M/s M/S Cadchem Ltd., Chandigarh V. DCIT, Chandigarh

ITA 498/CHANDI/2014

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9898 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-06-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 15-06-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 08-05-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Assessee Lawyers: MINKY MITTAL
• Keywords: Capital asset; Opportunity of being heard; Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCBH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SHRI T.R.SOOD, ACCOUNTANT MEMBER ITA NO. 497 & 498/CHD/2014 A.YS: 2008-09 & 2010-11 M/S CADCHEM LTD. VS THE DCIT, # 1060 INDUSTRIAL AREA, CIRCLE 1(1), PHASE II CHANDIGARH. CHANDIGARH. PAN: AAACC7835J (APPELLANT) (RESPONDENT) APPELLANT BY : MS. MINKY MITTAL RESPONDENT BY : SHRI MANJIT SINGH DATE OF HEARING : 15.06.2015 DATE OF PRONOUNCEMENT : 17.06.2015 O R D E R PER BHAVNESH SAINI,JM THIS ORDER SHALL DISPOSE OF BOTH THE ABOVE APPEALS FILED BY THE ASSESSEE AGAINST DIFFERENT ORDERS OF LD. CIT(AP PEALS), CHANDIGARH DATED 25.02.2014 FOR ASSESSMENT YEAR 200 8-09 AND 2010-11. 2. WE HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PA RTIES AND PERUSED THE MATERIAL ON RECORD. ITA 497/CHD/2014 3. GROUND NO. 1 IS GENERAL AND NEED NO FINDING. 4. GROUND NO. 2 OF APPEAL OF ASSESSEE IS NOT PRESSE D BY LD. COUNSEL FOR THE ASSESSEE. THE SAME IS, THEREFORE, DISMISSED AS NOT PRESSED. 2 5. ON GROUND NO. 3, THE ASSESSEE CHALLENGED THE DIS ALLOWANCE OF EXPENDITURE OF RS. 1,87,751/- UNDER SECTION 40(A )(IA) OF THE INCOME TAX ACT. THE ASSESSEE IN THE GROUND OF APPE AL HAS STATED THAT THE ISSUE IS COVERED IN FAVOUR OF THE A SSESSEE IN VIEW OF THE ORDER OF THE TRIBUNAL IN THE CASE OF ITO VS SMT. VANDANA GOYAL DATED 28.05.2012 AND M/S RAJNEESH PHOTO SALES , CHANDIGARH DATED 07.08.2012 AND SPECIAL BENCH OF TH E TRIBUNAL IN MERILYNE SHIPPING 136 ITD 23 (SB) AND ALLAHABAD HIGH COURT DECISION IN CASE OF M/S VECTOR SHIPPING SERVICES (P ) LTD. IT APPEAL NO. 122 OF 2013 AND FURTHER STATED THAT DISA LLOWANCE UNDER SECTION 40A)(IA) DOES NOT APPLY TO THE AMOUNT S THAT ARE ALREADY PAID. 6. THE LD. CIT(APPEALS) NOTED THAT ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE ON PAYMENT OF RS. 1,87,751/- MADE TO THE CLEARING & FORWARDING AGENT THEREFORE, ENTIRE AMOUNT WAS DIS ALLOWED BY ASSESSING OFFICER UNDER SECTION 40(A)(IA) OF THE AC T. THE ASSESSEE RELIED UPON DECISION OF ITAT, VISHAKHAPATN AM (SB) IN THE CASE OF MERILYN SHIPPING & TRANSPORTERS 136 ITD 23 (SUPRA). THE LD. CIT(APPEALS) CONSIDERED THE ISSUE OF PAID AND PAYABLE USED IN CONTEXT OF THE ABOVE PROPOSITION UNDER SECT ION 40(A)(IA) OF THE ACT AND AFTER ELABORATELY DISCUSSING THE SAM E HELD THAT THE DISALLOWANCE UNDER SECTION 40(A)(IA) OF THE ACT IS TO BE MADE EVEN IF THE AMOUNTS (ON WHICH TAX WAS DEDUCTIBLE) H AVE BEEN PAID DURING THE YEAR AND THE DISALLOWANCE IS NOT TO BE RESTRICTED TO THE AMOUNT OUTSTANDING AS ON THE DATE OF BALANCE SHEET. THE LD. CIT(APPEALS), ACCORDINGLY DISMISSED THIS GROUND OF APPEAL OF THE ASSESSEE. 3 7. THE LD. COUNSEL FOR THE ASSESSEE MERELY RELIED UPON THE GROUND OF APPEAL SO RAISED ABOVE. 8. ON THE OTHER HAND, LD. DR SUBMITTED THAT NOW THE IS SUE IS SETTLED BY JURISDICTIONAL HON'BLE PUNJAB & HARYANA HIGH COURT IN GROUP CASES OF PMS DIESELS VS CIT-II, JALANDHAR AND OTHERS IN ITA 716 OF 2009 DATED 29.04.2015 IN WHICH THE HON'B LE PUNJAB & HARYANA HIGH COURT DISPOSING OF SEVERAL APPEALS D ECIDED THE AFORESAID ISSUE AGAINST THE ASSESSEE AND IN DOING S O, IT WAS HELD THAT THE REQUIREMENT TO DEDUCT TAX AT SOURCE IS MAN DATORY AND THAT THE PROVISIONS OF SECTION 40(A)(IA) APPLY TO T HE ASSESSEES WHO FOLLOW THE CASH SYSTEM AS WELL AS ASSESSEES WHO FOLLOW THE MERCANTILE SYSTEM. THE LD. DR THEREFORE SUBMITTED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE AND NO RELIAN CE COULD BE PLACED UPON THE DECISIONS REFERRED TO IN THE GROUND OF APPEAL. 9. ON CONSIDERATION OF THE RIVAL SUBMISSIONS, WE ARE O F THE VIEW THAT ISSUE IS COVERED AGAINST THE ASSESSEE BY JUDGEMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PMS DIESELS VS CIT AND OTHERS (SUPRA). IT IS ADMITTED FACTS TH AT ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON THE PAYMENTS IN Q UESTION, THEREFORE, ENTIRE AMOUNT WAS CORRECTLY DISALLOWED U NDER SECTION 40A)(IA) OF THE ACT. THE LD. CIT(APPEALS), THEREFO RE, CORRECTLY HELD THAT DISALLOWANCE UNDER ABOVE PROVISIONS SHALL HAVE TO BE MADE EVEN IF THE AMOUNT IN QUESTION HAD BEEN PAID D URING THE YEAR AND THE DISALLOWANCE IS NOT TO BE RESTRICTED T O THE AMOUNT OUTSTANDING AS ON THE DATE OF THE BALANCE SHEET. T HUS, THE DECISIONS QUOTED BY ASSESSEE IN THE GROUND OF APPEA L WOULD NOT SUPPORT THE CASE OF THE ASSESSEE IN VIEW OF THE REC ENT DECISION OF THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF PMS 4 DIESELS V CIT (SUPRA). THIS GROUND OF APPEAL OF TH E ASSESSEE IS ACCORDINGLY, DISMISSED. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS DISMISSED. ITA 498/CHD/2014 11. THE GROUND OF APPEAL NO. 1 IS GENERAL AND NEED NO ADJUDICATION. 12. THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS GROU ND NO. 2 OF THE APPEAL OF THE ASSESSEE. THE SAME IS, THEREF ORE, DISMISSED AS NOT PRESSED. 13. THE GROUND NO. 3 OF APPEAL OF ASSESSEE READS AS UND ER : THAT WORTHY CIT(A) HAS ERRED IN DISALLOWANCE OF INT EREST AMOUNTING TO RS. 3,66,175/- U/S 14A OF THE INCOME TAX ACT, 1961. THE WORTHY CTT(A) HAS WRONGLY APPLIED SECTION 14A OF THE INCOME TAX ACT, 1961 ON INTEREST ON LOAN BY WRONGLY HOLDING THAT ASSESSEE HAD MADE INVE STMENT IN AGRICULTURAL LAND AND THE INCOME EARNED THERE FROM IS EXEMPT FRO M TAX.. THAT THE ASSESSEE SHOULD BE GIVEN BENEFIT OF INTEREST AMOUNTING TO RS.3,66,175/- U/S 14A OF INCOME TAX ACT BECAUSE THE CC LIMIT AMOUNT WAS UTILIZE FOR PURCHASE OF NON-AGRICULTURAL LAND FOR BUSINESS PURPOSE. THEN THIS LAND WAS LATER, DECLARE D NON-FEASIBLE FOR SETTING UP INDUSTRIAL UNIT BY INDUSTRIAL DEPARTMENT .SO THE AFORESAID LAND WAS SOLD IN A.Y 2012-13. CAPITAL GAINS ARISING FROM THE SALE OF CAPITAL ASSETS(LAND) WAS INCLUDED IN THE TOTAL INCOME WHILE COMPUTING TOTAL INCOME AND TAX HAS BEEN ALREADY BEING PAID BY TAKING INTO CONSIDERATION THE SAID AMOUNT OF CAPITAL GAIN IN THE INCOME TAX RETURN OF THE ASSESSEE FOR THE ASSESSMENT YEAR 2012-13. THE DISALLOWANCE CAN BE MA DE U/S 14A OF INCOME TAX ACT ,1961 ONLY WHEN THE EXPENDITURE WAS INCURRE D FOR EARNING TAX FREE/EXEMPT INCOME WHICH HAS NOT BEEN DONE IN OUR C ASE. THAT THE ADDITION SUSTAINED BY WORTHY CIT(A) U/S 14 A IS LIABLE TO BE SET ASIDE,. THE SAME BEING BASED ON INCORRECT FACTS AND CONTRAR Y TO THE EVIDENCE AVAILABLE ON RECORD. 14. THE BRIEF FACTS OF THE ISSUE ARE THAT THE ASSESSEE HAD MADE INVESTMENTS IN PURCHASE OF LAND. THE ASSESSING OFF ICER MADE 5 DISALLOWANCE OF RS. 3,66,176/- UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE IT RULES. 15. DURING THE APPELLATE PROCEEDINGS, LD. COUNSEL FOR T HE ASSESSEE SUBMITTED THAT INVESTMENT IN LAND WAS MADE FOR BUSINESS PURPOSE AND CAPITAL GAIN ARISING ON SALE O F THIS LAND WAS INCLUDED IN THE TOTAL INCOME OF ASSESSMENT YEAR 2012-13. IT HAS ALSO BEEN SUBMITTED THAT ASSESSEE HAD NOT EARNE D ANY EXEMPT INCOME AND SO DISALLOWANCE UNDER SECTION 14A SHOULD NOT HAVE BEEN MADE. THE LD. CIT(APPEALS), HOWEVER, DISMISSED THIS GROUND OF APPEAL OF THE ASSESSEE. HIS FINDINGS IN PARA 4.3 TO 4.3.3 OF THE APPELLATE ORDER ARE REPRODUCED AS UNDE R : 4.3 I HAVE CONSIDERED THE SUBMISSION OF THE LD. CO UNSEL. FOR THE SAKE OF CONVENIENCE, PROVISIONS OF SECTION 14A ARE REPRODUC ED BELOW: '14A. EXPENDITURE INCURRED IN RELATION TO INCOME NO T INCLUDIBLE IN TOTAL INCOME. FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDE R THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITUR E INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (2) THE ASSESSING OFFICER SHALL DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT IN ACCORDAN CE WITH SUCH METHOD AS MAY BE PRESCRIBED, IF THE ASSESSING OFFICER, HAV ING REGARD TO THE ACCOUNTS OF THE ASSESSEE, IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. (3) THE PROVISIONS OF SUB-SECTION (2) SHALL ALSO AP PLY IN RELATION TO A CASE WHERE AN ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCURRED BY HIM IN RELATION TO INCOME WHICH DOES NO T FORM PART OF THE TOTAL INCOME UNDER THIS ACT;...............' 4.3.1 THUS, AS PER THE PROVISIONS OF SECTION 14 A(2), THE ASSESSING OFFICER HAS TO DETERMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCOME AS PER THE PRESCRIBED METHOD, WHICH IS RULE 8D AND ACCORDING TO SUBSECTION (3) OF SECTION 14, THE ASSESSING OFFICER HAS TO COMPUTE THE EXPENDITURE AS PER RULE 8D EVEN IF AN ASSESSEE CLAI MS THAT NO EXPENDITURE HAD BEEN INCURRED IN RELATION TO THE EXEMPT INCOME. PRO VISIONS OF RULE 8D(1) ARE AS UNDER: 6 '(I) WHERE THE ASSESSING OFFICER, HAVING REGARD TO THE ACCOUNTS OF THE ASSESSEE OF A PREVIOUS YEAR, IS NOT SATISFIED WITH - (A) 'THE CORRECTNESS OF THE CLAIM OF EXPENDITURE MADE BY THE ASSESSEE; OR (B) THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF T HE TOTAL INCOME UNDER THE ACT FOR SUCH PREVIOUS YEAR, HE SHALL DETERMINE THE AMOUNT O F EXPENDITURE IN RELATION TO SUCH INCOME IN ACCORDANCE WITH THE PROVISIONS OF SUB-RUL E (2).' 4.3.2 IN VIEW OF THE ABOVE, IF THE ASSESSING OFFIC ER IS NOT SATISFIED WITH THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE HAD BEEN INCURRED OR A BOUT THE CORRECTNESS OF THE CLAIM OF THE EXPENDITURE, 'IT IS MANDATORY FOR HIM TO COM PUTE THE EXPENDITURE RELATING TO THE EXEMPT INCOME AS PER RULE 8D OF THE RULES. 4.3.3 IN THE INSTANT CASE, THE APPELLANT HAD MADE I NVESTMENT IN AGRICULTURAL LAND AND THE INCOME EARNED THEREFROM IS EXEMPT FROM TAX. THEREFORE, THE CONTENTION OF THE APPELLANT THAT THE LAND WAS PURCHASED FOR BUSIN ESS PURPOSES AND THAT THE CAPITAL GAINS WAS DECLARED IN SUBSEQUENT YEAR IS NO T RELEVANT FOR MAKING DISALLOWANCE UNDER SECTION 14A OF THE ACT. THE FACT THAT NO EXEMPT INCOME WAS EARNED DURING THE YEAR IS ALSO NOT RELEVANT FOR THE PURPOSE OF MAKING DISALLOWANCE U/S 14A OF THE ACT. RULE 8D HAS BEEN INTRODUCED WIT H EFFECT FROM 24.03.2008 AND AS ALREADY DISCUSSED, NOW THE DISALLOWANCE OF THE EXPE NDITURE RELATING TO THE EXEMPT INCOME IS TO BE COMPUTED AS PER RULE 8D. IN VIEW OF THIS DISCUSSION, THE DISALLOWANCE MADE BY THE ASSESSING OFFICER ON THIS ACCOUNT IS CONFIRMED. GROUND OF APPEAL NO. 3 IS DISMISSED. 16. WE HAVE HEARD RIVAL CONTENTIONS. THE ASSESSEE IN T HE SUBMISSIONS BEFORE ASSESSING OFFICER SUBMITTED THAT ASSESSEE COMPANY UTILIZED SOME AMOUNT FOR SHORT TERM INVESTM ENT IN PURCHASE OF LAND FOR THE PURPOSE OF BUSINESS OF COM PANY. THEN THIS LAND WAS DECLARED NON FEASIBLE FOR SETTING UP INDUSTRIAL UNIT BY INDUSTRIES DEPARTMENT. SO THE AFORESAID LAND WA S SOLD IN ASSESSMENT YEAR 2012-13 ON WHICH ASSESSEE ALREADY P AID INCOME TAX. COPY OF THE COMPUTATION OF INCOME WAS FILED F OR ASSESSMENT YEAR 2012-13. IT WAS, THEREFORE, SUBMITTED THAT AD DITION WOULD BE UNJUSTIFIED. EVEN IN THE SUBMISSIONS BEFORE US, THE ASSESSEE 7 HAS SUBMITTED THAT IN THE CASE OF ASSESSEE, AMOUNT WAS UTILIZED FOR PURCHASE OF NON-AGRICULTURAL LAND FOR BUSINESS PURPOSE SO THERE WAS NO EXEMPT INCOME AND LAND WAS SOLD IN ASS ESSMENT YEAR 2012-13 ON WHICH TAX HAVE BEEN PAID BY ASSESSE E ON CAPITAL GAINS. THE ABOVE FACTS, THEREFORE, SUGGEST THAT THE MATTER REQUIRES RE-CONSIDERATION AT THE LEVEL OF TH E ASSESSING OFFICER. THE LD. CIT(APPEALS) MERELY PRESUMED THAT INVESTMENT IN AGRICULTURAL LAND WAS MADE ON WHICH INCOME EARNE D WAS EXEMPT FROM TAX. THIS FINDING WAS GIVEN WITHOUT VE RIFYING THE FACTS OR MATERIAL BROUGHT ON RECORD EITHER BY THE A SSESSING OFFICER OR BY THE LD. CIT(APPEALS). THE ASSESSEE H AS BEEN CLAIMING RIGHT FROM THE BEGINNING THAT LAND WAS PUR CHASED FOR BUSINESS PURPOSES AND WHEN THIS LAND WAS NOT FEASIB LE FOR SETTING UP INDUSTRIAL UNIT, IT WAS SOLD AND CAPITAL GAIN TAXES HAVE BEEN PAID LATER ON. IT WOULD, THEREFORE, SUPPO RT THE SUBMISSION OF THE ASSESSEE THAT ASSESSEE MIGHT NOT HAVE RECEIVED ANY EXEMPT INCOME, THEREFORE, PROVISIONS O F SECTION 14A MAY NOT BE ATTRACTED IN THE CASE OF THE ASSESSEE. SIMILARLY, THE ASSESSING OFFICER HAD NOTED IN THE ASSESSMENT ORDER THAT ASSESSEE HAS FAILED TO BRING ANY DOCUMENTARY EVIDEN CE ON RECORD TO ESTABLISH THAT THE LOANS HAVE BEEN RAISED TO EAR N ANY INCOME. IN VIEW OF THE PECULIAR FACTS AND CIRCUMSTANCES NOT ED ABOVE, WE ARE OF THE VIEW THAT MATTER REQUIRED RE-CONSIDERATI ON AT THE LEVEL OF THE ASSESSING OFFICER. WE ACCORDINGLY, SET ASID E THE ORDERS OF AUTHORITIES BELOW AND RESTORE THIS ISSUE TO THE FIL E OF ASSESSING OFFICER WITH DIRECTION TO RE-DECIDE THIS ISSUE BY G IVING SPECIFIC FINDING OF FACT WHETHER SECTION 14A APPLIES IN CASE OF ASSESSEE ON CONSIDERATION OF THE MATERIAL BEFORE HIM BY GIVI NG REASONABLE 8 SUFFICIENT OPPORTUNITY OF BEING HEARD TO THE ASSESS EE. THE ASSESSEE IS ALSO DIRECTED TO PRODUCE ALL DOCUMENTAR Y EVIDENCES IN THEIR POWER AND POSSESSION BEFORE ASSESSING OFFI CER FOR SETTLEMENT OF THIS ISSUE ONCE FOR ALL. 17. IN THE RESULT, THIS GROUND OF APPEAL OF ASSESSEE IS ALLOWED FOR STATISTICAL PURPOSES. 18. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED PA RTLY FOR STATISTICAL PURPOSES. 19. IN THE RESULT, APPEAL OF ASSESSEE IN ITA NO. 497/CH D/2014 IS DISMISSED. HOWEVER, APPEAL OF ASSESSEE IN ITA N O. 498/CHD/2014 IS PARTLY ALLOWED FOR STATISTICAL PURP OSES. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH JUNE,2015. SD/- SD/- (T.R.SOOD) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 17 TH JUNE,2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT CHANDIGARH