M/s Satia Industries Limited, Muktsar V. The Principal Commissioner of Income Tax, Bathinda

ITA 175/ASR/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9623 (ITAT-AMRITSAR)
• Duration Of Justice: 4 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-08-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 30-03-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ABHIMANYU J UNEJACA; SSH SH P N ARORA
• Keywords: Earning of tax free income; Difference of opinion; Change of opinion; Reassessment proceedings
• Section: 143(3); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. T.S. KAPOOR, ACCOUNTANT MEMBER ITA NO. 175(ASR)/2016 ASSESSMENT YEAR:2012-13 PAN: AACCS7233A M/S. SATIA INDUSTRIES LTD. VS. THE PRI. COMMISSIONE R OF INCOME TAX, MALOUT ROAD, BATHINDA. MUKTSAR. (APPELLANT) (APPELLANT) (RESPONDENT) APPELLANT BY: S/SH.SH.P.N.ARORA, ADV. & ABHIMANYU J UNEJA,CA RESPONDENT BY: NONE DATE OF HEARING: 13/06/2016 DATE OF PRONOUNCEMENT: 08/08/2016 ORDER PER A.D. JAIN, JM: THIS IS THE ASSESSEES APPEAL FOR THE ASSESSMENT Y EAR 2012-13, AGAINST THE ORDER, DATED 05.02.2016, PASSED THE PRI . CIT, BATHINDA. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : 1. THE LD. PRINCIPAL COMMISSIONER OF INCOME TAX, B ATHINDA ERRED ON FACT AND LAW IN SETTING ASIDE THE ORDER OF THE AO PASSED U/S 143(3) DATED 21.11.2014 BY INVOKING THE PROVISIONS OF SECTION 263 WITHOUT PROVIDING ANY PR OPER OPPORTUNITY OF HEARING. ITA NO.175(ASR)/2016 A.Y. 2012-13 2 2. THE LD. PRINCIPAL COMMISSIONER OF INCOME TAX, BA THINDA ERRED ON FACT AND LAW IN SETTING ASIDE THE ORDER OF THE AO BECAUSE THE ORDER U/S 143(3) WAS PASSED BY THE AO A FTER APPLYING HIS MIND TO THE FACTS OF THE CASE. SINCE N O EXEMPT INCOME WAS CLAIMED BY THE ASSESSEE COMPANY FROM INVESTMENT IN SHARES, NO DISALLOWANCE U/S 14A WAS MADE BY THE AO. THE AO IN DOING SO FOLLOWED THE SETTLED PRI NCIPLE OF LAW AS LAID DOWN BY THE JURISDICTIONAL HIGH COURT THAT WHERE NO EXEMPT INCOME HAS BEEN CLAIMED, NO DISALLOWANCE U/S 14A IS WARRANTED. THE LD. PRINCIPAL CIT HAS TRIED TO SUBSTITUTE HIS OPINION FOR THE OPINION OF THE AO. F URTHER THE CHANGE OF OPINION BY REAPPRAISING EVIDENCE IS NOT WITHIN THE PARAMETER OF REVISIONAL JURISDICTION OF THE COMMISS IONER OF INCOME TAX UNDER SECTION 263 OF THE ACT. 3. THE LD. PRINCIPAL COMMISSIONER OF INCOME TAX, BA THINDA ERRED ON FACT AND LAW IN SETTING ASIDE THE ORDER OF THE AO IN COMPLETE VIOLATION OF POWER VESTED U/S 263 OF THE I NCOME TAX ACT, 1961 BECAUSE THE EXPLANATION FURNISHED BY THE ASSESSEE COMPANY BEFORE THE PRINCIPAL COMMISSIONER OF INCOME TAX, BATHINDA, HAS BEEN REJECTED WITHOUT REBUTTING THE S AME BY THE LD. PRINCIPAL COMMISSIONER OF INCOME TAX, BATHI NDA. 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A LIMITED COMPANY CARRYING ON THE BUSINESS OF MANUFACTURING O F PAPER AT VILLAGE RUPANA, DISTT. MUKTSAR. THE ASSESSEE HAS INVESTED A N AMOUNT OF RS.7.27 CRORES IN SHARES OF M/S. BHANDARI EXPORT INDUSTRIES LTD.(RS. 5.45 CRORES) AND M/S. T.C. SPINNERS PVT. LTD. (RS.1.82 CRORES). AS PER THE ASSESSEE, THESE PAYMENTS ARE NOT CONNECTED TO THE BUSINESS OF THE ASSESSEE. THE DIVIDEND INCOME FROM THESE PAYMENTS IS EXEMPT FRO M INCOME-TAX. THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.14.28 CRORES ON ACCOUNT OF INTEREST PAID ON VARIOUS LOANS. 3. THE PRI. CIT ISSUED A NOTICE DATED 18.01.2016 U /S 263 OF THE INCOME TAX ACT, 1961 (APB 1-2) TO THE ASSESSEE. THE LD. PRI. CIT OBSERVED ITA NO.175(ASR)/2016 A.Y. 2012-13 3 THAT THE ASSESSEE COMPANY HAD CHOSEN TO INVEST FUND S IN APPLICATION FOR SHARES IN COMPANIES; THAT THE INVESTMENTS WERE MADE TO EARN DIVIDEND INCOME; THAT THE TRANSACTION CANNOT BE NEATLY DEMAR CATED, AS BEING ONE THAT IS NOT OUT OF LOANS RAISED AND HENCE, NOT HIT BY SECTION 14A OF THE ACT; THAT SUCH NEAT DIVISIONS HAVE NOT BEEN ESTABLI SHED AND SUCH ARGUMENTS ONLY CLOUD THE FACTUM OF DIVERSION OF COM PANY FUNDS FOR EARNING EXEMPT INCOME THROUGH COMPANIES CLOSELY CON NECTED WITH THE DIRECTORS; AND THAT NO STATUTORY AUTHORITY CAN COU NTENANCE ARRANGEMENTS MADE TO DEFEAT THE PROVISIONS OF LAW. THE LD. PRI. CIT, ACCORDINGLY, OPINED THAT ORDER DATED 24.11.2014 PAS SED BY THE AO IS ERRONEOUS AND PREJUDICIAL TO THE INTERESTS OF THE R EVENUE AND DIRECTED THE AO TO MAKE ASSESSMENT AFRESH. 4. AGGRIEVED WITH THE ORDER OF THE LD. PRI. CIT, TH E ASSESSEE IS IN APPEAL BEFORE THIS BENCH. 5. THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF SECTION 14A ARE APPLICABLE ONLY WHERE THE ASSESSEE HAS MADE ANY CLAIM FOR EXEMPTION OF INCOME FOR PAYMENT OF TAX AND ONLY THEN THE DISALLOWANCE U/S 14A CAN BE MADE. BUT IN THE PRESE NT CASE, THE ASSESSEE HAS NOT CLAIMED ANY EXEMPTION OF INCOME FR OM DIVIDEND FROM THE COMPANIES. HENCE, THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE. HE FURTHER SUBMITTED THAT THE ISSUE HAD BEEN DECIDE D BY THE HONBLE PUNJAB & HARYANA HIGH COURT, IN THE CASE OF CIT VS . WINSOME TEXTILES ITA NO.175(ASR)/2016 A.Y. 2012-13 4 INDUSTRIES LTD., 319 ITR 204. THE HONBLE GUJARAT HIGH COURT HAS ALSO FOLLOWED THE JUDGMENT OF THE HONBLE PUNJAB & HARY ANA HIGH COURT IN THE CASE OF CIT-1 VS. CORRTECH ENERGY (P) LTD., 4 5 TAXMANN. COM 116 (PH). HE SUBMITTED THAT THE LD. PRI. CIT HAS TRIED TO SUBSTITUTE HIS OPINION FOR THE OPINION OF THE ASSESSING OFFICER AND THE CHANGE OF OPINION BY REAPPRAISING THE EVIDENCE IS NOT WITHIN THE PARAMETERS OF REVISIONAL JURISDICTION OF THE PRI. CIT U/S 263 OF THE ACT. THE LD. COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON THE FOLLOWI NG CASE LAWS IN SUPPORT HIS CASE: I. CIT VS. LAKHANI MARKETING INC., 272 CTR 264 ( P&H) II) CIT VS. HOLCIM INDIA PVT. LTD. 272 ITR 386 ( DELHI) III) CIT VS. CORRTECH ENERGY PVT. LTD. 272 CTR 262 (GU J.) IV) CIT VS. SHIVAM MOTORS PVT. LTD., 272 CTR 277 (ALL ) V) CHEMINVEST LTD. VS. CIT-IV, 378 ITR 33 (DELHI) VI) CIT VS. HERO CYCLE LTD., 189 ITR 50 (P&H) 6. THE LD. COUNSEL FOR THE ASSESSEE FURTHER PLACED RELIANCE ON THE FOLLOWING JUDGMENTS IN SUPPORT OF THE CONTENTION TH AT THE PRI. CIT HAS NO POWER TO SUBSTITUTE HIS OPINION FOR THE OPINION OF THE AO OR TO CHANGE THE OPINION BY REAPPRAISING THE OPINION: I) CIT VS. INDO GERMAN FAB, ITA NO.248 OF 2012 (P&H) II) CIT VS. DEEPAK MITTAL, 340 ITR 411 (P&H) ITA NO.175(ASR)/2016 A.Y. 2012-13 5 III) NARAIN SINGLA VS. PR. CIT, 62 TAXMANN. COM 255 (CHD. TRIB.) IN VIEW OF THE ABOVE SUBMISSIONS, THE ASSESSEES CO UNSEL PLEADED FOR RESTORATION OF THE ORDER OF THE AO AND THAT OF THE PRI. CIT TO BE REVERSED. 7. NOBODY APPEARED ON BEHALF OF THE DEPARTMENT. 8. HAVING HEARD THE CONTENTIONS OF THE ASSESSEE I N THE LIGHT OF THE MATERIAL PLACED ON RECORD, WE ARE OF THE VIEW THAT THE ISSUE IN DISPUTE IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE AND AG AINST THE REVENUE BY THE RECENT DECISION OF THIS BENCH OF THE TRIBUNAL , VIDE ORDER DATED 17/06/2016 IN THE CASE OF M/S. DABWALI TRANSPORT C O. LTD. VS. DY. COMMR. OF INCOME TAX, CIRCLE-II, BATHINDA, IN ITA NOS. 256 TO 260(ASR)/2016, FOR THE ASSESSMENT YEARS 2008-09 TO 2012-13, AS THE FACTS ARE EXACTLY SIMILAR. THE RELEVANT PORTION OF THE ORDER OF THE TRIBUNAL, DATED 17/06/2016 IS AS FOLLOWS: 31. APROPOS GROUND NO.3, THE LD. PRI. CIT OBSERVE D THAT THE ASSESSEE COMPANY HAD CHOSEN TO INVEST IN THE COMPAN IES CLOSELY CONNECTED WITH THE DIRECTORS; THAT THE INVE STMENTS WERE MADE TO EARN DIVIDEND INCOME; THAT THIS TRANS ACTION CANNOT BE NEATLY DEMARCATED AS BEING ONE THAT IS N OT OUT OF LOANS RAISED AND HENCE, NOT HIT BY SECTION 14A OF THE ACT; THAT SUCH NEAT DIVISIONS HAVE NOT BEEN ESTABLISHED AND SUCH ARGUMENTS ONLY CLOUD THE FACTUM OF DIVERSION OF CO MPANY FUNDS FOR EARNING EXEMPT INCOME THROUGH COMPANIES C LOSELY CONNECTED WITH THE DIRECTORS; AND THAT NO STATUTO RY AUTHORITY CAN COUNTENANCE ARRANGEMENTS MADE TO DEFE AT THE PROVISIONS OF THE LAW. 32. IN THIS REGARD, THE LD. COUNSEL FOR THE ASSESSE E HAS CONTENDED THAT THE ISSUE WITH RESPECT TO DISALLOWAN CE U/S ITA NO.175(ASR)/2016 A.Y. 2012-13 6 14A CANNOT BE RAISED IN THE PROCEEDINGS U/S 263 OF THE ACT. RELIANCE HAS BEEN PLACED ON CIT VS. DLF LIMITED, 350 ITR 55 (DELHI), WHERE IT HAS BEEN HELD THAT TO MAKE A DI SALLOWANCE U/S 14A, POWERS U/S 263 CAN NOT BE EXERCISED. IT HA S FURTHER BEEN SUBMITTED THAT SINCE DURING THE RELEVANT YEARS , THE ASSESSEE DID NOT ENJOY ANY EXEMPT INCOME, ON MERIT S ALSO, NO DISALLOWANCE WAS WARRANTED U/S 14A. FOR THIS PROPOS ITION, RELIANCE HAS BEEN PLACED ON THE FOLLOWING CASES LAW S: I) CIT VS. LAKHANI MARKETING INC., 272 CTR 264 (P&H) II) CIT VS. HOLCIM INDIA PVT. LTD. 272 ITR 386 (DELHI) III) CIT VS. CORRTECH ENERGY PVT. LTD. 272 CTR 262 (GUJ.) IV) CIT VS. SHIVAM MOTORS PVT. LTD., 272 CTR 27 7 (ALL) V) CHEMINVEST LTD. VS. CIT-IV, 378 ITR 33 (DELHI ) 33. IT HAS BEEN CONTENDED THAT SO FAR AS REGARDS T HE ASSESSMENT YEARS 2008-09 TO 2011-12, THE ASSESSMENT S FOR THE SAID YEARS HAVE BEEN FRAMED PRIOR TO 31.03.2012 , WHEREAS THE NOTICES U/S 263 OF THE ACT HAD BEEN ISS UED MUCH AFTER THE STATUTORY PERIOD OF TWO YEARS, FROM THE E ND OF THE PREVIOUS YEAR IN WHICH THE ASSESSMENT WAS FRAMED, I .E., IN NOV, 2015. THEREFORE, ACCORDING TO THE ASSESSEE, TH E ISSUE OF DISALLOWANCE U/S 14A OF THE ACT OUGHT NOT TO HAVE B EEN RAISED BY THE PRI. CIT IN THE CONCERNED NOTICES, THE ISSUE OF DISALLOWANCE U/S 14A HAVING NOT BEEN DISCUSSED IN T HE REASSESSMENT PROCEEDINGS FOR ALL THESE YEARS. FOR T HIS, RELIANCE HAS BEEN PLACED ON CIT VS. CHEMINVEST LTD . (SUPRA) AND CIT, CHENNAI VS. ALAGENDRAN FINANCE LIMITED, 293 ITR 1 (SC) AND CIT VS. ICICI BANK LIMITED, 343 ITR 7 4 (BOM.). 34. CONCERNING THE ASSESSMENT YEAR 2012-13, THE STA ND OF THE ASSESSEE IS THAT THE ISSUE WAS DISCUSSED IN DET AIL BY THE AO WHILE PASSING THE ASSESSMENT ORDER. AN INQUIRY L ETTER DATED 18.11.2014 (APB-78) WAS ISSUED. THE ASSESSEE FILED REPLY DATED 17.12.2014 (APB79 TO 97). THE AO MADE FULL APPLICATION OF MIND WHILE FRAMING THE ASSESSMENT. 35. THE LD. DR, ON THE OTHER HAND, HAS STRONGLY REL IED ON THE ORDER UNDER APPEALS. 36. IN THIS REGARD, THE PROPOSITION SETTLED IN DLF LIMITED (SUPRA) IS THAT THE POWERS U/S 263 OF THE ACT CANNO T BE INVOKED FOR MAKING DISALLOWANCE U/S 14A OF THE ACT. WHILE OBSERVING SO, IT WAS HELD THAT IT IS NOT MERE PREJU DICE TO THE REVENUE OR A MERE ERRONEOUS VIEW, WHICH CAN BE REVI SED U/S 263 OF THE ACT AND THAT THERE SHOULD EXIST THE AD DED ELEMENT OF SUSTAINABILITY IN THE ORDER OF THE AO, WHICH CLO THES THE CIT ITA NO.175(ASR)/2016 A.Y. 2012-13 7 (HERE, THE PRI CIT) WITH JURISDICTION TO ISSUE NOTI CE AND PROCEED TO MAKE APPROPRIATE ORDER. 37. BEFORE US, NOTHING IS AVAILABLE EITHER IN THE IMPUGNED ORDERS, OR BY OF ANY OTHER MATERIAL ON RECORD, TO SUGGEST THAT THE ASSESSMENT ORDERS WERE UNSUSTAINABLE IN LAW. AS OBSERVED IN DLF INDIA (SUPRA), POSSIBLY, THE AO C OULD HAVE TAKEN A VIEW DIFFERENT FROM THE ONE TAKEN BY HIM, BUT HE DID NOT DO SO AND THIS WOULD NOT RENDER HIS OPINION AS AN UNSUSTAINABLE OPINION WARRANTING EXERCISE OF REVISI ONAL POWERS. THE UNDISPUTED STAND OF THE ASSESSEE IS TH AT IT DID NOT EARN ANY EXEMPT INCOME DURING THE RELEVANT YEAR S. THEREFORE ALSO, NO DISALLOWANCE U/S 14A WAS CALLED FOR. THE DECISION IN LAKHANI MARKETING INC. (SUPRA), HOLCI M INDIA PVT. LTD. (SUPRA), CORRTECH ENERGY PVT. LTD. (SUPRA) AND SHIVAM MOTORS PVT. LTD. (SUPRA) ARE TO THE SAME EFFECT. T OO, AS PER SECTION 14A(3), WHERE AN ASSESSEE CLAIMS THAT NO EX PENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, THE P ROVISIONS OF SECTION 14A(2) SHALL NOT APPLY, I.E., THE AO SHALL NOT DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO S UCH INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. 38. THE ABOVE APART, THE NOTICES U/S 263 OF THE ACT FOR ALL THE ASSESSMENT YEARS WERE ISSUED IN NOV., 2015 WHER EAS, THE ASSESSMENTS WERE FRAMED PRIOR TO 31.03.2012. SECTIO N 263(2) PROVIDES THAT NO ORDER U/S 263(1) SHALL BE MADE AF TER THE EXPIRY OF TWO YEARS FROM THE END OF THE FINANCIAL Y EAR IN WHICH THE ORDER SOUGHT TO BE REVISED WAS PASSED. 30. IN ALAGENDRAN FINANCE LIMITED (SUPRA), THIS POSITION HAS BEEN TAKEN INTO CONSIDERATION. ON THIS SCORE AL SO, THE IMPUGNED ORDERS ON THIS ISSUE ARE UNSUSTAINABLE. 44. FOR THE ABOVE DISCUSSION, FINDING THE IMPUGNED ORDERS FOR ALL THE YEARS UNDER APPEALS TO BE UNSUSTAINABLE IN LAW CONCERNING BOTH THE ISSUES RAISED BY THE ASSESSEE. AS SUCH ALL THESE ORDERS ARE REVERSED WHILE ACCEPTING THE GROUN DS RAISED BY THE ASSESSEE. 41. IN THE RESULT, ALL THE APPEALS ARE ALLOWED. 9. IN THE PRESENT CASE ALSO, IT REMAINS UNDISPUTED THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME DURING THE RELEVANT YEAR. NO DECISION CONTRARY TO DABWALI TRANSPORT (SUPRA) HAS BEEN PR ESSED INTO SERVICE. ITA NO.175(ASR)/2016 A.Y. 2012-13 8 10. THEREFORE, FOLLOWING OUR OWN ORDER DATED 17/06 /2016 IN THE CASE OF M/S. DABWALI TRANSPORT CO. LTD. BATHINDA VS. DY . COMMR. OF INCOME TAX, CIRCLE-II, BATHINDA, PASSED IN ITA NOS. 256 T O 260(ASR)/2016, THE GRIEVANCE RAISED BY THE ASSESSEE IS ACCEPTED. 10. IN THE RESULT, THE APPEAL IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 08/08/ 2016. SD/- SD/- (T.S. KAPOOR) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER /SKR/ DATED: 08/08/2016 COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE:M/S. SATIA INDUSTRIES LIMITED, MUKTSAR . 2. THE PRI. CIT, BATHINDA. 3. THE SR DR, ITAT, AMRITSAR. TRUE COPY BY ORDER INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.