Cosmos Infra Engineering (India) Ltd., Delhi V. DCIT, Ludhiana

ITA 409/CHANDI/2015

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 8892 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 8 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 24-05-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 17-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Recovery proceedings; Business income; Business expenditure; Earning of tax free income; Retrospective amendment
• Section: 14A; 115JB; 201(1); 56; 139

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCHES, CHANDIGARH BEFORE SH. N. K. SAINI, AM AND SH. RAVISH SOOD, JM ITA NO. 409/CHD./2015 : ASSTT. Y EAR : 2011-12 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD., 40 BATTERY LANE, RAJPUR ROAD, CIVIL LINES, DELHI VS DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, LUDHIANA (APPELLANT) (RESPONDENT) PAN NO. AAACC0017C ITA NO. 406/CHD./2015 : ASSTT. YEAR : 2011-12 ITA NO. 467/CHD./2016 : ASSTT. YEAR : 2012-13 DY. COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE-1, LUDHIANA VS COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD., 40 BATTERY LANE, RAJPUR ROAD, CIVIL LINES, DELHI (APPELLANT) (RESPONDENT) PAN NO. AAACC0017C ASSESSEE BY : SH. SUDHIR SEHGAL, ADV. REVENUE BY : SH. MANJ IT SINGH, DR DATE OF HEARING : 19.12.2016 DATE OF PRONOUNCEMENT : 21.12.2016 ORDER PER N. K. SAINI, AM: THE CROSS APPEALS BY THE ASSESSEE AND THE DEPARTMEN T FOR THE ASSESSMENT YEAR 2011-12 AND THE DEPARTMENTA L APPEAL FOR FOR THE ASSESSMENT YEAR 2012-13 ARE DIRECTED AG AINST THE ORDER DATED 27.01.2015 AND 23.02.2016 RESPECTIVELY PASSED THE LD. CIT(A)-5, LUDHIANA. 2. SINCE THE APPEALS WERE HEARD TOGETHER SO THESE A RE BEING DISPOSED OFF BY THIS CONSOLIDATED ORDER FOR THE SAK E OF CONVENIENCE AND BREVITY. ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 2 3. FIRST WE WILL DEAL WITH THE APPEAL OF THE ASSESS EE IN ITA NO. 409/CHD./2015. FOLLOWING GROUNDS HAVE BEEN RAIS ED IN THIS APPEAL: 1. THAT THE IMPUGNED APPELLATE ORDER IS BAD BOTH O N FACTS AND LAW TO THE EXTENT THAT THE ADDITIONS ARE CONFIRMED. 2. THAT THE LEARNED APPELLATE AUTHORITY WRONGLY AND ILLEGALLY CONFIRMED THE DISALLOWANCE OF THE INTERES T OF RS.58,649/- PAID TO M/S TATA CAPITAL LTD. U/S 40(A)(IA), ON ACCOUNT OF NON-DEDUCTION OF TDS AFTER IGNORING THE PROVISO TO SECTION 201(1) AND FURTHER IGNORED THE LEGAL PROPOSITION HELD BY THE APEX COUR T IN THE CASE OF HINDUSTAN COCO COLA BEVERAGES (P) LTD. 293 ITR 226. 3. THAT THE LEARNED APPELLATE AUTHORITY WRONGLY AND ILLEGALLY UPHELD THE LEVY OF TAX U/S 115JB AGAINST THE FACTS AND CIRCUMSTANCES OF THE CASE. 4. THAT THE APPELLANT CRAVES PERMISSION TO ELUCIDAT E, ADD, AMEND, MODIFY, DELETE ANY GROUND OR GROUNDS OF APPEAL BEFORE THE DISPOSAL IN THE INTEREST OF SUBSTANTIAL JUSTICE. 4. GROUND NOS. 1 & 4 ARE GENERAL IN NATURE SO DO NO T REQUIRE ANY COMMENTS ON OUR PART. 5. AS REGARDS TO GROUND NO. 3 RELATING TO LEVY OF T AX U/S 115JB OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFE RRED TO AS THE ACT). THE LD. LD. COUNSEL FOR THE ASSESSEE W AS FAIR ENOUGH TO CONCEDE THAT THIS ISSUE IS NOW AGAINST TH E ASSESSEE BY THE DECISION DATED 01.06.2016 OF ITAT SMC BENC H, CHANDIGARH IN ITA NOS.422 & 423/CHD./2016 FOR THE ASSESSMENT YEARS 2008-09 AND 2009-10 IN THE CASE OF M/S GEE CITY BUILDERS PVT. LTD. VS DCIT, CENTRAL CIRCLE -1, LUDHIANA (COPY OF THE SAID ORDER WAS FURNISHED WHIC H IS ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 3 PLACED ON RECORD). THE LD. DR IN HIS RIVAL SUBMISSI ONS SUPPORTED THE IMPUGNED ORDER OF THE LD. CIT(A). 6. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE P ARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE O N THE RECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAS B EEN DECIDED AGAINST THE ASSESSEE VIDE AFORESAID ORDER DATED 01. 06.2016 WHEREIN RELEVANT FINDINGS HAVE BEEN GIVEN IN PARAS 5 & 6 WHICH READ AS UNDER: '5. I HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PARTIES AND PERUSED THE MATERIAL ON RECORD. THE LD . COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE AUTHORITIES BELOW. THE LD. COUNSEL FOR THE ASSESSEE ADMITTED THAT ASSESSEE IS A COMPANY HAVING BUSINESS INCOME AS DEVELOPER. THE LD. COUNSEL FOR THE ASSESSEE ALSO ADMITTED THAT ASSESSE E DOES NOT EXIST IN SPECIAL ECONOMIC ZONE AND NO BUSINESS HAVE BEEN CARRIED OUT IN ANY SPECIAL ECONOMIC ZONE. THE LD. COUNSEL FOR THE ASSESSEE ALSO ADMITTED THAT ASSESSEE BEING A COMPANY IS LIABLE TO PAY TAX UNDER THE PROVISIONS OF SECTION 115JB(MAT). THE LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT COMPUTATION OF DEDUCTION UNDER SECTION 80IB(10) OF THE ACT IS NOT IN DISPUTE AND COMPUTATION UNDER MAT PROVISIONS ARE ALSO NOT IN DISPUTE. THE LD. COUNSEL FOR THE ASSESSEE MERELY SUBMITTED THAT ASSESSEE CARRIED ON THE BUSINESS IN A UNIT. THE LD. COUNSEL FOR THE ASSESSEE, HOWEVER , COULD NOT ESTABLISH FROM ANY EVIDENCE OR MATERIAL ON RECORD AS TO HOW THE ASSESSEE HAS CARRIED ON BUSINESS AS A DEVELOPER IN ANY UNIT. 6. THE LD. CIT(APPEALS) CONSIDERED THE SUBMISSIONS OF THE ASSESSEE AND NOTED THAT PROVISIONS OF SUB-SECTION (6) OF SECTION 115JB HAVE BEEN INSERTED BY THE SPECIAL ECONOMIC ZONES ACT, 2005 AND REPRODUCED THE DEFINITION OF UNIT FROM SAME ACT WHICH MEANS THE UNIT SET UP BY AN ENTREPRENEUR IN A SPECIAL ECONOMIC ZONE. NO OTHER ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 4 DEFINITION OF UNIT UNDER ANY CENTRAL ACT HAS BEEN PROVIDED BY THE LD. COUNSEL FOR THE ASSESSEE AND EVEN NO CASE LAW ON THIS ISSUE HAVE BEEN CITED. TH E LD. COUNSEL FOR THE ASSESSEE HAS GIVEN A DICTIONARY MEANING OF THE WORD UNIT AND SUBMITTED THAT THE WORD UNIT IS NOT RESTRICTED TO THE UNITS IN SPECI AL ECONOMIC ZONE ACT, 2005 BUT IS APPLICABLE TO UNITS AT ANY PLACE. THE CONTENTION OF LD. COUNSEL FOR TH E ASSESSEE HAS NO MERIT BECAUSE THESE ARE THE SPECIAL PROVISIONS PROVIDED FOR EXEMPTION TO THE BUILDERS ETC. WHO HAVE RAISED THE CONSTRUCTION OF UNITS IN SPECIAL ECONOMIC ZONE ONLY. SINCE THE ASSESSEE HAS NOT CARRIED ON ANY BUSINESS AS A DEVELOPER IN A UNI T ESTABLISHED IN SPECIAL ECONOMIC ZONE OR SPECIAL ECONOMIC ZONE, THEREFORE, PROVISIONS OF SECTION 115JB(6) WILL NOT APPLY IN THE CASE OF THE ASSESSEE . THE LD. CIT(APPEALS) GAVE A SPECIFIC FINDING OF FAC T THAT THE ASSESSEE IS NOT SITUATED IN A UNIT OR SPEC IAL ECONOMIC ZONE, THEREFORE, THE CASE OF THE ASSESSEE DOES NOT FALL UNDER SECTION 115JB(6) OF THE INCOME TAX ACT. FINDING OF FACT RECORDED BY LD. CIT(APPEALS) HAS NOT BEEN REBUTTED THROUGH ANY EVIDENCE OR MATERIAL ON RECORD.' 7. IN VIEW OF THE ABOVE, THIS ISSUE IS DECIDED AGAI NST THE ASSESSEE. 8. VIDE GROUND NO. 2, THE GRIEVANCE OF THE ASSESSEE RELATES TO THE CONFIRMATION OF DISALLOWANCE OF INTEREST OF RS.58,649/- MADE BY THE AO U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF NON-DEDUCTION OF TDS. 9. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE THA T DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO ASKED THE ASSESSEE TO EXPLAIN AS TO WHETHER TDS HAD BEEN DEDU CTED ON INTEREST PAID TO M/S TATA CAPITAL LTD. IN RESPONSE, THE ASSESSEE SUBMITTED THAT TDS COULD NOT BE DEDUCTED O N THE INTEREST PAID AMOUNTING TO RS.58,469/- TO M/A TATA CAPITAL ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 5 LTD. AS POST DATED CHEQUES WERE ISSUED AT THE TIME OF AVAILING CAR LOAN. HOWEVER, THE AO DID NOT FIND MER IT IN THE SUBMISSION OF THE ASSESSEE AND MADE THE DISALLOWANC E OF RS.58,469/- U/S 40(A)(IA) OF THE ACT. 10. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED THAT M/S TATA CAPITAL LTD. HAD FILED ITS RETURN OF INCOME AND PAID THE DUE TAX ON IMPUGNED AMOUNT OF INTEREST. THEREFORE, THE LIABILITY ON ACC OUNT OF PAYMENT OF TDS STOOD DISCHARGED. 11. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE OBSERVED THAT THE LEGISLATIVE AMENDMENT RE LIED UPON BY THE ASSESSEE DID NOT HAVE RETROSPECTIVE EFFECT A ND WAS APPLICABLE FROM ASSESSMENT YEAR 2013-14 ONWARDS AND NOT FOR THE YEAR UNDER CONSIDERATION. HE, THEREFORE, CO NFIRMED THE DISALLOWANCE MADE BY THE AO. 12. NOW THE ASSESSEE IS IN APPEAL. THE LD. LD. COUN SEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND FURTHER SUBMITTED THAT THIS I SSUE IS COVERED BY THE DECISION OF THE HONBLE DELHI HIGH C OURT IN THE CASE OF CIT-1 VS ANSAL LAND MARK TOWNSHIP PVT. LTD. IN ITA 160/2015 ORDER DATED 26.08.2015 (COPY OF THE SA ID ORDER WAS FURNISHED WHICH IS PLACED ON RECORD). IT WAS FU RTHER SUBMITTED THAT THIS ISSUE IS ALSO COVERED BY THE DE CISION OF THE ITAT CHANDIGARH BENCH IN ITA NO. 1021/CHD./2013 FOR THE ASSESSMENT YEAR 2012-13 IN THE CASE OF ACIT (TD S), CHANDIGARH VS M/S PUNJAB INFRASTRUCTURE DEVELOPMENT BOARD, CHANDIGARH ORDER DATED 27.10.2015. ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 6 13. IN HIS RIVAL SUBMISSIONS, THE LD. DR SUPPORTED THE ORDER OF THE AUTHORITIES BELOW. 14. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE O N THE RECORD. IT IS NOTICED THAT AN IDENTICAL ISSUE HAVIN G SIMILAR FACTS HAS ALREADY BEEN ADJUDICATED BY THE ITAT CHAN DIGARH BENCH IN THE CASE OF ACIT (TDS), CHANDIGARH VS M/S PUNJAB INFRASTRUCTURE DEVELOPMENT BOARD, CHANDIGARH (SUPRA ) WHEREIN THE JUDGMENT OF THE HONBLE DELHI HIGH COUR T IN THE CASE OF CIT-1 VS ANSAL LAND MARK TOWNSHIP PVT. LTD. (SUPRA) HAS BEEN FOLLOWED AND THE ISSUE WAS RESTORE D BACK TO THE FILE OF THE LD. CIT(A). THE RELEVANT FINDINGS H AVE BEEN GIVEN IN PARAS 3 & 4 OF THE SAID ORDER WHICH READ A S UNDER: 3. DURING THE COURSE OF HEARING, OUR ATTENTION WAS INVITED TO AN ORDER OF I.T.A.T., CHANDIGARH BENCH I N ASSESSEES OWN CASE FOR VARIOUS ASSESSMENT YEARS STARTING FROM ASSESSMENT YEAR 2007-08 TO 2011-12. WHILE ADJUDICATING THE SIMILAR ISSUE THE HON'BLE I.T.A.T., CHANDIGARH BENCH UPHELD THE ORDER OF THE LEARNED CIT (APPEALS) OBSERVING AS UNDER: 6. WE HAVE HEARD THE RIVAL SUBMISSIONS AND HAVE ALSO PERUSED THE MATERIALS AVAILABLE ON RECORD. SHRI DEEPAK AGGARWAL, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT IN THE INSTANT CASE THE CONCESSIONAIRE / PAYEE INCLUDED THE AMOUNT OF GRANT MADE BY THE ASSESSEE IN HIS RETURN OF INCOME AND HAD ALREADY PAID TAXES ON THE RETURNED INCOME AS PER THE REGULARLY FOLLOWED ACCOUNTING POLICY AND, THEREFORE, PRESENT CASE IS SQUARELY COVERED BY THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGE (P) LTD VS. CIT IN [2007] 293 ITR 226 (SC), WHEREIN THE HON'BLE SUPREME COURT HELD THAT WHERE THE PAYEE HAS ALREADY PAID TAX ON THE INCOME ON WHICH THERE WAS A SHORT DEDUCTION ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 7 OF TAX AT SOURCE, RECOVERY OF TAX CANNOT BE MADE ONCE AGAIN FROM THE TAX DEDUCTOR. SHRI DEEPAK AGGARWAL, LD. COUNSEL FOR THE ASSESSEE STATED AT THE BAR THAT THE PAYEE (M/S ROHAN RAJDEEP TOLLWAYS LTD.) - I) HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139; (II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME; AND (III) HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME; AND HE HAS FURNISHED A CERTIFICATE TO THIS EFFECT FROM AN ACCOUNTANT AS PER THE FIRST PROVISO TO SECTION 201(1) OF THE ACT. IT IS TRUE THAT IN TH E CASE OF HINDUSTAN COCA COLA BEVERAGE (P) LTD V CIT (SUPRA), THE HON'BLE SUPREME COURT HELD THAT WHERE THE ASSESSEE HAS ALREADY PAID TAX ON THE INCOME ON WHICH THERE WAS A SHORT DEDUCTION OF AT SOURCE, RECOVERY OF TAX CANNOT BE MADE ONCE AGAIN FROM THE TAX DEDUCTOR. THE RELEVANT OBSERVATIONS OF THE HON'BLE SUPREME COURT ARE AS UNDER:- I) THAT SINCE THE DEPARTMENT DID NOT CHALLENGE THE ORDER OF THE TRIBUNAL RECALLING ITS EARLIER ORDER, THAT ORDER ATTAINED FINALITY AND THE HIGH COURT COULD NOT INTERFERE WITH THE FINAL ORDER; (II) WITHOUT DECIDING THE QUESTION WHETHER THE APPELLATE TRIBUNAL COULD HAVE REOPENED THE APPEAL FOR RECTIFYING AN ERROR APPARENT ON THE RECORD, THAT, IN VIEW OF CIRCULAR NO. 275/201/95- IT(B) DATED JANUARY 29, 1997, AND SINCE THE ASSESSEE HAD PAID THE INTEREST UNDER SECTION 201(1A) AND THERE WAS NO DISPUTE THAT THE TAX DUE HAD BEEN PAID BY THE DEDUCTEE (PRADEEP OIL), THE APPELLATE TRIBUNAL CAME TO THE RIGHT CONCLUSION THAT THE TAX COULD NOT BE RECOVERED ONCE AGAIN FROM THE ASSESSEE. 7. WE ALSO OBSERVE HERE THAT THE ISSUE INVOLVED IS SQUARELY COVERED BY THE DECISION OF HON'BLE DELHI HIGH COURT DATED 26.8.2015 IN THE CASE OF CIT VS. ANSAL LAND MARK TOWNSHIP (P) LTD IN ITA NO. 162 OF 2015. THE ISSUE RAISED BY THE REVENUE BEFORE THE HON'BLE DELHI HIGH COURT PERTAIN TO ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 8 THE RETROSPECTIVITY OF THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT WHICH READS AS UNDER:- PROVIDED FURTHER THAT WHERE AN ASSESSEE FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII- B ON ANY SUCH SUM BUT IS NOT DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER THE FIRST PROVISO TO SUB-SECTION (1) OF SECTION 201, THEN, FOR THE PURPOSE OF THIS SUB-CLAUSE, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO THE HON'BLE DELHI HIGH COURT HAS HELD THAT WHAT IS COMMON TO BOTH THE PROVISOS TO SECTION 40(A)(IA) AND SECTION 201 (1) OF THE ACT IS THAT AS LONG AS T HE PAYEE / RESIDENT HAS FILED ITS RETURN OF INCOME DISCLOSING THE PAYMENT RECEIVED BY AND IN WHICH THE INCOME EARNED BY IT IS EMBEDDED AND HAS ALSO PAID TAX ON SUCH INCOME, THE ASSESSEE WOULD NOT BE TREATED AS A PERSON IN DEFAULT. THE RELEVANT OBSERVATIONS OF THE HON'BLE DELHI HIGH COURT ARE AS UNDER:- 8. IT IS SEEN THAT THE ISSUE IN THESE AYS ARISES I N THE CONTEXT OF THE DISALLOWANCE BY THE ASSESSING OFFICER OF THE PAYMENT MADE BY THE RESPONDENT ASSESSEE TO ANSAL PROPERTIES AND INFRASTRUCTURE LTD. (APIL ) WHICH PAYMENT, ACCORDING TO THE REVENUE, OUGHT TO HAVE BEEN MADE ONLY AFTER DEDUCTING TAX AT SOURCE UNDER SECTION 194J OF THE ACT. BEFORE THE ITAT, IT WAS URGED BY THE ASSESSEE THAT IN VIEW OF THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A)(IA) OF THE ACT, THE PAYMENT MADE COULD NOT HAVE BEEN DISALLOWED. RELIANCE WAS PLACED ON THE DECISION OF THE AGRA BENCH OF ITAT IN ITA NO. 337/AGRA/2013 (RAJIV KUMAR AGARWAL V. ACIT) IN WHICH IT WAS HELD THAT THE SECOND PROVISO TO SECTION 40 (A) (IA) OF THE ACT IS DECLARATORY AND CURATIVE IN NATURE AND SHOULD BE GIVEN RETROSPECTIVE EFFECT FROM 1ST APRIL 2005. ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 9 9. IT IS SEEN THAT THE SECOND PROVISO TO SECTION 40(A)(IA) WAS INSERTED BY THE FINANCE ACT 2012 WITH EFFECT FROM 1ST APRIL 2013. THE EFFECT OF THE SAID PROVISO IS TO INTRODUCE A LEGAL FICTION WHERE AN ASSESSEE FAILS TO DEDUCT TAX IN ACCORDANCE WITH THE PROVISIONS OF CHAPTER XVII B. WHERE SUCH ASSESSEE IS DEEMED NOT TO BE AN ASSESSEE IN DEFAULT IN TERMS OF THE FIRST PROVISO TO SUB-SECTIO N (1) OF SECTION 201 OF THE ACT, ITA NO. 160 & 161/2015 PAGE 5 OF 10 THEN, IN SUCH EVENT, IT SHALL BE DEEMED THAT THE ASSESSEE HAS DEDUCTED AND PAID THE TAX ON SUCH SUM ON THE DATE OF FURNISHING OF RETURN OF INCOME BY THE RESIDENT PAYEE REFERRED TO IN THE SAID PROVISO. 10. IT IS POINTED OUT BY LEARNED COUNSEL FOR THE REVENUE THAT THE FIRST PROVISO TO SECTION 201 (1) OF THE ACT WAS INSERTED WITH EFFECT FROM 1 ST JULY 2012. THE SAID PROVISO READS AS UNDER: PROVIDED THAT ANY PERSON, INCLUDING THE PRINCIPAL OFFICER OF A COMPANY, WHO FAILS TO DEDUCT THE WHOLE OR ANY PART OF THE TAX IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT- (I) HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139; (II) HAS TAKEN INTO ACCOUNT SUCH SUM FOR COMPUTING INCOME IN SUCH RETURN OF INCOME; AND (III) HAS PAID THE TAX DUE ON THE INCOME DECLARED BY HIM IN SUCH RETURN OF INCOME; AND THE PERSON FURNISHES A CERTIFICATE TO THIS EFFECT FROM AN ACCOUNTANT IN SUCH FORM AS MAY BE PRESCRIBED. 11. THE FIRST PROVISO TO SECTION 201 (1) OF THE ACT HAS BEEN INSERTED TO BENEFIT THE ASSESSEE. IT ALSO ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 10 STATES THAT WHERE A PERSON FAILS TO DEDUCT TAX AT SOURCE ON THE SUM PAID TO A RESIDENT OR ON THE SUM CREDITED TO THE ACCOUNT OF A RESIDENT SUCH PERSON SHALL NOT BE DEEMED TO BE AN ASSESSEE IN DEFAULT IN RESPECT OF SUCH TAX IF SUCH RESIDENT HAS FURNISHED HIS RETURN OF INCOME UNDER SECTION 139 OF THE ACT. NO DOUBT, THERE IS A MANDATORY REQUIREMENT UNDER SECTION 201 TO DEDUCT TAX AT SOURCE UNDER CERTAIN CONTINGENCIES, BUT THE INTENTION OF THE LEGISLATURE IS NOT TO TREAT THE ASSESSEE AS A PERSON IN DEFAULT SUBJECT TO THE FULFILLMENT OF THE CONDITIONS AS STIPULATED IN THE FIRST PROVISO TO SECTION 201(1). THE INSERTION OF THE SECOND PROVISO TO SECTION 40(A) (IA) ALSO REQUIRES TO BE VIEWED IN THE SAME MANNER. THIS AGAIN IS A PROVISO INTENDED TO BENEFIT THE ASSESSEE. THE EFFECT OF THE LEGAL FICTION CREATED THEREBY IS TO TREAT THE ASSESSEE AS A PERSON NOT IN DEFAULT OF DEDUCTING TAX AT SOURCE UNDER CERTAIN CONTINGENCIES. 12. RELEVANT TO THE CASE IN HAND, WHAT IS COMMON TO BOTH THE PROVISOS TO SECTION 40 (A) (IA) AND SECTION 201 (1) OF THE ACT IS THAT THE AS LONG AS THE PAYEE/RESIDENT (WHICH IN THIS CASE IS ALIP) HAS FILED ITS RETURN OF INCOME DISCLOSING THE PAYMENT RECEIVED BY AND IN WHICH THE INCOME ITA NO. 160 & 161/2015 PAGE 7 OF 10 EARNED BY IT IS EMBEDDED AND HAS ALSO PAID TAX ON SUCH INCOME, THE ASSESSEE WOULD NOT BE TREATED AS A PERSON IN DEFAULT. AS FAR AS THE PRESENT CASE IS CONCERNED, I T IS NOT DISPUTED BY THE REVENUE THAT THE PAYEE HAS FILED RETURNS AND OFFERED THE SUM RECEIVED TO TAX. 8. THE HON'BLE DELHI HIGH COURT HAS HELD INSERTION OF SECOND PROVISO TO SECTION 40(A)(IA) IS DECLARATORY AND CURATIVE IN NATURE AND IT HAS RETROSPECTIVE EFFECT FROM 1ST APRIL, 2005, BEING THE DATE FROM WHICH SUB CLAUSE (IA) OF SECTION 40(A) WAS INSERTED BY THE FINANCE (NO. 2) ACT, 2004. IN THE ABOVE DECISION, THE HON'BLE HIGH COURT HAS CATEGORICALLY HELD THAT NO DOUBT THERE IS A MANDATORY REQUIREMENT U/S 201 TO DEDUCT TAX AT SOURCE UNDER CERTAIN CONTINGENCIES, BUT THE ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 11 INTENTION OF THE LEGISLATURE IS NOT TO TREAT THE ASSESSEE AS A PERSON IN DEFAULT SUBJECT TO THE FULFILLMENT OF THE CONDITIONS AS STIPULATED IN THE FIRST PROVISO TO SECTION 201(1). THE FIRST PROVISO TO SECTION 201(1) OF THE ACT WAS INSERTED W.E.F. 1.7.2012. THE HON'BLE DELHI HIGH COURT HAS CATEGORICALLY HELD THAT INSERTION OF THE SECOND PROVISO TO SECTION 40(A) (IA) ALSO REQUIRES TO BE VIEWED IN THE SAME MANNER. ACCORDING TO HONBLE HIGH COURT THIS AGAIN IS A PROVISO INTENDED TO BENEFIT THE ASSESSEE. THE HON'BLE HIGH COURT RULED THAT THE SECOND PROVISO TO SECTION 40 (A) (IA) OF THE ACT IS DECLARATORY AND CURATIVE IN NATURE AND SHOULD BE GIVEN RETROSPECTIVE EFFECT FROM IST APRIL 2005. RESPECTFULLY FOLLOWING THE JUDGEMENT OF THE HON'BLE SUPREME COURT IN THE CASE OF HINDUSTAN COCA COLA BEVERAGE P. LTD VS. CIT (SC) AND ALSO THE RECENT DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CASE CIT VS. ANSAL LAND MARK TOWNSHIP (P) LTD (SUPRA), WE DO NOT FIND ANY MERITS IN THE APPEAL OF THE REVENUE AND HENCE THE SAME IS DISMISSED. 9. AS REGARDS THE INTEREST U/S 201(1) (1A) OF THE ACT, SHRI DEEPAK AGGARWAL, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT RECIPIENT / PAYEE (M/S ROHAN RAJDEEP TOLLWAYS LTD HAS SUFFERED LOSS IN THE IMPUGNED ASSESSMENT YEAR. IT WAS CLAIMED BEFORE US THAT THE RECIPIENT / PAYEE HAD FILED THE RETURN FOR THE YEAR UNDER CONSIDERATION DECLARING LOSS, THEREFORE, NO INTEREST U/S 201(1A) IS REQUIRE D TO BE CHARGED FROM THE ASSESSEE (PAYER) FOR NOT DEDUCING TAX AT SOURCES. EVEN IF THE ASSESSEE HEREIN DEDUCTS / REMIT THE TDS AMOUNT ON THE INCOME PAID TO RECIPIENT / PAYEE, THE SAME IS LIABLE TO BE REFUNDED TO THE SAID RECIPIENT / PAYEE AND THERE IS NO TAX LIABILITY IN THEIR HANDS. IN OU R VIEW, THERE IS NO LOSS TO THE REVENUE. WHILE TAKING SUCH A VIEW WE ARE SUPPORTED BY THE DECISION OF ITAT, LUCKNOW BENCH IN THE CASE OF DCIT V SAHARA INDIA COMMERCIAL CORPORATION LTD (2015) 117 DTR (LUCKNOW)(TRIB) 59. IN VIEW OF THE ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 12 ABOVE, WE DO NOT FIND ANY MERIT IN THE APPEAL PREFERRED BY THE REVENUE. 4. THOUGH NO DISTINGUISHING FACTS WERE BROUGHT TO OUR NOTICE DURING THE YEAR, WE ALSO SEE THAT THE BASIS OF CONFIRMING THE ORDER OF THE LEARNED CIT (APPEALS) IN THE PRECEDING YEARS IS THE FACT THAT T HE PAYEE HAS DULY DEPOSITED THE TAX ON ITS INCOME EARNED FROM THE ASSESSEE TO THE GOVERNMENT EXCHEQUER. HOWEVER, IN THE YEAR UNDER CONSIDERATION, NO SUCH FACT AND NO MATERIAL RELATIN G TO THE SAME WERE BROUGHT TO OUR NOTICE AND NOT DISCUSSED BY THE LEARNED CIT (APPEALS). IN VIEW O F THIS, WE RESTORE THE ISSUE TO THE FILE OF THE LEARN ED CIT (APPEALS) FOR THE LIMITED PURPOSE OF VERIFYING THE FACT THAT THE PAYEE HAS DULY ADDED THE SAID AMOUNT IN ITS INCOME AND HAS PAID DUE TAXES THEREON OR NOT. IN CASE THE LEARNED CIT (APPEALS) FOUND TH E SAME AS TRUE, HE IS DIRECTED TO DELETE THE DEMAND S O RAISED. NO NEED TO ADD THAT THE ASSESSEE MAY B E GIVEN PROPER OPPORTUNITY TO ADDUCE THE EVIDENCES IN THIS REGARD. 15. SINCE THE FACTS RELATING TO THIS ISSUE IN ASSES SEE CASE ARE IDENTICAL TO THE FACTS INVOLVED IN THE CASE OF ACIT (TDS), CHANDIGARH VS M/S PUNJAB INFRASTRUCTURE DEVELOPMENT BOARD, CHANDIGARH (SUPRA), SO RESPECTFULLY FOLLOWIN G THE ORDER DATED 27.10.2015 IN ITA NO. 1021/CHD./2013 FO R THE ASSESSMENT YEAR 2012-13, THIS ISSUE IS SET ASIDE TO THE FILE OF THE LD. CIT(A) TO BE ADJUDICATED AS DIRECTED IN THE AFORESAID REFERRED TO CASE. 16. NOW WE WILL DEAL WITH THE DEPARTMENTAL APPEAL I N ITA NO. 406/CHD./2015 FOR THE ASSESSMENT YEAR 2011-12, THE ONLY EFFECTIVE GROUND RAISED THEREIN READ AS UNDER: WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE DECISION OF CIT(A) TO DELETE THE ADDITION ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 13 ON ACCOUNT OF DISALLOWANCE OF INTEREST U/S 14A READ WITH RULE 8D, IS CORRECT. 17. THE FACTS RELATED TO THIS ISSUE IN BRIEF ARE TH AT THE AO DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTICED THAT THE ASSESSEE IN ITS BALANCE SHEET HAD DECLARED INVESTME NT AMOUNTING TO RS.1,000/- AS AGAINST INVESTMENT OF RS .460.64 LACS SHOWN IN THE IMMEDIATE PRECEDING ASSESSMENT YE AR. THE AO OBSERVED THAT THE INVESTMENTS WERE CAPITAL IN NA TURE AND THE INCOME EARNED, IF ANY, FROM THOSE INVESTMENTS B Y WAY OF DIVIDEND ETC. WAS EXEMPT FROM TAXATION, AS SUCH THE EXPENDITURE INCURRED FOR PURCHASE OF SUCH INVESTMEN T WAS NOT ALLOWABLE DEDUCTION. THE AO ASKED THE ASSESSEE TO E XPLAIN AS TO WHY THE DISALLOWANCE IN ACCORDANCE WITH THE PROV ISIONS OF SECTION 14A OF THE ACT R.W. RULE 8D OF THE INCOME T AX RULES, 1962 SHOULD NOT BE MADE. IN RESPONSE, THE AS SESSEE SUBMITTED AS UNDER: ''THAT THE COMPANY IS AVAILING THREE TYPES OF LOAN FACILITIES AS LISTED HEREUNDER:- 1. TERM LOAN FACILITY (PROJECT SPECIFIED) 2. OVERDRAFT FACILITY (WORKING CAPITAL REQUIREMENTS) 3. CAR LOAN FACILITY 1. TERM LOAN FACILITY: INTEREST ON TERM LOAN (PROJECT SPECIFIED) PAID DURING THE YEAR PROJECT-WISE IS SUMMARIZED HERE AS UNDER:- S. NO. PARTICULARS PROJECT AMOUNT (IN RS.) 1 PNB HOUSING FINANCE LIMITED GOLDEN HEIGHTS 24,841,407.00 2. PUNJAB NATIONAL BANK (ND -81) BHIWADI 2,985,983.00 TOTAL 27,827,390.00 ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 14 THUS, AS THEIR NATURE CALLS, ALL THIS INTEREST HAS DIRECT NEXUS WITH THE EXPENDITURE INCURRED WITH REGARD TO CONCERNED PROJECTS AND BY NO STRETCH OF IMAGINATION INTEREST CAN BE SAID TO BE PAID ON FUND S UTILIZED FOR THE PURPOSE OF OTHER THAN PROJECT ACTIVITIES. 2. OVERDRAFT FACILITY: OVERDRAFT FACILITY IS AVAILED IN RESPECT OF MEETING THE BUSINESS WORKING CAPITAL COMMITMENTS AND UNDER OVERDRAFT ACCOUNT; THERE ARE CREDITS ON ACCOUNT OF CUSTOMER RECEIPTS AND COMPANY'S OWN FUNDS. THUS, IT CANNOT BE SAID THAT THE OVERDRAFT FACILITY IS UTILIZED FOR MAKING THE INVESTMENTS WHE RE THERE IS CONTINUOUS INFUSION OF FUNDS OF OWNER WHIC H ARE INTEREST FREE. TOTAL INTEREST PAID ON OD FUNDS IS RS. 2,06,39,702. 3. CAR LOAN FACILITY: THESE LOANS ARE TAKEN FOR THE PURPOSE OF PURCHASING THE CARS AND INTEREST EXPENDITURE IS INCURRED ON TH E FUNDS USED FOR PURCHASING THESE CARS WHICH IS COMPLETELY BUSINESS EXPENDITURE IN RELATION TO VEHICLES. IN VIEW OF THE ABOVE, THE NEXUS OF INTEREST BEARING FUNDS CANNOT IN ANYWAY BE 'INKED WITH THE INVESTMENTS AS THE VERY PURPOSE OF EACH AND EVERY LOAN IS DEFINED AND SELF EXPLANATORY. TOTAL INTERES T PAID IS RS. 5,48,281.22. DETAILS OF INTEREST PAID ON CAR LOAN FOR THE F.Y. 2010-11 S. NO. PARTICULARS AMOUNT (IN RS.) 1 INTEREST ON CAR LOAN-MERCEDEZ 287,919.00 2 INTEREST ON CAR LOAN-BMW 9,043.00 3 INTEREST ON CAR LOAN-FORD ENDEAVOUR 116,722.22 4 INTEREST ON CAR LOAN-HYUNDAI I- 10 16,192.00 5 INTEREST ON CAR LOAN-INNOVA 59,935.30 6 INTEREST ON CAR LOAN-SKODA 58,469.70 TOTAL 548,281.22 ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 15 IT IS FURTHER SUBMITTED THAT NO INVESTMENT HAS BEEN MADE AGAINST EXEMPTED INCOME. THE SALE OF SHARES IS TAXABLE UNDER THE HEAD INCOME FROM CAPITAL GAIN, HENCE TO BE INCLUDED IN THE GROSS TOTAL INCOME. SIMILARLY, DIVIDEND INCOME IS ALSO PART OF THE TOTAL INCOME AS PER SECTION 56 OF THE ACT. ASSESSEE COMPANY IS HAVING SUFFICIENT INTEREST FREE FUNDS AN D ITS OWN RESERVES FOR MAKING SUCH INVESTMENTS. THE INTEREST HAS ONLY BEEN PAID AGAINST THE AMOUNT USED DIRECTLY FOR BUSINESS OF THE ASSESSEE, AS EXPLAINED ABOVE THE INCOME OF WHICH HAS BEEN INCLUDED IN THE GROSS TOTAL INCOME. THEREFORE, IN VIEW OF THE ABOVE, ADDITION UNDER SECTION 14A OF THE I.T. ACT CANNOT BE INVOKED. ' 18. THE AO DID NOT FIND MERIT IN THE SUBMISSIONS OF THE ASSESSEE AND MADE THE ADDITION OF RS.75,72,760/- BY OBSERVING IN PARA 2.3 OF THE ASSESSMENT ORDER DATED 25.03.2014 AS UNDER: THOUGH AS PER ASSESSEE, NO EXTRA EXPENDITURE WAS INCURRED AND DEBITED TO THE P&L A/C BUT, AT THE SAM E TIME, IT HAS NOT BEEN DENIED THAT THE ASSESSEE IS DEBITING INTEREST TO THE P&L A/C WHICH ALSO INCLUDE S THE INTEREST PAID ON SUCH INVESTMENTS. THEREFORE, T HE SAME IS REQUIRED TO BE DISALLOWED. HOWEVER, THE DISALLOWANCES IS BEING MADE IN ACCORDANCE WITH THE PROVISION OF SEC.L4A OF THE ACT READ WITH RULE-8D O F THE INCOME TAX RULES, WHICH IS CALCULATED AS UNDER: - I) TOTAL OF ASSETS AS ON 31.03.10 1,06,90,98,8 59/- TOTAL OF ASSETS AS ON 31.03.11 2,14,52,56, 150/- AVERAGE OF TOTAL ASSETS 1,87,73, 74,096/- II) TOTAL OF ASSETS AS ON 31.03.10 1,000/- TOTAL OF ASSETS AS ON 31.03.11 46,06,46 ,000/- AVERAGE OF TOTAL ASSETS 23,03 ,23,500/- III) INTEREST EXPENDITURE (NET) 5,23, 39,126/- TOTAL DISALLOWANCE ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 16 5,23,39,126X23,03,23,500/1,87,73,74,096=64,21,136 B) 0.5% OF RS.23,03,23,500/- 11,5 1,617/- TOTAL 75,72,753/- SAY RS.75,72,760/- 19. THE RELIANCE WAS PLACED ON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS ABH ISHEK INDUSTRIES LTD. REPORTED AT 286 ITR 1. 20. BEING AGGRIEVED THE ASSESSEE CARRIED THE MATTER TO THE LD. CIT(A) AND SUBMITTED AS UNDER: THAT THE COMPANY IS AVAILING THREE TYPES OF LOAN FACILITIES AS LISTED HEREUNDER: 1. TERM LOAN FACILITY (PROJECT SPECIFIED) 2. OVERDRAFT FACILITY (WORKING CAPITAL REQUIREMENTS) 3. CAR LOAN FACILITY 1. TERM LOAN FACILITY: INTEREST ON TERM. LOAN (PROJECT SPECIFIED) PAID DURING THE YEAR PROJECT-WISE IS SUMMARIZED HERE AS UNDER:- S. NO. PARTICULARS PROJECT AMOUNT (IN RS.) 1 PNB HOUSING FINANCE LIMITED GOLDEN HEIGHTS 24,841,407.00 2. PUNJAB NATIONAL BANK (ND-81) BHIWADI 2,985,983.00 TOTAL 27,827,390.00 THUS, AS THEIR NATURE CALLS, ALL THIS INTEREST HAS DIRECT NEXUS WITH THE EXPENDITURE INCURRED WITH REGARD TO CONCERNED PROJECTS AND BY NO STRETCH OF IMAGINATION INTEREST CAN BE SAID TO BE PAID ON FUND S UTILIZED FOR THE PURPOSE OF OTHER THAN PROJECT ACTIVITIES. 2. OVERDRAFT FACILITY: OVERDRAFT FACILITY IS AVAILED IN RESPECT OF MEETING THE BUSINESS WORKING CAPITAL COMMITMENTS AND UNDER ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 17 OVERDRAFT ACCOUNT; THERE ARE CREDITS ON ACCOUNT OF CUSTOMER RECEIPTS AND COMPANY'S OWN FUNDS. THUS, IT CANNOT BE SAID THAT THE OVERDRAFT FACILITY IS UTILI ZED FOR MAKING THE INVESTMENTS WHERE THERE IS CONTINUOUS INFUSION OF FUNDS OF OWNER WHICH ARE INTEREST FREE. TOTAL INTEREST PAID ON OD FUNDS IS R S. 2,06,39,702. 3. CAR LOAN FACILITY: THESE LOANS ARE TAKEN FOR THE PURPOSE OF PURCHASING THE CARS INTEREST EXPENDITURE IS INCURRED ON THE FUNDS USED FOR PURCHASING THESE CARS WHICH IS COMPLETELY BUSINESS EXPENDITURE IN RELATION TO VEHICLES. IN VIEW OF THE ABOVE, THE NEXUS OF INTEREST BEARING FUNDS CANNOT IN ANYWAY BE LINKED WITH THE INVESTMENTS AS THE VERY PURPOSE OF EACH AND EVERY LOAN IS DEFINED AND SELF EXPLANATORY. TOTAL INTERES T PAID IS RS. 5,48,281.22. DETAILS OF INTEREST PAID ON CAR LOAN FOR THE F.Y. 2010-11 S.NO. PARTICULARS AMOUNT (IN RS.) 1 INTEREST ON CAR LOAN-MERCEDEZ 287,919.00 2 INTEREST ON CAR LOAN-BMW 9,043.00 3 INTEREST ON CAR LOAN-FORD ENDEAVOUR 116,722.22 4 INTEREST ON CAR LOAN-HYUNDAI 1-10 16,192.00 5 INTEREST ON CAR LOAN-INNOVA 59,935.30 6 INTEREST ON CAR LOAN-SKODA 58,469.70 TOTAL 548,281.22 IT IS FURTHER SUBMITTED THAT NO INVESTMENT HAS BEEN MADE AGAINST EXEMPTED INCOME. THE SALE OF SHARES IS TAXABLE UNDER THE HEAD INCOME FROM CAPITAL GAIN, HENCE TO BE INCLUDED IN THE GROSS TOTAL INCOME. SIMILARLY, DIVIDEND INCOME IS ALSO PART OF THE TOTA L INCOME AS PER SECTION 56 OF THE ACT. ASSESSEE COMPANY IS HAVING SUFFICIENT INTEREST FREE FUNDS AN D ITS OWN RESERVES FOR MAKING SUCH INVESTMENTS. THE INTEREST HAS ONLY BEEN PAID AGAINST THE AMOUNT USED DIRECTLY FOR BUSINESS OF THE ASSESSEE, AS EXPLAINED ABOVE THE INCOME OF WHICH HAS BEEN INCLUDED IN THE GROSS TOTAL INCOME. ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 18 THEREFORE, IN VIEW OF THE ABOVE, ADDITION UNDER SECTION 14A OF THE I.T. ACT CANNOT BE INVOKED.' THAT THE ASSESSING OFFICER HAS NOT ACCEPTED THE EXPLANATION OF THE ASSESSEE APPELLANT BY OBSERVING AS PER PARA 2.2 OF THE ASSESSMENT ORDER, RE- PRODUCED HERE AS UNDER:- A BARE PERUSAL OF THE EXPLANATION SUBMITTED BY THE ASSESSEE, IT IS FOUND THAT THE ASSESSEE HAS DENIED THE APPLICABILITY OF THE PROVISIONS OF SECTION 14A OF T HE ACT PRIMARILY BECAUSE OF THE FOLLOWING FACTS:- A. MOST OF THE INVESTMENTS AS APPEARING IN THE BALANCE SHEET ARE IN RESPECT OF BUSINESS ACTIVITIES OR LOANS AGAINST CARS, B. THE CAPITAL GAIN WILL BE TAXABLE WHEN THESE INVESTMENTS WILL BE SOLD. THE EXPLANATION OF THE ASSESSEE HAS BEEN EXAMINED WITH REFERENCE TO FACTS AND LEGAL POSITION AND THER E IS NO MERIT IN IT. THE SAME IS DISCUSSED AS UNDER:- A. THE PLEA OF THE ASSESSEE CAN'T BE ACCEPTED THAT NO EXPENDITURE IS INCURRED IN CONNECTION WITH THE INVESTMENTS. THESE INVESTMENTS ARE NOT SELF MANAGED AND SOME ADMINISTRATIVE EXPENDITURE HAS TO BE INCURRED TO MANAGE THESE INVESTMENTS. THEREFORE, 0.5% OF THE AVERAGE VALUE OF INVESTMENT REPRESENTS THE EXPENDITURE RELATING TO ADMINISTRATIVE ITEMS. B. THE CLAIM OF ASSESSEE THAT INTEREST EXPENDITURE HAS NO LINK WITH THE INVESTMENTS MADE CANNOT BE ACCEPTED. RELIANCE IS PLACED ON THE JUDGMENT OF PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. ABHISHEK INDS. LTD., 286 ITR 1, WHEREIN, IT HAS BEEN HELD AS UNDER:- 'ENTIRE MONEY IN A BUSINESS ENTITY COMES IN A COMMON KITTY. THE MONIES RECEIVED AS SHARE CAPITAL, AS TERM LOAN, AS WORKING CAPITAL LOAN, AS SALE PROCEEDS ETC. DO NOT HAVE ANY DIFFERENT COLOUR. WHATEVER ARE THE RECEIPTS IN THE BUSINESS ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 19 THAT HAVE THE COLOUR OF BUSINESS RECEIPTS AND HAVE NO SEPARATE IDENTIFICATION. SOURCES HAS NO CONCERN WHATSOEVER.' THAT THE ASSESSING OFFICER HAS RELIED UPON THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDS. LTD. 286 ITR 1 WITHOUT APPRECIATING THAT IN THE LATEST JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. WINSOME TEXTILE INDUSTRIES LTD. 319 ITR 204 (P&H) AND COMMISSIONER OF INCOME TAX V. DEEPAK MITTAL (2014) 361 ITR 131 (P&H). IT HAS BEEN HELD THAT THE 'JUDGMENT OF CIT VS. ABHISHEK INDUSTRIES IS NOT APPLICABLE TO THE INVESTMENTS IN SHARES BUT APPLICABLE ONLY IF ANY ADVANCES HAVE BEEN MADE TO SISTER CONCERNS WITHOUT CHARGING INTEREST. THE FACT S OF THE ASSESSEE APPELLANT CASE ARE DULY COVERED BY THE JUDGMENT OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF COMMISSIONER OF INCOME TAX VS. DEEPAK MITTAL (2014) 361 ITR 131 (P&H) THAT THE ASSESSEE APPELLANT HAVING ITS OWN SUFFICIENT FUNDS FOR MAKING INVESTMENT IN THE SHARES AND NO INTEREST OR EXPENDITURE HAS BEEN INCURRED AS CLAIMED ON ACCOUNT OF INVESTMENT IN THE SHARES. ALL PAYMENT OF INTEREST HAS BEEN DULY EXPLAINED WITH ITS NATURE AN D PURPOSE FOR WHICH IT HAS BEEN PAID. FURTHER, THE ASSESSING OFFICER HAS WRONGLY TREATED THE INCOME FROM INVESTMENT IN SHARES AS NOT INCLUDABLE IN THE TOTAL INCOME WITHOUT APPRECIATING THAT THE INCOME FROM INVESTMENT IN SHARES IS SUBJEC T TO TAX THOUGH UNDER DIFFERENT HEADS. FOR EXAMPLE IF THE SHARES ARE SOLD THEN INCOME FROM SALE OF THESE SHARES ARE TAXABLE UNDER THE HEAD CAPITAL GAIN. THE DIVIDEND, IF ANY, DECLARED BY THE COMPANY THEN THE SAME IS TAXABLE UNDER SECTION 56 OF THE INCOME TAX ACT. THE PROVISIONS OF SECTION 10(34) ARE ONLY APPLICABLE IF ANY DIVIDEND IS DECLARED BY THE ASSESSEE COMPANY. ADMITTEDLY DURING THE YEAR NO DIVIDEND HAS BEEN DECLARED BY THE COMPANY IN WHICH INVESTMENT HAS BEEN MADE BY THE ASSESSEE COMPANY. THEREFORE, THERE IS NO INCOME EARNED OR RECEIVED DURING THE YEAR WHICH HAS NOT BECOME PART OF THE ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 20 TOTAL INCOME. MOREOVER, THE DIVIDEND INCOME IS ALSO TAXABLE UNDER SECTION 115(0) OF THE INCOME TAX ACT. IN SUCH CIRCUMSTANCES, THE PROVISIONS OF SECTION 14 A ARE NOT APPLICABLE ESPECIALLY WHEN THE ASSESSEE COMPANY HAS NOT TAKEN ANY LOAN FOR MAKING INVESTMENT IN THE SHARES. SO KEEPING IN VIEW THE AFORESAID FACTS AND JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT THE DISALLOWANCE OF RS. 75,72,760/- MADE BY THE ASSESSING OFFICER IS UNJUSTIFIED. THE SAME BE DELETED.' 21. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION S OF THE ASSESSEE DELETED THE ADDITION BY OBSERVING IN PARA 3.4 AND 3.5 OF THE IMPUGNED ORDER WHICH READ AS UNDER: 'I HAVE CONSIDERED THE BASIS OF THE DISALLOWANCE MADE BY THE A.O. AND THE FACTUAL/ LEGAL ARGUMENTS OF THE AR ON THE ISSUE. THE AO IN THE FACE OF FACTS AND FIGURE SUBMITTED BY THE APPELLANT RELIED UPON THE JUDGMENT OF ABHISHEK INDUSTRIES LTD. TO HOLD THAT FUNDS IN THE BUSINESS BELONG TO A COMMON KITTY AND THEREFORE IT WAS NOT POSSIBLE TO SPECIFY IF A PARTICULAR INVESTMENT RESULTING IN TAX EXEMPT INCOME WAS FROM BORROWED FUNDS OR INTEREST FREE FUNDS. THIS CLEARLY SHOWS THAT THE JUDGMENT OF HON'BLE JURISDICTIONAL COURT REFERRED TO BY THE AO HAS BEEN RELIED UPON TO PRESUME THAT CERTAIN INTEREST EXPENDITURE WOULD HAVE BEEN INCURRED BY THE ASSESSEE COMPANY AS THE FUNDS OF THE COMPANY WERE FROM BORROWED SOURCES AS WELL AS SELF GENERATED. IT NEEDS TO BE APPRECIATED THAT THE JUDGMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LIMITED 286-ITR- 1 HAS BEEN RENDERED ON THE ISSUE OF DISALLOWANCE OF INTEREST EXPENSES ON ACCOUNT OF INTEREST FREE ADVANCES GIVEN TO SISTER CONCERNS. THE HON'BLE APEX COURT OF THE CASE OF SA BUILDERS HAS HELD THAT BUSINESS INVESTMENT CANNOT BE TREATED ON THE SAME LINES AS NON BUSINESS INVESTMENTS FOR THE PURPOSE O F DISALLOWANCE OF INTEREST A HELD BY HON'BLE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF ABHISHEK ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 21 INDUSTRIES LTD. THIS CLEARLY MEANS THAT THE INVESTMENTS MADE BY THE ASSESSEE COMPANY IN THE SHARE CAPITAL OF SUBSIDIARY COMPANIES CANNOT BE TREATED AS NON BUSINESS IN VIEW OF THE DETAILED ARGUMENT GIVEN BY THE AR IN THIS REGARD. IN THE CIRCUMSTANCES, IT BECOMES CLEAR THAT THE BASIC REQUIREMENT OF ESTABLISHING THAT SOME EXPENDITURE HAD BEEN INCURRED FOR EARNING TAX EXEMPT INCOME HAS NOT BEEN COMPLIED WITH BY THE AO. THE SUBMISSION OF THE ASSESSEE THAT NO EXPENDITURE HAD BEEN INCURRED IN RELATION TO FUNDS INVESTED HAS BEE N REJECTED BY THE AO AS UNSUBSTANTIATED BUT NO INDEPENDENT EXAMINATION HAS BEEN DONE TO HOLD THAT CERTAIN BORROWED FUNDS HAD BEEN USED FOR MAKING THE IMPUGNED INVESTMENTS. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. M/ S HERO CYCLES 323 ITR 158 HAS CLEARLY HELD THAT THERE CANNOT BE A PRESUMPTION THAT CERTAIN EXPENDITURE WOULD HAVE BEEN INCURRED FOR EARNING THE EXEMPT INCOME. FURTHER THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ AND BOYCE MANUFACTURING COMPANY LIMITED VS. DCIT HAS HELD THAT THE WORD 'INCURRED' REFERS TO THE FACTUAL SPENDING OF EXPENDITURE IN RELATION TO EXEMPT INCOME AND DOES NOT REFER TO DEEMED SPENDING AND THE EXPENDITURE INCURRED BY THE ASSESSEE COULD NOT BE ARTIFICIALLY BROKEN UP TO IDENTIFY TO DISALLOW EXPENDITURE. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. WINSOME TEXTILE INDUSTRIES LIMITED HAS CLEA RLY HELD AS UNDER:- 'ABHISHEK INDUSTRIES LTD. [2006] 286 ITR 1 (P&H) RELATES TO THE PROVISIONS OF SECTION 36(1)(III) AND SECTION 14A WHICH HAS BEEN INVOKED IN THIS CASE WHICH STANDS ON A DIFFERENT FOOTING. EVEN IF DEDUCTION UNDER SECTION 36( L)(III) IS ORDINARILY AVAILABLE IN RESPECT OF BORROWED FUNDS UTILIZED FOR THE PURPOSE , OF -BUSINESS SECTION 14A CARVES OUT A N EXCEPTION IN SO FAR AS ANY EXPENDITURE WHICH IS RELATABLE TO THE EARNING OF DIVIDEND INCOME NOT SUBJECT TO TAX IS TO BE DISALLOWED. IT WOULD BE RELEVANT TO POINT OUT THAT THE HON'BLE SUPREME COURT IN THE CASE OF RAJASTHAN STATE WAREHOUSING CORPORATION VS. CIT (2000) 242 ITR 450 HELD THAT ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 22 IN THE CASE OF INDIVISIBLE BUSINESS WHERE PART OF BUSINESS INCOME IS EXEMPT THE EXPENDITURE CANNOT BE APPORTIONED AND PART RELATING TO INCOME IS EXEMPT CANNOT BE DISALLOWED (JUDGMENT DATED FEBRUARY 23,2000). HOWEVER, THE FINANCE ACT, 2001, INCORPORATED SECTION 14A WITH EFFECT FROM APRIL 1, 1962, WHICH PROVIDES FOR DISALLOWANCE OF EXPENDITURE RELATING TO INCOME NOT INCLUDED IN THE GROSS TOTAL INCOME. THEREFORE, IT IS TO BE ASCERTAI NED AS TO WHETHER THE ASSESSEE HAS MADE THE INVESTMENT IN PURCHASE OF SHARES OUT OF BORROWED FUNDS OR INVESTED ITS OWN FUNDS. IF THE ASSESSEE HAS INVESTE D ITS OWN MONEY IN THE PURCHASE OF SHARES THEN THERE IS NO QUESTION OF ANY DISALLOWANCE IN RESPECT OF INTEREST ON BORROWED FUNDS U/S 14A. HOWEVER, IF THE BORROWED FUNDS HAVE BEEN UTILIZED FOR PURCHASE OF SHARES OF M/S WINSOME YARNS LIMITED, DISALLOWANCE U/S 14A SHALL HAVE TO BE CALCULATED EVEN WHEN INVESTMENT HAS BEEN MADE IN THE COURSE OF BUSINESS OF THE ASSESSEE AND THE ASSESSEE QUALIFIES FOR DEDUCTION U/S 36(L)(III). SO, HOWEVER, SECTION 14A PROVIDES THAT NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATING TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. SO, IT IS, THEREFORE, NECESSARY TO FIND OUT IF ANY EXPENDITURE WAS INCURRED BY THE ASSESSEE FOR MAKING INVESTMENT IN THE SHARES OF WINSOME YARNS LIMITED. DURING THE COURSE OF ASSESSMENT PROCEEDINGS THE ASSESSEE HAD FURNISHED WRITTEN SUBMISSION IN WHICH IT WAS CLAIMED, VIDE PARAGRAPH 5 OF THE LETTER THAT INVESTMENT IN THE SHARES OF WINSOME YARN LIMITED WAS MADE OUT OF THE ASSESSEE'S OWN FUND AND NOT OUT OF ANY BORROWED FUNDS. BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS) ALSO, VIDE LETTER DATED MARCH 15,2007 THE ASSESSEE HAD REITERATED THAT INVESTMENT IN THE PURCHASE OF THE SHARES OF WINSOME YARN LIMITED IN THE YEAR 1993-94 HAD NO NEXUS WITH THE BORROWED FUNDS. THE ASSESSING OFFICER AS PER THE ASSESSMENT ORDER HAS NOT REFUTED THE CLAIM OF THE ASSESSEE BUT HAS MADE A DISALLOWANCE ON THE GROUND THAT HAD THE SAID INVESTED IN SHARES WERE AVAILABLE WITH THE ASSESSEE, THE ASSESSEE WOULD NOT HAVE BEEN REQUIRED TO RAISE LOANS TO THAT EXTENT AND INCUR ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 23 EXPENDITURE ON INTEREST ON SUCH LOANS. IN OUR CONSIDERED VIEW, THE DISALLOWANCE HAS GOT TO BE MADE U/S 14A IF ANY EXPENDITURE RELATING TO THE EARNING OF INCOME WHICH IS NOT CHARGEABLE TO TAX HAS BEEN DEBITED TO THE ACCOUNTS BY THE ASSESSEE. SINCE IN THIS CASE THE ASSESSEE HAS NOT INCURRED AN Y EXPENDITURE FOR MAKING INVESTMENT IN THE PURCHASE OF SHARES OF WINSOME YARN LIMITED, NO DISALLOWANCE US WARRANTED U/S 14A. WE, THEREFORE, FIND NO JUSTIFICATION TO INTERFERE WITH THE ORDER OF THE CI T (A) IN HAVING DELETED THE DISALLOWANCE. THE GROUND OF APPEAL RAISED BY THE REVENUE IN THIS REGARD IS THUS DISMISSED. THE PERUSAL OF JUDGMENT QUOTED ABOVE MAKES IT ABUNDANTLY CLEAR THAT THE MACHINERY AVAILABLE UNDER RULE CANNOT BE APPLIED AUTOMATICALLY AND NO DISALLOWANCE BE MADE WITHOUT POINTING OUT A DIRECT CONNECTION BETWEEN THE EXPENDITURE INCURRED AND THE TAX EXEMPT INCOME. 3.5 FURTHER, IT IS IMPORTANT FACT THAT NO EXEMPTED INCOME HAS BEEN CREDITED IN ASSESEE'S PROFIT AND LOSS ACCOUNT DURING THE YEAR UNDER CONSIDERATION.. AND THEREFORE, THE OCCASION TO MAKE THE DISALLOWANCE U/S 14A DOES NOT ARISE AS HELD BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F M/S LAKHANI INDIA LIMITED WAS CLEARLY APPLICABLE. IN VIEW OF THE ABOVE ANALYSIS AND FACTS OF THE CASE , THE DISALLOWANCE IS DIRECTED TO BE DELETED. 22. NOW THE DEPARTMENT IS IN APPEAL. THE LD. DR STR ONGLY SUPPORTED THE ORDER OF THE AO AND REITERATED THE OB SERVATIONS MADE IN THE ASSESSMENT ORDER DATED 25.03.2014. 23. IN HIS RIVAL SUBMISSIONS, THE LD. LD. COUNSEL F OR THE ASSESSEE REITERATED THE SUBMISSION MADE BEFORE THE LD. CIT(A) AND STRONGLY SUPPORTED THE IMPUGNED ORDER. I T WAS FURTHER SUBMITTED THAT NO EXEMPTED INCOME WAS CREDI TED BY THE ASSESSEE IN ITS PROFIT AND LOSS ACCOUNT, THEREF ORE, IN VIEW ITA NOS. 406 & 409/CHD./2015 ITA NO. 467/CH D./2016 COSMOS INFRASTRUCTURE ENGINEERING (INDIA) LTD. 24 OF THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT FOLLOWED BY THE LD. CIT(A), NO DISALLOWANCE WAS CAL LED FOR U/S 14A OF THE ACT. 24. WE HAVE CONSIDERED THE SUBMISSIONS OF BOTH THE PARTIES AND CAREFULLY GONE THROUGH THE MATERIAL AVAILABLE O N THE RECORD. IN THE PRESENT CASE, IT IS AN ADMITTED FACT THAT THE ASSESSEE DID NOT EARN ANY EXEMPTED INCOME DURING TH E YEAR UNDER CONSIDERATION. THEREFORE, THE LD. CIT(A) WAS FULLY JUSTIFIED IN DELETING THE DISALLOWANCE MADE BY THE AO U/S 14A OF THE ACT BY FOLLOWING THE JUDGMENT OF THE HON BLE JURISDICTIONAL HIGH COURT. WE, THEREFORE, DO NOT SE E ANY VALID GROUND TO INTERFERE WITH THE FINDINGS OF THE LD. CI T(A). 25. IN ITA NO. 467/CHD./2016 FOR THE ASSESSMENT YEA R 2012- 13, THE ISSUE AGITATED BY THE DEPARTMENT IS SIMILAR TO THE ISSUE INVOLVED IN ITA NO. 406/CHD./2015 FOR THE ASS ESSMENT YEAR 2011-12, THEREFORE, OUR FINDINGS GIVEN IN FORM ER PART OF THIS ORDER SHALL APPLY MUTATIS MUTANDIS FOR THIS YEAR ALSO. 26. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY ALLOW ED FOR STATISTICAL PURPOSES AND THE APPEALS OF THE DEPARTMENT ARE D ISMISSED. (ORDER PRONOUNCED IN THE COURT ON 21/12/2016) SD/- SD/- (RAVISH SOOD) (N. K. SAINI) JUDICIAL MEMBER ACCOUNTANT M EMBER DATED: 21/12/2016 *SUBODH* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR