ACIT, Chandigarh V. M/s Punjab State Warehousing Corporation, Chandigarh

ITA 459/CHANDI/2006

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5171 (ITAT-CHANDIGARH)
• Duration Of Justice: 12 year(s) 3 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 1996-1997
• Appeal Filed On: 07-06-2006
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: ASHISH ABROL
• Keywords: Earning of tax free income; Rule 8D
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, B, CHANDIGARH , ! . .., # $, %& BEFORE SHRI SANJAY GARG, JUDICIAL MEMBE AND DR. B.R.R.KUMAR, ACCOUNTANT MEMBER ./ ITA NO. 459/CHD/2006 ' !( / ASSESSMENT YEAR : 1996-97 THE ACIT, CIRCLE 2(1), CHANDIGARH '$ M/S PUNJAB STATE WAREHOUSING CORPN LTD., SCO 74-75, SECTOR 17-B, CHANDIGARH ) %& ./PAN NO: AABCP7825J )*/ APPELLANT ,-)* /RESPONDENT (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI T.N SINGLA, CA RESPONDENT BY : SH. ASHISH ABROL, CIT DR DATE OF HEARING : 21.08.2018 DATE OF PRONOUNCEMENT : 04.10.2018 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENU E AGAINST THE ORDER DATED 27.3.2006 OF THE COMMISSI ONER OF INCOME TAX(A), CHANDIGARH [HEREINAFTER REFERRED TO AS CI T(A)] 2. THE SOLE ISSUE INVOLVED IN THIS APPEAL IS RELATI NG TO THE DISALLOWANCE U/S 14AOF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). EARLIER THE APPEAL OF THE ASSESSEE WAS DECID ED BY THIS TRIBUNAL VIDE ORDER DATED 24.12.2007 AGAINST WHICH, THE REVENUE PREFERRED APPEAL BEFORE THE HONBLE JURISDICTIONAL PUNJAB & HARYANA HIGH COURT. THE HON'BLE PUNJAB & HARYANA HIGH COURT VIDE ORDER DATED 16.2.2015 IN ITA NO.834 OF 2008 H AS RESTORED THE ITA NO. 459-CHD-2006 M/S PUNJAB STATE WAREHOUSING CORPN LTD., CHANDIGARH 2 MATTER TO THE TRIBUNAL WITH A DIRECTION FOR ADJUDIC ATION AFRESH IN ACCORDANCE WITH LAW IN TERMS OF THE ORDER OF THE HO N'BLE HIGH COURT DATED 3.10.2013 PASSED IN ITA NO.848-08 IN THE OWN CASE OF THE ASSESSEE. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E CORPORATION DURING THE YEAR WAS INVOLVED IN TWO ACTIVISTS I.E. IN THE ACTIVITY OF PROCUREMENT OF FOOD GRAINS AND ACTIVITY OF WAREHOUS ING. THE INCOME FROM THE WAREHOUSING ACTIVITY WAS EXEMPT U/S 10(29) OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT'). THE ASS ESSING OFFICER, THEREFORE, BIFURCATED THE COMMON EXPENSES INCURRED FOR BOTH THE ACTIVITIES I.E. WAREHOUSING AND PROCUREMENT AND MAD E DISALLOWANCE U/S 14A OF THE INCOME TAX ACT ON ACCOUNT OF INDIREC T EXPENDITURE INCURRED FOR EARNING OF TAX EXEMPT INCOME FROM WARE HOUSING ACTIVITY ON THE BASIS OF GROSS PROFIT RATE. THE MA TTER TRAVELLED TO THE TRIBUNAL AND THE ITAT VIDE ITS CONSOLIDATED ORDER DATED 24.12.2007 HELD THAT THE ASSESSING OFFICER WAS NOT EMPOWERED T O INVOKE SECTION 14A OF THE ACT IN RESPECT OF THE ASSESSMENT S FOR ASSESSMENT YEARS BEGINNING ON OR BEFORE 1.4.2001 AS THE ORIGI NAL ASSESSMENT WERE MADE BEFORE THE INCORPORATION OF SECTION 14A O F THE ACT. THE TRIBUNAL HELD THAT THE ASSESSING OFFICER WAS DEBAR RED FROM TAKING RECOURSE TO SECTION 14A OF THE ACT BY VIRTUE OF THE PROVISO TO THE SAID SECTION. IN VIEW THEREOF, GROUND OF APPEAL R AISED BY THE ASSESSEE RELATING TO THE APPLICABILITY OF THE PROVI SIONS OF SECTION 14A FOR THE YEAR UNDER CONSIDERATION WAS DISMISSED. ITA NO. 459-CHD-2006 M/S PUNJAB STATE WAREHOUSING CORPN LTD., CHANDIGARH 3 4. HOWEVER, THE HON'BLE PUNJAB & HARYANA HIGH COUR T IN THE APPEAL FILED BY THE REVENUE HELD THAT, IT WAS ACCEPTED THAT THE ASSESSMENT ORDERS WERE PASSED UNDER SECTION 143(3) OF THE ACT. IN OTHER WORDS, THE PROVISO TO SECTION 14A WAS NOT ATT RACTED IN THE PRESENT CASES AND THE PROVISIONS OF SECTION 14A HA VING ITS APPLICABILITY RETROSPECTIVELY W.E.F. 1.4.1962 WOULD THUS BE APPLICABLE TO THE ASSESSMENT YEARS IN QUESTION. IN VIEW THEREOF THE PRESENT APPEALS HAVE BEEN REST ORED BACK TO THE FILE OF THE TRIBUNAL AND WE PROCEED TO DECID E THE SAME AFTER HEARING BOTH THE AUTHORISED REPRESENTATIVES. 5. THE ISSUE TO BE ADDRESSED IN THE PRESENT APPEALS IS ABOUT THE DISALLOWANCE TO BE WORKED OUT UNDER SECTION 14A OF THE INCOME TAX ACT IN RELATION TO THE COMMON AND INDIRECT EXPENSES ATTRIBUTABLE TO THE TAX EXEMPT INCOME U/S 10(29) OF THE ACT FROM W AREHOUSING ACTIVITY. 6. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BOT H THE PARTIES AND HAVE ALSO GONE THROUGH THE RECORDS ON THIS ISSU E. IT MAY BE OBSERVED THAT IN THE CASE OF GODREJ & BOYCE MANUFA CTURING CO. LTD. 234 CTR 1 (BOM.) THE HON'BLE BOMBAY HIGH COURT HAS HELD THAT RULE 8D OF THE I.T. RULES R.W.S. 14A(2) OF TH E I.T. ACT IS NOT ARBITRARY OR UNREASONABLE BUT CAN BE APPLIED ONLY I F THE ASSESSEE'S METHOD IS NOT SATISFACTORY. IT HAS BEEN FURTHER HEL D THAT RULE 8D IS NOT RETROSPECTIVE AND APPLIES FROM A.Y. 2008-09. FO R THE YEARS FOR WHICH RULE 8D IS NOT APPLICABLE AND IN THE EVENT OF THAT THE AO IS NOT SATISFIED WITH THE EXPLANATION/WORKING GIVEN BY THE ASSESSEE, ITA NO. 459-CHD-2006 M/S PUNJAB STATE WAREHOUSING CORPN LTD., CHANDIGARH 4 DISALLOWANCE UNDER SECTION 14A HAS TO BE MADE ON A REASONABLE BASIS. ALMOST SIMILAR VIEW HAS BEEN EXPRESSED BY HO N'BLE DELHI HIGH COURT IN THE CASE OF 'MAXOPP INVESTMENT LTD, & OTHERS' VS. CIT (247 ITR 162). IN RESPECT OF CASES PRIOR TO AS SESSMENT YEAR 2008-09, THE DIFFERENT CO-ORDINATE BENCHES OF THIS TRIBUNAL HAVE OBSERVED THAT CERTAIN PERCENTAGE OF EXEMPT INCOME C AN CONSTITUTE A REASONABLE ESTIMATE FOR MAKING DISALLOWANCE FOR THE YEARS EARLIER TO ASSESSMENT YEAR 2008-09. THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GODREJ AGROVET LTD., (ITA NO. 934 /2011) DECIDED ON 8.1.2013 HAS UPHELD THE ORDER OF THE TRIBUNAL DI RECTING THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE TO THE EXTENT OF 2% OF THE TOTAL EXEMPT INCOME EARNED BY THE ASSESSEE. THE COORDINATE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF M/S C IBA INDIA LTD VS. DCIT ITA NO. 9128/2010 FOR ASSESSMENT YEAR 20 06-07 VIDE ORDER DATED 20.2.2015 WHILE RELYING UPON THE DECISI ON OF THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. GODREJ AGROVET LTD.,(SUPRA) TAKING INTO ACCOUNT THE CONSI DERATION OF FACTS AND CIRCUMSTANCES OF THAT CASE HAS HELD THAT THE EX PENDITURE EQUAL TO 4% OF THE EXEMPT INCOME EARNED BY THE ASSESSEE W OULD CONSTITUTE REASONABLE DISALLOWANCE U/S 14A AND DIRE CTED ACCORDINGLY. 7. CONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES OF THE CASE, IN OUR VIEW, 5% OF THE TAX EXEMPT INCOME OF THE ASS ESSEE FROM WAREHOUSING ACTIVITY WOULD CONSTITUTE A REASONABLE DISALLOWANCE FOR THE PURPOSE OF SECTION 14A OF THE INCOME TAX A CT. WE DIRECT ACCORDINGLY. ITA NO. 459-CHD-2006 M/S PUNJAB STATE WAREHOUSING CORPN LTD., CHANDIGARH 5 IN THE RESULT, THE APPEAL OF THE REVENUE IS PARTL Y ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 04.10.2018 SD/- SD/- .., # $ ( B.R.R. KUMAR) %& / ACCOUNTANT MEMBER (SANJAY GARG ) / JUDICIAL MEMBER .' /DATE: 04.10. 2018 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. CIT 4. THE CIT(A) 5. '#$%&#$'%()*+ DR, ITAT, CHANDIGARH 6. *,-. GUARD FILE /012 ASSISTANT REGISTRAR