ACIT, Chandigarh V. M/s Modern Steel Ltd., Chandigarh

ITA 579/CHANDI/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9010 (ITAT-CHANDIGARH)
• Duration Of Justice: 5 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-11-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2012-2013
• Appeal Filed On: 13-05-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASHOK GOEL
• Assessee Lawyers: S K MITTAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 579/CHD/2016 ASSESSMENT YEAR: 2012-13 THE ACIT, VS. M/S MODERN STEEL LIMITED, CIRCLE- 4 (1), CHANDIGARH CHANDIGARH PAN NO. AABCM1871F (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. S.K. MITTAL DEPARTMENT BY : SH. ASHOK GOEL DATE OF HEARING : 06.10.2016 DATE OF PRONOUNCEMENT : 04.11.2016 ORDER PER ANNAPURNA GUPTA, A.M. THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF CIT(A)-3, GURGAON DATED 21.2.2016. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL. 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN ALLOWING APPEAL OF THE ASSESSES WITHOUT APPRECIATING THE FACTS OF THE CASE. 2. ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING T HE ADDITION MADE U/S 14A OF THE ACT SOLELY ON THE BASIS THAT 2 THERE IS NO EXEMPT INCOME EARNED BY THE ASSESSEE IN THAT PARTICULAR YEAR WITHOUT APPRECIATING THE FACT THAT DIVIDEND INCOME, IF ANY, ARISING FROM INVESTMENT MA DE BY DIVERTING FUNDS IN SHARES WAS NOT TO BE INCLUDED IN THE TAXABLE INCOME PARTICULARLY WHEN THE ASSESSES IN INCURRING INTEREST EXPENDITURE ON LOANS RAISED FOR OTHER BUSI NESS REQUIREMENTS. 3. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION MADE WITHOUT APPRECIATING THE PROVISIONS OF SECTION 14A AND WITHOUT CONSIDERING THE SPECIFIC CLARIFICATION ISSUED IN THIS REGARD BY THE CENTRAL BOARD OF DIRECT TAXES VIDE ITS CIRCULAR NO. 5/2014 DATED 11.02.2014. 2. THE ONLY ISSUE IN THE PRESENT APPEAL RELATES TO THE DELETION OF DISALLOWANCE MADE U/S 14A OF THE ACT. 3. BRIEFLY STATED THE FACTS OF THE CASE ARE THAT DU RING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS SEEN THAT THE ASSESS EE HAD MADE INVESTMENTS BUT WAS NOT SHOWING ANY INCOME FROM THE SAME AND AT THE SAME TIME REGULARLY PAYING INTEREST ON ITS BORROWED FUNDS. ON BEING ASKED, AS TO WHY DISALLOWANCE U/S 14A OF THE ACT NOT BE M ADE, THE ASSESSEE STATED THAT ALL THE INVESTMENTS MADE BY IT WERE OUT OF ITS OWN INTEREST FREE SURPLUS FUNDS, WERE STRATEGIC INVESTMENTS, AND NO EXEMPT IN COME IN THE FORM OF DIVIDEND HAD BEEN EARNED DURING THE YEAR FROM THE S AME. BESIDES THE ASSESSEE STATED THAT THE INTEREST BEARING FUNDS PER TAIN TO TERM LOANS AND CASH CREDIT LIMITS FROM BANKS WHICH HAVE BEEN UTILI ZED IN THE BUSINESS OF THE ASSESSEE FOR THE PURPOSE FOR WHICH THEY WERE RA ISED. THE ASSESSING 3 OFFICER REJECTED THE CONTENTION OF THE ASSESSEE THA T IN THE ABSENCE OF DIVIDEND INCOME, SECTION 14A IS NOT APPLICABLE RELY ING UPON THE DECISION OF SPECIAL BENCH OF THE TRIBUNAL DELHI IN THE CASE OF CHEMINVEST LTD VS. ITO 124 TTJ 577 (2009) DELHI. FURTHER, THE ASSESSIN G OFFICER STATED THAT SINCE THE ASSESSEE HAS NOT FILED ANY EXPLANATION, S HOWING THAT INTEREST EXPENDITURE HAD BEEN INCURRED FOR SPECIFIC BUSINESS PURPOSE, THEREFORE, APPLYING OF PROVISIONS OF RULE 8D, THE ASSESSING OF FICER WORKED OUT THE DISALLOWANCE U/S 14A OF THE ACT AMOUNTING TO RS. 33 ,99,755/- AND MADE ADDITION OF THE SAME TO THE INCOME OF THE ASSESSEE. 4. AGGRIEVED BY THE SAME, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A) WHERE THE CONTENTIONS MADE BEFORE THE ASSESS ING OFFICER WERE REITERATED.. THE LD. CIT(A) AFTER CONSIDERING THE A SSESSEES SUBMISSIONS, DELETED THE DISALLOWANCE MADE BY HOLDING THAT THE D ECISION OF THE HON'BLE ITAT IN THE CASE OF CHEMINVEST LTD VS. ITO (SUPRA ) RELIED UPON BY THE ASSESSING OFFICER FOR THE PURPOSE OF MAKING THE DIS ALLOWANCE HAD BEEN REVERSED BY THE DELHI HIGH COURT VIDE ORDER IN ITA NO. 749/2014 DATED 2.9.2015. FURTHER, LD. CIT(A) RELIED UPON THE ORDE R OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. LAKHANI MARKETIN G IN ITA NO. 970 OF 2008 DATED 2.4.2014 AND HELD THAT IN THE ABSENCE OF EXEMPT INCOME, NO DISALLOWANCE US/ 14A OF THE ACT WAS WARRANTED. 6. AGGRIEVED, THE REVENUE FILED PRESENT APPEAL BEFO RE US 7. BEFORE US, LD. DR RELIED ON THE ORDER OF THE ASS ESSING OFFICER AND ALSO ON THE DECISION OF THE APEX COURT IN THE CASE OF WALFORT SHARE & 4 STOCK PVT LTD (2010) 326 ITR 1 (SC) AND STATED THAT THE APEX COURT IN THE IMPUGNED DECISION HAD CLEARLY STATED THAT EXPENSES INCURRED IN RELATION TO THE EXEMPT INCOME WERE TO BE DISALLOWED. LD. DR ST ATED THAT THE SAME MEANT THAT EVEN IN THE ABSENCE OF ANY DIVIDEND / EX EMPT INCOME, THE DISALLOWANCE WAS WARRANTED. THE LD. AR ON THE OTHE R HAND RELIED UPON THE ORDER OF THE CIT(A). 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND NO REASON TO INTERFERE I N THE ORDER OF THE LD. CIT(A), WHICH WE FIND HAS BEEN PASSED FOLLOWING THE ORDER OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF LAKHANI MARKETING (SUPRA) AND THE DELHI HIGH COURT IN THE CASE OF CHEMVIST LTD VS . ITO (SUPRA) WHEREIN BOTH THE COURTS HAVE CATEGORICALLY HELD THAT IN THE ABSENCE OF ANY EXEMPT INCOME, NO DISALLOWANCE UNDER THE PROVISIONS OF SEC TION 14A OF THE ACT IS WARRANTED. SINCE IN THE PRESENT CASE, IT IS AN UNDI SPUTED FACT THAT NO EXEMPT INCOME WAS EARNED BY THE ASSESSEE, THE ABOVE JUDGEM ENT CLEARLY APPLIES TO THE PRESENT CASE AS RIGHTLY HELD BY THE LD. CIT(A). THE ARGUMENT OF LD. DR THAT THE DECISION OF THE APEX COURT IN THE CASE OF WALFORT SHARE & STOCK PVT LTD (2010) 326 ITR 1 (SC), IS RELEVANT FOR THE PURPOSE OF DECIDING THE ISSUE, WE HOLD THERE WAS NO MERIT SINCE FIRSTLY, TH E APEX COURT DECISION WAS NOT RENDERED IN THE CONTEXT OF THE ISSUE WHEREI N IN THE ABSENCE OF ANY EXEMPT INCOME, NO DISALLOWANCE U/S 14A CAN BE MADE. THEREFORE, WE HOLD THAT THE DIRECT DECISION OF THE HIGH COURT ON THIS ISSUE WILL APPLY TO THE PRESENT CASE. FURTHER, THE REFERENCE MADE BY THE LD . DR TO THE FOLLOWING SENTENCE IN THE ORDER OF THE APEX COURT; 5 THE INSERTION OF SECTION 14A WITH RETROSPECTIVE EF FECT IS THE SERIOUS ATTEMPT ON THE PART OF PARLIAMENT NOT T O ALLOW DEDUCTION IN RESPECT OF ANY EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO THE INCOME, WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT AGAINST THE TAXABLE INCOME (SEE CIRCULAR NO.14 OF 2001 DATED NOVEMBER 2 2, 2001). IN OTHER WORDS, SECTION 14A CLARIFIES THAT E XPENSES INCURRED CAN BE ALLOWED ONLY TO THE EXTENT THEY ARE RELATABLE TO THE EARNING OF TAXABLE INCOME. WE FIND IS A OBSERVATION RELATING TO THE PROVISION S OF SECTION 14A OF THE ACT, TO WHICH THERE IS NO DENIAL, THAT ALL EXPENSES INCURRED IN RELATION TO THE EARNING OF EXEMPT INCOME ARE TO BE DISALLOWED U S/ 14A OF THE ACT. FURTHER, IT IS TO BE NOTED THAT THE ABOVE OBSERVATI ON WAS MADE IN THE CONTEXT OF THE CASE BEFORE THE HON'BLE SUPREME COUR T WHEREIN THE ISSUE WAS WHETHER LOSS ON SALE OF SHARES INCURRED COULD A LSO BE CONSIDERED AS EXPENDITURE FOR THE PURPOSE OF SECTION 14A OF THE A CT IN RELATION TO WHICH THE HON'BLE APEX COURT MADE THE ABOVE OBSERVATION T HAT BUSINESS LOSS / PAY BACK NOT BEING IN THE NATURE OF EXPENDITURE AND HAVING NO PROXIMATE RELATION WITH THE EXEMPT INCOME IT COULD NOT BE CO VERED UNDER THE PROVISIONS OF SECTION 14A OF THE ACT. RELIANCE PLAC ED BY THE LD. DR ON THE DECISION OF THE APEX COURT, WE, THEREFORE, HOLD IS MISPLACED. 9. IN VIEW OF THE ABOVE WE UPHOLD THE ORDER OF LD. CIT(A) AND DELETE THE DISALLOWANCE MADE U/S 14A IN THE ABSENCE OF ANY EXEMPT INCOME FOLLOWING THE DECISION OF HON'BLE JURISDICTIONAL H IGH COURT IN THE CASE OF LAKHANI MARKETING AND DELHI HIGH COURT IN THE C ASE OF CHEMINVEST LTD VS. ITO (SUPRA). 6 10. THE GROUND OF APPEAL OF THE REVENUE IS THEREFOR E, DISMISSED. 11 IN THE RESULT, APPEAL FILED BY THE REVENUE IS DI SMISSED ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 4 TH NOVEMBER, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 7