M/s. Universal Flexibles Private Limited, Bangalore V. Deputy Commissioner of Income-Tax, Bangalore

ITA 1430/BANG/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5481 (ITAT-BANGALORE)
• Duration Of Justice: 8 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-04-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 11-08-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: B SUDHEENDRA
• Keywords: Earning of tax free income
• Section: 234B; 14A

Judgement Text

ITA.1430/BANG/2016 PAGE - 1 IN THE INCOME TAX APPELLATE TRIBUNAL BENGALURU BENCH 'C', BENGALURU BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI. S. JAYARAMAN, ACCOUNTANT MEMBER I.T.A NO.1430/BANG/2016 (ASSESSMENT YEAR : 2012-13) M/S. UNIVERSAL FLEXIBLES P. LTD, DYAVASANDRA INDUSTRIAL ESTATE, MAHADEVAPURA, WHITEFIELD CROSS ROAD, BENGALURU 560 048 .. APP ELLANT PAN : AAACU0731D V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7(1)(1), BENGALURU .. RESPONDENT ASSESSEE BY : SHRI. B. SUDHEENDRA, CA REVENUE BY : SHRI. M. K. BIJU, JCIT HEARD ON : 18.04.2017 PRONOUNCED ON : 26.04.2017 O R D E R PER S. JAYARAMAN, ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER OF THE CIT (A) -7, BENGALURU, DT.30.06.2016, FOR THE ASSESSMEN T YEAR 2012-13. 02. M/S. UNIVERSAL FLEXIBLES P. LTD, THE ASSESSEE, ENGAGED IN THE BUSINESS OF MANUFACTURING OF HYDRAULIC HOSE ASSEMBL IES FILED ITS RETURN SHOWING AN INCOME OF RS.85,66,559/-. DURING THE AS SESSMENT PROCEEDINGS, THE AO FOUND THAT THE ASSESSEE HAS MADE AN INVESTME NT OF RS.1,05,11,900/- IN EQUITY SHARE (RS.1,05,00,000/- IN ADVANCED MOULD ITA.1430/BANG/2016 PAGE - 2 TECHNOLOGIES LTD AND RS.11,900/- IN SOUTH INDIAN CO -OPERATIVE BANK LTD) AND THE INCOME FROM WHICH DOES NOT OR SHALL NOT FOR M PART OF THE TOTAL INCOME BUT NO EXPENDITURE HAS BEEN SHOWN TO HAVE B EEN INCURRED OR DISALLOWED U/S.14A . THE ASSESSEE SUBMITTED BEFOR E THE AO THAT NO FRESH INVESTMENT WAS MADE DURING THE YEAR , NO EXPENSES H AS BEEN INCURRED IN EARNING THE EXEMPT INCOME AND HENCE SECTION 14A IS NON-APPLICABLE. THE AO HELD THAT THE EXPRESSION OF EXPENDITURE IN REL ATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF SECTION 14A THAT THE TERM IN RELATION TO IS WIDE ENOUGH TO INCLUDE IN ITS SWEEP THE EXPENDITURE BOTH FOR MAKING OR EARNING INCOME AND INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS CARRIED ON BY THE ASSESSEE AN D HENCE REJECTED THE ASSESSEES PLEA AND QUANTIFIED THE EXPENDITURE I NCURRED IN RELATION TO INCOME NOT INCLUDABLE IN TOTAL INCOME AT RS.7,72,9 78/-, AS PER THE PROVISIONS OF RULE 8D(2)(II) AND (III) OF IT RULES READ WITH SECTION 14A. AGGRIEVED BY THIS ADDITION, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT (A) -7, BENGALURU WHICH WAS DISMISSED. AGGRIEVED BY THA T ORDER, THE ASSESSEE FILED THIS APPEAL WITH THE FOLLOWING GROUNDS : 2. THE LEARNED CIT (A) -7, BANGALORE HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE LEARNED AO UNDER SECT ION 14A READ WITH RULE 8D TOTALLY AMOUNTING TO RS.7,72,978. ON FACTS AND CIRCUMSTANCES OF THE CASE AND LAW APPLICABLE, DISAL LOWANCE U/S.14A READ WITH RULE 8D TOTALLY AMOUNTING TO RS.7 ,72,978 SHOULD BE FULLY DELETED. 3. THE LEARNED ASSISTANT COMMISSIONER OF INCOME TAX , CIRCLE 7(1)(1), BANGALORE HAS ERRED IN LEVYING INTEREST UN DER SECTION 234B AND 234C OF THE IT ACT, 1961. ON FACTS AND CI RCUMSTANCES OF THE CASE AND LAW APPLICABLE, INTEREST UNDER SECT ION 234B AND ITA.1430/BANG/2016 PAGE - 3 234C IS NOT LEVIABLE. THE APPELLANT DENIES ITS LIA BILITY TO PAY INTEREST UNDER SECTION 234B AND 234C. 03. THE HAS AR HAS CONTENDED THAT IN THE IMPUGNED A SSESSMENT YEAR, THE ASSESSEE HAS NOT EARNED ANY EXEMPTED INCO ME, THEREFORE NO DISALLOWANCE U/S. 14A IS PERMISSIBLE. HE HAS INVITED OUR ATTENTION TO THE PROFIT & LOSS ACCOUNT AND THE DETA ILS OF OTHER INCOME IN SUPPORT OF HIS CONTENTION AS UNDER : ITA.1430/BANG/2016 PAGE - 4 SCHEDULE E1 OF THE RETURN : AND CONTENTED THAT THE ASSESSEE HAS NOT EARNED ANY EXEMPTED INCOME DURING THE IMPUGNED ASSESSMENT YEAR AND HAS PLACED RELIANCE ON THE ORDER OF THE TRIBUNAL AND VARIOUS ORDERS OF THE HIG H COURT IN WHICH IT HAS BEEN HELD THAT IN THE ABSENCE OF ANY EXEMPTED INCOM E, THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED. COPY OF THE ORDER OF TRIBUNAL IN THE CASE OF ALLIANCE INFRASTRUCTURE PROJECTS PVT. LTD. V. DCIT, ITA NOS. 220 & 1043/BANG/2013 IN ITA NO.1217 & 234/BANG/2013 IS PLACED ON RECORD AT PAGES 160-173 OF THE COMPILATION. PER CONTRA, TH E DR HAS PLACED RELIANCE ON THE ORDER OF CIT (APPEALS). 3. HAVING CAREFULLY EXAMINED THE ORDERS OF THE LOWER A UTHORITIES IN THE LIGHT OF RIVAL SUBMISSIONS, WE FIND FROM THE RE CORD AND PROFIT & LOSS ACCOUNT THAT THE ASSESSEE DID NOT EARN ANY EXEMPTED INCOME DURING THE YEAR. THEREFORE, IN THE ABSENCE O F ANY EXEMPTED INCOME, PROVISIONS OF SECTION 14A CANNOT BE INVOKED. RELIANCE WAS ALSO PLACED UPON THE ORDER OF DELHI HI GH COURT IN THE CASE OF CHEMINVEST LTD V CIT [2015]378 ITR 33(DELHI) IN WHICH IT HAS BEEN HELD THAT SECTION 14A WILL NOT APPLY IF NO EXEMPT I NCOME IS RECEIVED ITA.1430/BANG/2016 PAGE - 5 OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. IN THE LIGHT OF VARIOUS JUDICIAL PRONOUNCEMENTS OF HIGH COURTS & THE TRIBUNAL AND IN THE ABSENCE OF ANY EXEMPTED INCOME, PROVISIONS O F SECTION 14A OF THE ACT CANNOT BE INVOKED. THEREFORE, WE HOLD THA T THE AO HAS WRONGLY INVOKED THE PROVISIONS OF SECTION 14A FOR MAKING THE DISALLOWANCE. ACCORDINGLY WE SET ASIDE THE ORDER O F CIT (APPEALS) AND DELETE THE ADDITION MADE IN THIS REGARD. HOWEVER, WE HOLD THAT THE LEVY OF INTEREST U/SS 234B AND 234C ARE MANDATORY IN NATUR E AND HENCE IT IS CONSEQUENTIAL. 4. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 26 TH DAY OF APRIL, 2017. SD/- SD/- (SUNIL KUMAR YADAV) (S. JAYARAMAN) JUDICIAL MEMBER ACCOUNTANT MEMBER