M/s Nasa Agro Industries Pvt. Ltd, Fazilka V. The Asstt. Commissioner of Income Tax,Circle- II, Bathinda

ITA 536/ASR/2017

• Counselvise Citation: [2019] 118 COUNSELVISE.COM (IT) 3399 (ITAT-AMRITSAR)
• Duration Of Justice: 1 year(s) 6 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-02-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 19-02-2019
• Assessment Year: 2013-2014
• Appeal Filed On: 14-08-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RAT INDER KAUR LD
• Assessee Lawyers: P K ANAND LD
• Keywords: Earning of tax free income
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH, AM RITSAR BEFORE SH. N.S.SAINI, ACCOUNTANT MEMBER AND SH. N.K.CHOUDHRY, JUDICIAL MEMBER ITA NOS.536 & 537(ASR)/2017 ASSESSMENT YEARS:2013-14 & 20 14-15 M/S. NASA AGRO INDUSTRIES PVT. LTD., VILLAGE PAINCHANWALI, TEHSIL & DIST. FAZILLKA. [PAN:AAACN 7050J] VS. ASST. CIT, CIRCLE-II, BHATINDA. (APPELLANT) (RESPONDENT) APPELLANT BY: SH. P.K. ANAND (LD. CA) RESPONDENT BY: SMT. RATIN DER KAUR (LD. DR) DATE OF HEARING: 19.02.2019 DATE OF PRONOUNCEMENT: 21.02.201 9 ORDER PER N.K.CHOUDHRY, JM: THE AFORESAID APPEALS HAVE BEEN PREFERRED BY THE ASSESSE E/APPELLANT AGAINST THE ORDER DATED 25.05.2017 PASSED BY THE LD. CIT(A)-BATHINDA, U/S 250(6) OF THE I.T. ACT, 1961 (HEREINAFTER CALLED AS T HE ACT). 2. IN BOTH THE APPEALS THE ISSUE IS IDENTICAL AND SIMILAR THEREFORE FOR THE SAKE OF CONVENIENCE AND BREVITY HAVE BEEN TAKEN INTO CO NSIDERATION SIMULTANEOUSLY AND FACTS OF THE ITA NO.536/ASR/2017 SHALL BE QUOTED IN THE ORDER AND RESULT OF THE SAME SHALL MUTATIS MUTANDIS APPLY TO ITA NO.537/ASR/2017. 3. THE ASSESSEE HAS RAISED THE FOLLOWING GROUND IN ITA NO.5 36/ASR/2017 WHICH IS AS UNDER: ON THE FACTS & CIRCUMSTANCES OF THE CASE, THE LD. CIT(A), BHATINDA HAS ERRED IN UPHOLDING DISALLOWANCE OF RS.2,29,812/- UN DER PROVISION OF ITA NOS.536 & 537 /ASR/2017 (A.YS.2013-14 & 2014-15) M/S NASA AGRO INDUSTRIES PVT. LTD. VS. ACIT, BHATIN DA 2 SECTION 14A READ WITH RULE 8D DESPITE THE FACT THAT NO EXEMPT INCOME WAS EARNED DURING THE AY UNDER THE APPEAL. 4. SOLE ISSUE IN THIS CASE RELATES TO THE DISALLOWANCE UN DER THE PROVISIONS OF SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCO ME-TAX RULES, 1962, THE ADDITION WAS MADE BY THE AO ON THE GROUND THAT INCOME FROM SHARES IS EXEMPT FROM TAX AND DOES NOT FORM PART OF THE TOTA L INCOME OF THE ASSESSEE. NO SEPARATE ACCOUNTS ARE MAINTAINED BY THE ASSEEEE IN RELATION TO INVESTMENTS MADE IN SHARES AND EXPENDITURE INCURRED THEREON. TH EREFORE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT IS NOT ACCEP TABLE BEING NOT SATISFIED. THE ASSESSING OFFICER FINALLY MADE THE DISALLOWANCE OD RS. 10,25,213/- AS OF RS. 2,29,812/- BEING 0.5 % OF AVERAGE VALUE OF INVESTME NTS . IN APPEAL, THE CIT (A) ALTHOUGH DELETED THE DISALLOWANCE OF RS. 10,25,213 /- BY OBSERVING THAT SINCE THE APPELLANT COMPANY HAD NON-INTEREST BEARIN G FUNDS FAR EXCEEDING THE INVESTMENTS MADE AND THERE WAS NO EXEMPT INCOME WHI CH WAS INCLUDED IN THE TOTAL INCOME DURING THE YEAR UNDER CONSIDERATION, T HERE CANNOT BE ANY PROPORTIONATE DISALLOWANCE [RS. 10,25,213] OF INTER EST PAID WHICH IS NOT DIRECTLY ATTRIBUTABLE TO ANY PARTICULAR INCOME IN THE PROPO RTION OF AVERGE VALUE OF INVESTMENTS TO THEAVERAGE VALUE OF THE TOTAL ASSETS , HOWEVER THE AFFIRMED THE DISALLOWANCE RS. 2,29,812/- BEING 0.5 % OF AVERAGE VAL UE OF INVESTMENTS, BY HOLDING THAT THE AMOUNT EQUAL TO ONE HALF PERCENT (2,29,812) OF THE AVERAGE OF THE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME, AS APPEARING IN THE BALANCE SHEET OF THE APPELLANT, ON THE FIRST DAY AND THE LAST DAY OF THE PREVIOUS YEAR, NEEDS TO BE DISALLOWED AS PER THE PROVISIONS OF SECTION14A READ WITH RULE 8D. THIS C OMPONENT OF DISALLOWANCE DOES NOT PERTAIN TO PROPORTIONATE DISALLOWANCE OF I NTEREST PAID BUT ACCOUNTS FOR AN ESTIMATE GENERAL AND ADMINISTRATIVE EXPENSE FOR ACQUISITION OF INVESTMENT. ACCORDINGLY THE AO IS DIRECTED TO RESTRICT THE ADDI TION TO RS.2,29,812/- UNDER THE PROVISIONS OF SECTION 14A . THE ASSEEEE IS IN APPEAL, AGAINST THE DISALLOWANCE ITA NOS.536 & 537 /ASR/2017 (A.YS.2013-14 & 2014-15) M/S NASA AGRO INDUSTRIES PVT. LTD. VS. ACIT, BHATIN DA 3 OF RS.2,29,812/- UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE INCOME-TAX RULES, 1962 AND THEREFORE IS IN CONSIDERATION BEFORE US. THE ASSESSEE CLAIMED THAT NO EXEMPT INCOME EARNED DURING THE YEAR UNDER CONSIDERATION. 5. HAVING HEARD THE PARTIES AND EXAMINED THE ORDERS O F AUTHORITIES BELOW. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEM INVEST LTD. V. CIT, 378 ITR 33 (DEL) CONSIDERED THE SIMILAR AND IDENT ICAL ISSUE UNDER CONSIDERATION AND HAS CATEGORICALLY HELD THAT SECTION 14A ENVISAGES THAT THERE SHOULD BE ACTUAL RECEIPT OF INCOME WHICH WAS NOT INCLUDIBLE IN THE TOTAL INCOME DURING THE RELEVANT PREVIOUS YEAR FOR TH E PURPOSE OF DISALLOWING ANY EXPENDITURE IN RELATION TO THE SAID I NCOME. WHEREVER THERE IS NO EXEMPT INCOME INCLUDIBLE IN THE TOTAL INCOME OF THE ASSESSEE, THE PROVISIONS OF SECTION 14A CANNOT BE INVOKED. RELEVANT CON CLUSION DRAWN BY JURISDICTION HIGH COURT IS REPRODUCED HEREIN BELOW FOR T HE SAKE OF CONVENIENCE AND BREVITY AND READY REFERENCE: 23.IN THE CONTEXT OF THE FACTS ENUMERATED HEREINBEF ORE THE COURT ANSWERS THE QUESTION FRAMED BY HOLDING THAT THE EXPRESSION DOES NOT FORM PART OF THE TOTAL INCOME IN SECTION 14A OF THE ENVISAGES THAT THERE SHOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE PURPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. 6. THE HONBLE MADRAS HIGH COURT ALSO DEALT WITH THE I DENTICAL ISSUE IN THE CASE OF CIT, CENTRAL 1, CHENNAI VS. CHETTINAD LOGISTICS ( P.) LTD. [2017] 80 TAXMANN.COM 221 (MADRAS) AGAINST WHICH SLP WAS FILED BEF ORE THE HONBLE APEX COURT AND THE APEX COURT VIDE JUDGMENT DATED 2 ND JULY, 2018 DISMISSED THE SLP WHILE UPHOLDING THE DECISION OF THE HIG H COURT. ITA NOS.536 & 537 /ASR/2017 (A.YS.2013-14 & 2014-15) M/S NASA AGRO INDUSTRIES PVT. LTD. VS. ACIT, BHATIN DA 4 7. THE JURISDICTIONAL HIGH COURT IN THE CASE OF LAKHANI MARKETING INC. (2014) 49 TAXMANN.COM 257 ALSO DEALT WITH SIMILAR ISSUE , RELEVANT PART OF THE ORDER IS REPRODUCED BELOW: '4. WE HAVE HEARD LEARNED COUNSEL FOR THE PARTIES A ND PERUSED THE RECORD. 5. LEARNED COUNSEL FOR THE APPELLANT SUBMITTED THAT THE CIT(A) AS WELL AS THE TRIBUNAL WERE IN ERROR IN DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE WITHOUT PROPERLY APPRECIATING THE PROV ISIONS OF SECTION 14A OF THE ACT. ACCORDING TO THE LEARNED COUNSEL, THE ASSESSEE HAD INVESTED IN SHARES OF M/S LAKHANI MARKETING INCL. W HICH HAD YIELDED DIVIDEND INCOME AND WAS NOT FORMING PART OF TOTAL I NCOME BY VIRTUE OF SECTION 10(33) OF THE ACT AND HENCE INTEREST LIABILITY CLAIMED FO R DEDUCTION FROM THE INCOME WAS IMPERMISSIBLE. 6. ON THE OTHER HAND, LEARNED COUNSEL FOR THE ASSES SEE BESIDES SUPPORTING THE ORDER PASSED BY THE CIT(A) AND THE T RIBUNAL RELIED UPON JUDGMENTS OF THIS COURT IN CIT V. HERO CYCLES LTD . [2010] 323 ITR 518/189 TAXMAN 50 AND CIT V. WINSOME TEXTILE INDUSTRIES LTD . [2009] 319 ITR 204, TO CONTEND THAT FINDING HAS BEE N RECORDED BY THE CIT(A) AS WELL AS THE TRIBUNAL THAT THERE WAS N O DIVIDEND INCOME AND IN SUCH A SITUATION, PROVISIONS OF SECTION 14A OF THE ACT HAD NO APPLICABILITY. ACCORDING TO THE LEARNED COUNSEL, TH E CIT(A) AND THE TRIBUNAL HAD HELD THE ASSESSEE TO BE ENTITLED TO CL AIM DEDUCTION ON ACCOUNT OF INTEREST LIABILITY. 7. AFTER HEARING LEARNED COUNSEL FOR THE PARTIES, W E DO NOT FIND ANY MERIT IN THE APPEALS. 8. THE PRIMARY ISSUE THAT ARISES FOR CONSIDERATION IN THESE APPEALS IS WHETHER THE CIT(A) AS WELL AS THE TRIBUNAL WERE RIG HT IN ALLOWING DEDUCTION OF INTEREST LIABILITY OUT OF OTHER INCOME AND THE CLAIM OF THE REVENUE TO DISALLOW THE SAME UNDER SECTION14A OF THE ACT WAS JUSTIFIED. 9. THE CIT(A) VIDE ORDER DATED 24 TH JUNE, 2004, ANNEXURE A. II RECORDED AS UNDER: -- '7.2 KEEPING IN VIEW THE ABOVE FACTS AND CIRCUMSTAN CES OF THE CASE IT IS HELD THAT THE AO WAS NOT CORRECT IN APPLYING SECTION 14A OF THE IT ACT IN DISALLOWING THE EXPENDITURE ON ACCOUNT OF IN TEREST AMOUNTING ITA NOS.536 & 537 /ASR/2017 (A.YS.2013-14 & 2014-15) M/S NASA AGRO INDUSTRIES PVT. LTD. VS. ACIT, BHATIN DA 5 TO RS.46,91,684/-. IT WAS INCUMBENT ON THE AO TO ES TABLISH A NEXUS BETWEEN THE EXPENDITURE INCURRED AND THE INCOME WHI CH WAS EXEMPT UNDER THE ACT. FACTS CLEARLY DO NOT SUPPORT THE ACT ION OF THE AO. DISALLOWANCE IS ACCORDINGLY DELETED. THE AO IS DIRE CTED TO RECOMPUTE THE INCOME ACCORDINGLY.' 10. VIDE ORDER DATED 16.5.2008, ANNEXURE A.III, THE TRIBUNAL ON APPEAL BY THE REVENUE WHILE UPHOLDING THE FINDING R ECORDED BY THE CIT(A) NOTICED AS UNDER:-- 'WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE PERUSED T HE MATERIAL ON RECORD. FROM THE READING OF SECTION 14A OF THE ACT, IT IS CLEAR THAT BEFORE MAKING ANY DISALLOWANCE THE FOLLOWING CONDIT IONS ARE TO EXIST:-- (A) THAT THERE MUST BE INCOME TAXABLE UNDER THE ACT , AND (B) THAT THIS INCOME MUST NOT FORM PART OF THE TOTA L INCOME UNDER THE ACT, AND (C) THAT THERE MUST BE AN EXPENDITURE INCURRED BY T HE ASSESSEE, AND (D) THAT THE EXPENDITURE MUST HAVE A RELATION TO TH E INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE AC T. 9. THEREFORE, UNLESS AND UNTIL, THERE IS RECEIPT OF EX EMPTED INCOME FOR THE CONCERNED ASSESSMENT YEARS (DIVIDEND FROM SHARES), WE ARE OF THE VIEW, SECTION 14A OF THE ACT CANNOT BE INVOKED. IN THIS APPEAL, THE REVENUE HAS NOT DISPEL LED THE FINDINGS OF THE CIT(A), NOR THE STATEMENT OF THE AS SESSEE BEFORE AO THAT ASSESSEE IS NOT IN RECEIPT OF ANY DIVIDEND INCOME AND HENCE ACCORDING TO US, THE ASSESSING OFFICER HAS ER RED IN INVOKING SECTION 14A OF THE ACT, TO DISALLOW VARIOUS INTEREST PAYMENTS ON CAPITAL ACCOUNT, SECURITY DEPOSITS AND UNSECURED LOANS. THIS CONCLUSION OF OURS FINDS SUPPORT IN THE DECISION OF BOMBAY BENCH OF THE TRIBUNAL IN THE CASE OF JOINT COMMISSIONER OF INCOME TAX V. HOLLAND EQUIPMENT CO. B.V. [2005] 3 SOT 810 (MUM.) AND THE RELEVANT PORTION OF THE ORDER OF THE BOMBAY BENCH OF THE TRIBUNAL IS REPRODUCED B ELOW:-- 'REGARDING APPLICATION OF SECTION 14A OF THE ACT, THE CONTENTION OF THE LEARNED DEPARTMENT REPRESENTATIVE HAS TO BE REJECTED ON THE FACE OF IT INASMUCH AS THE ENTIRE IN COME OF THE ASSESSEE IS TAXABLE UNDER THE ACT. SECTION 14A IS APPLICABLE ONLY WHEN ANY PART OF THE INCOME IS NOT TO BE INCLUDED IN THE TOTAL ITA NOS.536 & 537 /ASR/2017 (A.YS.2013-14 & 2014-15) M/S NASA AGRO INDUSTRIES PVT. LTD. VS. ACIT, BHATIN DA 6 INCOME OF THE ASSESSEE AND THE EXPENDITURE RELATING TO THAT PART OF INCOME IS CLAIMED BY THE ASSESSEE AS DEDUCTION. IN SUCH CASES ONLY, THE EXPENDITURE RELATING TO THE EXEMPTE D INCOME CAN BE DISALLOWED AND NOT OTHERWISE. SINCE IN THE PRESE NT CASE, THE ENTIRE INCOME IS FOUND TO BE TAXABLE, NO DISALLOWANC E CAN BE MADE UNDER SECTION 14A OF THE ACT.' 8. WHILE RESPECTFULLY FOLLOWING THE RATIO LAID DOWN B Y THE DELHI HIGH COURT, MADRAS HIGH COURT AND JURISDICTIONAL HIGH COURT IN THE AFORESAID DECISIONS, AS IT IS WELL SETTLED POSITION OF LAW THAT WH ENEVER ASSESSEE DID NOT EARN ANY EXEMPT INCOME, NO DISALLOWANCE COULD BE MADE U /S. 14A OF THE ACT. IN THE INSTANT CASE, ADMITTEDLY THE ASSESSEE DID NO T EARN ANY EXEMPT INCOME UNDER THE RELEVANT FINANCIAL YEAR, HENCE APPLI CABILITY OF SECTION 14A READ WITH RULE 8D CANNOT BE JUSTIFIED. THEREFORE IN OUR CONSIDERED OPINION AS THE ASSESSEE DID NOT EARN ANY INCOME DURING THE RELEVANT FINANCIAL YEAR, THUS NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF T HE ACT AND HENCE ADDITION MADE ON THE BASIS OF DISALLOWANCE U/S 14A BY TH E ASSESSING OFFICER AS AFFIRMED BY THE LD CIT(A) STANDS DELETED . 9. IN THE RESULT, BOTH THE APPEAL I.E. ITA NO. 537/A SR/2017 FILED BY THE ASSESSEE STANDS ALLOWED. 10. CONSEQUENTLY IN VIEW OF DECISION IN ITA NO. 537/ASR /2017, SECOND APPEAL I.E. ITA NO. 539/ASR/2017 ALSO STANDS ALLOWED. ORDER PRONOUNCED IN OPEN COURT ON THIS 21 ST DAY OF JULY, 2018. SD/- SD/- (N.S.SAINI) (N.K.CHOUDHRY) ACCOUNTANT MEMBER JUDI CIAL MEMBER DATED: 21.02.2019 /PK/ PS. COPY OF THE ORDER FORWARDED TO: ITA NOS.536 & 537 /ASR/2017 (A.YS.2013-14 & 2014-15) M/S NASA AGRO INDUSTRIES PVT. LTD. VS. ACIT, BHATIN DA 7 (1) SH. M/S. NASA AGRO INDUSTRIES PVT. LTD., VIL LAGE PAINCHANWALI, TEHSIL & DIST. FAZILLKA. (2) THE ACIT, CIRCLE-II, BHATINDA (3) THE CIT(A), BHATINDA (4) THE CIT CONCERNED (5) THE SR DR, I.T.A.T., AMRITSAR TRUE COPY BY ORDER FILENAME: NASA AGRO INDUSTRIES PVT. LTD. 536 & 537 - 2017 DIRECTORY: G: TEMPLATE: C:\USERS\ETC PARMOD\APPDATA\ROAMING\MICROSOFT\TEMPLATES\NORMAL.D OT TITLE: IN THE INCOME TAX APPELLATE TRIBUNAL SUBJECT: AUTHOR: RAHUL PRABHAKAR KEYWORDS: COMMENTS: CREATION DATE: 2/20/2019 5:52:00 PM CHANGE NUMBER: 8 LAST SAVED ON: 2/26/2019 10:41:00 AM LAST SAVED BY: ETC PARMOD TOTAL EDITING TIME: 11 MINUTES LAST PRINTED ON: 2/26/2019 10:43:00 AM AS OF LAST COMPLETE PRINTING NUMBER OF PAGES: 8 NUMBER OF WORDS: 2,008 (APPROX.) NUMBER OF CHARACTERS: 11,449 (APPROX.)