ASSTT. COMMISSIONER of INCOME TAX.CIRCLE-7, Nagpur V. M/s BALLARPUR INDUSTRIES LTD., GURGAON

ITA 376/NAG/2014

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 1569 (ITAT-NAGPUR)
• Duration Of Justice: 1 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-12-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2005-2006
• Appeal Filed On: 08-08-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ANITA RUPAV A BATARAM
• Keywords: Earning of tax free income; Proportionate interest; Question of law
• Section: 143(3); 14A; 147

Judgement Text

1 ITA NO. 376, 377, 378 & 379 /NAG/2014 IN TH E INCOME TAX APPELLATE TRIBUNAL: NAGPUR BENCH: NAGPUR BEFORE SHRI MUKUL K. SHRAWAT, JUDICIAL MEMBER AND SHRI SHAMIM YAHYA, ACCOUNTANT MEMBER. I.T.A. NO S .376, 377, 378 & 379 /NAG/2014 AYS : 2005 - 06, 2006 - 07, 2007 - 08 & 2008 - 09 THE ASST. COMMISSIONER OF INCOME TAX, CIRCLE - 7, ROOM NO.521, 5 TH FLOOR, MECL BUILDING, NAGPUR VS M/S. BALLARPUR INDUSTRIES LTD., FIRST INDIA PALACE, GURGAO ROAD, HARYANA, PAN:AAACB5343E (APPELLANT) (RESPONDENT) APPELLANT BY SMT. ANITA RUPAV A BATARAM, JCIT RESPONDENT BY SHR I K. P. DEWANI, ADVOCATE DATE OF HEARING: 01 - 12 - 2015 DATE OF PRONOUNCEMENT: 4 - 12 - 2015 O R D E R PER MUKUL K. SHRAWAT, J.M. ALL THESE FOUR APPEALS HAVE BEEN FILED BY THE REVENUE DEPARTMENT EMANATING FROM THE ORDER OF THE LEARNED CIT (A) - II, NAG PUR ALL DATED 09 - 05 - 2014. FOR ALL THE ASSESSMENT YEARS, THE REVENUE HAS RAISED IDENTICALLY WORDED GROUNDS. THE SAME ARE REPRODUCED FROM THE LEAD ASSESSMENT YEAR 2005 - 06 AS UNDER: - 1. WHETHER O N THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN L AW THE CIT (A) WAS RIGHT IN HOLDING THAT PRESENCE OF EXEMPT INCOME IS NECESSARY FOR DISALLOWANCE OF EXPENDITURE U/S 14A? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW THE CIT (A) WAS RIGHT IN HOLDING THAT INVESTMENTS WERE MADE OUT OF THE NON - INTEREST BEARING FUNDS AND AS NO EXPENDITURE HAS BEEN INCURRED FOR EARNING THE EXEMPT INCOME WITHOUT APPRECIATING THE 2 ITA NO. 376, 377, 378 & 379 /NAG/2014 FACT THAT THE ASSESSEE HAS NOT PROVED NEXUS BETWEEN THE OWNED INTEREST FEE FUNDS AND INVESTMENT? 3. WHETHER ON THE FACTS AND CIRCUMST ANCES OF THE CASE AND IN LAW THE CIT (A) WAS RIGHT IN HOLDING THAT THE REOPENING OF CASE IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SEC. 147 OF THE ACT WITHOUT APPRECIATING THE FACT THAT IN VIEW OF CLAUSE (C) (I) UNDER EXPLANATION 2 OF SECTION 147 OF THE I. T. ACT, WHERE THE ASSESSMENT HAS BEEN MADE BUT, INCOME CHARGEABLE TO TAX HAS BEEN UNDER ASSESSED, THE SAME AMOUNTS TO ESCAPEMENT OF INCOME AND HENCE RE - OPENING OF THE ASSESSMENT WAS VALID. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LA W THE CIT (A) WAS RIGHT IN HOLDING THAT THE REOPENING OF THE CASE IS NOT IN ACCORDANCE WITH THE PROVISIONS OF SEC. 147 OF THE ACT WITHOUT APPRECIATING THE FACT THAT THERE WAS ESCAPEMENT OF INCOME AND REOPENING WAS MADE ON THE BASIS OF NEW FACT WITH CAME TO LIGHT WHILE SCRUTINY OF THE CASE FOR SUBSEQUENT YEARS? 2. FACTS IN BRIEF, AS EMERGED FROM THE CORRESPONDING ASSESSMENT ORDERS PASSED U/S 143(3) READ WITH SECTION 147 OF THE IT ACT DATED 26 - 02 - 2013 WERE THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF MAN UFACTURING OF PAPER, PULP ETC. THERE WAS AN ALLEGATION THAT THE INCOME HAS ESCAPED ASSESSMENT IN THE LIGHT OF THE PROVISIONS OF SECTION 14A OF THE IT ACT. THE AO HAS REFERRED TO A DECISION OF THE SPECIAL BENCH OF ITAT, NEW DELHI PRONOUNCED IN THE CASE OF M /S. CHEMINVEST LTD. VS ITO, WARD 3(3), NEW DELHI BEARING ITA NO.87/DEL/2008, ASSESSMENT YEAR 2004 - 05 ON THE QUESTION WHETHER DISALLOWANCE U/S 14A OF THE IT ACT CAN BE MADE IN A YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. THE RESPECTED SPECIAL BENCH WAS OF THE VIEW THAT THE PROVISIONS OF SECTION 14A OF THE IT ACT COULD BE INVOKED EVEN IN THE ABSENCE OF EXEMPT INCOME. AFTER INVOKING THE PROVISIONS OF SECTION 14A OF THE IT ACT, THE AO HAS WORKED OUT THE DISALLOWANCE AS PER THE R ULE PRESCRIBED AS UNDER: - 4.7 IN VIEW OF THE ABOVE DISCUSSIONS, THE PROPORTIONATE INTEREST EXPENDITURE ATTRIBUTABLE TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME IS DISALLOWED U/S.14A . HENCE, THE PROPORTIONATE INTEREST EXPENSES ATTRIBUTABLE TO INVEST MENT IN EXEMPT INCOME U/S. 14A OF THE I. T. ACT IS COMPUTED AS UNDER: 3 ITA NO. 376, 377, 378 & 379 /NAG/2014 A) TOTAL INTEREST RS. 1,12,14,87,815/ - B) TOTAL INVESTMENT ON FIRST DAY OF THE YEAR RS. 39,41,87,000/ - C) AVERAGE OF TOTAL ASSETS RS.31,60,61,38,802/ - THE AMOUNT TO BE DISALL OWED U/S 14A A X B = 1,39,87,026/ - C 4.8 IN VIEW OF THE ABOVE DISCUSSION, THE TOTAL DISALLOWANCE U/S. 14A WORKS OUT TO RS.1,39,87,026/ - . SINCE THE ASSESSEE FURNISHED INACCURATE PARTICULARS OF INCOME AND THEREBY CO NCEALED THE INCOME, PENALTY PROCEEDINGS U/S. 271(1) (C) IS INITIATED SEPARATELY. FOR REST OF THE YEARS ON THE SAME LINE, DISALLOWANCE OF PROPORTIO NATE INTEREST WAS COMPUTED BY T HE AO. BEING AGGRIEVED, THE ISSUE WAS CARRIED BEFORE THE FIRST APPELLATE AUTH ORITY. 3 . IN RESPECT OF INVOCATION OF THE PROVISIONS OF SECTION 14A OF THE IT ACT, THE FINDING OF THE LEARNED CIT (A) WAS AS UNDER: - 5.1 I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE AND THE WRITTEN SUBMISSIONS OF THE APPELLANT. I FIND SUBSTANTIAL FOR CE IN THE SUBMISSIONS MADE. THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. DELITE ENTERPRISES (SUPRA) HAS HELD THAT IF THERE IS NO INCOME EARNED BY THE APPELLANT, WHICH IS CLAIMED TO BE EXEMPT, NO DISALLOWANCE U/S 14A CAN BE MADE. THE SAID JUDGMENT H AS BEEN SUBSEQUENTLY FOLLOWED BY THE HONBLE ITAT, MUMBAI BENCH IN SEVERAL CASES AND IT HAS BEEN HELD THAT SECTION 14A WOULD HAVE NO APPLICATION WHERE THE ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME. IN THE CASE OF THERMO LAB SALES AND SERVICES PVT. LTD. VS . DCIT IN ITA NO.6704/MUM/2012 (AY 2009 - 10) THE HONBLE ITAT MUMBAI BENCH HAS CONSIDERED THE DECISION OF M/S. CHEMINVEST LTD. VS ITO (SUPRA) (RELIED UPON BY T HE LD. AO) AND AFTER CONSIDERING THE JURISDICTIONAL HIGH COURT DECISION OF CIT VS. DELITE ENTERPRI SES DECIDED THE MATTER IN FAVOUR OF THE APPELLANT. ...... 5.2 SIMILARLY IN THE CASE OF ASCENT TRADECOM P. LTD., MUMBAI VS ACIT IN ITA NOS. 5779/MUM/2006 & ITA NO.208/MUM/2009, IT WAS HELD ON IDENTICAL FACTS AS UNDER: - .............. 5.3. ALSO IN THE CA SE OF CORRTECH ENERGY PVT. LTD. VS. DCIT IN ITA NO.208/AHD/2012 IT HAS BEEN HELD AS UNDER : - .... 4 ITA NO. 376, 377, 378 & 379 /NAG/2014 5.4 THUS RESPECTFULLY FOLLOWING THE DECISION OF JURISDICTIONAL HIGH COURT IN THE CASE OF DELIGHT ENTERPRISES AND THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS WINSOME TEXTILE INDUSTRIES LTD. (SUPRA) IT HAS BEEN HELD THAT SECTION 14A COULD HAVE NO APPLICATION AS THE ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME IN THE YEAR UNDER CONSIDERATION. FOR THE SAKE OF BREVITY, THE REPRODUCTION OF THE CASE L AWS HAS BEEN AVOIDED WHILE REPRODUCING THE RELEVANT PORTIONS FROM THE ORDER OF THE LEARNED CIT (A). NOW, THE REVENUE IS IN APPEAL BEFORE US. 4. FROM THE SIDE OF THE REVENUE, THE LEARNED DR, SMT. ANITA RUPAV A BATARAM APPEARED AND IN RESPECT OF GROUND NO.1, SHE PLEADED THAT ALTHOUGH SEVERAL DECISIONS ARE DISCUSSED IN FAVOUR OF THE ASSESSEE BUT THE FORMULA AS PRESCRIBED UNDER RULE 8D IS TO BE APPLIED IRRESPECTIVE OF THE FACT WHETHER AN EXEMPT INCOME HAS BEEN EARNED OR NOT. THE AO HAS RIGHTLY INVOKED THE PROVIS IONS OF SECTION 14A OF THE IT ACT. HENCE, THE ORDER OF THE FIRST APPELLATE AUTHORITY DESERVES TO BE REVERSED. 5. ON THE OTHER HAND, FROM THE SIDE OF THE RESPONDENT ASSESSE E, THE LEARNED AR, SHRI K. P. DE WANI APPEARED AND AT THE OUTSET PLACED RELIANCE ON T HE FOLLOWING DECISIONS: - (I) HONBLE BOMBAY HIGH COURT ORDER IN ITA NO.110 OF 2009 IN THE CASE OF M/S. DELITE ENTERPRISES VIDE ORDER DATED 26/02/2009 (II) HONBLE ALLAHABAD HIGH COURT ORDER IN ITA NO.88 OF 2014 IN THE CASE OF M/S. SHIVAM MOTORS (P) LTD. VI DE ORDER DATED 05/05/2014 (III) HONBLE PUNJAB & HARYANA HIGH COURT ORDER IN ITA NO.970 OF 2008 (O&M) IN THE CASE OF M/S. LAKHANI MARKETING INCL. VIDE ORDER DATED 02/04/2014 (IV) (2014) 272 CTR 0262 (GUJ.) CIT - I VS CORRTECH ENERGY PVT. LTD. (V) HONBLE DE LHI HIGH COURT ORDER IN ITA NO.749/2014 IN THE CASE OF CHEMINVEST LIMITED VIDE ORDER DATED 02/09/2015 5 ITA NO. 376, 377, 378 & 379 /NAG/2014 6. WE HAVE HEARD BOTH THE SIDES AT SOME LENGTH AND CAREFULLY PERUSED THE ORDERS OF THE AUTHORITIES BELOW IN THE LIGHT OF THE PRECEDENCE CITED. AS FAR AS T HE EXEMPTION FOR THE YEARS UNDER CONSIDERATION WERE CONCERNED, IT WAS AN ADMITTED FACTUAL POSITION THAT THE AO HAS NOT MENTIONED ANY SUCH AMOUNT. MEANING THEREBY, THERE WAS NO EXEMPT INCOME EARNED BY THE ASSESSEE FOR THE YEARS UNDER CONSIDERATION. IN REPLY TO ONE OF OUR QUESTIONS, THE L EARNED AR, MR. K. P. DE WANI HAS ALSO MADE A STATEMENT AT BAR THAT NO DIVIDEND WAS DECLARED, HENCE, THERE WAS NO EARNING OF EXEMPTED DIVIDEND INCOME. HE HAS ALSO CLARIFIED THAT FOR THE PURPOSE OF INVOCATION OF THE PROVISIONS O F SECTION 14A OF THE IT ACT, THE AO HAS APPLIED THE FORMULA ONLY IN RESPECT OF DISALLOWANCE OF PROPORTIONATE INTEREST EXPENDITURE. THERE WAS NO ALLEGATION OF THE AO THAT THE EXEMPT INCOME WAS EARNED BY THE ASSESSEE. IN THE LIGHT OF THE UNDISPUTED FINDING O N FACTS, WE HAVE PERUSED THE DECISION OF THE HONBLE COURTS. WE MAY LIKE TO MENTION THAT A VIEW HAS BEEN EXPRESSED CONSISTENTLY THAT IF THERE IS NO EXEMPTED PROFIT THEN THERE IS NO QUESTION OF INVOCATION OF THE PROVISIONS OF SECTION 14A OF THE IT ACT BUT, WE HAVE ALSO CAREFULLY PERUSED THAT VERY DECISION OF THE TRIBUNAL NAMELY CHEMINVEST LTD. (SUPRA) WAS REVERSED BY THE HONBLE DELHI HIGH COURT, COPY PLACED IN THE COMPILATION. THE HONBLE DELHI HIGH COURT IN ITA NO.749/2014 VIDE ORDER DATED 0 2 - 09 - 2015 TITLED AS CHEMINVEST LTD. VS CIT HAS DECIDED THE SUBSTANTIAL QUESTION OF LAW THAT WHETHER DISALLOWANCE U/S 14A OF THE ACT CAN BE MADE IN A YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE ASSESSEE. THE FINAL VERDICT WAS AS UND ER: - 23. IN THE CONTEXT OF THE FACTS ENUMERATED HEREINBEFORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF THE ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WH ICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DU RING THE RELEVANT PREVIOUS YEAR. 6 ITA NO. 376, 377, 378 & 379 /NAG/2014 7. IN SHORT, IN A SITUATION WHEN THAT VERY ORDER OF THE TRIBUNAL WHICH WAS THE BASIS FOR INVOCATION OF THE PROVISIONS OF SECTION 14A OF THE IT ACT GOT REVERSED BY THE HONBLE DELHI HIGH COURT, HENCE, THE VERY SAID BASIS DO NOT SURVIVE ANY MORE. AS A RESULT, WE HEREBY CONFIRM THE FINDINGS OF THE LEARNED CIT (A) ON THIS ISSUE. WE HEREBY ALSO HOLD THAT IN VIEW OF THE NUMBERS OF DECISIONS ON THIS ISSUE IN FAVOUR OF THE TAX PAYERS, WE FIND NO FORCE IN THIS GROUND OF APPEAL OF TH E REVENUE. THE SAME IS DISMISSED. 8. REST OF THE GROUNDS OF APPEAL ARE IN RESPECT TO DISALLOWANCE OF PROPORTIONATE INTEREST INCOME AS WELL AS REOPENING OF THE ASSESSMENT U/S 147 OF THE IT ACT. WHEN, A VIEW HAS ALREADY BEEN TAKEN BY US THAT THE ADDITIONS I N QUESTION DO NOT SURVIVE, THEREFORE, REST OF THE GROUNDS OF APPEAL HAVE BECOME REDUNDANT, THEREFORE, DESERVE TO BE DISMISSED. RATHER IT APPEARS THAT OUT OF ABUNDANT PRE - CAUTION, THE REVENUE HAS RAISED REST OF THE GROUNDS. HOWEVER, THE MAIN ISSUE EMANATING IN THESE APPEALS WAS ONLY IN RESPECT OF INVOCATION OF THE PROVISIONS OF SECTION 14A OF THE IT ACT WHEN THERE IS NO EXEMPTED INCOME EARNED BY THE ASSESSEE. WE HAVE ALREADY ADDRESSED THIS ISSUE. HENCE, THERE IS NO REQUIREMENT OF ADJUDICATION OF THE REST OF THE GROUNDS OF APPEAL. THE SAME ARE HEREBY DISMISSED ON BECOMING REDUNDANT. 9. IN THE RESULT, THE REVENUES APPEAL S ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 4 TH DAY OF DECEMBER, 2015. SD/ - SD/ - (SHAMIM YAHYA) (MUKUL K. SHRAWAT) ACCOUNTANT MEMBER JUDICIAL MEMBER NAGPUR, DATED: 4 TH DECEMBER, 2015. LAKSHMIKANT DEKA/SR. PS 7 ITA NO. 376, 377, 378 & 379 /NAG/2014 COPY FORWARDED TO : 1. APPELLANT 2. RESPONDENT 3. C.I.T., CONCERNED 4. CIT ( APPEALS) - I, NAGPUR. 5. D.R., ITAT, NAGPUR. 6. GUARD FILE TRUE COPY B Y ORDER ASSISTANT REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, NAGPUR BENCH, NAGPUR. DATE INITIAL ORIGINAL DICTATION PAD & DRAFT ARE ENCLOSED IN THE FILE 1. DRAFT DICTATED ON 01.12.2015 SR.PS 2. DRAFT PLACED BEFORE AUTHOR 02.12.2015 SR.PS 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER JM/AM 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER JM/AM 5. APPROVED DRAFT COMES TO THE SR.PS/PS 0 3 .12.2015 SR.PS 6. DATE OF PRONOUNCEMENT 04.12.2015 SR.PS 7. FILE SENT TO THE BENCH CLERK 04.12.2015 SR.PS 8. DATE ON WHICH FILE GOES TO THE HEAD CLERK 9. DATE OF DISPATCH OF ORDER