Meena Zarda Products Pvt. Ltd., Bhubaneswar V. ITO, Ward-1(1), Bhubaneswar

ITA 343/CTK/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5055 (ITAT-CUTTACK)
• Duration Of Justice: 5 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Assessment Year: 2015-2016
• Appeal Filed On: 04-09-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: G. NAIK
• Keywords: Earning of tax free income; Assessment record; Rule 8D
• Section: 14A; 201; 20

Judgement Text

, . . , , IN THE INCOME TAX APPELLATE TRIBUNAL SMC BENCH , CUTTACK [ , BEFORE SHRI CHANDRA MOHAN GARG, JUDICIAL MEMBER ./ ITA NO. 343 / CTK /20 1 8 ( [ [ / ASS ESSMENT YEAR : 20 15 - 20 16 ) MEENA ZARDA PRODUCTS (P) LTD. S - 3/85, MANCHESWAR INDUSTRIAL ESTATE, BHUBANESWAR - 751010 VS. ITO, WARD - 1(1), BHUBANESWAR ./ ./ PAN/GIR NO. : A AECM 3120 G ( / APPELLANT ) .. ( / RESPONDENT ) [ /AS SESSEE BY : SHRI G. NAIK, ADVOCATE & SHRI RAJAT KAR, ADVOCATE /REVENUE BY : SHRI SUBHENDU DUTTA / DATE OF HEARING : 04 / 0 2 /201 9 / DATE OF PRONOUNCEMENT 06 / 02 /201 9 / O R D E R THI S APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF CIT(A) - 1, DATED 04.06.2018 PASSED IN FIRST APPEAL NO. 0087/17 - 18 FOR THE ASSESSMENT YEAR 2015 - 2016. 2. THE SOLE GROUND RAISED BY THE ASSESSEE READS AS FOLLOWS : - 2. FOR THAT L EARNED CIT(A) ERRED IN LAW AS WELL AS FACT IN CONFIRMING THE DISALLOWANCE OF RS.4,53,064/ - U/S.14A OF THE I.T.ACT, 1961 WITHOUT CONSIDERING THE SUBMISSIONS OF THE APPELLANT FROM ITS PROPER PROSPECTIVE ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE. 3. LD. AR SUBMITTED THAT IN THE SIMILAR SET OF FACTS AND CIRCUMSTANCES FOR A.Y.2014 - 2015, THE AO MADE ADDITION , WHICH WAS CONFIRMED BY THE LD. CIT(A) BUT THE THIS BENCH OF THE ITAT IN ITA NO. 45/CTK/2018, ORDER DATED 02.08.2018 , ALLOWED THE APPEAL OF THE ASSE SSEE AND DIRECTED THE AO TO DELETE THE ENTIRE AMOUNT OF IMPUGNED ADDITION MADE U/S.14A OF THE ACT BY ITA NO. 343/CTK/2018 2 FOLLOWING THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. CHETTINAD LOGISTICS PVT. LTD. (2017) 248 TAXMAN 0055 (MADRAS) . LD. AR SUBMITTED THAT AS THE ISSUE IS COVERED BY THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR IMMEDIATELY PREC EDING ASSESSMENT YEAR 2014 - 2015, THEREFORE, PRAYED FOR ALLOWING THE APPEAL OF THE ASSESSEE. 4. LD. DR STRONGLY SUPPORTED THE ORDERS OF THE AUTHORITIES BEL OW, HOWEVER, HE COULD NOT CONTROVERT THE FACT THAT THE ITAT CUTTACK BENCH IN THE ORDER DATED 02.08.2018 (SUPRA) IN ASSESSEES OWN CASE FOR A.Y.2014 - 2015 , HAS GRANTED RELIEF TO THE ASSESSEE BY ALLOWING THE APPEAL ON THIS GROUND. 5. ON CAREFUL CONSIDERATION OF THE ABOVE SUBMISSIONS, FIRST OF ALL, I MAY POINT OUT THAT THE LD. D R HAS NOT DISPUTED THE FACT THAT THE FACTS AND CIRCUMSTANCES OF A.Y.2014 - 2015 ARE QUITE SIMILAR AND IDENTICAL TO THE PRESENT ASSESSMENT YEAR 2015 - 2016 WHICH IS UNDER CONSIDERATION IN TH IS APPEAL. I ALSO NOTE THAT THE LD. DR HAS ALSO NOT DISPUTE D THIS FACT THAT THERE WAS NO EXEMPT INCOME DURING THE RELEVANT PERIOD AND THERE WAS NO NEW INVESTMENT BY THE ASSESSEE DURING THE ASSESSMENT YEAR 2015 - 2016. 6. NOW, LET US CONSIDER THE RELEVANT PA RA 8 OF THE TRIBUNAL ORDER DATED 02.08.2018 (SUPRA) WHICH READS AS FOLLOWS : - 8. WE HAVE HEARD RIVAL SUBMISSIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. PRIMA FACIE, ON THE DISPUTED ISSUE OF APPLICABILITY OF PROVISIONS OF SECTION 14A OF THE ACT TO THE ASSESSEE WHERE NO EXEMPTED INCOME HAS BEEN RECEIVED BY THE ASSESSEE. LD.AR SUBMITTED THAT THE ASSESSEE HAS MADE INVESTMENT INTO THE SISTER CONCERN IN THE FINANCIAL YEAR 2010 - 2011 AND ALSO THE LD. AR REFERRED TO THE PAPER BOOK PAGE 57 WHERE THE DISCLOSU RE WAS MADE IN THE BALANCE SHEET AS ON 31.03.2011 THAT THE ASSESSEE HAS MADE INVESTMENT OF RS.70 LAKHS IN THE SISTER CONCERN AND THIS AMOUNT IS OUT OF THE ITA NO. 343/CTK/2018 3 NON - INTEREST BEARING FUNDS WHERE THE ASSESSEE IN THE FINANCIAL YEAR HAS RAISED SHARE CAPITAL FROM RS. 57 LAKHS TO RS.1.65 CRORES. THEREFORE, THIS SHARE CAPITAL ACCOUNT WAS UTILIZED FOR THE GROUP CONCERN. WE FOUND THAT THE ASSESSEE SUBSTANTIATED HIS STAND THAT NO INTEREST BEARING FUNDS ARE UTILIZED FOR THE INVESTMENT. LD. AR FURTHER SUBMITTED THAT THE ASSES SEE HAS NOT RECEIVED ANY DIVIDEND INCOME FROM THE INVESTMENT IN SISTER CONCERN AND ALSO SUPPORTED HIS ARGUMENTS RELYING ON THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF CIT VS. CHETTINAD LOGISTICS PVT. LTD. (2017) 248 TAXMAN 0055 (MAD), WHEREIN IT IS HELD AS UNDER : - 7. IT IS, IN THIS BACKGROUND, THAT THE TRIBUNAL REMANDED THE MATTER TO THE ASSESSING OFFICER, SO AS TO REACH A CONCLUSION AS TO WHETHER INVESTMENTS HAD BEEN ACTUALLY MADE, IN SISTER CONCERNS OF THE ASSESSEE, OUT OF INTEREST FREE F UNDS, ALBEIT, FOR STRATEGIC PURPOSES. 8. ACCORDING TO US, THIS EXERCISE, IN THE GIVEN FACTS WHICH EMERGE FROM THE RECORD, WAS CLEARLY UNNECESSARY, AS THE CIT(A) HAD RETURNED THE FINDING OF FACT THAT NO DIVIDEND HAD BEEN EARNED IN THE RELEVANT ASSESSMENT Y EAR, WITH WHICH, WE ARE CONCERNED, IN THE PRESENT APPEAL. 9. IN OUR OPINION SECTION 14 A OF THE ACT, CAN ONLY BE TRIGGERED, IF, THE ASSESSEE SEEKS TO SQUARE OFF EXPENDITURE AGAINST INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. 9.1 TH E LEGISLATURE, IN ORDER TO DO AWAY WITH THE PERNICIOUS PRACTICE ADOPTED BY THE ASSESSEES', TO CLAIM EXPENDITURE, AGAINST INCOME EXEMPT FROM TAX, INTRODUCED THE SAID PROVISION. 10. IN THE INSTANT CASE, THERE IS NO DISPUTE THAT NO INCOME I.E., DIVIDEND, WHI CH DID NOT FORM PART OF TOTAL INCOME OF THE ASSESSEE WAS EARNED IN THE RELEVANT ASSESSMENT YEAR. 10.1 THEREFORE, TO OUR MINDS, THE ADDITION MADE BY THE ASSESSING OFFICER BY RELYING UPON SECTION 14 A OF THE ACT, WAS COMPLETELY CONTRARY TO THE PROVISIONS OF THE SAID SECTION. 10.2 MR.SENTHIL KUMAR, WHO APPEARS FOR THE REVENUE, SUBMITTED THAT THE REVENUE COULD DISALLOW THE EXPENDITURE EVEN IN SUCH A CIRCUMSTANCE BY TAKING RECOURSE TO RULE 8D. 10.3 ACCORDING TO US, RULE 8D, ONLY PROVIDES FOR A METHOD TO DETERMIN E THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME OF THE ASSESSEE. 10.4 RULE 8 D, IN OUR VIEW, CANNOT GO BEYOND WHAT IS PROVIDED IN SECTION 14 A OF THE ACT. ITA NO. 343/CTK/2018 4 11. FURTHERMORE, WE MAY NOTE THAT A SIMILAR ARGUMENT WAS SOUGHT TO BE ADVANCED BY THE REVENUE IN THE MATTER CONCERNING, REDINGTON (INDIA) LTD. V . ADDL. CIT [2017] 77 TAXMANN.COM 257 (MAD.) WHICH WAS, SUBJECT MAT TER OF T.C.A.NO.520 OF 2016. 11.1 A CO - ORDINATE BENCH OF THIS COURT, VIDE JUDGMENT DATED 23.12.2016, REJECTED THE PLEA OF THE REVENUE ADVANCED IN THAT BEHALF. 11.2 AS A MATTER OF FACT, A PERUSAL OF THE JUDGMENT WOULD SHOW THAT THE REVENUE HAD SOUGHT TO ARG UE THAT BECAUSE EXEMPT INCOME COULD BE EARNED IN FUTURE YEARS, THEREFORE, RECOURSE COULD BE TAKEN TO THE PROVISIONS OF SECTION 14A OF THE ACT, TO DISALLOW EXPENDITURE. IN OTHER WORDS THE STAND TAKEN BY THE REVENUE WAS IRRESPECTIVE OF THE FACT WHETHER OR NO T INCOME WAS EARNED IN THE CONCERNED ASSESSMENT YEAR EXPENDITURE UNDER SECTION 14A COULD BE DISALLOWED AGAINST ANTICIPATED INCOME. 11.3 PERTINENTLY, THE DIVISION BENCH IN REDINGTON (INDIA)LTD . ( SUPRA ) CASE HAS REPELLED THIS PRECISE ARGUMENT. 12. THE DIVIS ION BENCH, IN OUR VIEW, QUIET CORRECTLY HELD THAT, THE COMPUTATION OF TOTAL INCOME, IN TERMS OF SECTION 5 OF THE ACT, IS MADE QUA REAL INCOME AND NOT, VIS - A - VIS, NOTIONAL INCOME. 12.1 THE DIVISION BENCH WENT ON TO HOLD THAT SECTION 4 OF THE ACT BRINGS TO T AX, THAT INCOME, WHICH IS RELATABLE TO THE ASSESSMENT YEAR IN ISSUE. THE DIVISION BENCH, THUS, HELD THAT WHERE NO EXEMPT INCOME IS EARNED IN THE PREVIOUS YEAR, RELEVANT TO THE ASSESSMENT YEAR IN ISSUE, PROVISIONS OF SECTION 14 A OF THE ACT, READ WITH RULE 8 D COULD NOT BE INVOKED. 12.2 WHILE COMING TO THIS CONCLUSION, THE DIVISION BENCH ALSO TOOK NOTE OF THE AFOREMENTIONED CIRCULAR, ISSUED BY THE BOARD. 12.3 THE REASONING OF THE DIVISION BENCH IS CONTAINED IN THE FOLLOWING PART OF THE JUDGMENT: '4. THE ADM ITTED POSITION IS THAT NO EXEMPT INCOME HAS BEEN EARNED BY THE ASSESSEE IN THE FINANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR IN ISSUE. THE ORDER OF ASSESSMENT RECORDS A FINDING OF FACT TO THAT EFFECT. THE ISSUE TO BE DECIDED THUS LIES WITHIN THE SHORT COM PASS OF WHETHER A DISALLOWANCE IN TERMS OF S.14A OF THE ACT READ WITH RULE 8D OF THE RULES CAN BE CONTEMPLATED EVEN IN A SITUATION WHERE NO EXEMPT INCOME HAS ADMITTEDLY BEEN EARNED BY THE ASSESSEE IN THE RELEVANT FINANCIAL YEAR. 7. PER CONTRA, SRI. T. RAV IKUMAR APPEARING ON BEHALF OF THE REVENUE DREW OUR ATTENTION TO THE MARGINAL NOTES OF S.14 A POINTING OUT THAT THE PROVISION WOULD APPLY NOT ITA NO. 343/CTK/2018 5 ONLY WHERE EXEMPTED INCOME IS 'INCLUDED' IN THE TOTAL INCOME, BUT ALSO WHERE EXEMPT INCOME IS 'INCLUDABLE' IN TOTAL INCOME. 8. HE RELIED UPON A CIRCULAR ISSUED BY THE CENTRAL BOARD OF DIRECT TAXES IN CIRCULAR NO.5 OF 2014 DATED 11.2.2014 TO THE EFFECT THAT S.14A WAS INTENDED TO COVER EVEN THOSE SITUATIONS WHETHER THERE IS A POSSIBILITY OF EXEMPT INCOME BEING EARNED IN FUTURE. THE CIRCULAR, AT PARAGRAPH 4, STATES THAT IT IS NOT NECESSARY FOR EXEMPT INCOME TO HAVE BEEN INCLUDED IN THE INCOME OF A PARTICULAR YEAR FOR THE DISALLOWANCE TO BE TRIGGERED. ACCORDING TO THE LEARNED STANDING COUNSEL, THE PROVISIONS OF S.14A ARE M ADE APPLICABLE, IN TERMS OF SUB SECTION (1) THEREOF TO INCOME ' UNDER THE ACT ' AND NOT ' OF THE YEAR ' AND A DISALLOWANCE UNDER S.14A R.W.RULE 8D CAN THUS BE EFFECTED EVEN IN A SITUATION WHERE A TAX PAYER HAS NOT EARNED ANY TAXABLE INCOME IN A PARTICULAR YEAR . 9. WE ARE UNABLE TO SUBSCRIBE TO THE AFORESAID VIEW. THE PROVISIONS OF SECTION 14A WERE INSERTED AS A RESPONSE TO THE JUDGMENTS OF THE SUPREME COURT IN COMMISSIONER OF INCOME TAX V . MAHARASHTRA SUGAR MILLS LIMITED [1971] 82 ITR 452 AND RAJASTHAN STATE WARE HOUSING CORPORATION V . COMMISSIONER OF INCOME - TAX [2002] 242 ITR 450 IN TERM S OF WHICH, EXPENDITURE INCURRED BY AN ASSESSEE CARRYING ON A COMPOSITE BUSINESS GIVING RISE TO BOTH TAXABLE AS WELL AS NON - TAXABLE INCOME, WAS ALLOWABLE IN ENTIRETY WITHOUT APPORTIONMENT. IT WAS THUS THAT S.14A WAS INSERTED PROVIDING THAT NO DEDUCTION SHA LL BE ALLOWABLE IN RESPECT OF EXPENDITURE INCURRED IN RELATION TO THE EARNING OF INCOME EXEMPT FROM TAXATION. AS OBSERVED BY THE SUPREME COURT IN THE JUDGMENT IN THE CASE OF COMMISSIONER OF INCOME - TAX V. WALFORT SHARE AND STOCK BROKERS (P) LTD. [2010] 326 ITR 1 '.... THE MANDATE OF S.14A IS CLEAR. IT DESIRES TO CURB THE PRACTICE TO CLAIM DEDUCTION OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME AGAINST TAXABLE INCOME A ND AT THE SAME TIME AVAIL OF THE TAX INCENTIVE BY WAY OF AN EXEMPTION OF EXEMPT INCOME WITHOUT MAKING ANY APPORTIONMENT OF EXPENSES INCURRED IN RELATION TO EXEMPT INCOME.' 10. THE PROVISION THIS IS CLEARLY RELATABLE TO THE EARNING OF ACTUAL INCOME AND NOT NOTIONAL OR ANTICIPATED INCOME. THE SUBMISSION OF THE DEPARTMENT TO THE EFFECT THAT S.14A WOULD BE ATTRACTED EVEN TO EXEMPT INCOME 'INCLUDABLE' IN TOTAL INCOME WOULD ENTAIL THE ASSESSMENT OF NOTIONAL INCOME, ASSUMED TO BE EXEMPT IN THE FUTURE, IN THE PRES ENT ASSESSMENT YEAR. THE COMPUTATION OF ITA NO. 343/CTK/2018 6 TOTAL INCOME IN TERMS OF S.5 OF THE ACT IS ON REAL INCOME AND THERE IS NO SANCTION IN LAW FOR THE ASSESSMENT OF ADMITTEDLY NOTIONAL INCOME, PARTICULARLY IN THE CONTEXT OF EFFECTING A DISALLOWANCE IN CONNECTION THEREW ITH. 11. THE COMPUTATION OF DISALLOWANCE IN TERMS OF RULE 8D IS BY WAY OF A DETERMINATION INVOLVING DIRECT AS WELL AS INDIRECT ATTRIBUTION. THUS, ACCEPTING THE SUBMISSION OF THE REVENUE WOULD RESULT IN THE IMPOSITION OF AN ARTIFICIAL METHOD OF COMPUTATION ON NOTIONAL AND ASSUMED INCOME. WE BELIEVE THIS WOULD BE CARRYING THE ARTIFICE TOO FAR. (EMPHASIS IS OURS)' 13. MR.SENTHIL KUMAR, SEEKS TO DISTINGUISH THE JUDGMENT IN REDINGTON (INDIA) LTD. CASE ( SUPRA ) BASED ON THE FACT THAT RULE 8D HAD NOT KICKED - IN BY AY 2007 - 08, WHICH WAS THE AY BEING CONSIDERED IN THE SAID CASE. 14. ACCORDING TO US, THIS WAS NOT THE ARGUMENT, PUT FORTH, BEFORE THE DIVISION BENCH. AS A MATTER OF FACT, THE REVENUE RELIED HEAVILY ON RULE 8D. 14.1 MR.RAVIKUMAR, WHO APPEARED FOR THE REVE NUE, IN THAT MATTER AND WHO IS PRESENT IN THIS COURT, INFORMS US THAT HE HAD IN FACT ARGUED THAT THE RULE WAS CLARIFACTORY IN NATURE AND WOULD APPLY RETROSPECTIVELY, AND THAT, THE DIVISION BENCH, THEREFORE, DISCUSSED THE IMPACT OF RULE 8D OF THE RULES. 15. HOWEVER, IT IS, OUR VIEW, AS INDICATED ABOVE, INDEPENDENT OF THE REASONING GIVEN IN REDINGTON (INDIA) LTD. CASE ( SUPRA ) THAT RULE 8D CANNOT BE READ IN A MANNER, WHICH TAKES IT BEYOND THE SCOPE AND CONTENT OF THE MAIN PROVISION, WHICH IS, SECTION 14 A OF THE ACT. 15.1 THEREFORE, AS ADVERTED TO ABOVE, RULE 8D, CANNOT COME TO THE RESCUE OF THE REVENUE. 15.2 IN ANY EVENT, THE TRIBUNAL, VIA, THE IMPUGNED JUDGMENT HAS REMITTED THE MATTER TO THE ASSESSING OFFICER. 15.3 THEREFORE, FOR THE FOREGOING REASONS, WE AR E OF THE VIEW, THAT NO INTERFERENCE IS CALLED FOR QUA THE IMPUGNED JUDGMENT. 16. TO OUR MINDS, QUESTIONS OF LAW, WHICH COULD HAVE ARISEN ARE ALREADY COVERED BY THE JUDGMENT OF A CO - ORDINATE BENCH OF THIS COURT RENDERED IN REDINGTON (INDIA) LTD. CASE ( SUPR A ). 17. THE APPEAL IS ACCORDINGLY, DISMISSED. HOWEVER, THERE SHALL BE NO ORDER AS TO COSTS. WE RESPECTFULLY FOLLOW THE ABOVE JUDICIAL PRECEDENCE AND CONSIDERING THE INVESTMENT MADE BY THE ASSESSEE OUT OF NON - INTEREST BEARING FUNDS AND ALSO THE NO DIVIDEN D INCOME HAS BEEN RECEIVED BY THE ASSESSEE. HENCE THE PROVISIONS OF SECTION 14A SHALL NOT BE APPLICABLE TO THE ASSESSEE AND WE ITA NO. 343/CTK/2018 7 DIRECT THE AO TO DELETE THE ADDITION. ACCORDINGLY, GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED. 7. IN VIEW OF THE ABOVE, I HAVE NO ALTERNATIVE BUT TO FOLLOW THE ORDER OF THE TRIBUNAL IN ASSESSEES OWN CASE FOR A.Y.2014 - 2015 ON THE IDENTICAL ISSUE WHEREIN RESPECTFULLY FOLLOWING THE DECISION OF THE HONBLE MADRAS HIGH COURT IN THE CASE OF CHETTINAD LOGISTICS PVT. LTD. (SUPRA) , THE A DDITION MADE U/S.14A OF THE ACT IS DELETED. ACCORDINGLY, I ALLOW THE SOLE GROUND RAISED BY THE ASSESSEE AND DIRECT THE AO TO DELETE THE ENTIRE AMOUNT OF IMPUGNED ADDITION MADE U/S.14A OF THE ACT. 8 . IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. O RDER PRONOUNCED IN THE OPEN COURT ON THIS 06 / 02 / 201 9 . SD/ - ( CHANDRA MOHAN GARG ) / JUDICIAL MEMBER CUTTACK ; DATED 06 / 02 /201 9 PRAKASH KUMAR MISHRA , SR.P.S . / COPY OF THE ORDER FORWARDED TO : / BY ORDER, ( SENIOR PRIVATE SECRETARY ) , / ITAT, CUTTACK 1. / THE APPELLANT - MEENA ZARDA PRODUCTS (P) LTD. S - 3/85, MANCHESWAR INDUST RIAL ESTATE, BHUBANESWAR - 751010 2. / THE RESPONDENT - ITO, WARD - 1(1), BHUBANESWAR 3. ( ) / THE CIT(A), 4. / CIT 5. , , / DR, ITAT, CUTTACK 6. [ / GUARD FILE. //TRUE COPY//