SHRI RAKESH KUMAR GUPTA, JALANDHAR V. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-4, JALANDHAR

ITA 398/ASR/2018

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 7113 (ITAT-AMRITSAR)
• Duration Of Justice: 6 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-01-2019
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Assessment Year: 2013-2014
• Appeal Filed On: 25-06-2018
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: LALIT MOHAN JINDAL
• Keywords: Earning of tax free income
• Section: 143(3); 14A; 263

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CAMP BENCH AT JALANDHAR BEFORE SHRI. N.K. SAINI, HON'BLE VICE PRESIDENT AND SHRI. RAVISH SOOD, JUDICIAL MEMBER ITA NOS. 398 & 225/ASR/2018 A.YS. 2013-14 & 2012-13 SH RAKESH KUMAR GUPTA, H.NO. 30, MOHALLA NO. 9, JALANDHAR CANTT. JALANDHAR THE DCIT, CIRCLE-4, JALANDHAR ./PAN NO:AENPG1409G / APPELLANT /RESPONDENT ASSESSEE BY: SHRI SUDHIR SEHGAL REVENUE BY: SH LALIT MOHAN JINDAL, D.R DATE OF HEARING: 15.01.2019 DATE OF PRONOUNCEMENT: 17.01.2019 O R D E R PER N.K. SAINI, VICE PRESIDENT: THESE TWO APPEALS BY THE ASSESSEE ARE DIRECTED AGAI NST THE SEPARATE ORDERS DATED 03.5.2018 & 09.3.2018 FOR ASS ESSMENT YEARS 2013-14 AND 2012-13 RESPECTIVELY OF THE COMMISSIONE R OF INCOME TAX- 2, JALANDHAR [HEREINAFTER REFERRED TO AS CIT(A)]. 2. AT THE FIRST INSTANCE, WE WILL DEAL WITH THE APP EAL IN ITA NO. 398/ASR/2018 FOR THE ASSESSMENT YEAR 2013-14. THE FOLLOWING GRO UNDS HAVE BEEN RAISED IN THIS APPEAL:- P A G E | 2 ITA NOS. 398 & 225/ASR/2018 SH RAKESH KUMAR GUPTA, JALANDHAR 1. THAT THE LD. CIT(A) HAS ERRED IN DISMISSING THE APPEAL FILED BY THE APPELLANT. 2. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION ON ACCOUNT OF DISALLOWANCE U/S 14A AMOUNTING TO RS. 8,94,496/- WITHOUT ANY BASIS. 3. THAT THE LD. CIT(A) HAS ERRED IN NOT CONSIDERING A ND IGNORING THE SUBMISSIONS AND FACTS AS FILED BEFORE HIM AS WELL AS BEFORE THE ASSESSING OFFICER. 4. THAT THE LD. CIT(A) HAS APPLIED A JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD REPORTED IN [2018] 91 TAXMAN.COM 154 WHICH IS NOT APPLICABLE UPON THE APPELLANT. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD OR AMEND THE GROUNDS OF APPEAL BEFORE THE APPEAL IS FINALLY HEA RD OR DISPOSED OFF. 3. FROM THE ABOVE GROUNDS, IT IS GATHERED THAT THE ONLY GRIEVANCE OF THE ASSESSEE RELATES TO THE CONFIRMATION OF ADDITIO N AMOUNTING TO RS. 8,94,496/- MADE BY THE ASSESSING OFFICER ON ACCOUN T OF DISALLOWANCE U/S 14A OF THE INCOME TAX ACT, 1961 (FOR SHORT 'THE ACT'). 4. THE FACTS OF THE CASE IN BRIEF ARE THAT THE ASSE SSEE FILED THE RETURN OF INCOME DECLARING AN INCOME OF RS. 1,01,18,670/- WHICH WAS ORIGINALLY ASSESSED ON 13.7.2015 U/S 143(3) OF THE I.T. ACT AT AN INCOME OF RS. 1,13,43,103/-. HOWEVER, THE SAID ASSESSMENT WAS SET ASIDE BY THE PRINCIPAL COMMISSIONER OF INCOME TAX-2, JALANDHAR V IDE ORDER DATED 5.5.2017 U/S 263 OF THE ACT AND ASSESSING OFFICER W AS DIRECTED TO PASS THE FRESH ORDER. IN PURSUANCE OF THE SAID DIRECTION S, THE ASSESSING OFFICER ASKED THE ASSESSEE TO EXPLAIN AS TO WHY DIS ALLOWANCE U/S 14A OF THE ACT BE NOT MADE AS PER RULE 8D CONSIDERING THE INVESTMENT OF RS. P A G E | 3 ITA NOS. 398 & 225/ASR/2018 SH RAKESH KUMAR GUPTA, JALANDHAR 1,76,85,898/- IN THE SHARES OF THE COMPANIES. THE A SSESSEE SUBMITTED THAT NO DISALLOWANCE WAS CALLED FOR AS THE INVESTME NTS WERE OLD WHICH WERE MADE OUT OF OWN FUNDS AND THERE WAS NO EXEMPT INCOME RECEIVED FOR SUCH INVESTMENTS. HOWEVER, THE ASSESSING OFFICE R DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND MADE THE DIS ALLOWANCE OF RS. 8,94,496/-. 5. BEING AGGRIEVED, THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND REITERATED THE SUBMISSIONS MADE BEFORE THE ASSE SSING OFFICER. RELIANCE WAS ALSO PLACED ON THE JUDGEMENT OF THE HO N'BLE SUPREME COURT IN THE CASE OF MAXOPP INVESTMENT LTD REPORTED AT 91 TAXMAN COM 154. IT WAS ALSO STATED THAT THE TOTAL EXEMPT INCO ME EARNED ON ACCOUNT OF DIVIDEND WAS ONLY RS. 25,520/- IN THIS YEAR. THE LD. CIT(A), HOWEVER, DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESS EE AND SUSTAINED THE DISALLOWANCE MADE BY THE ASSESSING OFFICER. NOW, TH E ASSESSEE IS IN APPEAL BEFORE US. 6. THE LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THAT THI S ISSUE IS NOW SQUARELY COVERED BY THE FOLLOWING JUDGEMENTS / CASE LAWS:- 1. COMMISSIONER OF INCOME TAX VS KAPSONS ASSOCIATES 381 ITR 204 (P&H) 2. M/S EMPIRE PACKAGES (P) LTD VS DCIT ITA NO. 1186/CHD/2013, ITAT, CHANDIGARH 3. CIT VS M/S LAKHANI MARKETING INCL. 272 CTR 265 (P&H) P A G E | 4 ITA NOS. 398 & 225/ASR/2018 SH RAKESH KUMAR GUPTA, JALANDHAR 4. M/S BCL INDUSTRIES & INFRASTRUCTURE LTD VS DCIT, ITA NO. 1002/CHD/2013, ITAT, CHANDIGARH 5. M/S COSMAS INFRASTRUCTURE ENGINEERING (INDIA) LT D VS DCIT, ITA NO. 486/CHD/2015, ITAT CHANDIGARH 6. CIT VS MAX INDIA LTD ITA NO. 219 OF 2013 (P&H) 7. JOINT INVESTMENTS (P) LTD VS CIT ITA NO. 117 OF 2015, DELHI HIGH COURT 8. M/S TRIDENT LTD VS ACIT, ITA NO. 173/CHD/2016, ITAT, CHANDIGARH 9. M/S PUNJAB STATE INDUSTRIAL CORPORATION LTD VS A CIT, ITA NO. 889/CHD/2017, ITAT, CHANDIGARH 7. IN HIS RIVAL SUBMISSIONS, THE LD. DEPARTMENTAL R EPRESENTATIVE (FOR SHORT 'D.R') SUPPORTED THE ORDERS OF THE AUTHORITIE S BELOW. 8. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. IN THE PR ESENT CASE, THE LD. CIT(A) HIMSELF ADMITTED THAT THE ASSESSEE EARNED EX EMPT INCOME OF RS. 25,520/- ON ACCOUNT OF DIVIDEND. 9. ON A SIMILAR ISSUE, THE HON'BLE JURISDICTIONAL H IGH COURT IN THE CASE OF CIT VS LAKHANI MARKETING INC. (SUPRA) HELD THAT UNLESS AND UNTIL THERE IS A RECEIPT OF EXEMPT INCOME, SECTION 14A OF THE ACT CANNOT BE INVOKED. 10. A SIMILAR ISSUE HAS ALSO DECIDED BY THE ITAT BE NCH B CHANDIGARH IN ITA NO. 889/CHD/2017 FOR ASSESSMENT YEAR 2012-13 IN THE CASE OF PUNJAB STATE INDUSTRIAL CORPORATION LTD ., CHANDIGARH VS P A G E | 5 ITA NOS. 398 & 225/ASR/2018 SH RAKESH KUMAR GUPTA, JALANDHAR ACIT, CIRCLE 2(1), CHANDIGARH VIDE ORDER 21.9.2017 , WHEREIN, IT HAS BEEN HELD AS UNDER:- 8. BUT AT THE SAME TIME WE FIND THAT THE CIT(A) HA S MISUNDERSTOOD THE ORDER OF THE ITAT. THE ITAT HAD AFTER DEALING W ITH BOTH THE DISALLOWANCES MADE U/R 8D 2(II) &(III) CONCLUDED BY HOLDING THAT THE DISALLOWANCE U/S 14A SHOULD IN NO CASE EXCEED THE A MOUNT OF EXEMPT INCOME AND HAD RELIED UPON THE DECISION OF T HE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS CIT(2015) 3 78 ITR AND CIT VS HOLCIM 5 INDIA PVT. LTD.(2014) 90 CCH 81 (DEL). THE RELEVANT FINDINGS OF THE ITAT ARE AS UNDER, AS REPRODUCED IN THE ORDER OF THE CIT(A) ALSO : WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED TH E RELEVANT MATERIAL ON RECORD. THERE IS NO DOUBT ABOU T THE RECORDING OF SATISFACTION BY THE AO IN TERMS OF SEC TION 14A(2). IN SO FAR AS THE QUANTUM OF DISALLOWANCE IS CONCERNED, RULE 8D IS ADMITTEDLY APPLICABLE FROM TH E ASSESSMENT YEAR 2008-09, WHICH IS THE YEAR UNDER CONSIDERATION. IN THAT VIEW OF THE MATTER, NO FAULT CAN BE FOUND WITH THE AO/CIT(A) RESORTING TO RULE 8D FOR T HE PURPOSE OF MAKING DISALLOWANCE. THIS DISALLOWANCE H AS BEEN MADE IN TWO PARTS. THE FIRST IS UNDER CLAUSE ( III) OF RULE 8D(2) TOWARDS ADMINISTRATIVE EXPENSES AT THE R ATE OF ONE HALF PERCENT OF THE AVERAGE OF THE VALUE OF INVESTMENTS, INCOME FROM WHICH DOES NOT FORM PART O F THE TOTAL INCOME. THE ADDITION TO THIS EXTENT IS UP HELD AS THE SAME IS IN ACCORDANCE WITH THE STATUTORY MANDAT E. AS REGARDS, THE DISALLOWANCE UNDER CLAUSE (II) OF R ULE 8D(2), WE FIND THAT THE ASSESSEE CONTENDED BEFORE T HE LD. CIT(A) THAT SUCH DISALLOWANCE WAS NOT CALLED FO R. IN THIS REGARD WE FIND THAT THE HON'BLE BOMBAY HIGH CO URT IN CIT V/S RELIANCE UTILITIES AND POWER LTD. (209) 313 ITR 340 (BOM) HAS HELD THAT IF THERE ARE INTEREST F REE FUNDS AVAILABLE WITH THE ASSESSEE SUFFICIENT TO MEE T ITS INVESTMENT AND, AT THE SAME TIME, LOAN HAS BEEN RAI SED, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM INTEREST FREE FUNDS AND, RESULTANTLY, NO DISALLOWAN CE OF INTEREST CAN BE MADE. IN DELETING THE DISALLOWANCE OF INTEREST, THE HON'BLE BOMBAY HIGH COURT RELIED ON T HE JUDGMENT OF HON 'BLE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS V/S CIT (1997) 224 ITR 627 (SC ). IT IS FURTHER NOTICES THAT THE HON'BLE BOMBAY HIGH COURT IN CIT V/S HDFC BANK LTD. (2014) 366 ITR P A G E | 6 ITA NOS. 398 & 225/ASR/2018 SH RAKESH KUMAR GUPTA, JALANDHAR 505 (BOM) , HAS HELD THAT WHERE ASSESSEE'S CAPITAL, PROFIT, AND RESERVES ETC. WERE HIGHER THAN THE INVESTMENT IN TAX FREE SECURITIES, IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND, CONSEQUENTLY, NO DISALLOWANCE COULD B E MADE U/S 14A OF THE ACT. SIMILAR VIEW HAS BEEN TAKE N IN SEVERAL CASES INCLUDING PRINCIPAL CIT V/S INDIA GELATINE & CHEMICALS LTD. (2015) 376 ITR 353 (GUJ). IT, ERGO, BECOMES MANIFEST THAT THE DISALLOWANCE OF INT EREST AS PER CLAUSE (II) CANNOT BE MADE STRAIGHT WAY WITH OUT EXAMINING THE IMPORTANT ASPECT AS HAS 6 BEEN DISCUSSED IN THE ABOVE DECISION, WHICH THE LD. CIT( A) FAILED TO TAKE NOTE OF. AS NECESSARY INFORMATION AB OUT THE AVAILABILITY OF SHAREHOLDERS' FUND VIS-A-VIS TH E AMOUNT INVESTED IN SHARES AND OTHER SECURITIES YIEL DING EXEMPT INCOME IS NOT AVAILABLE ON RECORD, WE SET AS IDE THE IMPUGNED ORDER AND REMIT THE MATTER TO FILE OF AO FOR COMPUTING THE DISALLOWANCE UNDER CLAUSE (I) RULE 8D (2), IF ANY, IN CONSONANCE WITH VIEW TAKEN IN RELIANCE UTILITIES (SUPRA) ETC. IT IS HOWEVER MADE CLEAR THAT IN NO CASE, THE TOTAL AMOUNT OF DISALLOWANCE U/S 14A SHOULD EXCEED THE AMOUNT OF EXEMPT INCOME AS HAS BEEN HELD BY THE HON 'BLE DELHI HIGH COURT IN CHEMINVEST LTD. V/S CIT(2015) 378 ITR (DEL) AND CIT V/S HOLCIM INDIA PVT. LTD. (2014) 90 CCH 081 DEL. HC. BOTH SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRCUMSTANCES OF THE FOLLOWING TWO YEARS IN APPEAL ARE MUTATIS MUTANDIS SIMILAR TO THOSE OF THE ASSESSMENT YEAF 2008-09. FOLLOWING THE VIEW TAKEN HEREINABOVE, WE SET ASIDE THE IMPUGNED ORDERS FOR THESE TWO YEAR S AS WELL AND REMIT THE MATTER TO THE FILE OF THE AO FOR COMPUTING THE DISALLOWANCE U/S 14A AS DIRECTED ABOV E IN RELATION TO THE ASSESSMENT YEAR 2008-09. ' 9. THE LD.CIT(A) HAS FOLLOWING THE AFORESAID ORDER, APPLIED THE RESTRICTION OF DISALLOWANCE TO THE EXTENT OF EXEMPT INCOME EARNED, ONLY TO THE DISALLOWANCE MADE U/R 8D2(II) WHILE UPH OLDING THE DISALLOWANCE MADE U/R 8D2(III) COMPLETELY. THIS, WE FIND HAS RESULTED IN THE DISALLOWANCE MADE U/S 14A EXCEEDING THE EXEMPT INCOME EARNED BY THE ASSESSEE, WHICH WITHOUT ANY DO UBT, WE HOLD IS NOT IN CONSONANCE WITH THE ORDER BY THE ITAT IN THE CASE OF THE ASSESSEE IN THE PRECEDING YEAR AND ALSO THE PROPOSI TION LAID DOWN P A G E | 7 ITA NOS. 398 & 225/ASR/2018 SH RAKESH KUMAR GUPTA, JALANDHAR BY THE VARIOUS DECISIONS OF THE HIGH COURT CITED BY THE ITAT IN ITS ORDER. 11. SO RESPECTFULLY FOLLOWING THE AFORESAID REFERRE D TO ORDER DATED 21.9.2017, WE DIRECT THE ASSESSING OFFICER TO RESTR ICT THE DISALLOWANCE U/S 14A OF THE ACT TO THE EXTENT OF EXEMPT INCOME C LAIMED BY THE ASSESSEE. 12. IN ITA NO. 225/ASR/2018, THE FACTS ARE SIMILAR AS WERE IN ITA NO. 398/ASR/2018 (SUPRA). THE ONLY DIFFERENCE IS IN THE AMOUNT OF DISALLOWANCE. THEREFORE, OUR FINDINGS GIVEN IN THE FORMER PART OF THIS ORDER SHALL APPLY MUTATIS-MUTANDIS TO THIS APPEAL A LSO. IN THE RESULT, THE APPEALS OF THE ASSESSEE ARE PART LY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 17.01.2019 SD/- SD/- ( RAVISH SOOD) ( N.K. SAINI) JUDICIAL MEMBER VICE PRESIDENT PLACE : JALANDHAR; DATED 17 .01.2019 RKK / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. DR, ITAT, CAMP BENCH, JALANDHAR 6. / GUARD FILE. //TRUE COPY// / BY ORDER, / (DY./ASSTT. REGISTRAR) , /ITAT, CAMP BENCH, JALANDHAR P A G E | 8 ITA NOS. 398 & 225/ASR/2018 SH RAKESH KUMAR GUPTA, JALANDHAR SR.NO. DETAILS DATE INITIALS DESIGNATIO N 1 DRAFT DICTATED ON 1 5 . 1 . 1 9 SR.PS/PS 2 DRAFT PLACED BEFORE AUTHOR 1 6 . 1 . 1 9 SR.PS/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 17.1.19 SR.PS/PS 6 KEPT FOR PRONOUNCEMENT ON 17.1.19 SR.PS/PS 7 FILE SENT TO THE BENCH CLERK 17.1.19 SR.PS/PS 8 DATE ON WHICH THE FILE GOES TO THE HEAD CLERK 9 DATE ON WHICH FILE GOES TO THE AR 10 DATE OF DISPATCH OF ORDER