M/s Ratan Housing Development Ltd., Kanpur V. The Joint Commissioner of Income Tax (OSD), Kanpur

ITA 594/LKW/2013

• Counselvise Citation: [2015] 121 COUNSELVISE.COM (IT) 0723 (ITAT-LUCKNOW)
• Duration Of Justice: 1 year(s) 11 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 30-06-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 25-07-2013
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: PINKI MAHAWAR
• Keywords: Rule of consistency
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL LUCKNOW BENCH A , LUCKNOW BEFORE SHRI SUNIL KUMAR YADAV, JUDICIAL MEMBER AND SHRI A.K. GARODIA, ACCOUNTANT MEMBER ITA NO. 594 /LKW/201 3 ASSESSMENT YEAR:200 9 20 1 0 SRI RATAN HOUSING DEVELOPMENT LIMITED , 7/141A (3), SWAROOP NAGAR, KANPUR. PAN:A ACCR6099R V S JCIT(OSD)/DCIT RANGE - 6 , KANPUR (APPELLANT) (RESPONDENT) APPELLANT BY SHRI RAKESH GARG, ADVOCATE RESPONDENT BY SMT. PINKI MAHAWAR, SR. DR DATE OF HEARING 30/06/2015 DATE OF PRONOUNCEMENT 2 4 /07/2015 O R D E R PER A. K. GARODIA, A.M. T HIS IS ASSESSEE S APPEAL DIRECTED AGAINST THE ORDER OF LEARNED CIT (A) I KANPUR DATED 03 .0 6 .201 3 FOR A.Y. 200 9 20 10 . 2. THE ASSESSEE HAS RAISED AS MANY AS 4 GROUNDS BUT THE ONLY GRIEVANCE IS FOR CONFIRMING OF ADDITION OF RS. 366,630/ - MADE BY THE A.O. U/S 14A . 3 . LEARNED AR OF THE ASSESSEE SUBMITTED A BRIEF SYNOPSIS AND SUBMITTED THAT THE APPEAL MAY BE DECIDED AFTER CONSIDERING THE SAME. LEARNED DR OF THE REVENUE SUPPORTED THE ORDER S OF THE LOWER AUTHORITIES . 4 . WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FIND THAT THE BRIEF SYNOPSIS SUBMITTED BY THE LEARNED AR READS AS UNDER: - 1. THERE ARE HEAVY RESERVES FAR MORE THAN THE INVESTMENTS MADE. 2. THE INVESTMENTS ARE OLD AND BEING BROUGHT FORWARD FROM EARLIER YEARS. 3. NO NEW TAX FREE INVESTMENTS HAVE BEEN MADE DURING THE YEAR. 2 4. NO DISALLOWANCE HAS BEEN MADE IN THE PRECEEDING YEARS. 5. THE FACTS AND FIGURES ARE THE SAME AND THERE BEING NO VARIATION, PRINCIPLE OF CONSISTENCY SHOULD BE FOLLOWED. 6. NO BORROWED FUNDS HAVE BEEN INVESTED IN SHARES. 7. THERE IS INVESTMENT OF RS. 12.30 LACS IN SHARES. RS. 85.00 LACS IS TOWARDS SHARE APPLICATION MONEY, BOTH WHICH ARE BEING BROUGHT FORWARD FROM THE EARLIER YEARS. TILL TIME THE SHARES ARE NOT ALLOTTED, IT C ANNOT BE TERMED AS INVESTMENT IN SHARES. 8. THERE IS NO INCOME FROM DIVIDEND. 9. ALL INVESTMENT IN SHARES ARE OF THE SUBSIDIARY COMPANY. 10. THE INVESTMENT IN SHARES ARE ALL PART OF STRATEGIC INVESTMENT POLICY AND GOOD BUSINESS CONSIDERATION/DECISIONS. 5 . IN THE SECOND PAPER BOOK, THE ASSESSEE HAS ALSO SUBMITTED A COPY OF ASSESSMENT ORDER PASSED U/S 143 (3) ON 04.05.2010 AND IT IS SEEN THAT THERE IS NO DISALLOWANCE U/S 14A IN THAT YEAR. IT IS ALSO IMPORTANT THAT RULE 8D IS APPLICABLE FROM A.Y. 2008 09 B UT IN THE ASSESSMENT ORDER FOR A.Y. 2008 09, THERE IS NO DISCUSSION ABOUT APPLICABILITY OF SECTION 14A AND APART FROM THE COPY OF ASSESSMENT ORDER FOR A.Y. 2008 09, NO OTHER MATERIAL IS FURNISHED BEFORE US THAT ANY QUERY WAS RAISED BY THE A.O. IN ASSES SMENT PROCEEDINGS FOR A.Y. 2008 09 WITH REGARD TO APPLICABILITY OF SECTION 14A. HENCE, WE FIND THAT THERE IS NO APPLICATION OF MIND BY THE A.O. IN THAT YEAR WITH REGARD TO APPLICABILITY OF SECTION 14A AND HENCE, THERE IS NO CONSCIOUS DECISION OF THE A.O. IN THAT YEAR THAT SECTION 14A IS NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE. RULE 8D WAS NOT APPLICABLE PRIOR TO THAT YEAR AND HENCE, THE ASSESSMENT ORDERS OF THOSE EARLIER YEARS ARE NOT RELEVANT BECAUSE OF INSERTION OF RULE 8D FROM A.Y. 2008 09. S INCE, THERE IS NO CONSCIOUS DECISION OF THE A.O. IN THE A.Y. 2008 - 09 THAT SECTION 14A IS NOT APPLICABLE IN THE FACTS OF THE PRESENT CASE, IT CANNOT BE ACCEPTED THAT AS PER RULE OF CONSISTENCY, THE APPLICABILITY OF SECTION 14A CANNOT BE EXAMINED IN ANY SU BSEQUENT YEAR I.E. THE PRESENT YEAR. 3 6. NOW, WE EXAMINE THE ACCEPTABILITY OF OTHER CONTENTIONS RAISED IN BRIEF SYNOPSIS. FIRST CONTENTION IS THAT THERE ARE HEAVY RESERVES. IN OUR CONSIDERED OPINION, THIS IS NOT RELEVANT UNTIL AND UNLESS THE ASSESSEE IS AB LE TO ESTABLISH THAT INTEREST BEARING BORROWED FUNDS WERE FULLY USED FOR EARNING TAXABLE INCOME AND WERE NOT USED EVEN PARTLY FOR INVESTMENT IN SHARES. THE ASSESSEE HAS NOT DONE SO AND THEREFORE, THIS CONTENTION IS IRREVERENT . 7. SECOND CONTENTION IS THAT THE INVESTMENTS ARE OLD BUT THIS IS ALSO NOT RELEVANT BECAUSE AS PER THE BALANCE SHEET AS ON 31.03.2008, THERE ARE BORROWED FUNDS OF RS. 1054.56 LACS AS ON 31.03.2008 AND RS. 1455.97 LACS AS ON 31.03.2007 AND HENCE, IT IS SEEN THA T BORROWED FUNDS ARE ALSO OLD. SO IT CANNOT BE RULED OUT THAT THE BORROWED FUNDS WERE NOT USED WHEN INVESTMENT WAS MADE UNLESS THE ASSESSEE ESTABLISHES THE SAME. IN THE PRESENT CASE, THE ASSESSEE HAS NOT ESTABLISHED THAT BORROWED FUNDS WERE NOT THERE OR WE RE NOT USED WHEN THE INVESTMENT WAS MADE. HENCE THIS CONTENTION IS NOT RELEVANT. 8. NEXT CONTENTION IS THAT THERE IS NO TAX FREE INVESTMENT IN THE PRESENT YEAR. THIS CONTENTION IS SAME AS THE SECOND CONTENTION AND HENCE, NO SEPARATE ADJUDICATION IS CALLED FOR. 9. NEXT CONTENTION IS THAT NO DISALLOWANCE IS MADE IN PRECEDING YEARS. WE HAVE ALREADY EXAMINED THIS CONTENTION WHILE EXAMINING THE CONTENTION OF RULE OF CONSISTENCY AND HENCE, NO SEPARATE ADJUDICATION IS CALLED FOR. 10. NEXT CONTENTION IS THAT NO BORROWED FUNDS HAVE BEEN INVESTED IN HARES BUT MERELY BY STATING SO WITHOUT BRINGING EVIDENCE ON RECORD IN SUPPORT OF THIS CONTENTION, IT IS NOT ACCEPTABLE. HENCE, THIS CONTENTION IS OF NO HELP TO THE ASSESSEE. 11. NEXT CONTENTION IS THAT THERE IS INVESTME NT OF ONLY RS. 12.30 LACS IN SHARES AND RS. 85 LACS IS TOWARDS SHARE APPLICATION MONEY AND TILL SHARES ARE ALLOTTED, IT CANNOT BE TERMED AS INVESTMENT IN SHARES. AT THIS JUNCTURE, WE FEEL IT RELEVANT TO REPRODUCE THE PROVISIONS OF SECTION 14A. IT READS AS UNDER: - (1) FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THIS CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE 4 INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. 12. HENCE , AS PER THE PROVISIONS OF SECTION 14A, IF AN EXPENSE IS INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT, THEN DEDUCTION IS NOT ALLOWABLE FOR COMPUTING TAXABLE INCOME UNDER CHAPTER IV. THIS IS A FACT THAT FOR MAKI NG INVESTMENT IN HARES ONLY, MONEY IS PAID AS SHARE APPLICATION MONEY AND THEREFORE, EVEN IF THE ALLOTMENT OF SHARES IS MADE AFTER THE END OF THE FINANCIAL YEAR IN WHICH THE SHARE APPLICATION MONEY IS PAID, IT HAS TO BE ACCEPTED THAT THE EXPENSES INCURRED IN MAKING PAYMENT OF SHARE APPLICATION MONEY IS IN RELATION TO EARNING EXEMPT DIVIDEND INCOME BECAUSE THERE CANNOT BE ANY OTHER PURPOSE OF MAKING PAYMENT OF SHARE APPLICATION MONEY. BY THE SAME LOGIC, EVEN IF THE SHARES A R E NOT ALLOTTED AND SHARE APPLICATI ON MONEY IS REFUNDED THEN ALSO, THE EXPENDITURE INCURRED TILL REFUND OF SHARE APPLICATION MONEY IS EXPENSES INCURRED FOR EARNING EXEMPT DIVIDEND INCOME ALTHOUGH THE SAME MAY NOT BE ACTUALLY EARNED AT ANY POINT OF TIME . HENCE, THIS CONTENTION IS ALSO WITHOU T MERIT. 13. NEXT CONTENTION IS THAT THERE IS NO INCOME FROM DIVIDEND. THIS CONTENTION IS ALSO WITHOUT MERIT IN VIEW OF TRIBUNAL ORDER IN THE CASE OF ITO VS. COMMERCIAL AUTO CENTRE IN ITA NO. 180/LKW/2010 DATED 1 1 . 11 .2014 BY FOLLOWING THE JUDGMENT OF HON BLE APEX COURT RENDERED IN THE CASE OF RAJENDRA PRASAD MOODY, 115 ITR 519 (SC). 14. NEXT CONTENTION IS THAT ALL INVESTMENTS ARE IN SUBSIDIARY COMPANY AND ARE PART OF STRATEGIC INVESTMENT POLICY AND GOOD BUSINESS CONSIDERATION/DECISIONS. THESE ARE BALD STATEMENTS WITHOUT BRINGING ON RECORD ANY EVIDENCE IN SUPPORT AND THEREFORE, CANNOT BE ACCEPTED. IN FACT, EVEN I N THE BALANCE SHEET, IT IS NOT SO STATED THAT THESE INVESTMENTS ARE IN SUBSIDIARY COMPANY. THE NAME OF THE COMPANY IN WHICH INVESTMENT IS MADE IS RAJ RATAN CASTING PVT. LTD. THIS IS ALSO NOT SHOWN THAT THE OBJECTS OF THE ASSESSEE COMPANY AND THAT COMPANY A RE SAME. HENCE, EVEN IF THIS COMPANY 5 IS A SUBSIDIARY COMPANY, IT IS OF NO HELP BECAUSE IT CANNOT BE A STRATEGIC INVESTMENT IN A COMPANY IN SAME LINE OF BUSINESS. HENCE, WE FEEL THAT IN THE FACTS OF THE PRESENT CASE WHERE THE FACTUM OF INVESTMENT BEING STRA TEGIC INVESTMENT IS NOT ESTABLISHED, THERE IS NO NEED TO EXAMINE AND DECIDE THIS ASPECT THAT IN CASE OF STRATEGIC INVESTMENT IN SUBSIDIARY COMPANY, DISALLOWANCE U/S 14A IS CALLED FOR OR NOT. 15. AS PER ABOVE DISCUSSION, WE FIND THAT NONE OF THE CONTENTIONS RAISED IN BRIEF SYNOPSIS SUBMITTED BY THE LEARNED AR IS RENDERING ANY HELP TO THE ASSESSEE. THE ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY THE TRIBUNAL ORDER RENDERED IN THE CASE OF ITO VS. COMMERCIAL AUTO CENTRE (SUPRA) AND SINCE, THE AR OF THE AS SESSEE IN THE PRESENT CASE AND IN THAT CASE IS SAME, IT CANNOT BE SAID THAT THE AR OF THE ASSESSEE IS NOT AWARE OF THAT TRIBUNAL ORDER AND HE SHOULD HAVE BEEN CONFRONTED WITH THAT ORDER. HENCE, WE DECLINE TO INTERFERE IN THE ORDER OF CIT (A) BY RESPECTFULL Y FOLLOWING THIS TRIBUNAL ORDER RENDERED IN THE CASE OF ITO VS. COMMERCIAL AUTO CENTRE (SUPRA) AND IN TURN FOLLOWING THE JUDGMENT OF HONBLE APEX COURT RENDERED IN THE CASE OF RAJENDRA PRASAD MOODY (SUPRA). 16 . IN THE RESULT, THE APPEAL OF THE ASSESSEE IS DISMISSED . (ORDER WAS PRONOUNCED IN THE OPEN COURT ON THE DATE MENTIONED ON THE CAPTION PAGE) SD/. SD/. (SUNIL KUMAR YADAV) ( A. K. GARODIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 4 / 0 7 /201 5 COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. CONCERNED CIT 4. THE CIT(A) 5. D.R., I.T.A.T., LUCKNOW ASSTT. REGISTRAR