RIVIAN INTERNAITONAL (P) LTD ( NOW MERGED WITHM.S, PHULCHAND EXPORTS (P) LTD), MUMBAI V. ITO 3(3)(1), MUMBAI

ITA 5735/MUM/2012

• Counselvise Citation: [2014] 120 COUNSELVISE.COM (IT) 8311 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 2 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 10-12-2014
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 27-11-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 12-09-2012
• Court: TRIBUNAL
• Department Lawyers: S L JAIN SHRI JEETENDRA KUMAR
• Keywords: Business income; Earning of tax free income; Question of law
• Section: 43B; 14A; 115JB; 10

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, MUMBAI BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI NARENDRA KUMAR BILLAIYA, ACCOUNTANT MEMBER ITA NO.5735/MUM/2012 ASSESSMENT YEAR: - 2009-10 M/S. RAVIAN INTERNATIONAL (P) LTD. (NOW MERGED WITH M/S. PHULCHAND EXPORTS (P) LTD.) C/O. SHANKARLAL JAIN & ASSOCIATES, 12, ENGINEER BUILDING, 265, PRINCESS STREET MUMBAI 400 002. VS.` INCOME TAX OFFICER, 3(3)(1), 6 TH FLOOR, AAYAKAR BHAVAN, MUMBAI 400 020. PAN:- AAACR2763E APPELLANT RESPONDENT ORDER PER VIJAY PAL RAO, JM THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER DATED 5-7-2012 OF CIT(A) FOR THE A.Y. 2009-10. THE ASSESSEE HAS RA ISED FOLLOWING GROUNDS:- 1. THE LD. CIT(A) ERRED IN CONFORMING THE DECISION OF THE LD . ASSESSING OFFICER RESTRICTING THE ALLOWANCE FOR CARRY FORWARD LOSSES AT RS.6,21,615/- INSTEAD OF RS.6,39,558/- WITHOUT PROPERLY APPRECIAT ING THE FACT THAT DISALLOWANCE MADE U/S 14A DONATION AND DISALLOWANCE U/S 43B INCREASED BUSINESS INCOME AND HENCE WHOLE OF THE CARRY FORWAR D LOSS WAS AVAILABLE FOR SET OFF DURING THE YEAR. 2. LD. ASSESSING OFFICER ERRED IN MAKING DISALLOWAN CE UNDER THE PROVISIONS OF SECTION 14A OF RS.38,19,498/- WHICH INCLUDES DIS ALLOWANCE U/R 8D(2)(II) OF RS.33,09,986/- U/R 8D(2) (III) OF RS.5,09,512/-, WITHOUT PROPERLY ASSESSEE BY SHRI S.L. JAIN REVENUE BY SHRI JEETENDRA KUMAR DATE OF HEARING 27.11.2014 DATE OF PRONOUNCEMENT 10.12.2014 ITA NO.5735/MUM/2012 ASSESSMENT YEAR: - 2009-10 2 | P A G E APPRECIATING THE FACT THAT APPELLANT DID NOT HAVE A NY INCOME DURING THE YEAR WHICH IS BEING CLAIMED EXEMPT. 3. THE LD. CIT(A) ERRED IN CONFIRMING DISALLOWANCE U/S 14A WITHOUT APPRECIATING THE FACT THAT INVESTMENTS HELD BY THE APPELLANT ARE CAPABLE OF EARNING TAXABLE INCOME BEING CAPITAL GAIN, OTHER INCOME WHICH ARE LIABLE TO BE TAXED AND HENCE THE PROVISIONS OF SECT ION 14A ARE INAPPLICABLE. 4. THE LD. ASSESSING OFFICER AS WELL AS LD. CIT(A) ERRED IN ENHANCING BOOK PROFIT U/S 115JB BY RS.38,20,586/- BEING DISALLOWAN CE MADE WHILE COMPUTING INCOME UNDER NORMAL PROVISIONS OF THE ACT , WITHOUT CONSIDERING THE FACT THAT SUCH ENHANCEMENT OF BOOK PROFIT IS NOT PERMISSIBLE UNDER THE PROVISIONS OF SECTION 115JB O F THE ACT GROUND NO. 1 IS REGARDING RESTRICTING THE ALLOWANCE OF CARRY FOR WARD LOSSES. 2. WE HAVE HEARD THE LD. AR AS WELL AS LD. DR AND C ONSIDERED THE RELEVANT MATERIAL ON RECORD. THE ONLY GRIEVANCE OF THE ASSES SEE REGARDING CARRY FORWARD BUSINESS LOSS. WHILE COMPLETING THE ASSESSMENT FOR THE A.Y. 2008-09, THE CARRY FORWARD BUSINESS LOSS WAS DETERMINED BY ASSESSING O FFICER AT RS 6,39,558/-. FOR THE A.Y. UNDER CONSIDERATION, THE ASSESSEE COMP UTED THE BUSINESS INCOME IN ITS RETURN OF INCOME AT RS. 6,21,615/-. THEREFOR E, THE CARRY FORWARD BUSINESS LOSS WAS SET OFF TO THE EXTENT OF AVAILABLE BUSINES S INCOME OF RS. 6,21,615/- AND THEREBY THE TOTAL INCOME WAS COMPUTED AT NIL. IN TH E ASSESSMENT FOR THE A.Y. UNDER CONSIDERATION THE ASSESSING OFFICER MADE CERT AIN DISALLOWANCES U/S 14A AND ACCORDINGLY COMPUTED THE TOTAL INCOME OF THE AS SESSEE AT RS. 38,20,860/- AS AGAINST THE NIL RETURN OF INCOME. THE LD. AUTHOR IZED REPRESENTATIVE HAS SUBMITTED THAT SINCE THE ASSESSING OFFICER COMPUTED THE TOTAL INCOME BY MAKING THE ADDITION TO THE EXTENT OF RS. 38,20,860/ -, THEREFORE, THE CARRY FORWARD BUSINESS LOSSES TO THE EXTENT OF RS. 6,39,5 38/- SHOULD HAVE BEEN SET OFF INSTEAD OF RS. 6,21,615/-. PRINCIPALLY WE AGREE WIT H THE CONTENTION OF THE ASSESSEE THAT THE CARRY FORWARD LOSSES OUGHT TO HAV E BEEN SET OFF TO THE EXTENT OF THE AVAILABLE BUSINESS INCOME. WHEN THE ASSESSIN G OFFICER HAS MADE THE ADDITION OF MORE THAN 38 LAKHS THEN TO THAT EXTENT THE CARRY FORWARD BUSINESS ITA NO.5735/MUM/2012 ASSESSMENT YEAR: - 2009-10 3 | P A G E LOSSES OF THE ASSESSEE SHOULD HAVE BEEN SET OFF. HO WEVER THE SAID SETTING OFF CARRY FORWARD BUSINESS LOSSES NOW DEPENDS ON THE FI NALITY OF THE ADDITION MADE BY ASSESSING OFFICER U/S 14A AS WELL AS OTHER ADDITIONS WHICH THE ASSESSEE HAS CHALLENGED IN GROUND NO. 2&3. THUS IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE THE ALLOWABILITY OF SETTI NG OFF THE CARRY FORWARD BUSINESS LOSSES DEPENDS UPON THE TOTAL INCOME AS PE R THE OUTCOME OF THE APPEAL. 3. GROUND NO. 2 AND 3 IS REGARDING DISALLOWANCE U/S 14A. 4. DURING THE YEAR UNDER CONSIDERATION, THE ASSESSE E MADE INVESTMENT IN PURCHASE OF SHARES. THE ASSESSING OFFICER INVOKED T HE PROVISIONS OF SECTION 14A R.W.R 8D OF INCOME TAX RULES ON THE GROUND THAT INCOME FROM THE INVESTMENT MADE BY THE ASSESSEE IS EXEMPT FROM TAX. THE ASSESSEE CONTENDED BEFORE THE ASSESSING OFFICER THAT THE INVESTMENT HA S BEEN MADE IN THE CLOSELY HELD COMPANIES WHICH HAVE NOT DECLARED ANY DIVIDEND . THEREFORE, THERE IS NO EXEMPT INCOME SHOWN BY THE ASSESSEE AND CONSEQUENTL Y NO DISALLOWANCE U/S 14A IS CALLED FOR. THE ASSESSING OFFICER DID NOT AC CEPT THE CONTENTION OF THE ASSESSEE AND MADE THE DISALLOWANCE UNDER RULE 8D (I I) AND (III) TO THE EXTENT OF RS. 38,19,498/-. 5. THE ASSESSEE CHALLENGED THE ACTION OF ASSESSING OFFICER BEFORE CIT(A) AND SUBMITTED THAT WHEN THE ASSESSEE HAS NOT CLAIME D ANY EXEMPTION OF INCOME THEN SECTION 14A SHOULD HAVE NO APPLICATION. IN SUPPORT OF HIS CONTENTION HE HAS RELIED UPON THE JUDGMENT OF HONB LE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. WINSOME TEXTILE INDUSTRIES LTD. ( 319 ITR 204). CIT(A) DID NOT ACCEPT THE CONTENTION OF THE ASSESS EE AND HELD THAT THE HONBLE JURISDICATIONAL HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG. CO. LTD. ITA NO.5735/MUM/2012 ASSESSMENT YEAR: - 2009-10 4 | P A G E ( 328 ITR 81) HAS HELD THAT THE APPLICATION OF RULE 8D IS MANDAT ORY FROM A.Y. 2008-09. 6. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE OF THE ASSESSEE HAS SUBMITTED THAT THE ASSESSEE HAS NOT EARNED ANY DIVI DEND INCOME IN THE A.Y. UNDER CONSIDERATION AS NO DIVIDEND WAS DECLARED BY THE GROUP COMPANIES IN WHICH THE INVESTMENT WAS MADE. THEREFORE, THE PROVI SIONS OF SECTION 14A ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. IN SUPP ORT OF HIS CONTENTION HE HAS RELIED UPON THE JUDGMENT OF HONBLE DELHI HIGH COUR T IN THE CASE OF CIT VS. HOLCIM INDIA. P. LTD. (ITA NO. 485/2014 & 299/201 4 , AND SUBMITTED THAT THE HONBLE HIGH COURT AFTER CONSIDERING THE VARIOU S DECISIONS SUCH AS THE DECISION OF PUNJAB & HARYANA HIGH COURT, DECISION O F GUJARAT HIGH COURT AS WELL AS DECISION OF HONBLE ALLHABAD HIGH COURT ON THE POINT, HELD THAT WHEN THE ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME THEN NO DISALLOWANCE CAN BE MADE BY INVOKING THE PROVISIONS OF SECTION 14A. THE LD. AUTHORIZED REPRESENTATIVE HAS ALSO RELIED UPON THE DECISION OF CHENNAI BENCHES OF THIS TRIBUNAL IN THE CASE OF CIT VS. M. BASKARAN DATED 31 ST JULY 2014 IN ITA NO. 1717/CHNY/2013 AND SUBMITTED THAT THE TRIBUNAL IN THE SAID CASE A FTER RELYING UPON THE VARIOUS DECISIONS HAS HELD THAT WH EN THE ASSESSEE HAS NOT EARNED/RECEIVED ANY DIVIDEND INCOME DURING THE YEAR , THEN NO DISALLOWANCE U/S 14A IS CALLED FOR. 7. ON THE OTHER HAND, THE LD. DR HAS RELIED UPON TH E ORDERS OF AUTHORITIES BELOW AND SUBMITTED THAT THE SPECIAL BENCH OF THIS TRIBUNAL IN THE CASE ITO V. DAGA CAPITAL MANAGEMENT (P.) LTD. [2009] 117 ITD 169 (MUM.) (SB) HAS HELD THAT THE DISALLOWANCE U/S 14A HAS TO BE MA DE EVEN IF NO DIVIDEND INCOME IS RECEIVED BY THE ASSESSEE WHEN THE POTENTI AL INCOME IS EXEMPT U/S 10 OF THE INCOME TAX ACT. HE HAS ALSO RELIED UPON T HE JUDGMENT OF HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF GODREJ & B OYCE MFG. CO. LTD. (SUPRA). ITA NO.5735/MUM/2012 ASSESSMENT YEAR: - 2009-10 5 | P A G E 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND REL EVANT MATERIAL ON RECORD. THE REVENUE HAS NOT DISPUTED THE FACT THAT THE ASSESSEE HAS NOT RECEIVED/EARNED ANY EXEMPT INCOME DURING THE YEAR U NDER CONSIDERATION. THEREFORE, THERE IS NO CLAIM OF EXEMPT INCOME BY TH E ASSESSEE DURING THE YEAR UNDER CONSIDERATION. THE QUESTION RAISED BEFORE US IS WHETHER SECTION 14A IS ATTRACTED IN RESPECT OF THE INVESTMENT MADE IN SHA RES ALBEIT NO EXEMPT INCOME IS EARNED BY THE ASSESSEE ON SUCH INVESTMENT. AT TH E OUTSET WE NOTE THAT THE HON'BLE DELHI HIGH COURT IN THE CASE OF CIT VS. HO LCIM INDIA. P. LTD. (SUPRA) HAS DISCUSSED THIS ISSUE IN PARA 14 AND 15 AS UNDER :- 14. ON THE ISSUE WHETHER THE RESPONDENT-ASSESSEE C OULD HAVE EARNED DIVIDEND INCOME AND EVEN IF NO DIVIDEND INCOME WAS EARNED, YET SECTION 14A CAN BE INVOKED AND DISALLOWANCE OF EXPENDITURE CAN BE MADE, THERE ARE THREE DECISIONS OF THE DIFFERENT HIGH COURTS DI RECTLY ON THE ISSUE AND AGAINST THE APPELLANT-REVENUE. NO CONTRARY DECISION OF A HIGH COURT HAS BEEN SHOWN TO US. THE PUNJAB AND HARYANA HIGH COUR T IN COMMISSIONER OF INCOME TAX, FARIDABAD VS. M/S. LAKHANI MARKETING INCL., ITA NO. 970/2008, DECIDED ON 02.04.2014, MADE REFERENCE TO TWO EARLIER DECISIONS OF THE SAME COURT IN CIT VS. HERO CYCLES LIMITED, [ 2010] 323 ITR 518 AND CIT VS. WINSOME TEXTILE INDUSTRIES LIMITED, ( [2009 ] 319 ITR 204 TO HOLD THAT SECTION 14A CANNOT BE INVOKED WHEN NO EXEMPT I NCOME WAS EARNED. THE SECOND DECISION IS OF THE GUJARAT HIGH COURT IN COMMISSIONER OF INCOME TAX-I VS. CORRTECLT ENERGY (P.) LTD. [2014] 223 TAXMANN 130 (GUJ.). THE THIRD DECISION IS OF THE ALLAHABAD HIGH COURT IN INCOME TAX APPEAL NO. 88 OF 2014, COMMISSIONER OF INCOME TAX ( II) KANPUR, VS. MIS. SHIVAM MOTORS (P) LTD. DECIDED ON 05.05.2014. IN TH E SAID DECISION IT HAS BEEN HELD: 'AS REGARDS THE SECOND QUESTION, SECTION 14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT O F EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHIC H DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVIDES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PART OF THE INCOME UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR EARNING THE INCOME IS NOT AN ALLOWABLE DEDUCTION. F OR THE YEAR IN QUESTION, THE FINDING OF FACT IS THAT THE ASSESSEE HAD NOT EARNED ANY ITA NO.5735/MUM/2012 ASSESSMENT YEAR: - 2009-10 6 | P A G E TAX FREE INCOME. HENCE, IN THE ABSENCE OF ANY TAX F REE INCOME, THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT F OR DISALLOWANCE. THE VIEW OF THE CIT(A), WHICH HAS BEE N AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBST ANTIAL QUESTION OF LAW. HENCE, THE DELETION OF THE DISALLOWANCE OF RS. 2,03,752/- MADE BY THE ASSESSING OFFICER WAS IN ORDER', 15. INCOME EXEMPT UNDER SECTION 1 0 IN A PARTICULAR ASSESSMENT YEAR, MAY NOT HAVE BEEN EXEMPT EARLIER AND CAN BECO ME TAXABLE IN FUTURE YEARS. FURTHER, WHETHER INCOME EARNED IN A S UBSEQUENT YEAR WOULD OR INTO IN THE SUBSEQUENT ASSESSMENT YEAR. FO R EXAMPLE, LONG TERM CAPITAL WOULD NOT BE TAXABLE, MAY DEPEND UPON THE NATURE OF TRANSACTION ENTERED GAIN ON SALE OF SHARES IS PRESE NTLY NOT TAXABLE WHERE SECURITY TRANSACTION TAX HAS BEEN PAID, BUT A PRIVATE SALE OF SHARES IN AN OFF MARKET TRANSACTION ATTRACTS CAPITA L GAINS TAX. IT IS AN UNDISPUTED POSITION THAT RESPONDENT ASSESSEE IS AN INVESTMENT COMPANY AND HAD INVESTED BY PURCHASING A SUBSTANTIA L NUMBER OF SHARES AND THEREBY SECURING RIGHT TO MANAGEMENT. PO SSIBILITY OF SALE OF SHARES BY PRIVATE PLACEMENT ETC. CANNOT BE RULED OUT AND IS NOT AN IMPROBABILITY. DIVIDEND MAYOR MAY NOT BE DECLARED. DIVIDEND IS DECLARED BY THE COMPANY AND STRICTLY IN LEGAL SENSE , A SHAREHOLDER HAS NOT CONTROL AND CANNOT INSIST ON PAYMENT OF DIV IDEND . WHEN DECLARED, IT IS SUBJECTED TO DIVIDEND DISTRIBUTION TAX. 9. THE HONBLE HIGH COURT HAS CONSIDERED OTHER JUDG MENTS ON THE POINT AS RENDERED BY THE HONBLE PUNJAB & HARYANA HIGH CO URT, HONBLE GUJARAT HIGH COURT AS WELL AS HONBLE ALLAHABAD HIGH COURT, WHEREIN IT WAS HELD THAT WHEN THE ASSESSEE HAS NOT EARNED ANY TAX FREE INCOME NO EXPENDITURE CAN BE DISALLOWED U/S 14A. WE FURTHER NOTE THAT AN IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE CHENNAI BENCHES OF THIS TRIBUNAL IN THE CASE OF CIT VS. M. BASKARAN IN PARA 11 AS UNDER:- 11. IN THE CASE OF CIT VS. WINSOME TEXTILES INDUST RIES LTD. (319 ITR 204) THE HONBLE PUNJAB & HARYANA HIGH COURT HELD T HAT WHEN THERE IS NO CLAIM FOR EXEMPTION OF INCOME IN SUCH S ITUATION SECTION 14A HAS NO APPLICATION. RESPECTFULLY FOLLOWING THE ABOVE DECISIONS, WE DELETE THE DISALLOWANCE MADE UNDER SECTION 14A A S THE ASSESSEE HAS NOT EARNED / RECEIVED FOR EXEMPT INCOME DURING THE PREVIOUS ITA NO.5735/MUM/2012 ASSESSMENT YEAR: - 2009-10 7 | P A G E YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER APPEAL. THUS, WE SUSTAIN THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEAL S) ON THIS ISSUE. 10. FOLLOWING THE DECISIONS AS RELIED UPON BY THE A SSESSEE AND PARTICULARLY THE DECISION OF HONBLE DELHI HIGH COU RT IN THE CASE OF CIT VS. HOLCIM INDIA. P. LTD. (SUPRA), WE DECIDED THIS ISSUE IN FAVOUR OF THE ASS ESSEE AND AGAINST THE REVENE. ACCORDINGLY, THE DISALLOWAN CE MADE U/S 14A IS DELETED. 11. SINCE THE ADDITION MADE BY THE ASSESSING OFFICE R TO THE TOTAL INCOME OF THE ASSESSEE BY MAKING THE DISALLOWANCE U/S 14A IS DELETED THEREFORE, THE GROUND NO. 1 REGARDING CLAIM FOR SETTING OFF CARRY FORWARD LOSSES BECOMES INFRUCTUOUS. 12. GROUND NO. 4 IS REGARDING ADJUSTMENT OF RS. 98,2 0,586/- WHILE COMPUTING THE BOOK PROFIT U/S 115JB ON ACCOUNT OF D ISALLOWANCE MADE U/S 14A. 13. THIS GROUND IS CONSEQUENTIAL TO THE GROUND NO 2 AND 3. IN VIEW OF OUR FINDING IN GROUND NO. 2 AND 3, THIS GROUND OF ASSES SEES APPEAL IS ALLOWED. 14. IN THE RESULT APPEAL OF THE ASSESSEE IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 10 TH DAY OF DECEMBER 2014. SD/- SD/- (N.K. BILLAIYA) (VIJAY PAL RAO) (ACCOUNTANT MEMBER/ YS[KK LNL; YS[KK LNL; YS[KK LNL; YS[KK LNL; ) (JUDICIAL MEMBER/ U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; ) MUMBAI DATED 10-12-2014 SKS SR. P.S,