DCIT, Ludhiana V. M/s Vardhman Acrylics Limited, Ludhiana

ITA 515/CHANDI/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9068 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 20 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 26-09-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2008-2009
• Appeal Filed On: 06-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Earning of tax free income; Capital receipt
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.515/CHD/2016 (ASSESSMENT YEAR : 2008-09) THE D.C.I.T., VS. M/S VARDHMAN ACRYLICS LIMITED, CIRCLE-1, CHANDIGARH ROAD, LUDHIANA. LUDHIANA. PAN: AAACV7602E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUSHIL KUMAR, DR RESPONDENT BY : SHRI SUBHASH AGGARWAL DATE OF HEARING : 19.09.2016 DATE OF PRONOUNCEMENT : 26.09.2016 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAIN ST THE ORDER OF LEARNED COMMISSIONER OF INCOME TAX (APPEALS)-I, LUDHIANA DATED 26.2.2016 FOR ASSESSMEN T YEAR 2008-09. 2. GROUND NO.1 RAISED BY THE REVENUE READS AS FOLLOWS : 1. WHETHER UPON FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) WAS JUSTIFIED IN DISREGARDING THE FINDINGS OF THE ASSESSING OFFICER AND TREATING THE 2 SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE AS CAPITAL IN NATURE? 3. THIS GROUND IS AGAINST THE ACTION OF THE LEARNE D CIT (APPEALS) IN TREATING THE SALES TAX SUBSIDY REC EIVED BY THE ASSESSEE AS CAPITAL IN NATURE, AS AGAINST REVEN UE TREATED BY THE ASSESSING OFFICER. 4. THE FACTS RELATING TO THE ISSUE ARE THAT THE MANUFACTURING UNIT OF THE COMPANY LOCATED IN THE ST ATE OF GUJARAT WAS EXEMPT FROM PAYMENT OF SALES TAX UNDER THE CAPITAL INVESTMENT INCENTIVE TO PREMIER/PRESTIGIOU S SCHEME 1995-2000 SCHEME. DURING THE YEAR UNDER CONSIDERATION A SUM OF RS.12,13,51,879/- REPRESENTE D THE AMOUNT OF EXEMPTED SALES TAX, WHICH WAS REDUCED FRO M THE TAXABLE INCOME OF THE ASSESSEE, IN ITS RETURN O F INCOME, BY CLAIMING IT AS CAPITAL RECEIPT. THE ASS ESSING OFFICER, IN HIS ASSESSMENT ORDER, HELD THE SAME TO BE REVENUE IN NATURE AND BROUGHT IT TO TAX AS INCOME FROM OTHER SCHEME. THE MATTER WAS CARRIED IN APPEAL BE FORE THE LEARNED CIT (APPEALS), WHO HELD THE SALES TAX S UBSIDY TO BE CAPITAL IN NATURE RELYING UPON THE DECISION O F THE HON'BLE I.T.A.T., CHANDIGARH BENCH, IN THE ASSESSEE S OWN CASE FOR ASSESSMENT YEARS 2001-02, 2003-04, 2004-05 , 2006-07, 2007-08 AND 2010-11, VIDE ORDER DATED 21.10.2015. 5. AGGRIEVED BY THE SAME, THE REVENUE HAS COME UP IN APPEAL BEFORE US. 3 6. DURING THE COURSE OF HEARING BEFORE US, THE LEARNED D.R. FILED HIS ARGUMENTS IN WRITING AND FUR THER SUBMITTED THAT THE LEARNED CIT (APPEALS) HAD ERRED IN TREATING THE SUBSIDY AS CAPITAL RELYING UPON THE DE CISION OF THE I.T.A.T. IN THE ASSESSEES OWN CASE WITHOUT CONSIDERING THE DECISION OF THE HON'BLE SUPREME COU RT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LIMITED & O THERS VS. CIT, 228 ITR 253, WHEREIN THE HON'BLE SUPREME C OURT HAD HELD THE SAME TO BE REVENUE IN NATURE. THE LEA RNED D.R. STATED THAT THE LEARNED CIT (APPEALS) OUGHT TO HAVE FOLLOWED THE DECISION OF THE HON'BLE SUPREME COURT. 7. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, STATED THAT THE ISSUE WAS COVERED BY TH E TRIBUNALS ORDER IN THE ASSESSEES OWN CASE IN ASSE SSMENT YEAR 2010-11 IN ITA NO.911/CHD/2013 DATED 21.10.201 5, AS RIGHTLY HELD BY THE LEARNED CIT (APPEALS). 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW AS ALSO THE DOC UMENTS PLACED BEFORE US.WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT (APPEALS) HOLDING THE IMPUGNED SALES TA X SUBSIDY TO BE CAPITAL IN NATURE, FOLLOWING THE DECI SION OF THE HON'BLE TRIBUNAL IN THE ASSESSEES OWN CASE IN EARLIER AND LATER YEARS VIDE ITS ORDER DATED 21-10-2015. T HE ISSUE, WE FIND, DOES NOT REQUIRE ANY CONSIDERATION, SINCE IT HAS ALREADY BEEN DECIDED BY THE TRIBUNAL IN THE ASS ESSEES OWN CASE IN EARLIER AND LATER YEARS. THE SCHEME FR OM WHICH THE SUBSIDY EMANATED IS THE SAME AS IN THE EA RLIER 4 AND LATER YEARS DECIDED BY THE TRIBUNAL, WHEREIN AF TER GOING THROUGH THE SCHEME, IT WAS HELD THAT THE PURP OSE OF GIVING THE SUBSIDY WAS TO TRIGGER ACCELERATED INDUS TRIAL DEVELOPMENT AND ECONOMIC GROWTH. THUS THE TRIBUNAL HELD THAT THE NATURE OF THE RECEIPT OF SUBSIDY IN T HE HANDS OF THE ASSESSEE WAS CAPITAL. THE ARGUMENT OF THE LEARNED D.R. THAT THE CIT (APPEALS) SHOULD HAVE CONSIDERED THE DECISION OF THE HON'BLE SUPREME COURT RENDERED IN T HE CASE OF SAHNEY STEEL & PRESS WORKS LIMITED & OTHERS (SUPRA) WHILE DECIDING THIS ISSUE AND NOT THE DECIS ION OF THE TRIBUNAL IN THE ASSESSEES OWN CASE, WE FIND HA S NO MERIT, SINCE THE DECISION OF THE TRIBUNAL WAS BASED ON THE CRITERIA OUTLINED BY THE APEX COURT IN THE CASE OF CIT VS. PONNI SUGARS & CHEMICALS LTD. & OTHERS, 306 ITR 392 FOR DETERMINING THE NATURE OF SUBSIDY IN THE HANDS OF T HE RECIPIENT TO BE BASED ON THE PURPOSE TEST. FURTHER , THE APEX COURT, WHILE DELIVERING ITS JUDGMENT IN THE CA SE OF PONNI SUGARS & CHEMICALS LTD. & OTHERS (SUPRA) HAS RELIED HEAVILY ON ITS EARLIER DECISION IN THE CASE OF SAHNEY STEEL & PRESS WORKS LIMITED & OTHERS (SUPRA) AND ST ATED THAT THE IMPORTANCE OF THE JUDGMENT IN THE CASE OF SAHNEY STEEL & PRESS WORKS LIMITED & OTHERS (SUPRA) LAY IN THE FACT THAT IT LAID DOWN THE BASIC TEST TO BE APPLIED IN JUDGING THE CHARACTER OF THE SUBSIDY, WHICH WAS THE PURPOSE FOR WHICH IT WAS GIVEN. THUS WE FIND THAT THE DECISION OF THE TRIBUNAL IN THE CASE OF THE ASSESS EE IN EARLIER AND LATER YEARS FOLLOWING THE RATIO LAID DO WN BY THE APEX COURT IN PONNI SUGARS & CHEMICALS LTD. & OTHER S 5 (SUPRA) CANNOT BE SAID TO BE AT VARIANCE OR WITHOUT CONSIDERING THE DECISION OF THE APEX COURT IN THE C ASE OF SAHNEY STEEL & PRESS WORKS LIMITED & OTHERS (SUPRA) . 9. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF TH E LEARNED CIT (APPEALS), TREATING THE SALE TAX SUBSID Y RECEIVED AMOUNTING TO RS.12,13,51,879/- TO BE CAPIT AL IN NATURE AND DISMISS THE GROUND OF APPEAL OF THE REVE NUE ON THIS ACCOUNT. 10. GROUND NO.2 RAISED BY THE REVENUE READS AS FOLLOWS : 2. WHETHER UPON FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD. CIT(A) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S 14A OF THE INCOME-TAX ACT, 1961, R/W RULE 8D OF INCOME-TAX RULES, 1962? 11. THIS GROUND OF APPEAL IS AGAINST THE ACTION OF THE LEARNED CIT (APPEALS) IN DELETING THE DISALLOWA NCE OF EXPENSES MADE UNDER SECTION 14A OF THE ACT TO THE T UNE OF RS.3,16,191/-. 12. BRIEF FACTS RELATING TO THE ISSUE ARE THAT THE ASSESSING OFFICER DISALLOWED INTEREST AND OTHER EXP ENSES AMOUNTING IN ALL TO RS.3,16,191/- UNDER SECTION 14A OF THE ACT R.W.S. 8D(II() & (III) ON ACCOUNT OF INVEST MENT MADE BY THE ASSESSEE IN A COMPANY I.E. ECO-AQUA INFRASTR UCTURE LIMITED BY HOLDING THAT IT WAS AN INVESTMENT FROM W HICH EXEMPT INCOME ACCRUED TO THE ASSESSEE. 6 13. THE ASSESSEE FILED AN APPEAL AGAINST THE DISALLOWANCE MADE BEFORE THE LEARNED CIT (APPEALS) WHO DELETED THE SAME, FOLLOWING THE JUDGMENT OF THE HON 'BLE I.T.A.T., CHANDIGARH BENCH IN ASSESSEES OWN CASE F OR ASSESSMENT YEAR 2010-11 IN ITA NO.911/CHD/2012 DATE D 20.1.2014, WHEREIN IT WAS HELD THAT SECTION 14A CO ULD NOT BE APPLIED TO THE IMPUGNED INVESTMENTS SINCE THE SA ME WERE MADE AS PER DIRECTION OF THE HON'BLE GUJARAT H IGH COURT AND NO DIVIDEND COULD BE DECLARED BY THE SAID COMPANY, BEING A SECTION 25 COMPANY OF THE COMPANIE S ACT AND FURTHER BY FOLLOWING THE DECISION OF THE P UNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. WINSOME TEXTILES (2009) 319 ITR 204 AND CIT VS. LAKHANI MARKETING INCL. (2014) 272 CTR 265 WHICH HELD THAT SINCE NO EXEMPT INCOME WAS EARNED, SECTION 14A COULD NOT BE INVOKED. 14. BEFORE US, THE LEARNED D.R. FILED HIS SUBMISSIONS IN WRITING AND STATED THAT THE APEX COU RT IN CIT VS. WALFORT SHARE & STOCK BROKERS (P) LTD., 326 ITR 1 HAD HELD THAT AS PER SECTION 14A EXPENSES WERE TO B E ALLOWED ONLY TO THE EXTENT THEY WERE RELATABLE TO T HE EARNING OF TAXABLE INCOME, THEREFORE, THE ACTION OF THE LEARNED CIT (APPEALS) IN RELYING UPON THE DECISION OF THE PUNJAB & HARYANA HIGH COURT AND CONCLUDING THAT NO DISALLOWANCE UNDER SECTION 14A COULD BE MADE IS THE ABSENCE OF EXEMPT INCOME WAS INCORRECT. 7 15. THE LEARNED COUNSEL FOR THE ASSESSEE, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT (APPEA LS) AND THE HON'BLE I.T.A.T. IN ASSESSEES CASE FOR ASSESSM ENT YEAR 2010-11 IN ITA NO.911/CHD/2013 DATED 20.1.2014. 16. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW AS ALSO THE DOC UMENTS PLACED BEFORE US. WE FIND NO INFIRMITY IN THE ORDE R OF THE CIT (APPEALS),DELETING THE DISALLOWANCE MADE FOLLOW ING THE ORDER OF THE HON'BLE I.T.A.T. IN THE CASE OF THE AS SESSEE FOR ASSESSMENT YEAR 2010-11 IN ITA NO.911/CHD/2013, DATED 20.1.2014. WE FIND THAT THE ISSUE IN THAT CA SE WAS IDENTICAL TO THAT IN THE PRESENT CASE, BEING DISALL OWANCE MADE UNDER SECTION 14A ON ACCOUNT OF INVESTMENT MAD E IN BHARUCH ECO-AQUA INFRASTRUCTURE LTD., WHICH THE HON 'BLE I.T.A.T. FOUND WAS A SECTION 25 COMPANY OF THE COMP ANIES ACT I.E. A NON-PROFIT MAKING COMPANY WHICH COULD NO T HAVE GENERATED ANY INCOME AND, THEREFORE, NO QUESTI ON AROSE OF THE ASSESSEE EARNING ANY EXEMPT INCOME, BE ING DIVIDEND FROM THE SAME AND THUS SECTION 14A COULD N OT BE INVOKED. MOREOVER THE LEARNED CIT (APPEALS) HAD CO RRECTLY FOLLOWED THE JURISDICTIONAL HIGH COURT DECISION IN THE CASE OF WINSOME TEXTILES (SUPRA) AND LAKHANI MARKETING I NCL. (SUPRA) IN WHICH IT HAS BEEN CATEGORICALLY HELD THA T IN THE ABSENCE OF EXEMPT INCOME NO DISALLOWANCE UNDER SECT ION 14A CAN BE MADE. WE FIND NO MERIT IN THE ARGUMENT OF THE LEARNED D.R. THAT THE DECISION OF THE JURISDICTIONA L HIGH COURT STANDS OVERRULED BY THE APEX COURT DECISION I N 8 WALFORT SHARE & STOCK BROKERS (P) LTD. (SUPRA). THE LEARNED D.R. WHILE STATING SO, HAS RELIED UPON THE FOLLOWING FINDINGS OF THE APEX COURT IN WALFORT SHA RE & STOCK BROKERS (P) LTD. (SUPRA) : '17. THE INSERTION OF S. 14A WITH RETROSPECTIVE EFFEC T IS THE SERIOUS ATTEMPT ON THE PART OF THE PARLIAMENT NOT T O ALLOW DEDUCTION IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AGAINST THE TAXABLE IN COME (CIRCULAR NO. 14 OF 2001 DT. 22ND NOV., 2001). IN OTHER WORDS, S. 14A CLARIFIES THAT EXPENSES INCURRED CAN BE ALLOW ED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME' 17. WE FIND THAT THE APEX COURT HAD STATED SO WHIL E INTERPRETING SECTION 14A IN THE CONTEXT OF THE FACT S AND CIRCUMSTANCES OF THE CASE BEFORE IT, WHICH WAS THE DISALLOWANCE OF LOSS ON SALE OF SHARES UNDER SECTIO N 14A. WHILE DOING SO THE COURT HAD HELD THAT THE MANDATE OF SECTION 14A WAS TO DISALLOW ONLY EXPENSES INCURRED FOR EARNING EXEMPT INCOME AND LOSSES NOT BEING IN THE N ATURE OF EXPENDITURE ARE NOT COVERED UNDER IT. IT WAS NE ITHER THE ISSUE BEFORE IT, NOR ANY OBSERVATION WAS MADE B Y THE APEX COURT ON THE LINES THAT EVEN IN THE ABSENCE OF EXEMPT INCOME EXPENDITURE RELATABLE TO IT IS TO BE DISALLOWED. THE DECISION OF THE APEX COURT IN THE CASE OF WALFORT SHARE & STOCK BROKERS (P) LTD. (SUPRA) THER EFORE CANNOT BE RELIED UPON FOR DECIDING THE AFORESAID PROPOSITION. IN FACT, VARIOUS HIGH COURTS HAVE DEC IDED THIS ISSUE IN FAVOUR OF THE ASSESSEE INCLUDING THE 9 JURISDICTIONAL HIGH COURT IN WINSOME TEXTILES (SUPR A) AND LAKHANI MARKETING INCL. (SUPRA) WHICH HAVE BEEN COR RECTLY FOLLOWED BY THE LEARNED CIT (APPEALS). 18. IN VIEW OF THE ABOVE, WE UPHOLD THE ORDER OF T HE LEARNED CIT (APPEALS) IN DELETING THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT TO THE TUNE OF RS.3,16 ,191/-. THIS GROUND OF APPEAL OF THE REVENUE IS, THEREFORE, DISMISSED. 19. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 26 TH SEPTEMBER, 2016 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH