M/s Deepak International Ltd., Ludhiana V. Assistant Commissioner of Income Tax, Ludhiana

ITA 462/CHANDI/2016

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 5025 (ITAT-CHANDIGARH)
• Duration Of Justice: 2 year(s) 9 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 05-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 02-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: CHANDER KANTA
• Keywords: Earning of tax free income; Proportionate interest
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH A , CHANDIGARH !', $ % ! & ' ( ) * , % BEFORE SMT.DIVA SINGH, JUDICIAL MEMBER AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER ./ ITA NO.462/CHD/2016 / ASSESSMENT YEAR : 2012-13 M/S DEEPAK INTERNATIONAL LTD., DEEPAK ROAD, INDUSTRIAL AREA-B, LUDHIANA. THE A.C.I.T., CIRCLE-5, LUDHIANA. ./PAN NO: AAACD7980K /ASSESSEE BY : SHRI ASHWANI KUMAR, CA / REVENUE BY : SMT.CHANDERKANTA, SR.DR ! ' /DATE OF HEARING : 28.11.2019 #$%& ' /DATE OF PRONOUNCEMENT: 05.02.2019 /ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2, LUDHIANA (IN SHORT CIT(A) DATED 18.2 .2016 PASSED U/S 250(6) OF THE INCOME TAX AT, 1961 (HEREI NAFTER REFERRED TO AS ACT). 2. GROUND NO.1 RAISED BY THE ASSESSEE READS AS UNDER: 1. THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX A CT, 1961 IS AGAINST LAW AND FACTS ON THE FILE IN AS MUCH L D, COMMISSIONER OF INCOME TAX (APPEALS)-2, LUDHIANA WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD DISALLOWANCE OF RS. 14,01,113/- MADE BY THE LD. ASSESSING OFFICER BY RESORT TO PROVISIONS OF SECTIO N 14AOF THE INCOME TAX ACT, 1961. ITA NO.462/CHD/2016 A.Y.2012-13 2 3. BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT THE ASSESSEE COMPANY WAS IN THE BUSINESS OF EXPORT OF C YCLE, AUTO & CYCLE PARTS, FOOD PRODUCTS AND OTHER MERCHAN DISE, SALE OF BATTERIES ETC. DURING THE COURSE OF ASSESSM ENT PROCEEDINGS FOR THE IMPUGNED YEAR, THE A.O. NOTED T HAT THE ASSESSEE HAD SHOWN INVESTMENTS OF RS. 11,93,53,882/ - AS ON 31.03.2012 AND RS. 6,11,31,573/- AS ON 31.03.2011, INCOME FROM WHICH WAS EXEMPT U/S 10(34) AND 10(2A) OF THE ACT. THE A.O. ASKED THE ASSESSEE TO EXPLAIN WHY EXPENDIT URE INCURRED IN RELATION TO EARN THIS TAX FREE INCOME S HOULD NOT BE DISALLOWED U/S 14A OF THE INCOME TAX ACT. AFTER CONSIDERING THE ASSESSEES SUBMISSIONS, THE A.O. C OMPUTED THE DISALLOWANCE TO BE MADE U/S 14A BY INVOKING THE PROVISIONS OF RULE 8D. THE TOTAL DISALLOWANCE WAS W ORKED OUT AT RS.14,01,113/- AFTER GIVING EFFECT OF DISALLOWAN CE OF RS. 21,47,376/- ALREADY TAKEN BY THE ASSESSEE. THIS AMO UNT WAS ACCORDINGLY DISALLOWED. 4. THE MATTER WAS CARRIED IN APPEAL BEFORE THE CIT( A), WHO DISMISSED ALL THE CONTENTIONS RAISED BY THE ASSESSE E AND UPHELD THE ORDER OF THE A.O. ON THIS COUNT. 5. BEFORE US, THE LD. COUNSEL FOR ASSESSEE POINTED OUT THAT IT HAD NOT EARNED ANY EXEMPT INCOME DURING THE YEAR AND, THEREFORE, NO DISALLOWANCE U/S 14A WAS WARRANTED. T HE LD. COUNSEL FOR ASSESSEE DREW OUR ATTENTION TO THE SUBM ISSIONS MADE BEFORE THE LD.CIT(A) IN THIS REGARD, REPRODUCE D AT PAGE 7 OF THE ORDER AS UNDER: ITA NO.462/CHD/2016 A.Y.2012-13 3 WITHOUT PREJUDICE TO THE SUBMISSIONS MADE ABOVE, IT IS FURTHER ELUCIDATED THAT THE APPELLANT COMPANY HAS NO T EARNED ANY EXEMPTED INCOME EITHER U/S 10(34) OR U/S 10(2A) UNDER THE INCOME TAX ACT, 1961 DURING THE A.Y. 2012-13. SINCE THE APPELLANT COMPANY WAS NOT IN RECEIPT OF ANY EXEMPT IN COME DURING THE RELEVANT ASSESSMENT YEAR, SECTION 14A CA NNOT BE INVOKED. THIS VIEW HAS BEEN AFFIRMED BY VARIOUS COU RTS OF LAW. 6. THE LD. COUNSEL FOR ASSESSEE THEREAFTER DREW OUR ATTENTION TO THE DECISION OF THE HON'BLE JURISDICTI ONAL IN THE CASE OF CIT VS. LAKHANI MARKETING INC., REPORTED AT (2014) 272 CTR 265 (P&H), HOLDING THAT WHERE NO EXEMPT INC OME WAS EARNED, NO DISALLOWANCE U/S 14A WAS WARRANTED. OUR ATTENTION WAS ALSO DRAWN TO THE FOLLOWING DECISIONS OF VARIOUS COURTS LAYING DOWN THIS PROPOSITION: I) CIT V. HOLCIM INDIA PVT LTD . [(2015) 272 CTR 282 ( DELHI)] II) CIT V. CORRTECH ENERGY PVT LTD. [(2014) 272 CTR 2 62 (GUJARAT)] III) CIT V. SHIVAM MOTORS PVT LTD. [(2015) 272 CTR 277 (ALLAHABAD)] IV) CHEMINVEST LTD. V. CIT-IV [2015] 378 ITR 33 (DEL HI) 7. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE O RDER OF THE LD.CIT(A) AND FURTHER DREW OUR ATTENTION TO THE FINDINGS OF THE LD.CIT(A), WHEREIN HE HAD DISMISSED THIS CON TENTION OF THE ASSESSEE STATING THAT IT HAD BEEN BY THE SPECIA L BENCH OF THE I.T.A.T. IN THE CASE OF CHEMINVEST LTD. VS. ITO , 121 ITD 318 THAT EVEN IF NO EXEMPT INCOME IS EARNED, DISALL OWANCE U/S 14A WAS WARRANTED. OUR ATTENTION WAS DRAWN TO T HE FINDINGS OF THE LD.CIT(A) AT PAGE 12 OF HIS ORDER A S UNDER: (V) SEC.14A IS APPLICABLE EVEN IN RESPECT OF INVESTMEN TS WHICH HAVE NOT YIELDED ANY EXEMPT INCOME IN THE YEAR. ALSO, THE DISALLOWANCE HAS TO BE OF THE ENTIRE AMOUNT OF T HE EXPENDITURE SO RELATED AND CANNOT BE REDUCED BY THE RECEIPT OF INTEREST WHICH HAS NO RELATION TO SUCH EXPENDITURE. R EFERENCE IN THIS REGARD MAY BE MADE TO THE DECISION OF THE S PECIAL BENCH OF APPELLATE TRIBUNAL, DELHI IN THE CASE OF CHEMINVEST LTD VS ITO (121 ITD 318), WHEREIN IT HAS BEEN HELD THAT ITA NO.462/CHD/2016 A.Y.2012-13 4 DISALLOWANCES U/S.14A CAN BE MADE EVEN IN A YEAR IN WHI CH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY THE AP PELLANT. RELEVANT EXTRACT OF THE DECISION OF THE SPL. BENCH IS REPRODUCED AS UNDER: WHEN THE EXPENDITURE OF INTEREST IS INCUR RED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTA L INCOME, IT HAS TO SUFFER THE DISALLOWANCE, IRRESPECTIVE OF THE FACT WHETHER ANY INCOMERS EARNED BY THE ASSESSEE OR NOT. SECTION 14A DOES NOT ENVISAGE ANY SUCH EXCEPTION. THIS IS SO EVE N IF THE INTEREST PAID ON BORROWINGS FOR THE PURCHASE OF SHA RES IS ALLOWABLE UNDER SECTION 57 AS AN EXPENDITURE INCURRE D FOR EARNING OR MAKING INCOME OR UNDER SECTION 36(1)(III ) AS AN EXPENDITURE INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. WHEN PRIOR TO INTRODUCTION OF SECTION 14A, AN EXPENDITURE BOTH UNDER SECTIONS 36 AND 57 WAS ALLOWA BLE TO AN ASSESSEE WITHOUT SUCH REQUIREMENT OF EARNING OR RECEIPT OF INCOME, NO SUCH CONDITION COULD BE IMPORTED WHEN IT CAME TO DISALLOWANCE OF THE SAME EXPENDITURE UNDER SECTIO N 14A. NOW SINCE DIVIDEND WAS EXEMPT, AS A CONSEQUENCE THE REOF EXPENDITURE HAD TO BE DISALLOWED. [PARA 22] WHAT ONE HAS TO SEE IS WHETHER ANY EXPENDITURE HAS BEEN INCURRED BY AN ASSESSEE IN RELATION TO AN INCO ME THAT DOES NOT FORM PART OF TOTAL INCOME OF THE ASSE SSEE UNDER THIS ACT, AND IF THE ANSWER IS IN AFFIRMATIVE THEN THAT EXPENDITURE CANNOT BE ALLOWED, IRRESPECTIVE OF THE FACT THAT IT WAS ALLOWABLE UNDER DIFFERENT PROVISIO NS OF THE ACT WHERE A DIFFERENT PHRASEOLOGY IS USED IN AL LOWING THOSE EXPENDITURES AS THE FOCUS HAS TO BE ON DISALLOWANCE WITHIN PARAMETERS OF SECTION 14A, AN OVERRIDING PROVISION OVER ALLOWANCE PROVISIONS. IT WOULD RESULT IN DISALLOWANCE EVEN IF NO INCOME HAS RESULT ED OR MADE OR EARNED BY THE ASSESSEE IN THE YEAR UNDER CONSIDERATION. ASLO, THEDSA HAS TO BE OF THE ENTIRE AMOUNT OF THE EXPENDITURE SO RELATED AND CANNOT BE REDUCED BY THE RECEIPT OF INTEREST WHICH HAS NO RELATION TO SUCH EXPENDITURE. [PARA 43] (EMPHASIS SUPPLIED) 8. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE BEFORE US RELAT ES TO DISALLOWANCE OF EXPENDITURE INCURRED IN RELATION TO EARNING OF EXEMPT INCOME AS PER THE PROVISIONS OF SECTION 1 4A OF THE ACT AND THE MATERIAL FACT, WHICH IS NOT DISPUTED, I S THAT DURING THE IMPUGNED YEAR, NO EXEMPT HAS BEEN EARNED BY THE ASSESSEE. CONSIDERING THE JUDICIAL PROPOSITION LAID DOWN BY VARIOUS COURTS INCLUDING THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF LAKHANI MARKETING INC. (SUPRA) THAT NO ITA NO.462/CHD/2016 A.Y.2012-13 5 DISALLOWANCE U/S 14A IS WARRANTED WHEN NO EXEMPT IN COME IS EARNED, WE HAVE NO HESITATION IN AGREEING WITH T HE CONTENTION OF THE ASSESSEE THAT IN THE PRESENT CASE NO DISALLOWANCE U/S 14A WAS WARRANTED. THE LD. DR HAS BEEN UNABLE TO POINT OUT ANY DECISION CONTRARY TO THOSE CITED BY THE LD. COUNSEL FOR ASSESSEE BEFORE US, MORE IMPORT ANTLY, RENDERED BY THE HON'BLE JURISDICTIONAL HIGH COURT O R HON'BLE APEX COURT IN THIS REGARD. IN VIEW OF THE ABOVE, WE DIRECT THAT THE DISALLOWANCE SO MADE US 14A OF THE ACT, AM OUNTING TO RS.14,01,113/- BE DELETED. GROUND OF APPEAL NO.1 RAISED BY THE ASSESSEE IS ALLOWED. 9. GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE REA DS AS UNDER: 2. THAT SHE WAS FURTHER NOT JUSTIFIED TO ARBITRARI LY UPHELD DISALLOWANCE OF RS. 57,41,153/- OUT OF INTEREST ACCOUNT BY RESORT TO PROVISIONS OF SECTION 36(1)(III). 10. BRIEF FACTS RELEVANT OF THE ACT THE ISSUE ARE T HAT THE ASSESSEE HAD GIVEN FOLLOWING INTEREST FREE ADVANCES : M/S MAXXIS INFRASTRUCTURE LTD. RS.5,00,85,409/- M/S RAMESH FORGINGS & RS. 10,00,000/- M/S CTECH INDUSTRIES 11. THE A.O. ASKED THE ASSESSEE TO EXPLAIN WHY PROPORTIONATE INTEREST PERTAINING TO THESE ADVANCES SHOULD NOT BE DISALLOWED U/S 36(1)(III) OF THE ACT. AS RE GARDS THE ADVANCE MADE TO M/S MAXXIS INFRASTRUCTURE LTD., THE ASSESSEE SUBMITTED THAT THE AMOUNT WAS GIVEN FROM I NTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. AS REGARDS THE ADVANCES TO M/S CTECH INDUSTRIES AND M/S RAMESH FOR GINGS ITA NO.462/CHD/2016 A.Y.2012-13 6 WERE GIVEN WHICH WAS PENDING SINCE MANY YEARS, THE ASSESSEE SUBMITTED THAT FOR THE ASSESSMENT YEAR 200 8-09, THE ITAT CHANDIGARH BENCH HAD ALLOWED THE DISALLOWA NCE OF INTEREST MADE AT RS.1,20,000/- ON ACCOUNT OF ADVANC ES GIVEN TO THE ABOVE MENTIONED TWO PARTIES. AFTER CONSIDERI NG THE ASSESSEES SUBMISSIONS, THE A.O. DISALLOWED INTERES T U/S 36(1)(III) OF THE ACT BY COMPUTING THE DISALLOWANCE @ 12%. THE TOTAL DISALLOWANCE OF RS.57,41,153/- (RS.56,21, 153/- + RS.1,20,000/-) WAS ACCORDINGLY MADE. 12. THE LD.CIT(A) UPHELD THE DISALLOWANCE SO MADE. 13. BEFORE US, THE SOLE CONTENTION RAISED BY THE LD . COUNSEL FOR ASSESSEE WAS THAT IT HAS SUFFICIENT OWN FUNDS, WHICH WERE INTEREST FREE, FOR THE PURPOSE OF MAKING THE IMPUGN ED ADVANCES, AND THEREFORE, NO DISALLOWANCE U/S 36(1)( III) OF THE ACT WAS WARRANTED. OUR ATTENTION WAS DRAWN TO THE B ALANCE SHEET OF THE FOR THE IMPUGNED YEAR, PLACED AT PAPER BOOK PAGE NOS.14 TO 27. IT WAS POINTED OUT THEREFROM THA T SHARE CAPITAL, RESERVES AND SURPLUS OF THE ASSESSEE COMPA NY WERE RS.25.33 CRORES WHILE THE PROFITS FOR THE YEAR WERE 2.91 CRORES AND THE ADVANCES MADE AMOUNTED TO RS.5 CRORE S. THE LD. COUNSEL FOR ASSESSEE STATED THAT IT WAS EVIDENT THAT SUFFICIENT OWN INTEREST FREE FUNDS WERE AVAILABLE W ITH THE ASSESSEE FOR MAKING THE IMPUGNED ADVANCES. THE LD. COUNSEL FOR ASSESSEE THEREAFTER POINTED OUT THAT THE HON'BL E JURISDICTIONAL HIGH COURT HAS REPEATEDLY HELD THAT WHERE OWN INTEREST FREE FUNDS ARE AVAILABLE, NO DISALLOWA NCE U/S 36(1)(III) OF THE ACT IS WARRANTED. THE LD. COUNSEL FOR ITA NO.462/CHD/2016 A.Y.2012-13 7 ASSESSEE RELIED UPON THE FOLLOWING DECISIONS OF THE HON'BLE JURISDICTIONAL HIGH COURT : 1) CIT VS. KAPSONS ASSOCIATES (2015) 381 ITR 204 2) BRIGHT ENTERPRISES (P) LTD. VS. CIT (2011) 381 ITR 107 14. THE LD. DR, ON THE OTHER HAND RELIED UPON THE O RDER OF THE CIT(A), DRAWING OUR ATTENTION TO THE RELIANCE P LACED BY THE LD.CIT(A) ON THE DECISION OF THE HON'BLE JURISD ICTIONAL HIGH COURT IN THE CASE OF CITVS. ABHISHEK INDUSTRI ES LTD., 286 ITR 1 (P&H) WHILE MAKING THE IMPUGNED DISALLOWA NCE AND REJECTING THE CONTENTION OF THE ASSESSEE THAT I N THE LIGHT OF SUFFICIENT OWN FUNDS AVAILABLE, NO DISALLOWANCE WAS WARRANTED. 15. WE HAVE HEARD RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE ISSUE TO BE ADJUDICAT ED IN THE PRESENT GROUND RELATES TO DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT. UNDENIABLY, THE HON'BLE JURI SDICTIONAL HIGH COURT IN A NUMBER OF DECISIONS HAS LAID DOWN T HE PROPOSITION THAT WHERE SUFFICIENT OWN FUNDS ARE AVA ILABLE, NO DISALLOWANCE OF INTEREST U/S 36(1)(III) IS WARRANTE D. THE ABOVE DECISIONS HAVE BEEN RENDERED SUBSEQUENT TO TH E DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT I N THE CASE OF ABHISHEK INDUSTRIES LTD. (SUPRA). THEREFORE, THE SAID PROPOSITION WOULD APPLY IN THE PRESENT CASE. SINCE THE FACT THAT THE ASSESSEE HAD SUFFICIENT OWN INTEREST FREE FUNDS IN THE FORM OF SHARE CAPITAL AND RESERVES TO THE EXTEN T OF RS.25.33 CRORES AND PROFITS FOR THE IMPUGNED YEAR T O THE EXTENT OF RS.2.91 CRORES AS AGAINST THE INTEREST FR EE ADVANCE ITA NO.462/CHD/2016 A.Y.2012-13 8 MADE OF RS.5 CRORES IS NOT DISPUTED, APPLYING THE A FORESAID PROPOSITION LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT WE HOLD THAT NO DISALLOWANCE OF INTEREST U/S 36(1)(III) OF THE ACT IS WARRANTED. THE DISALLOWANCE SO MADE O F INTEREST OF RS.57,41,153/- IS, THEREFORE, DIRECTED TO BE DEL ETED. GROUND OF APPEAL NO.2 RAISED BY THE ASSESSEE IS ALL OWED. 17. IN EFFECT, THE APPEAL OF THE ASSESSEE IS ALLOWE D. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- !' & ' ( ) * (DIVA SINGH) ANNAPURNA GUPTA) $ % /JUDICIAL MEMBER +, % /ACCOUNTANT MEMBER &! /DATED: 5 TH FEBRUARY, 2019 * * $'( )*+* / COPY OF THE ORDER FORWARDED TO : 1. , / THE APPELLANT 2. (-, / THE RESPONDENT 3. . / CIT 4. . ( )/ THE CIT(A) 5. */0( 1 , '1 , 23405 / DR, ITAT, CHANDIGARH 6. 046! / GUARD FILE $' / BY ORDER, / ASSISTANT REGISTRAR