ACIT, Alwar V. DEEPAK VEGPRO PVT. LTD, Alwar

ITA 235/JPR/2017

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 2107 (ITAT-JAIPUR)
• Duration Of Justice: 1 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-05-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 27-03-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Question of law
• Section: 143(3); 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YA DAV, AM VK;DJ VIHY LA- @ ITA NO. 235/JP/2017 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2008-2009 THE ACIT, CENTRAL CIRCLE, ALWAR. CUKE VS. M/S DEEPAK VEGPRO PVT. LTD., OLD INDUSTRIAL AREA, ITARANA ROAD, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACD6118P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT VK;DJ VIHY LA- @ ITA NO. 248/JP/2017 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR :2007-2008 THE ACIT, CENTRAL CIRCLE, ALWAR. CUKE VS. M/S DEEPAK VEGPRO PVT. LTD., OLD INDUSTRIAL AREA, ITARANA ROAD, ALWAR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AAACD6118P VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P.C. PARWAL (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SHRI AJAY MALIK ( ADDL.CIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 05.05.2017 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 11/05/2017 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THESE ARE TWO APPEALS FILED BY THE REVENUE AGAINST THE ORDERS OF LD. CIT(A), ALWAR OF EVEN DATE 10.01.2017 FOR A.Y. 2008 -09 AND 2007-08. RESPECTIVELY. THE GROUNDS OF APPEAL TAKEN BY THE REVENUE IN BOTH THE APPEALS ARE AS UNDER:- ITA NO. 235 &248/JP/2017 ACIT VS. M/S DEEPAK VEGPRO PVT. LTD,ALWAR. 2 ITA NO. 235/JP/17: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS. 37 ,11,212/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF INTEREST EXPENDITU RE U/S 14A OF THE I.T. ACT, 1961 READ WITH RULE 8D OF THE I.T. RULES, 1962. ITA NO. 248/JP/17: 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE CIT(A) WAS RIGHT IN DELETING THE ADDITION OF RS . 27,20,886/- MADE BY THE AO ON ACCOUNT OF DISALLOWANCE OF INTERE ST EXPENDITURE U/S 14A OF THE I.T. ACT, 1961 READ WITH RULE 8D OF THE I.T. RULES, 1962. 2. FOR A.Y. 2008-09, BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSESSEE COMPANY HAS MADE INVESTMENT IN SHARES AMOU NTING TO RS. 688.45 LAKHS IN THE PRIOR YEARS AND DURING YEAR UNDER CONSIDERATION AN INVESTMENT OF RS. 100 LAKHS WAS MADE IN THE SHAR ES OF M/S DHRUVA ENCLAVE PVT. LTD. THERE IS NO EXEMPT INCOME EARNED BY THE ASSESSEE DURING YEAR UNDER CONSIDERATION. THERE IS TAXABLE D IVIDEND INCOME OF RS. 90,53,584/- WHICH HAS BEEN RECEIVED BY THE ASS ESSEE COMPANY FROM A FOREIGN COMPANY AND WHICH HAS BEEN DULY OFFE RED TO TAX IN ITS RETURN OF INCOME. IN THE ORIGINAL ASSESSMENT PROCEE DINGS, THE AO HAD MADE AN ADDITION OF RS. 37,11,212/- U/S 14A READ WI TH RULE 8D. THE MATTER HAD COME UP THEREAFTER BEFORE THE COORDINATE BENCH WHO HAD VIDE ITS ORDER DATED 02.12.2014 HAS REMANDED THE MA TTER BACK TO THE ASSESSING OFFICER TO EXAMINE THE SAME AFRESH. IN TH E INSTANT PROCEEDINGS, THE ASSESSING OFFICER HAS REPEATED THE ADDITION WHICH HAS BEEN MADE EARLIER AND THE MATTER HAS AGAIN REACHED THIS BENCH AGAINST THE ORDER OF LD. CIT(A). ITA NO. 235 &248/JP/2017 ACIT VS. M/S DEEPAK VEGPRO PVT. LTD,ALWAR. 3 THE LD. CIT(A) HAS GIVEN HIS FINDING STATING THAT A O HAS FAILED TO BRING ON RECORD ANY EVIDENCE OF PROXIMATE NEXUS BETWEEN INTEREST BEARING FUNDS AND THE INVESTMENT MADE IN THE SHARES UPTO Y EAR 2003-04. THE LD. CIT(A) HAS ALSO TAKEN INTO CONSIDERATION THE AV AILABILITY OF INTEREST FREE FUNDS AND THE APPLICATION THEREOF BY THE ASSES SEE COMPANY AND ALSO THE DECISION OF BOMBAY HIGH COURT IN CASE OF R ELIANCE UTILITIES AND POWER LTD. (178 TAXMAN 45) WHEREIN IT WAS OBSERVED THAT IF THERE ARE FUNDS AVAILABLE, BOTH INTEREST FREE AND INTEREST B EARING, THE PRESUMPTION WOULD ARISE THAT THE INVESTMENT HAVE B EEN MADE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE OF T HE COMPANY PROVIDED FUNDS ARE SUFFICIENT TO MEET INVESTMENTS. FURTHER, THE LD. CIT(A) TAKEN NOTE OF THE FACT THAT THERE IS NO EXEMPT INCOME WHI CH HAS BEEN EARNED BY THE ASSESSEE COMPANY DURING YEAR UNDER CONSIDERA TION AND FOLLOWING THE DECISION OF HONBLE DELHI HIGH IN CASE OF CHEM INVEST LTD. (378 ITR 33) WHEREIN IT WAS HELD THAT THE EXPRESSION DO ES NOT FORM PART OF TOTAL INCOME IN SECTION 14A ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH WAS NOT INCLUDABLE IN TH E TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR. 3. FOR A.Y. 2007-08, THE SIMILAR FACT PATTERN IS ON RE CORD WHERE AGAIN THE ASSESSEE COMPANY HAS NOT RECEIVED ANY EXE MPT INCOME DURING YEAR UNDER CONSIDERATION AND ALL THE INVESTM ENTS HAVE BEEN MADE IN THE EARLIER YEARS AND THERE IS NO FRESH INV ESTMENT WHICH HAS BEEN MADE DURING YEAR UNDER CONSIDERATION. FOLLOWI NG THE SAME REASONING AS IN AY 2008-09 AND ALSO NOTING THE FACT THAT RULE 8D IS NOT ITA NO. 235 &248/JP/2017 ACIT VS. M/S DEEPAK VEGPRO PVT. LTD,ALWAR. 4 APPLICABLE IN THE INSTANT CASE, THE LD. CIT(A) HAS DELETED THE DISALLOWANCE UNDER SECTION 14A OF THE ACT. 4. THE LD. DR IS HEARD WHO HAS VEHEMENTLY ARGUED TH E MATTER AND TAKEN US THROUGH THE ORDER OF THE ASSESSING OFFICER AS WELL AS THE LD. CIT(A) AND SUBMITTED THAT NECESSARY SATISFACTION HA S BEEN RECORDED BY THE ASSESSING OFFICER FOR INVOKING THE PROVISIONS OF SECTION 14A READ WITH RULE 8D AND DISALLOWANCE HAS BEEN WORKED OUT I N TERMS OF THE RULE 8D. IN LIGHT OF ABOVE, THE ORDERS OF THE AO SHOULD BE SUSTAINED. 5. THE LD. AR REITERATED ITS SUBMISSION MADE BEFORE TH E LD. CIT(A) AND SUBMITTED THAT FIRSTLY, THERE IS NO EXEMPT INCO ME DURING THE RESPECTIVE YEARS AND HENCE, THE PROVISIONS OF SECTI ON 14A ARE NOT APPLICABLE. IN THIS REGARD, IT WAS SUBMITTED THAT T HIS BENCH IN ASSESSEE OWN CASE VIDE ITS RECENT ORDER DATED 24.04.2017 HAS DECIDED THE MATTER IN FAVOUR OF THE ASSESSEE COMPANY HOLDING THAT WHER E THERE IS NO EXEMPT INCOME WHICH HAS BEEN RECEIVED BY THE ASSESS EE COMPANY DURING THE RELEVANT PERIOD, PROVISIONS OF SECTION 1 4A CANNOT BE INVOKED. IT WAS FURTHER SUBMITTED THAT THE ASSESSEE COMPANY HAS SUFFICIENT INTEREST FREE FUNDS AND MOST OF THE INVESTMENTS HAV E BEEN MADE IN THE EARLIER YEARS AND THERE IS NO NEXUS WHICH HAS BEEN ESTABLISHED BY THE LD AO BETWEEN THE EXPENDITURE DISALLOWED AND EARNING O F DIVIDEND INCOME. 6. THE MATTER RELATING TO APPLICABILITY OF SECTION 14A READ WITH RULE 8D WHERE THERE IS NO EXEMPT INCOME RECEIVED OR RECE IVABLE DURING THE RELEVANT PERIOD HAD COME UP RECENTLY IN BUNCH OF CA SES INVOLVING THE ITA NO. 235 &248/JP/2017 ACIT VS. M/S DEEPAK VEGPRO PVT. LTD,ALWAR. 5 ASSESSEE COMPANY IN ITA NO. 110/JP/2014 AND OTHERS DATED 24.04.2017 WHEREIN WE HAVE HELD THAT THE PROVISIONS OF SECTION 14A ARE NOT APPLICABLE. THE RELEVANT FINDINGS ARE REPRODUCED AS UNDER: 4.9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PUR SUED THE MATERIAL AVAILABLE ON RECORD. THE FIRST CONTENTION RAISED BY THE LD. AR IS THAT NO DISALLOWANCE U/S 14A OF THE ACT CAN BE MADE IN THE YEAR UNDER CONSIDERATION AS NO DIVIDEND INCOME HAS BEEN RECEIV ED IN RESPECT OF INVESTMENT MADE BY THE ASSESSEE AND IN SUPPORT, THE LD. AR HAS RELIED ON THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CHEM INVEST LIMITED (SUPRA). 4.10 THE SUBSTANTIAL QUESTION OF LAW UNDER CONSIDER ATION BEFORE THE HONBLE DELHI HIGH COURT WAS WHETHER DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MADE IN A YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. BRIEFLY THE FACTS OF THE CASE BEFORE THE HONBLE DE LHI HIGH COURT WERE THAT IN THE YEAR IN QUESTION, THE APPELLANT BORROWE D FUNDS ON WHICH INTEREST EXPENDITURE OF RS. 1,21,03,367/- WAS INCUR RED. IN THE SAID YEAR, NO DIVIDEND INCOME WAS EARNED BY THE APPELLANT FROM THE AMOUNT INVESTED IN VARIOUS SHARES. THE ASSESSING OFFICER C OMPLETED THE ASSESSMENT UNDER SECTION 143(3) OF THE ACT DISALLOW ING RS. 97,87,570/- OUT OF THE TOTAL EXPENDITURE INCURRED DURING THE YE AR UNDER SECTION 14A OF THE ACT. THE REASON RECORDED BY THE AO FOR THIS DISALLOWANCE WAS THAT THE BORROWED FUNDS WERE UTILIZED FOR THE PURPO SE OF PURCHASE OF SHARES FOR THE PURPOSE TO EARN DIVIDEND INCOME WHIC H IS EXEMPTED UNDER SECTION 10(33) OF THE ACT AND THUS, NOT FORMI NG A PART OF THE TOTAL ITA NO. 235 &248/JP/2017 ACIT VS. M/S DEEPAK VEGPRO PVT. LTD,ALWAR. 6 INCOME, AND THEREFORE THE INTEREST PAID THEREON HAD TO BE DISALLOWED UNDER SECTION 14A. IN THE ABOVE FACTUAL MATRIX, THE HONBLE DELHI HIGH COURT HAS HELD THAT SECTION 14A OF THE ACT WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR AND OB SERVED THAT THE COMPLETE ANSWER IS PROVIDED BY THE DECISION OF THIS VERY COURT IN CIT V. HOLCIM INDIA (P.) LTD. (2015) 57 TAXMANN.COM 28 AND IN PARA 15 OF ITS ORDER, IT OBSERVED AS UNDER: 15. IN THAT CASE, A SIMILAR QUESTION AROSE, VIZ., WHETHER THE ITAT WAS JUSTIFIED IN DELETING THE DISALLOWANCE UNDER SECTIO N 14A OF THE ACT WHEN NO DIVIDEND INCOME HAD BEEN EARNED BY THE ASSESSEE IN THE RELEVANT AY. THE COURT REFERRED TO THE DECISION OF THIS COUR T IN MAXOPP INVESTMENT LTD.S CASE (SUPRA) AND TO THE DECISION OF THE SPECIAL BENCH OF THE ITAT IN THIS VERY CASE I.E. CHEMINVEST LTD . V. ITO (2009) 121 ITD 318. THE COURT ALSO REFERRED TO THREE DECISIONS OF DIFFERENT HIGH COURTS WHICH HAVE DECIDED THE ISSUE AGAINST REVENUE . THE FIRST WAS THE DECISION IN CIT V. LAKHANI MARKETING INC. (2014) 22 6 TAXMANN 45/49 TAXMANN.COM 257 OF THE HIGH COURT OF PUNJAB AND HA RYANA WHICH IN TURN REFERRED TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT V. HERO CYCLES LTD. (2010) 323 ITR 518/189 TAXMAN 50 AND CI T V. WINSOME TEXTILE INDUSTRIES LTD. (2009) 319 ITR 204. THE SEC OND WAS OF THE GUJARAT HIGH COURT IN CIT V. CORRTECH ENERGY (P.) LTD. ( 2014) 223 TAXMAN 130/45 TAXMANN.COM 116 AND THE THIRD OF THE ALLAHABAD HIGH COURT IN CIT V. SHIVAM MOTORS (P.) LTD.(2015) 230 TAXMAN.COM 262. THESE THREE DECISIONS REITERATED THE POSITION THAT WHEN AN ASSESSEE ITA NO. 235 &248/JP/2017 ACIT VS. M/S DEEPAK VEGPRO PVT. LTD,ALWAR. 7 HAD NOT EARNED ANY TAXABLE INCOME IN THE RELEVANT A Y IN QUESTION CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE. THEREAFTER, AT PARA 19, THE HONBLE HIGH COURT HAS HELD AS UNDER: 19. IN LIGHT OF THE CLEAR EXPOSITION OF THE LAW IN HOLCIM INDIA (P.) LTD.S CASE (SUPRA) AND IN VIEW OF THE ADMITTED FACTUAL PO SITION IN THIS CASE THAT THE ASSESSEE HAS MADE STRATEGIC INVESTMENT IN SHARES OF MAX INDIA LTD.; THAT NO EXEMPTED INCOME WAS EARNED BY THE ASS ESSEE IN THE RELEVANT AY AND SINCE THE GENUINENESS OF THE EXPEND ITURE INCURRED BY THE ASSESSEE IS NOT IN DOUBT, THE QUESTION FRAMED I S REQUIRED TO BE ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. AND AT PARA 23, THE HONBLE HIGH COURT HAS LAID DOW N THE RATIO DECIDENDI AS UNDER: 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREIN BEFORE, THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXP RESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF TH E ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FO R THE PURPOSE OF DISALLOWING AN EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMP T INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 4.11 IN THE INSTANT CASE, THE FACTS OF THE ASSESSEE COMPANY ARE IDENTICAL IN THE SENSE THAT THERE IS NO DIVIDEND IN COME WHICH IS RECEIVED OR RECEIVABLE FOR THE YEAR UNDER CONSIDERATION IN R ESPECT OF ITS INVESTMENTS IN SHARES. IT IS NOTED THAT SAID FACT IS ON RECORD AND REMAIN UNDISPUTED BEFORE US. NO CONTRARY AUTHORITY HAS BE EN BROUGHT TO OUR ITA NO. 235 &248/JP/2017 ACIT VS. M/S DEEPAK VEGPRO PVT. LTD,ALWAR. 8 NOTICE. IN LIGHT OF ABOVE DISCUSSIONS, RESPECTFULL Y FOLLOWING THE DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CHEMINVE ST LIMITED (SUPRA), NO DISALLOWANCE UNDER SECTION 14A CAN BE MADE IN TH E INSTANT CASE. 4.12 NOW COMING TO THE ORDERS PASSED BY THE COORD INATE BENCHES IN EARLIER YEARS WHERE THE MATTERS HAVE BEEN SET-ASIDE TO THE FILE OF THE AO, IT IS NOTED THAT NEITHER SUCH CONTENTION (IN T ERMS OF NON- APPLICABILITY OF SECTION 14A IN ABSENCE OF DIVIDEND INCOME) HAS BEEN RAISED BY THE APPELLANT NOR THE DECISION OF THE HON BLE DELHI HIGH COURT IN CASE OF CHEMINVEST LTD. HAS BEEN BROUGHT TO THE NOTICE OF THE COORDINATE BENCH. IN FACT, THE DECISION IN CASE OF CHEMINVEST LTD. HAS BEEN PRONOUNCED BY HONBLE DELHI HIGH COURT ON 2 ND OF SEPTEMBER, 2015 WHICH IS SUBSEQUENT TO THE LATEST DECISION OF THE COORDINATE BENCH FOR AY 2008-09 WHICH WAS PASSED ON 2 ND OF DECEMBER, 2014. GIVEN THAT SUCH CONTENTION WAS NOT RAISED EARLIER, THE UNDISPU TED FACT THAT NO DIVIDEND INCOME WAS RECEIVED DURING THE YEAR AND IN LIGHT OF DECISION OF THE HONBLE DELHI HIGH COURT IN CASE OF CHEMINVEST LTD WHICH SQUARELY APPLIES IN THE INSTANT CASE, NO USEFUL PURPOSE WOUL D BE SERVED IN SETTING ASIDE THE MATTER TO THE FILE OF THE AO AS HAS BEEN DONE BY THE COORDINATE BENCHES EARLIER AND IN THIS REGARD, WE A RE ALSO GUIDED BY THE DECISION OF COORDINATE BENCH IN CASE OF ZUARI LEASI NG (SUPRA) WHERE THE POWER TO REMAND HAS TO BE STATED TO BE USED SPARILY AND IN ONLY EXCEPTIONAL CASES. 4.13 IN THE LIGHT OF ABOVE DISCUSSIONS AND IN THE E NTIRETY OF FACTS AND CIRCUMSTANCES OF THE CASE, DISALLOWANCE U/S 14A IS HEREBY DELETED AND THE GROUND NO. 2 OF THE ASSESSEES APPEAL IS ALLOWE D. ITA NO. 235 &248/JP/2017 ACIT VS. M/S DEEPAK VEGPRO PVT. LTD,ALWAR. 9 7. IN THE YEARS UNDER CONSIDERATION, UNDISPUTEDLY THE FACTS REMAIN THAT THERE IS NO EXEMPT INCOME WHICH IS RECEIVED OR RECEIVABLE BY THE ASSESSEE COMPANY. IN AY 2008-08, THERE IS DIVIDEND INCOME FROM A FOREIGN COMPANY WHICH IS NOT EXEMPT AND HAS BEEN DU LY OFFERED TO TAX BY THE ASSESSEE COMPANY. THEREFORE, FOLLOWING OUR EARLIER DECISION REFERRED SUPRA, THE PROVISIONS OF SECTION 14A WILL NOT APPLY IN ABSENCE OF ANY EXEMPT INCOME RECEIVED OR RECEIVABLE BY THE ASS ESSEE COMPANY FOR BOTH THE YEARS UNDER CONSIDERATION. IN THE RESULT, BOTH THE APPEALS OF THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 11/05/2017 SD/- SD/- DQY HKKJR FOE FLAG ;KNO (KUL BHARAT) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 11/05/2017. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- ACIT, CENTRAL CIRCLE, ALWAR 2. IZR;FKHZ@ THE RESPONDENT- M/S DEEPAK VEGPRO PVT. LTD. OLD INDUSTRIAL AREA, ITARANA ROAD, ALWAR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO.235&248/JP/2017} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR