DCIT, Chandigarh V. M/s Ganeshay Overseas Ind. Ltd., Chandigarh

ITA 236/CHANDI/2015

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 1614 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-10-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-09-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 05-03-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: MRS RAJINDER KAUR
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI H.L.KARWA, VICE PRESIDENT AND MS. RANO JAIN, ACCOUNTANT MEMBER ITA NO.186/CHD/2015 (ASSESSMENT YEAR : 2010-11) GANESHAY OVERSEAS INDUSTRIES LTD., VS. THE D.C.I.T., SCO 18-19, MADHYA MARG, CENTRAL CIRCLE-1, SECTOR 19-D, CHANDIGARH. CHANDIGARH. PAN: AABCG8778M AND ITA NO.236/CHD/2015 (ASSESSMENT YEAR : 2010-11) THE D.C.I.T., VS. GANESHAY OVERSEAS INDUSTRIES LTD., CENTRAL CIRCLE-1, SCO 18-19, MADHYA MARG, CHANDIGARH. SECTOR 19-D, CHANDIGARH. PAN: AABCG8778M (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI SUDHIR SEHGAL & ASHOK GOYAL RESPONDENT BY : MRS.RAJINDER KAUR, DR DATE OF HEARING : 23.09.2015 DATE OF PRONOUNCEMENT : 19.10.2015 O R D E R PER RANO JAIN, A.M . : BOTH THE CROSS APPEALS ARE DIRECTED AGAINST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-3, GURGAON DATED 18.12.2014 FOR ASSESSMENT YEAR 2010-11. 2 2. BRIEFLY, THE FACTS OF THE CASE ARE THAT THE ASS ESSEE FILED RETURN OF INCOME DECLARING TOTAL INCOME AT RS.1,06,75,500/-. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER OBSERVED THAT TH E ASSESSEE HAD MADE INVESTMENT TO THE TUNE OF RS.67,50,41,000/ - IN THE PREVIOUS YEAR. HOWEVER, IT HAS NOT SHOWN ANY INCOM E ON THIS EXCEPT A DIVIDEND INCOME OF RS.23,16,000/-, WHICH H AS BEEN CLAIMED AS EXEMPT UNDER SECTION 10(34) OF THE INCOM E TAX ACT, 1916 (IN SHORT THE ACT). IN VIEW OF THE SAME, IN VOKING THE PROVISIONS OF SECTION 14A OF THE ACT, DISALLOWANCE OF RS.84,00,560/- WAS MADE AS PER RULE 8D OF THE INCOM E TAX RULES. 3. BEFORE THE LEARNED CIT (APPEALS), IT WAS ARGUED BY THE ASSESSEE THAT THE INVESTMENTS AS APPEARING IN T HE BALANCE SHEET OF THE ASSESSEE HAVE BEEN MADE OUT OF OWN FUN DS, WHICH IS VERY MUCH EVIDENT FROM THE FACT THAT THE ASSESSE E HAS TAKEN CC LIMIT FROM ICICI ONLY IN THE CURRENT YEAR AND TH E INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE IN THE E ARLIER YEARS AND THUS THERE IS NO INTEREST EXPENDITURE CLA IMED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, WHICH PERTAINS TO THE INVESTMENTS MADE BY THE ASSESSEE. IT WAS P RAYED BEFORE THE LEARNED CIT (APPEALS) THAT SINCE ALL THE INTEREST EXPENDITURES CLAIMED BY THE ASSESSEE DURING THE YEA R ARE DIRECTLY RELATED TO THE TAXABLE INCOME EARNED BY IT , NO DISALLOWANCE ON THIS ACCOUNT CAN BE MADE. ON THE OTHER EXPENSES TO BE DISALLOWED UNDER SECTION 14A OF THE ACT, IT WAS SUBMITTED THAT THE ASSESSING OFFICER HAS TO FIRSTLY ARRIVE AT A 3 SATISFACTION THAT THE CLAIM OF THE ASSESSEE IS INCO RRECT AND THEN ONLY SHE MAY PROCEED TO MAKE DISALLOWANCE UNDE R SECTION 14A OF THE ACT BUT IN CASE OF THE ASSESSEE, THE ASSESSING OFFICER HAS NOT POINTED OUT ANY SUCH SPEC IFIC EXPENDITURE AND NEITHER SHE CAN DO SO AS THERE IS N OT SUCH EXPENDITURE AT ALL. AFTER CONSIDERING THE SUBMISS ION OF THE ASSESSEE, THE LEARNED CIT (APPEALS) WAS OF THE VIEW THAT THE BALANCE SHEET OF THE ASSESSEE DEPICTS SECURED LOAN OF RS.49,99,98,560/- FROM ICICI BANK AND FINANCIAL EXP ENSES DEBITED ON ACCOUNT OF BANK INTEREST AND PROCESSING CHARGES TO THE TUNE OF RS.90,00,782/-. THE ASSESSEE HAS, HOW EVER, NOT JUSTIFIED THE RAISING OF THE LOAN AND PAYING HUGE I NTEREST IN THE BARGAIN WHEN FUNDS CANNOT BE SAID TO BE UNAVAIL ABLE FOR CONDUCTING ITS BUSINESS AS CLEARLY EVIDENT FROM THE BALANCE SHEET. THUS, SHE WAS NOT CONVINCED BY THE ARGUMEN TS PUT FORTH AND HEAVY RELIANCE ON THE CASE LAWS TO ADVANC E ITS CONTENTION. SHE WAS OF THE CONSIDERED OPINION THAT THE CLAIM OF THE ASSESSEE CANNOT BE ACCEPTED AND CONSEQUENTLY , THE APPLICATION OF RULE 8D OF THE INCOME TAX RULES BY T HE ASSESSING OFFICER TO COMPUTE THE EXPENSES RELATING TO EARNING OF EXEMPTED INCOME WAS UPHELD. HOWEVER, ON POINTI NG OUT BY THE ASSESSEE THAT THE DISALLOWANCE MADE BY THE ASSE SSING OFFICER OF RS.84,00,560/- EXCEEDED THE AMOUNT OF DI VIDEND INCOME EARNED, SHE RESTRICTED THE DISALLOWANCE TO T HE EXTENT OF THE EXEMPT INCOME OF RS.23,16,000/-. 4. AGGRIEVED BY THE SAID ORDER, NOW THE ASSESSEE H AS COME UP IN APPEAL BEFORE US ON THE DISALLOWANCE SUS TAINED BY 4 THE LEARNED CIT (APPEALS), WHILE THE DEPARTMENT IS IN APPEAL AGAINST THE RELIEF GIVEN BY THE LEARNED CIT (APPEAL S). 5. BEFORE US, THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE LOWER AU THORITIES. HIS CONTENTIONS WERE TWO FOLD, FIRSTLY, HE SUBMITTE D THAT ALL THE INVESTMENTS HAVING BEEN MADE BY THE ASSESSEE IN EARLIER YEARS AND THERE BEING NO INTEREST EXPENSES IN THOSE YEARS, IT CANNOT BE SAID THAT THE INVESTMENTS WERE MADE OUT O F BORROWED FUNDS. FURTHER IT WAS BROUGHT TO OUR NOTI CE THAT WHATEVER INTEREST EXPENDITURE IS CLAIMED DURING THE YEAR IS MAINLY ON ACCOUNT OF CC LIMIT RAISED FROM ICICI BAN K DURING THE YEAR ONLY. IN THIS WAY, IT WAS SUBMITTED THAT ALL THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE DURING THE YEAR HAVING DIRECT NEXUS WITH THE TAXABLE INCOME, NO DIS ALLOWANCE ON ACCOUNT OF INTEREST EXPENDITURE RELATING TO TAX- FREE INCOME CAN BE MADE. ON THE ISSUE OF DISALLOWANCE OF OTH ER EXPENSES UNDER SECTION 14A OF THE ACT, IT WAS SUBMITTED THAT SINCE THE CLAIM OF THE ASSESSEE BEFORE THE ASSESSING OFFICER WAS THAT IT HAD NOT INCURRED ANY EXPENDITURE TO EARN TAX-FREE I NCOME, THE ASSESSING OFFICER WAS BOUND TO RECORD HER SATISFACT ION AS TO HOW AND WHY SHE IS NOT AGREED WITH THE SAID SUBMISS ION OF THE ASSESSEE. IN THE ABSENCE OF SUCH SATISFACTION, NO DISALLOWANCE OF EXPENSES UNDER SECTION 14A OF THE A CT CAN BE MADE. 6. THE LEARNED D.R. RELIED UPON THE ORDER OF THE ASSESSING OFFICER AND FURTHER SUBMITTED THAT SINCE RULE 8D OF THE INCOME TAX RULES IS AN INTEGRAL PART OF THE STA TUTE, THE 5 ASSESSING OFFICER IS BOUND BY IT AND DEDUCTION HAS TO BE MADE AS PER RULE 8D OF THE INCOME TAX RULES ONLY. 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIE S BELOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. IT I S SEEN FROM THE PERUSAL OF THE BALANCE SHEET, PROFIT & LOSS ACC OUNT AND THE SCHEDULES ANNEXED THERETO (PAPER BOOK PAGE-1) T HAT THE INVESTMENTS IN EARLIER YEAR WAS OF RS.63,30,41,000/ -, WHILE IT IS TO AN AMOUNT OF RS.67,50,41,000/- AT THE END OF THE CURRENT YEAR, THE INCREASE OF RS.4,20,00,000/- IS O N ACCOUNT OF TRANSFER OF SHARE APPLICATION MONEY TO SHARE ALL OTMENT, AS IS EVIDENT FROM PAGE 4 OF THE PAPER BOOK. AS SUCH , IT IS QUITE EVIDENT THAT THE INVESTMENTS WERE MADE IN EARLIER Y EAR, NO NEW INVESTMENT HAS BEEN MADE IN THE CURRENT YEAR. FROM THE PERUSAL OF PAPER BOOK PAGE 8, WHICH IS ANNEXURE-20 TO THE PROFIT & LOSS ACCOUNT, IT APPEARS THAT NO INTEREST TO BANKOR OTHERWISE WAS PAID IN THE EARLIER YEAR, WHICH GOES TO PROVE THAT THE INVESTMENTS HAVING BEEN MADE IN EARLIER YE AR WERE MADE OUT OF OWNED FUNDS OF THE ASSESSEE AND NO BORR OWED FUNDS WERE USED FOR SUCH INVESTMENTS. AS REGARDS INTEREST OF RS.66,91,327/- BEING PAID THIS YEAR, IT IS SEEN FRO M THE PERUSAL OF ANNEXURE-3 OF THE BALANCE SHEET PLACED AT PAPER BOO K PAGE-3, THAT ICICI WORKING CAPITAL LIMIT AMOUNTING TO RS.49 ,99,98,560/- WAS RAISED DURING THE YEAR, WHICH WAS NOT THERE IN THE PRECEDING YEAR, WHICH FURTHER GOES TO PROVE THAT THE INTEREST PAID DURING THE YEAR DOES NOT HAVE ANY NEXUS TO THE INVESTMENTS AND THUS NOT TO THE TAX-FREE INCOME FROM THESE INVESTMENTS HAVING 6 EARNED. THEREFORE, ANY DISALLOWANCE OF INTEREST EX PENDITURE BEING RELATED TO EARNING TAX-FREE INCOME CANNOT BE MADE IN THIS CASE. 8. THERE IS NO NEED TO GO FURTHER ON THE ISSUE OF DISALLOWANCE OF INTEREST PART OF THE EXPENSES RELAT ED TO EARNING TAX-FREE INCOME, AS FROM THE EXPLANATION AN D EVIDENCES BROUGHT ON RECORD BY THE ASSESSEE, AS STA TED HEREINABOVE, IT IS PROVED BEYOND DOUBT THAT THE INT EREST EXPENDITURE INCURRED BY THE ASSESSEE DURING THE YEA R DOES NOT HAVE ANY NEXUS TO EARNING OF TAX-FREE INCOME. REL YING ON THE JUDGMENT OF THE HON'BLE JURISDICTIONAL PUNJAB & HAR YANA HIGH COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. VS. CIT, ITA 224 OF 2013 (O&M) DATED 27.7.2015, WE HOLD THAT ON THE FACTS AND CIRCUMSTANCES, NO DISALLOWANCE ON ACCOUNT OF IN TEREST EXPENDITURE UNDER SECTION 14A OF THE ACT CAN BE MAD E IN THIS CASE. 9. AS REGARDS THE ADMINISTRATIVE EXPENSES PART OF THE DISALLOWANCE UNDER SECTION 14A OF THE ACT, THE ASSE SSEE HAS ALL ALONG BEEN CONTENDING BEFORE THE LOWER AUTHORIT IES THAT THERE WAS NO NEED FOR IT TO INCUR ANY SUCH EXPENDIT URE AND IT HAS IN FACT INCURRED NO SUCH EXPENDITURE, THE ASSES SING OFFICER STRAIGHTAWAY, WITHOUT COMMENTING ON SUCH CL AIM OF THE ASSESSEE, EMBARKED UPON COMPUTATION UNDER RULE 8D OF THE INCOME TAX RULES FOR THE PURPOSE OF SECTION 14A OF THE ACT. SHE HAS NOWHERE RECORDED HER SATISFACTION TH AT HOW SUCH CLAIM OF THE ASSESSEE IS NOT ACCEPTABLE TO HER . FROM THE PERUSAL OF THE WHOLE ORDER OF THE ASSESSING OFFICER , NO SUCH 7 SATISFACTION CAN BE INFERRED DIRECTLY OR INDIRECTLY . IN SUCH CIRCUMSTANCES, THE RECORDING OF SATISFACTION OF THE ASSESSING OFFICER IS A MUST, AS HELD BY THE HON'BLE JURISDICT IONAL PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. DEEPAK MITTAL. 36CCH 51 (2013) (P&H). THERE ARE A NUMBER OF OTHE R JUDGMENTS OF VARIOUS HIGH COURTS AND BENCHES OF THE TRIBUNAL. HOWEVER, FOR THE SAKE OF BREVITY, WE SEE NO NEED TO MENTION ALL OF THOSE. THEREFORE, IN THE CIRCUMSTAN CES, NO DISALLOWANCE ON ACCOUNT OF EXPENSES UNDER SECTION 1 4A OF THE ACT CAN BE MADE. 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.186/CHD/2015 IS ALLOWED AND THE APPEAL OF THE RE VENUE IN ITA NO.236/CHD/2015 IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 19 TH DAY OF OCTOBER, 2015. SD/- SD/- (H.L.KARWA) (RANO JAIN) VICE PRESIDENT ACOUNTANT MEMBER DATED : 19 TH OCTOBER, 2015 *RATI* COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT(A)/TH E CIT/THE DR. ASSISTANT REGISTRAR, ITAT, CHANDIGARH 8