Sudarshan Yarns & Fabrics P. Ltd., , Kolkata V. ITO, Ward - 5(1), Kolkata

ITA 2214/KOL/2018

• Counselvise Citation: [2019] 117 COUNSELVISE.COM (IT) 6883 (ITAT-KOLKATA)
• Duration Of Justice: 6 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-05-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: SMC
• Assessment Year: 2009-2010
• Appeal Filed On: 23-10-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ROBIN CHOUDHURY ACIT
• Assessee Lawyers: H V BHARDWAJ; V N PUROHIT LD CITA
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A

Judgement Text

1 ITA NO. 2214/KOL/2018 SUDARSHAN YARNS & FABRICS PVT. LTD, AY 2009-10 , B(SMC) , IN THE INCOME TAX APPELLATE TRIBUNAL B(SMC) BENCH : KOLKATA ( ) . . , ) [BEFORE SHRI A. T. VARKEY, JM] I.T.A. NO. 2214/KOL/2018 ASSESSMENT YEAR: 2009-10 SUDARSHAN YARNS & FABRICS PVT. LTD. (PAN: AAGCS8534C) VS. INCOME-TAX OFFICER, WD-5(1), KOLKATA. APPELLANT RESPONDENT DATE OF HEARING 19.02.2019 DATE OF PRONOUNCEMENT 03.05.2019 FOR THE APPELLANT SHRI V. N. PUROHIT , LD. CIT(A) & SHRI H. V. BHARDWAJ, ADVOCATE FOR THE RESPONDENT SHRI ROBIN CHOUDHURY, ACIT, SR. DR ORDER THIS APPEAL FILED BY ASSESSEE IS AGAINST THE ORDER OF LD. CIT(A) - 2, KOLKATA DATED 23.08.2018 FOR AY 2009-10. 2. THOUGH THE ASSESSEE HAS RAISED FOUR GROUNDS OF A PPEAL, AT THE TIME OF HEARING ONLY PRESSES GROUND NO. 3. SO, GROUND NO1 & 2 ARE DISMIS SED SINCE NOT PRESSED. BY RAISING GROUND NO. 3 THE ASSESSEE HAS RAISED THE GROUND THA T ON THE FACTS THAT THE ASSESSEE HAS NEITHER EARNED NOR CLAIMED ANY EXEMPT INCOME, THE DISALLOWA NCE OF RS.3,94,955/- U/S. 14A OF THE INCOME-TAX ACT, 1961 (HEREINAFTER REFERRED TO AS TH E ACT) READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 (HEREINAFTER REFERRED TO AS THE RULES) MADE BY AO AND CONFIRMED BY LD. CIT(A) IS ERRONEOUS. 3. THE ONLY QUESTION THAT HAS BEEN POISED BEFORE US IS AS TO WHETHER ANY DISALLOWANCE U/S. 14A READ WITH RULE 8D CAN BE MADE BY THE AO/LD . CIT(A) WHEN THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME. ACCORDING TO ASSESSEE, T HE ASSESSEE HAD NOT EARNED ANY DIVIDEND INCOME. HOWEVER, THE AO TAKING NOTE THAT ASSESSEE HAS INVESTED IN UNQUOTED EQUITY SHARES AND TAKING NOTE OF CIRCULAR NO. 5 OF 2014 ISSUED BY THE CBDT, THE AO WAS OF 2 ITA NO. 2214/KOL/2018 SUDARSHAN YARNS & FABRICS PVT. LTD, AY 2009-10 THE VIEW THAT THE ASSESSEE IS LIABLE FOR DISALLOWAN CE OF EXPENSES U/S. 14A READ WITH RULE 8D WHICH HE COMPUTED AT RS.3,94,955/- WHICH WAS ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, THE ASSESSEE PREFERRED AN APP EAL BEFORE THE LD. CIT(A) AND CONTENDED THAT IT HAS NOT EARNED ANY DIVIDEND INCOME. HOWEVER , THE LD. CIT(A) DID NOT AGREE ON THE PLEA THAT ASSESSEE HAD NOT FILED ANY EVIDENCE TO SU PPORT ITS CONTENTION. AGGRIEVED, THE ASSESSEE HAS PREFERRED THIS APPEAL. 4. RIVAL SUBMISSIONS HAVE BEEN HEARD AND GONE THROU GH THE FACTS AND CIRCUMSTANCES OF THE CASE. IN ORDER TO POINT OUT THAT THE ASSESSEE H AD NOT RECEIVED ANY DIVIDEND INCOME, THE LD. AR TOOK ME THROUGH THE AUDITED FINANCIALS OF TH E COMPANY WHEREFROM IT IS NOTED THAT THE ASSESSEE HAS NOT RECEIVED ANY DIVIDEND INCOME. THE LD. DR COULD NOT CONTROVERT THIS FACT AFTER PERUSAL OF THE PAPER BOOK. IN SUCH A SC ENARIO, AS PER THE LAW LAID BY THE HONBLE DELHI HIGH COURT IN CIT VS. HOLCIM INDIA (P) LTD. ( 2015) 57 TAXMANN.COM 28 (DEL.), WHEREIN IT WAS HELD THAT SECTION 14A OF THE ACT CAN NOT BE INVOKED WHEN THERE IS NO EXEMPT INCOME EARNED IN THE RELEVANT ASSESSMENT YEAR. TH EREFORE, I FIND MERIT IN THE GROUND NO. 3 OF THE ASSESSEE AND IS OF THE VIEW THAT NO DISALLOW ANCE U/S. 14A READ WITH RULE 8D OF THE RULES WAS WARRANTED SINCE ASSESSEE HAS NOT EARNED A NY EXEMPT INCOME IN THIS ASSESSMENT YEAR. HOWEVER, THE LD. DR VEHEMENTLY CONTENDED THAT SINCE CBDT CIRCULAR NO. 5 OF 2014 MANDATES THAT DISALLOWANCE U/S. 14A SHOULD BE MADE IRRESPECTIVE OF EARNING OR NOT OF ANY EXEMPT INCOME, I NOTE THAT THIS CONTENTION OF THE REVENUE IS NO LONGER RES INTEGRA AND HAS BEEN DEALT WITH BY THE HONBLE PUNJAB & HARYANA HIG H COURT IN THE CASE OF PR. CIT-1, CHANDIGARH VS. VARDHMAN CHEMTECH (P) LTD. (2019) 1 02 TAXMANN.COM 132 (P&H), WHEREIN THEIR LORDSHIPS HELD AS UNDER: 10. WE NOW ADVERT TO THE JUDICIAL DECISIONS RELIE D UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE. IN RATAN MELTING & WIRE INDUSTRIES' CASE (SUPRA), IT WAS HELD BY THE SUPREME COURT THAT 'CIRCULARS AND INSTRUCTIONS ISSUED BY THE BOAR D ARE NO DOUBT BINDING IN LAW ON THE AUTHORITIES UNDER THE RESPECTIVE STATUTES, BUT WHEN THE SUPREME COURT OR THE HIGH COURT DECLARES THE LAW ON THE QUESTION ARISING FOR CONSID ERATION, IT WOULD NOT BE APPROPRIATE FOR THE COURT TO DIRECT THAT THE CIRCULAR SHOULD BE GIVEN E FFECT TO AND NOT THE VIEW EXPRESSED IN A DECISION OF THIS COURT OR THE HIGH COURT. SO FAR AS THE CLARIFICATIONS/CIRCULARS ISSUED BY THE CENTRAL GOVERNMENT AND OF THE STATE GOVERNMENT ARE CONCERNED THEY REPRESENT MERELY THEIR UNDERSTANDING OF THE STATUTORY PROVISIONS. THEY ARE NOT BINDING UPON THE COURT. IT IS FOR THE COURT TO DECLARE WHAT THE PARTICULAR PROVISION OF S TATUTE SAYS AND IT IS NOT FOR THE EXECUTIVE. LOOKING AT FROM ANOTHER ANGLE, A CIRCULAR WHICH IS CONTRARY TO THE STATUTORY PROVISIONS HAS REALLY NO EXISTENCE IN LAW. IN LAKHANI MARKETING IN C.'S CASE (SUPRA), THIS COURT WHILE DISMISSING THE APPEAL OF THE REVENUE HAD OBSERVED THAT UNLESS AND UNTIL THERE IS RECEIPT OF EXEMPTED INCOME FOR THE CONCERNED ASSESSMENT YEARS SECTION 14A OF T HE ACT CANNOT BE INVOKED. SIMILARLY, IN 3 ITA NO. 2214/KOL/2018 SUDARSHAN YARNS & FABRICS PVT. LTD, AY 2009-10 HOLCIM INDIA (P) LTD.S CASE (SUPRA), THE DELHI HIG H COURT HAD LAID DOWN THAT SECTION 14A OF THE ACT CANNOT BE INVOKED WHEN NO EXEMPT INCOME WAS EARNED. IDENTICAL VIEW WAS EXPRESSED BY MADRAS HIGH COURT IN REDINGTON (INDIA) LTD.'S CASE (SUPRA), WHERE IT WAS ENUNCIATED THAT NO DISALLOWANCE UNDER SECTION 14A READ WITH RULE 8(D) OF THE INCOME TAX RULES, 1962 (IN SHORT '1962 RULES') CAN BE MADE IN RESPECT OF AN ASSESSME NT YEAR IN WHICH NO EXEMPT INCOME IS EARNED. IN IL&FS ENERGY DEVELOPMENT CO. LTD. 'S CAS E (SUPRA), THE DELHI HIGH COURT HAD EXPRESSED THAT THE CBDT CIRCULAR DATED 11.2.2014 C ANNOT OVERRIDE THE EXPRESS PROVISIONS OF SECTION 14A READ WITH RULE 8 D OF THE 1962 RULES. I N CHEMINVEST LTD. 'S CASE (SUPRA), IT WAS REITERATED THAT SECTION 14A OF THE ACT ENVISAGES TH AT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDABLE IN THE TOTAL INCOME DURING THE RELEVANT PREVIOUS YEAR FOR PURPOSE OF DISALLOWING ANY EXPENDITURE UNDER SECTIO N 14A OF THE ACT IN RELATION TO SAID INCOME. 5. THEREFORE, RESPECTFULLY TAKING NOTE OF THE AFORE SAID RATIO DECIDENDI OF THE HONBLE HIGH COURT, CITED SUPRA, I FIND NO MERIT IN THE CON TENTION OF THE LD. DR THAT IN THE LIGHT OF THE CBDT CIRCULAR NO. 5 OF 2014 DISALLOWANCE U/S. 1 4A OF THE ACT IS MANDATORY IR- RESPECTIVE OF THE FACT WHETHER THE ASSESSEE EARNS E XEMPT INCOME OR NOT. SINCE THE LAW DECLARED BY THE HONBLE HIGH COURT CANNOT BE OVERRI DDEN BY THE CIRCULAR OF THE CBDT, THE ADDITION MADE IN THIS BEHALF IS DIRECTED TO BE DELE TED. THEREFORE, THE APPEAL OF THE ASSESSEE SUCCEEDS AND STANDS ALLOWED. 6. IN THE RESULT, THE APPEAL OF ASSESSEE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 3 RD MAY, 2019 SD/- (A. T. VARKEY) JUDICIAL MEMBER DATED: 3 RD MAY, 2019 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 APPELLANT M/S. SUDARSHAN YARNS & FABRICS PVT. LTD. , C/O, V. N. PUROHIT & CO., CHARTERED ACCOUNTANTS, DIAMOND CHAMBERS, UNIT-III, 4 TH FLOOR, SUIT NO. 4G, 4, CHOWRINGHEE LANE, KOLKATA-700 016. . 2 RESPONDENT ITO, WARD-5(1), KOLKATA. 3 4 5 CIT(A)- 2 , KOLKATA. (SENT THROUGH E-MAIL) CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA (SENT THROUGH E-MAIL) / TRUE COPY, BY ORDER, ASSISTANT REGISTRAR