M/s Munjal Sales Corporation, Ludhiana V. DCIT, C-5, Ludhiana

ITA 1355/CHANDI/2017

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5135 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-03-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 12-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: J K GARG
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER & DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ITA NO. 1355/CHD/2017 ASSESSMENT YEAR: 2010-11 M/S MUNJAL SALES CORPORATION, VS. THE DCIT, CIRCLE -5, HERO NAGAR, G.T.ROAD, LUDHIANA LUDHIANA PAN NO. AAIFM3750F (APPELLANT) (RESPONDENT) APPELLANT BY : SH. SUBHASH AGGARWAL, ADV. RESPONDENT BY : SH. J.K. GARG, CIT DR DATE OF HEARING : 13.03.2018 DATE OF PRONOUNCEMENT : 13.03.2018 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSESS EE AGAINST THE ORDER DATED 10.03.2017 OF THE COMMISSIONER OF INCO ME TAX (APPEALS), [HEREINAFTER REFERRED TO AS CIT(A)]-2, LUDHIANA. 2. THE ASSESSEE HAS AGITATED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER AND FURTHER CONFIRMED BY THE LD. CIT(A) OF RS. 2,86,513/- AS AGAINST THE SUO MOTO DISALLOWANCE OFFERED BY THE AS SESSEE OF RS. 50,000/- ON ACCOUNT OF DISALLOWANCE OF EXPENDITURE INCURRED FOR EARNING OF TAX EXEMPT INCOME AS PER THE PROVISIONS OF SECTION 14A OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). ITA NO. 1355/CHD/2017 (MUNJAL SALES CORPORATION) 2 3. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT T HE ASSESSING OFFICER NOTICED THAT THE ASSESSEE HAD MADE INVESTMENT IN SH ARES WHEREUPON THE ASSESSEE EARNED TAX EXEMPT DIVIDEND INCOME OF ABOUT RS. 2.95 CRORES. ON BEING ASKED TO EXPLAIN AS TO WHY DISALLOWANCE U/S 1 4A OF THE I.T. ACT READ WITH RULE 8D OF THE INCOME TAX RULES, 1962 BE NOT M ADE; THE ASSESSEE EXPLAINED THAT ALL THE INVESTMENT WERE OLD INVESTME NT AND NO NEW INVESTMENT WERE MADE DURING THE YEAR. THAT THE ASSE SSEE HAD NOT INCURRED ANY EXPENDITURE DURING THE YEAR IN RELATION TO THE AFORESAID INVESTMENTS. FURTHER, A SUE MOTO DISALLOWANCE OF RS. 50,000/- WA S OFFERED TAKING INTO CONSIDERATION THE PAST DISALLOWANCE MADE BY THE REV ENUE AUTHORITIES IN RELATION TO THE SAME INVESTMENT. THE ASSESSING OFFI CER, HOWEVER, DID NOT AGREE WITH THE ABOVE CONTENTION OF THE ASSESSEE AND CALCULATED OF THE DISALLOWANCE UNDER RULE 8D OF THE I.T. RULES AT RS . 8,16,513/-/ 4. BEING AGGRIEVED BY THE ABOVE ORDER OF THE ASSESS ING OFFICER, THE ASSESSEE PREFERRED APPEAL BEFORE LD. CIT(A). THE LD . CIT(A) CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE AND SUBMISSIONS OF THE ASSESSEE RESTRICTED THE AFORESAID DISALLOWANCE TO RS. 2,86,513/-. 5. HOWEVER, STILL NOT SATISFIED, THE ASSESSEE PREFE RRED APPEAL BEFORE THE TRIBUNAL. A PLEA WAS TAKEN BEFORE THE TRIBUNAL THA T NO EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR EARNING OF TAX EXEMPT INCOME. THAT THE LOWER AUTHORITIES WERE NOT JUSTIFIED IN MAKING THE DISALL OWANCE MORE THAN THAT WAS SUO MOTO OFFERED BY THE ASSESSEE. IT HAD ALSO BEEN PLEADED THAT EVEN THE ASSESSING OFFICER HAD NOT RECORDED ANY DISSATIS FACTION ON THE SUO MOTO DISALLOWANCE OFFERED BY THE ASSESSEE AND THAT THE A SSESSING OFFICER PROCEEDED TO MAKE THE DISALLOWANCE WITHOUT REJECTIN G THE CONTENTION OF THE ITA NO. 1355/CHD/2017 (MUNJAL SALES CORPORATION) 3 ASSESSEE THAT IT HAD NOT INCURRED ANY EXPENDITURE F OR EARNING OF TAX EXEMPT INCOME. 6. THE TRIBUNAL CONSIDERING THE ABOVE SUBMISSIONS O F THE LD. COUNSEL FOR THE ASSESSEE VIDE ORDER DATED 3.12.2016 REMANDE D THE MATTER BACK TO THE FILE OF THE CIT(A) TO ADJUDICATE THE MATER AFRE SH CONSIDERING THE ABOVE SUBMISSIONS OF THE ASSESSEE. PURSUANT TO THAT, THE LD. CIT(A) PASSED THE IMPUGNED ORDER DATED 16.8.2017 OBSERVING THAT ASSES SING OFFICER HAD RECORDED SATISFACTION BEFORE MAKING DISALLOWANCE U /S 14A OF THE I.T. ACT READ WITH RULE 8D(2) OF THE I.T. RULES. HE, THEREFO RE, RECONFIRMED THE DISALLOWANCE ALREADY CONFIRMED IN THE FIRST ROUND O F APPEAL AT RS. 2,86,513/-. THE ASSESSEE, THUS, HAS COME AGAIN IN A PPEAL BEFORE US. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. LD. CO UNSEL FOR THE ASSESSEE HAS BROUGHT TO OUR ATTENTION PARA 5.2 OF T HE IMPUGNED ORDER WHEREIN THE LD. CIT(A) HAS REPRODUCED THE RELEVANT PART OF THE ASSESSMENT ORDER WHEREIN THE ALLEGED SATISFACTION WAS RECORDED BY THE ASSESSING OFFICER. THE LD. CIT(A) HELD THAT IT WAS NOT A CASE WHERE THE ASSESSING OFFICER HAD NOT RECORDED DIS-SATISFACTION TO THE SU O MOTO DISALLOWANCE MADE BY THE ASSESSEE. PARA 5.2 OF THE ORDER BEING R ELEVANT IS REPRODUCED AS UNDER OF THE SAKE OF REFERENCE:- 5.2 I HAVE CONSIDERED ALL THE SUBMISSIONS MADE BY THE ASSESSEE FIRM AFRESH. ON CAREFUL CONSIDERATION OF THE RIVAL CONTENTIONS, I AM OF THE OPINION THAT THE ASSESSING OFFICER HAS CLEARLY RECORDED HIS SATISFAC TION IN PARA 4.2 OF THE ASSESSMENT ORDER WHICH READ AS UNDER :- 4.2 THE REPLY OF THE ASSESSEE IS CAREFULLY CONSIDE RED AND IS FOUND TO BE UNTENABLE. THE ASSESSEE HAS CLAI MED ITA NO. 1355/CHD/2017 (MUNJAL SALES CORPORATION) 4 THAT THE INCOME EARNED FROM INVESTMENT IN PARTNERSH IP FIRM IS NOT TAX-FREE INCOME AS THE TAX WAS DULY PAI D BY THE PARTNERSHIP FIRM AND THE PROFIT AFTER TAX WAS DISTRIBUTED TO THE PARTNERS AS SUCH, SECTION 14A IS NOT ATTRACTED IN ITS CASE. I DO NOT AGREE WITH THIS CON TENTION OF THE ASSESSEE. THE FACT REMAINS THAT THE ASSESSEE MADE INVESTMENT IN CAPITAL OF A PARTNERSHIP FIRM. THE INVESTMENT IN FIRM IS FOR EARNING INCOME FROM SHARE OF PROFIT OF PARTNERSHIP FIRM. SHARE OF PROFIT RECEIVE D BY A PARTNER FROM A FIRM IS EXEMPT U/S 10(2A) OF THE J.T . ACT. THUS THE INVESTMENTS AS REFERRED TO ABOVE ARE FOR EARNING EXEMPT INCOME. THE FACT ALSO REMAINS THAT ASSESSEE HAD EARNED SHARE OF PROFIT FROM THESE INVESTMENTS AND NO INTEREST INCOME HAS BEEN RECEIVE D ON THIS CAPITAL DURING THE YEAR. ANY EXPENDITURE INCURRED IN RELATION TO EARNING SUCH INCOME IS NOT LIABLE U/S 14 A OF THE I.T. ACT. APART FROM THIS, THE LEARNED AR OF THE ASSESSEE FIR M WAS ASKED TO GIVE THE BASIS FOR DISALLOWING ONLY RS, 50 ,000/- UNDER SECTION 14A OF THE ACT. IN RESPONSE TO THIS, THE LEARNED AR OF THE ASSESSEE FIRM HAS SUBMITTED THAT THE DISALLOWANCE HAS BEEN MADE ON THE BASIS OF PAST HIS TORY OF THE CASE WHICH HAS BEEN ACCEPTED BY THE DEPARTME NT IN EARLIER YEARS. IT MAY NOT BE OUT OF PLACE TO MEN TION HERE THAT THE DISALLOWANCE UNDER SECTION 14A WHICH WAS UPHELD BY THE LEARNED CIT (APPEAL)-2, LUDHIANA IN A .Y. 2009-10 OUT OF DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER IDENTICAL FACTS HAS BEEN UPHELD BY TH E HONORABLE ITAT, CHANDIGARH VIDE ITS ORDER IN ITA NO . 274/CHD./2015 DATED 07.07.2015 IN THE CASE OF THE ASSESSEE FIRM ITSELF. AS THE ASSESSES FIRM HAS NO B ASIS TO DISALLOW RS. 50,000/-, I AM SATISFIED THAT THE DISALLOWANCE MADE BY THE ASSESSEE FIRM ITSELF WAS N OT ITA NO. 1355/CHD/2017 (MUNJAL SALES CORPORATION) 5 CORRECT AS IT HAS NO SCIENTIFIC OR ACCEPTABLE BASIS . MOREOVER, I AM OF THE CONSIDERED OPINION THAT THE ASSESSING OFFICER HAS CLEARLY RECORDED HIS SATISFAC TION IN THE ASSESSMENT ORDER WITH REGARD TO HIS DISAGREE MENT WITH THE DISALLOWANCE MADE BY THE ASSESSEE FIRM ITS ELF. IN OTHER WORDS, THE SATISFACTION OF THE ASSESSING O FFICER IS DISCERNIBLE FROM THE ASSESSMENT ORDER AND IT CAN NOT BE SAID THAT THE ASSESSING OFFICER HAS NOT RECORDED HIS DISSATISFACTION WITH THE DISALLOWANCE MADE BY THE ASSESSEE FIRM ITSELF. MOREOVER, THE DISALLOWANCE MA DE BY THE ASSESSEE FIRM HAS NO SCIENTIFIC OR ACCEPTABL E BASIS. THE HONORABLE IT AT. CHANDIGARH IN ITS DECISIONS FOR THE A. Y. 2009- 10 UPHELD THE ORDER O F LEARNED CIT(A)-2, LUDHIANA WHEREIN SIMILAR DISALLOWANCE MADE BY THE ASSESSEE FIRM WAS REJECTED . IN VIEW OF THESE FACTS, THE DISALLOWANCE UPHELD BY THE THEN CIT(APPEALS)-2, LUDHIANA IS RETAINED AND UPHEL D AS IT DOES NOT CALL FOR ANY INTERFERENCE. IN THE RE SULT, THE GROUNDS NO. 2 AND 3 OF APPEAL TAKEN BY THE ASSE SSEE FIRM ARE CONSIDERED AS PARTLY ALLOWED. 8. THE PERUSAL OF THE ABOVE REPRODUCED PART OF THE IMPUGNED ORDER REVEALS THAT BOTH THE LOWER AUTHORITIES HAVE FAILED TO PROPERLY APPRECIATE THE ACTUAL FACTS OF THE CASE. THE LD. CIT(A) IN THE REPRODUCED PORTION OF THE ASSESSMENT ORDER HAS OBSERVED THAT THE ASSESSEE WAS IN THE PARTNERSHIP FIRM AND THAT IT HAD GOT SHARE OF PROFIT FROM THE P ROFITS OF PARTNERSHIP FIRM WHICH WAS EXEMPT AND THAT PROVISIONS OF SECTION 14 A WERE ATTRACTED IN RELATION TO THE TAX EXEMPT PART OF PROFIT IN THE HA NDS OF PARTNER I.E. ASSESSEE. HOWEVER, LD. COUNSEL FOR THE ASSESSEE HA S EXPLAINED THAT THE ABOVE OBSERVATIONS ARE IRRELEVANT TO THE CASE OF TH E ASSESSEE AS NEITHER THE ASSESSEE WAS A PARTNER NOR HAD EARNED ANY TAX EXEMP T SHARE OUT OF THE ITA NO. 1355/CHD/2017 (MUNJAL SALES CORPORATION) 6 PROFITS OF THE FIRM. HE EXPLAINED THAT IN FACT THE ASSESSEE WAS A PARTNERSHIP FIRM ITSELF. THAT IT WAS NOT A CASE OF RECEIPT OF SHARE OF PROFIT BY THE PARTNER FROM THE PROFITS OF A FIRM, RATHER I T WAS A CASE OF RECEIPT OF INCOME BY THE FIRM FROM ITS INVESTMENT ACTIVITY. EV EN OTHERWISE, WE FIND THAT THERE IS NO DISSATISFACTION RECORDED EITHER BY THE ASSESSING OFFICER OR BY THE CIT(A) TO THE PLEADINGS OF THE ASSESSEE THAT THE INVESTMENTS WERE OLD INVESTMENTS AND NO NEW INVESTMENTS WERE MADE. THAT THE ASSESSEE HAD REDEEMED A PART OF THE INVESTMENT DURING THE YEAR A ND FURTHER THAT ALL THE INVESTMENTS WERE MADE IN THE GROUP CONCERN AND THAT NO EXPENDITURE WAS INCURRED BY THE ASSESSEE DURING THE YEAR IN RESPECT OF THE AFORESAID INVESTMENTS. WE FIND THAT THE LD. CIT(A) HAS SIMPLY RELIED UPON THE FINDINGS OF THE ASSESSING OFFICER WITHOUT EXAMINING THE ACTUAL FACTS. IN VIEW OF THIS, THE IMPUGNED ORDER OF THE CIT(A) IS N OT SUSTAINABLE IN THE EYES OF LAW. THE ASSESSEE SUCCEEDS ON THIS GROUND. THE IMPUGNED ADDITIONS MADE BY THE ASSESSING OFFICER OVER AND AB OVE SUE MOTO DISALLOWANCE MADE BY THE ASSESSEE ARE ORDERED TO BE DELETED. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS HER EBY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (DR. B.R.R. KUMAR) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 13.03.2018 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR ITA NO. 1355/CHD/2017 (MUNJAL SALES CORPORATION) 7