DCIT, Chandigarh V. M/s Loil Health Foods Ltd., Chandigarh

ITA 235/CHANDI/2015

• Counselvise Citation: 23521514 RSA 2015
• Duration Of Justice: 6 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-09-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 31-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 05-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: SUDHIR SEHGAL
• Keywords: Search and seizure; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS.ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO. 235/CHD/2015 ASSESSMENT YEAR: 2010-11 THE DCIT, VS M/S LOIL HEALTH FOODS LTD. CENTRAL CIRCLE-1, SCO 18-19, SECTOR 9-D, CHANDIGARH. MADHYA MARG, CHANDIGARH. PAN: AAACL8432C (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANJIT SINGH RESPONDENT BY : SHRI SUDHIR SEHGAL DATE OF HEARING : 31.08.2015 DATE OF PRONOUNCEMENT : 09.09.2015 O R D E R PER BHAVNESH SAINI,JM THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF LD. CIT(APPEALS)-III GURGAON DATED 18.12.2014 FO R ASSESSMENT YEAR 2010-11 CHALLENGING THE ORDER OF LD . CIT(APPEALS) IN RESTRICTING THE DISALLOWANCE TO THE EXTENT OF RS. 27.084/- AGAINST RS. 35,02,066/- DISALLOWED BY THE ASSESSING OFFICER. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SING OFFICER DISALLOWED RS. 35,29,150/- UNDER SECTION 14 A OF THE INCOME TAX ACT. DURING THE COURSE OF ASSESSMEN T PROCEEDINGS, IT WAS OBSERVED THAT THE ASSESSEE HAS MADE TOTAL INVESTMENTS TO THE EXTENT OF RS. 70,58,30,000 /- OUT OF WHICH INVESTMENT IN SHARES OF LAKSHMI ENERGY & F OODS 2 LTD. TO THE TUNE OF RS. 70,13,50,000/- , GANESHAYA OVERSEAS IND. LTD. TO THE TUNE OF RS. 39,90,000/- A ND LOIL OVERSEAS FOODS LTD. TO THE TUNE OF RS. 4,90,000/-. IT WAS SUBMITTED THAT ABOVE INVESTMENTS HAVE BEEN MADE OUT OF OWN FUNDS WHICH IS VERY MUCH EVIDENT FROM THE FACT THAT THERE IS NO INTEREST EXPENDITURE CLAIMED BY ASSESSE E DURING THE YEAR UNDER CONSIDERATION BUT THE ASSESSI NG OFFICER APPLIED THE PROVISIONS OF SECTION 14A READ WITH RULE 8D MADE THE ADDITION OF RS. 35,29,150/-. THE ASSESSING OFFICER EVEN IGNORED THE FACT THAT ASSESS EE HAS RECEIVED EXEMPT DIVIDEND INCOME ONLY TO THE TUNE OF RS. 28,02,500/-. THE SUBMISSIONS OF THE ASSESSEE ARE REPRODUCED IN THE APPELLATE ORDER IN WHICH ASSESSEE BRIEFLY EXPLAINED THAT THERE ARE NO BORROWED FUNDS IN THE CASE OF THE ASSESSEE. THEREFORE, PROVISIONS OF SEC TION 14A ARE NOT APPLICABLE. THE ASSESSEE HAS MADE INVESTMEN TS OUT OF OWN FUNDS AND INVESTMENTS AS MADE IN THE SHA RES OF GROUP CONCERNS ARE OLD INVESTMENTS. THE ASSESSE E HAS NOT INCURRED ANY DIRECT OR INDIRECT EXPENSES. THE ASSESSEE RELIED UPON DECISION OF THE HON'BLE SUPREM E COURT IN THE CASE OF WALFORT SHARE & STOCK BROKERS PVT. LTD. 326 ITR 1 THAT, FOR ATTRACTING THE PROVISIONS OF SECTION 14A, THERE SHOULD BE PROXIMATE CAUSE FOR DISALLOWANCE WHICH HAS RELATIONSHIP WITH THE TAX EX EMPT INCOME. THE ASSESSEE ALSO RELIED UPON DECISIONS OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASES OF DEEPAK MITTAL 86 CCH 51, AVON CYCLES 81 CCH 188 AND WINSOME TEXTILE INDUSTRIES LTD. 319 ITR 204 AND OTH ER 3 DECISIONS ALSO ON THE PROPOSITION THAT ADDITION IS WHOLLY UNJUSTIFIED. 3. THE LD. CIT(APPEALS),CONSIDERING THE SUBMISSIONS OF THE ASSESSEE AND MATERIAL ON RECORD, DELETED PART O F THE ADDITION. HIS FINDINGS IN PARA 5.1 AND 6 OF THE AP PELLATE ORDER ARE REPRODUCED AS UNDER : 5.1 1 HAVE CONSIDERED THE ASSESSEE'S SUBMISSI ONS AS WELL AS THE IMPUGNED ORDER. IT IS OBSERVED THAT THE ASSE SSEE MADE INVESTMENTS TO THE TUNE OF RS. 70,58,30,000 /- IN T HE PREVIOUS YEAR WHICH WAS SHOWN IN THE BALANCE SHEET FOR THE P ERIOD ENDING 31.03.2010. HOWEVER HE HAS NOT SHOWN ANY INC OME ON THIS, EXCEPT A DIVIDEND INCOME OF RS. 28,02,500/- W HICH HAS BEEN CLAIMED AS EXEMPT U/S 10(34) OF THE INCOME TAX ACT IN THE COMPUTATION OF INCOME. SO THE ASSESSEE WAS ASKE D WHY NOT DISALLOWANCE OF PROPORTIONATE EXPENSES AS PER R ULE 8D BE MADE. AS THE ASSESSEE DID NOT SUBMIT ANY COUNTER RE PLY, THE AO APPLIED RULE 8D(2) R.W.S 14A TO MAKE THE DISALLO WANCE OF RS.35,29,150/-. THE ASSESSEE HAS CONTENDED THAT THE INVESTMENTS WER E OUT OF ITS OWN FUNDS AND THAT NO BORROWED FUNDS WER E INVOLVED. IT WAS ALSO STATED THAT THE INVESTMENTS W ERE IN THE SHARES OF ITS GROUP CONCERNS; WERE STRATEGIC IN NAT URE AND LONG TERM AS IT HELD 8.87% HOLDING IN THE COMPANY (LAKHM I ENERGY AND FOODS LTD). IT WAS ALSO CLAIMED THAT NO EXPENDI TURE WERE INVOLVED EITHER DIRECT OR INDIRECT. ASSESSEE IS AGG RIEVED THAT THE AO WITHOUT REACHING A SATISFACTION HAD EMBARKED UPON INVOKING RULE 8D. A PLETHORA OF CASES WERE QUOTED I N SUPPORT OF ITS CLAIM THAT NO DISALLOWANCE WAS CALLED FOR AS NO BORROWED FUNDS WERE INVOLVED. FROM THE COPY OF AUDITED ACCOUNTS IT IS SEEN THAT THE INVESTMENT HAVE BEEN BROUGHT FORWARD FROM THE PREVI OUS YEAR WITH NO FRESH INFLUX OF FUNDS. THE DIVIDEND INCOME OF RS.28,02,500/- WAS RECEIVED THIS YEAR AND THIS INCO ME IS THE ONLY INCOME DEPICTED IN THE P/L ACCOUNT FOR THE YEA R. IT IS ALSO OBSERVED THAT ONLY A SUM OF RS.441/-PERTAINED TO BA NK CHARGES AND AN AMOUNT OF RS. 22,100/- RELATED TO AU DIT FEES, RATES AND TAXES AND PRELIMINARY EXP W/OFF HAVE BEEN DEBITED IN THE P/L ACCOUNT ITS MAIN BUSINESS OF SALE OF PAD DY IS NIL 4 THIS YEAR. IN OTHER WORDS ONLY AN AMOUNT OF RS. 27, 084/-HAS BEEN CLAIMED AS EXPENDITURE, THE NATURE OF WHICH CA NNOT BE SAID TO BE ATTRIBUTABLE TO EARNING OF DIVIDEND INCO ME. SEC 14A COMES INTO PLAY WITH A FINDING OF INCURRING OF SOME EXPENDITURE BUT WHERE THERE IS NO SUCH EXPENDITURE INCURRED FOR EARNING THE DIVIDEND INCOME, AS IS THE CASE HER E WITH A VERY BARE P/L ACCOUNT, I AM AFRAID THE DISALLOWANCE BY INVOKING RULE 8D CANNOT BE SUSTAINED. HOWEVER AS ST ATED ABOVE RS. 27,084/- IS THE TOTAL EXPENDITURE DEBITED . HENCE AT MOST THIS WOULD BE THE SUM TO BE DISALLOWED. THE AO IS THEREFORE DIRECTED TO RESTRICT THE DISALLOWANCE TO THIS AMOUNT. 6. IN THE RESULT THE APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. 4. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTIES. THE LD. DR RELIED UPON ORDER OF THE ASSES SING OFFICER AS WELL AS ORDER OF ITAT CHANDIGARH BENCH I N THE CASE OF M/S MUNJAL SALES CORPORATION V ACIT IN ITA 274/2015 DATED 07.07.2015. 5. ON THE OTHER HAND, LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW AND REFERRED TO PB- 4 & 5 WHICH IS BALANCE SHEET AS ON 31.03.2010 TO SHOW THAT ASSESSEE HAS ONLY DIVIDEND INCOME OF RS. 28,02,500/- AND SPENT MISCELLANEOUS EXPENSES IN A SUM OF RS. 27,084/-. THE INVESTMENTS MADE IN THIS YEAR ARE TO THE TUNE OF R 70,58,30,000/- WH ICH IS MERE BROUGHT FORWARD FROM EARLIER YEARS AS ON 31.03 .2009. THE INVESTMENTS WERE OF THE SAME AMOUNT IN A SUM OF RS. 70,58,30,000/- AND IN THE YEAR ENDING 31.03.2008 AL SO, THE SAME INVESTMENTS WERE COMING UP FROM THE PRECED ING ASSESSMENT YEAR. COPIES OF THE BALANCE SHEET AND C HART OF INVESTMENTS ARE FILED ON RECORD. HE HAS, THEREFORE , 5 SUBMITTED THAT NO NEW INVESTMENTS HAVE BEEN MADE IN ASSESSMENT YEAR UNDER APPEAL AND ONLY OLD INVESTMEN TS OF THE SAME AMOUNT ARE COMING UP FROM THE PRECEDING SEVERAL ASSESSMENT YEARS. HE HAS ALSO FILED THE COMPARATIVE CHART TO EXPLAIN THAT FACTS IN THE CASE OF MUNJAL SALES CORPORATION (SUPRA) RELIED UPON BY LD. DR ARE DISTINGUISHABLE FROM THE CASE OF THE ASSESSEE. THE SAME IS PLACED ON RECORD IN WHICH IT WAS HIGHLIGHTE D THAT IN CASE OF MUNJAL SALES CORPORATION (SUPRA) THE SATISFACTION OF THE ASSESSING OFFICER WAS THERE THA T ASSESSEE USED MIXED FUNDS BUT IN CASE OF ASSESSEE, NO BORROWED FUNDS WERE THERE AND NO INTEREST HAVE BEEN PAID. THE ASSESSEE MADE INVESTMENTS OUT OF OWN FUNDS AND THERE WERE NO INTEREST INCURRED. IN THE CASE OF MU NJAL SALES CORPORATION (SUPRA), FRESH INVESTMENTS WERE A LSO MADE DURING THE YEAR UNDER CONSIDERATION BUT IN THE CASE OF THE ASSESSEE, INVESTMENTS WERE OLD AND WERE CARR IED FORWARD FROM THE EARLIER YEARS. 5(I) THE LD. COUNSEL FOR THE ASSESSEE ALSO RELIE D UPON DECISIONS OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASES OF; A) CIT VS DEEPAK MITTAL 86 CCH 51 IN WHICH IT WAS HELD AS UNDER : BEFORE ANY DISALLOWANCE UNDER SECTION 14A IS MADE, ESSENTIALLY THERE HAS TO BE CERTAIN EXPENDITURE WHICH MUST HAVE BEEN INCURRED BY THE ASSESSEE TO EARN EXEMPT INCOME. 6 B) CIT VS AVON CYCLES LTD. 81 CCH 188 (P&H), IN WHICH IT WAS HELD AS UNDER : DISALLOWANCE UNDER S. 14A REQUIRES FINDING OF EXPENDITURE. WHERE NO EXPENDITURE INCURRED FOR EARNING EXEMPTED INCOME, DISALLOWANCE UNDER S. 14A CANNOT STAND. C) CIT VS WINSOME TEXTILE INDUSTRIES LTD. 319 ITR 204 (P&H) IN WHICH IT WAS HELD AS UNDER : WHERE IN RELATION TO THE INVESTMENT IN SHARES, NO CLAIM FOR EXEMPTION WAS MADE BY THE ASSESSEE, S. 14A CAN HAVE NO APPLICATION. 5(II) HE HAS ALSO RELIED UPON ORDER OF ITAT CHAND IGARH BENCH IN THE CASE OF PUNJAB STATE COOPERATIVE SUPPL Y & MARKETING FEDERATION LTD. VS DCIT IN ITA 290/2012 E TC. DATED 03.08.2015 IN WHICH IT WAS HELD AS UNDER : 7. THEREFORE, THE PRINCIPLES LAID DOWN ABOVE ARE APPLICABLE IN THIS CASE ALSO. HOWEVER, FROM THE LIS T OF INVESTMENTS IT IS SEEN THAT INVESTMENT SEEMS TO BE VERY OLD EVEN BEFORE THE INTRODUCTION OF PROVISION TO SECTION 14A. IT IS NOT POSSIBLE FOR US TO VERIFY WHETHER SUCH INVESTMENT HAVE BEEN REALLY MADE IN THE YEARS STATED IN THE LIST AS WELL AS WHETHER SUC H INVESTMENTS HAVE BEEN MADE OUT OF SURPLUS FUNDS. THEREFORE, WE SET ASIDE THE ORDER OF LD. CIT(A) AND REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFI CER TO REEXAMINE THE ISSUE IN THE LIGHT OF THE OBSERVATIONS MADE BY US IN THE CASE OF M/S MUNJAL SALES CORPORATION, LUDHIANA V ACIT (SUPRA) WHICH ARE REPRODUCED ABOVE. HE SHOULD ALSO VERIFY WHETHER THE INVESTMENTS HAVE BEEN MADE OUT OF SURPLUS FUNDS IN THE EARLIER YEAR, AND IF SO, THEN NO DISALLOWANC E 7 U/S 14A IS CALLED FOR, OTHERWISE THE ISSUE MAY BE DECIDED IN ACCORDANCE WITH LAW. 6. WE HAVE CONSIDERED RIVAL SUBMISSIONS AND DO NOT FIND ANY JUSTIFICATION TO INTERFERE WITH THE ORDER OF TH E LD. CIT(APPEALS) IN DELETING THE ADDITION. THE RECORD REVEALED THAT ASSESSEE HAS SHOWN DIVIDEND INCOME ONLY OF RS. 28,02,500/- WHICH WAS CLAIMED EXEMPT. THE INVESTME NT OF RS. 70,58,30,000/- IS SHOWN IN ASSESSMENT YEAR U NDER APPEAL WHICH IS CARRIED FORWARD FROM PRECEDING ASSESSMENT YEARS 2009-10 AND 2008-09 BECAUSE THE SA ME AMOUNT WAS SHOWN AS INVESTMENT IN PRECEDING ASSESSM ENT YEARS AS WELL. THUS, INVESTMENTS HAVE BEEN BROUGHT FORWARD FROM THE PRECEDING EARLIER YEARS AND NO NEW INVESTMENTS HAVE BEEN MADE IN THE ASSESSMENT YEAR U NDER APPEAL. NO BORROWED FUNDS HAVE BEEN USED IN THIS C ASE FOR ANY INVESTMENTS AND ASSESSEE WAS HAVING SUFFICI ENT FUNDS TO MAKE INVESTMENTS IN EARLIER YEARS. THE ASSESSING OFFICER IN THE ASSESSMENT ORDER HAS NOT RECORDED HIS SATISFACTION AS IS REQUIRED UNDER SECT ION 14A(2) OF THE INCOME TAX ACT THAT HE WAS NOT SATISF IED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE. HE HAS MERELY APPLYING THE PROVISIONS OF RULE 14A, MADE TH E DISALLOWANCE. THE LD. COUNSEL FOR THE ASSESSEE HAS FILED COMPLETE COMPARATIVE STATEMENT OF FACTS IN THE CASE OF M/S MUNJAL SALES CORPORATION (SUPRA) DECIDED BY THE TRIBUNAL FROM THE FACTS OF THE CASE OF THE ASSESSEE AND WE ARE SATISFIED THAT THE FACTS IN BOTH THE CASES ARE 8 ALTOGETHER DIFFERENT, THEREFORE DECISION IN THE CAS E OF M/S MUNJAL SALES CORPORATION (SUPRA) RELIED UPON BY LD. DR WOULD NOT SUPPORT THE CASE OF THE REVENUE. IN THE CASE OF PUNJAB STATE CORPORATION SUPPLY & MARKETING FEDERAT ION (SUPRA) THE TRIBUNAL RELIED UPON DECISION IN THE CA SE OF M/S MUNJAL SALES CORPORATION (SUPRA), HOWEVER, IN T HE FINDINGS, ASSESSING OFFICER WAS DIRECTED TO VERIFY WHETHER THE INVESTMENTS HAVE BEEN MADE OUT OF SURPLUS FUNDS IN EARLIER YEAR AND IF SO, THEN NO DISALLOWANCE UNDER SECTION 14A IS CALLED FOR. THEREFORE, THIS DECISION SQUAREL Y APPLY TO THE FACTS OF THE CASE OF THE ASSESSEE. OTHER DE CISION RELIED UPON BY LD. COUNSEL FOR T2HE ASSESSEE ALSO S UPPORT THE FINDINGS OF THE LD. CIT(APPEALS) FOR DELETING T HE ADDITION. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN IT RECENT UNREPORTED DECISION IN THE CASE OF CIT-I LUD HIANA VS CAPSONS ASSOCIATES ITA NO. 354 OF 2013 DATED 04.08.2015 CONSIDERED THE SIMILAR FACTS WITH REGARD TO INVESTMENTS IN SHARES WERE OLD INVESTMENTS WHICH HA VE BEEN MADE OUT OF CAPITAL AND OUTSTANDING RESERVES O F THE COMPANY AND THAT NO SEPARATE AMOUNT HAD BEEN BORROW ED FOR MAKING THE SAID INVESTMENTS AND ALSO RELYING UP ON ITS ANOTHER DECISION THAT SATISFACTION OF THE ASSESSING OFFICER MUST BE BASED UPON CREDIBLE AND RELEVANT EVIDENCE, DISMISSED THE DEPARTMENTAL APPEAL. THIS, JUDGEMENT OF THE JURISDICTIONAL HIGH COURT ALSO SUPPORT OUR FIND INGS. 7. CONSIDERING THE TOTALITY OF THE FACTS AND CIRCUMSTANCES AND ABOVE DISCUSSION, WE DO NOT FIND ANY 9 MERIT IN THIS APPEAL OF THE REVENUE. THE SAME IS ACCORDINGLY, DISMISSED. 8. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 9 TH SEPTEMBER,2015. SD/- SD/- (ANNAPURNA MEHROTRA) (BHAVNESH SAI NI) ACCOUNTANT MEMBER JUDICIAL MEMBE R DATED: 9 TH SEPTEMBER,2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT,DR ASSISTANT REGISTRAR, ITAT CHANDIGARH