonstrate the transfer of this amount to the State Government. It has been further ITA Nos.1351-1353/Chd/2019 :: 7 :: held by the ld.CIT(A) that where any amount has actually paid by the assessee to the State Government that would be allowed as expenditure in the year it is actually paid and give that no amount has been paid by the assessee during the year, the AO was fully justified in adding interest received on seed money amounting to Rs.35,60,752/-. Accordingly, we do not see any infirmity in the findings of the ld. CIT(A) and the same is hereby confirmed and ground of appeal taken by the assessee is dismissed. 10. In ITA No.1352/Chd/2019 pertaining to AY 2014-15 and ITA No.1353/Chd/2019 pertaining to AY 2015-16, the ld DR submitted that identical grounds of appeal has been taken by the assessee. Therefore, following our decision in ITA No.1351/Chd/2019, all these appeals are also dismissed in light of the aforesaid directions. 11. Before parting, we hereby grant liberty to the assessee to seek a recall of the present order where it gives an undertaking to the satisfaction of the Bench that it is serious in prosecuting the present appeals through a duly authorized representative. 12. In the result, all the three appeals filed by the assessee are dismissed. Order pronounced on the 26 th day of July, 2022, in Chandigarh. ITA Nos.1351-1353/Chd/2019 :: 8 :: Sd/- (DIVA SINGH) या यक सद.य/JUDICIAL MEMBER Sd/- (VIKRAM SINGH YADAV) लेखा सद.य/ACCOUNTANT MEMBER च डीगढ़/Chandigarh, /दनांक/Dated: 26 July, 2022. TLN, Sr.PS आदेश क# ! त0ल1प अ2े1षत/Copy of the order forwarded to: 1. अपीलाथ / The Appellant 2. !"यथ / The Respondent 3. आयकर आय ु 3त/ CIT 4. आयकर आय ु 3त (अपील)/ The CIT(A) 5. 1वभागीय ! त न ध, आयकर अपील य आ धकरण, च डीगढ़/ DR, ITAT, Chandigarh 6. गाड फाईल/ Guard File आदेशान ु सार/ By Order सहायक पंजीकार/ Assistant Registrar