M/s. Punjab Reliable Investment P.Ltd., Jalandhar V. The Income tax Officer, Jalandhar

ITA 614/ASR/2013

• Counselvise Citation: 61420914 RSA 2013
• Duration Of Justice: 10 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-08-2014
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: DB
• Next Hearing Date: 27-08-2014
• Assessment Year: 1999-2000
• Appeal Filed On: 17-10-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SAAD KIDWAI
• Keywords: Business income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL AMRITSAR BENCH; AMRITSAR. BEFORE SH. A.D. JAIN, JUDICIAL MEMBER AND SH. B.P. JAIN, ACCOUNTANT MEMBER I.T.A. NO. 614 (ASR)/2013 ASSESSMENT YEAR: 1999-2000 PAN: AAACP8028N M/S PUNJAB RELIABLE INVESTMENT VS. INCOME TAX OFFI CER, PVT. LTD., BALBIR TOWER, WARD-III(4), JALANDHA R G.T. ROAD, JALANDHAR (APPELLANT) (RESPONDENT) APPELLANT BY: SH. SANDEEP VIJH, CA RESPONDENT BY: SH. SAAD KIDWAI, DR DATE OF HEARING: 27.08.2014 DATE OF PRONOUNCEMENT: 28.08.2014 ORDER PER A.D. JAIN, J.M. 1. THIS IS ASSESSEES APPEAL FOR ASSESSMENT YEAR 199 9-2000 AGAINST THE ORDER DATED 19.08.2013 PASSED BY LEARNED CIT(A) , JALANDHAR, CHALLENGING THE ACTION OF THE LEARNED CIT(A) IN SUS TAINING THE DISALLOWANCE OF RS. 25,000/-( TREATED AS RS. 50,000 /- WHILE COMPUTING THE DISALLOWANCE) OUT OF FINANCIAL, PERSONAL AND OFFICE ADMINISTRATION/OTHER EXPENSES , AS HAVING BEEN INCURRED FOR EARNING DIVI DEND INCOME. 2. THE LEARNED CIT(A) HAS DELETED THE ADDITION BY O BSERVING AS FOLLOWS (PARA 11.2, PAGES 17 AND 18): 2 AFTER CAREFUL CONSIDERATION OF THE FACTS, I DO NOT FULLY AGREE WITH THE SUBMISSIONS OF THE ASSESSEE THAT WHOLE OF THE DISAL LOWANCE MADE IS UNJUSTIFIED. HOWEVER, I PARTLY AGREE WITH THE ARGUM ENTS OF THE LEARNED AR OF THE ASSESSEE THAT THE DISALLOWANCE MADE IS ON TH E HIGHER SIDE. I ALSO AGREE WITH THE OBSERVATIONS OF THE ASSESSING OFFICE R THAT THE ASSESSEE MAY HAVE INCURRED CERTAIN EXPENSES TO EARN THE DIVI DEND INCOME ON WHICH NO TAX IS PAYABLE. AS THE DIVIDEND INCOME HAS BEEN EARNED BY INVESTING BUSINESS FUNDS OF THE ASSESSEE COMPANY EV EN IN EARLIER YEARS, PART OF THE DISALLOWANCE IS JUSTIFIED. HOWEVER, IN MY OPINION, DISALLOWANCE MADE IS VERY MUCH ON THE HIGHER SIDE. IT WILL BE FARE IF THE DISALLOWANCE IS RESTRICTED TO RS. 25,000/-. SO, THE ADDITION TO THE EXTENT OF RS. 50,000/- IS CONFIRMED AND BALANCE ADDITION OF R S. 1,86,716/- IS DIRECTED TO BE DELETED. 3. AGAINST THE CIT(A)S ABOVE OBSERVATIONS, THE LEA RNED COUNSEL FOR THE ASSESSEE HAS PLACED RELIANCE ON CI T VS. HERO CYCLES LTD.,323 ITR 518 (P&B), WHEREIN, IT HAS BEE N HELD THAT DISALLOWANCE UNDER SECTION 14A OF THE INCOME-T AX ACT, 1961 (IN SHORT THE ACT) REQUIRES A FINDING OF INC URRING OF EXPENDITURE, AND WHERE NO EXPENDITURE HAS BEEN INCU RRED, NO DISALLOWANCE IS CALLED FOR. IT HAS BEEN CONTENDED T HAT IN THE PRESENT CASE, NO SUCH FINDING STANDS RECORDED BY TH E ASSESSING OFFICER, AND THAT SO, IN ACCORDANCE WITH HERO CYCL ES LTD. (SUPRA), NO DISALLOWANCE WAS CALLED FOR, WHICH SETT LED POSITION HAS ILLEGALLY NOT BEEN TAKEN IN CONSIDERATION BY LE ARNED CIT(A). 3 4. THE LEARNED DR, ON THE OTHER HAND, HAS PLACED RELIANCE ON THE IMPUGNED ORDER, CONTENDING THAT THE LEARNED CIT(A), IN THE FACTS AND CIRCUMSTANCES OF THE PRESE NT CASE, HAS BEEN MORE THAN GENEROUS TO THE ASSESSEE INASMUCH AS AMPLE RELIEF HAS BEEN GRANTED BY RESTRICTING THE ADDITION MADE BY THE ASSESSING OFFICER. 5. THE ASSESSING OFFICER MADE THE DISALLOWANCE BY OBSERVING AS FOLLOWS (PARA 7, PAGE 2): THE ASSESSEE HAS CLAIMED EXPENDITURE AS PER SCHEDU LE 13,14 & 15 AT RS. 43,38,170/-, RS. 19,68,181/- AND RS. 12 ,93,603/-, TOTALING RS. 75,99,954/-. THE ASSESSEE HAS EARNED T OTAL INCOME AS PER SCHEDULE 12 AT RS. 1,30,52,125/-. THE PROPOR TIONATE EXPENDITURE TO EARN DIVIDEND OF RS. 3,63,600/- WHIC H COMES TO RS. 2,11,716/-. THIS EXPENDITURE OF RS. 2,11,716/- IS ADDED TO THE INCOME OF THE ASSESSEE WHICH HAS BEEN SPENT TO EARN NON- TAXABLE INCOME. 6. IN HERO CYCLES LTD. (SUPRA), IT HAS BEEN OBSER VED, INTER ALIA, THAT WHETHER, IN A GIVEN SITUATION, ANY EXPENDITURE WAS INCURRED WHICH WAS TO BE DISALLOWED, IS A QUESTION OF FACT; THAT T HE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDIRECTLY SOME EXPENDITUR E IS ALWAYS INCURRED, WHICH MUST BE DISALLOWED UNDER SECTION 14A OF THE A CT, AND THAT THE IMPACT OF THE EXPENDITURE SO INCURRED CANNOT BE ALL OWED TO BE SET OFF AGAINST THE BUSINESS INCOME WHICH MAY NULLIFY THE M ANDATE OF SECTION 4 14A OF THE ACT, COULD NOT BE ACCEPTED; THAT THE DIS ALLOWANCE UNDER SECTION 14A OF THE ACT REQUIRES A FINDING OF INCURR ING OF EXPENDITURE; AND THAT WHERE IT IS FOUND THAT FOR EARNING EXEMPTED IN COME, NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A C ANNOT STAND. 7. NO DECISION CONTRARY TO HERO CYCLES LTD. (SUPR A) HAS BEEN CITED BEFORE US ON BEHALF OF THE DEPARTMENT. 8. THEREFORE, THE LEARNED CIT(A) IS NOT CORRECT IN HOLDING THAT IT WAS NOT CORRECT ON THE PART OF THE ASSESSEE TO CONT END THAT THE WHOLE OF THE DISALLOWANCES MADE WAS UNJUSTIFIED, AND THAT TH E ASSESSEE MAY HAVE INCURRED CERTAIN EXPENSES TO EARN THE DIVIDEND INCO ME, ON WHICH NO TAX WAS PAYABLE, AS OBSERVED BY THE ASSESSING OFFICER. AS SUCH, LEARNED CIT(A)S ORDER IS LIABLE TO BE CANCELLED ON THIS VE RY SCOPE. 9. THE ABOVE APART, THE FOLLOWING FACTS, AS POINTED OUT, ALSO REMAIN UNDISPUTED: THE ASSESSEES DIVIDEND INCOME OF RS. 3,63,600/- WA S ON SHARES OF TWO COMPANIES. THESE SHARES WERE ACQUIRED MANY YEARS AG O AND FOR EARNING DIVIDEND ON THE OLD SHARES, NO EFFORTS ARE REQUIRED . THE DIVIDEND CHEQUES BEING LOCAL CHEQUES, NO EXPENSE WAS REQUIRED TO BE INCURRED THEREON, INCLUDING BANK COLLECTION CHARGES. THE FACTUM OF TH E SHAREHOLDINGS BEING OLD, WAS EVIDENT FROM THE ANNUAL ACCOUNTS OF THE AS SESSEE, AS PRODUCED 5 BEFORE THE AUTHORITIES BELOW. THUS, THE AMOUNT INVE STED IN SHARES WAS OF RS. 35,36,000/-, WHEREAS THE INTEREST FREE FUNDS IN THE SHAPE OF PAID UP SHARE CAPITAL AND RESERVES AT THE BEGINNING OF THE YEAR WERE OF RS. 29,30,000/- AND RS. 64,22,361/-, RESPECTIVELY. THER E WAS NO INVESTMENT MADE DURING THE YEAR. EVEN IN THE PRECEDING ASSESSM ENT YEARS, NO DISALLOWANCE OUT OF INTEREST OR OTHER EXPENSES WAS MADE. 10. THUS, KEEPING IN VIEW THE HONBLE SUPREME COURT S DECISION IN THE CASE OF MUNJAL SALES VS. CIT, 298 ITR 298 (SC ), THE BENEFIT OF OPENING BALANCE OF OWN FUNDS AND THE PROFIT EARNED DURING THE YEAR WAS TO BE ALLOWED WHILE CONSIDERING THE ISSUE OF DISALL OWANCE OUT OF INTEREST. SINCE THE ASSESSEE HAD INTEREST FREE FUNDS, IT WAS TO BE PRESUMED THAT THE INTEREST FREE ADVANCES WOULD BE OUT OF SUCH FUNDS, AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. RELIANCE UTILITIES & POWER, 313 ITR 340 (BOM.). THUS, ON FACTS ALSO, NO DISALLO WANCE OUT OF INTEREST FREE ADVANCES WAS CALLED FOR. FURTHER, IN THE CASE OF M/S MAYOR & COMPANY, VIDE ORDER DATED 07.11.2008 (COPY PLACED ON RECORD AT APB 8-14), THE CIT(A) [PREDECESSOR OF THE CIT(A), WHO P ASSED THE IMPUGNED ORDER], DELETED A SIMILAR DISALLOWANCE. SUCH DELETI ON WAS UPHELD BY THE ITAT, AMRITSAR BENCH VIDE ORDER DATED 18 TH FEBRUARY, 2010 (APB 15- 17). FURTHER, ANOTHER SIMILAR ADDITION MADE IN THE CASE OF A SISTER CONCERN 6 OF THE ASSESSEE, M/S PUNJAB KASHMIR FINANCE PVT. LT D., FOR THE ASSESSMENT YEAR 1998-99, WAS DELETED BY THE LEARNED CIT(A) VIDE ORDER DATED 27.03.2003 (APB 100-105). 11. THE ABOVE FACTS ALSO BRING THE CASE OF THE ASSES SEE UNDER THE DIRECT APPLICATION OF HERO CYCLES LTD. (SUPRA). T HESE UNDISPUTED FACTS SHOW THAT NO EXPENDITURE WAS INCURRED BY THE ASSESS EE FOR EARNING THE EXEMPTED INCOME. THEREFORE, NO DISALLOWANCE UNDER S ECTION 14A OF THE ACT WAS CALLED FOR. NO FINDING CONTRARY TO THE ABOV E FACTS WAS RECORDED BY THE ASSESSING OFFICER. IN FACT, NO FINDING WHATS OEVER WAS RECORDED AT ALL. SO MUCH SO, NOT EVEN A SINGLE QUESTION WAS ASK ED BY THE ASSESSING OFFICER OF THE ASSESSEE. 12. FOR THE ABOVE DISCUSSION, FINDING MERIT IN THE G RIEVANCE RAISED BY THE ASSESSEE, WE HEREBY ACCEPT THE SAME AND CANC EL THE ORDER PASSED BY THE LEARNED CIT(A). THE DISALLOWANCE MADE BY THE ASSESSING OFFICER UNDER SECTION 14A OF THE ACT, THEREFORE, STANDS CAN CELLED. 13. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 28 TH AUGUST, 2014 SD/- SD/- (B.P. JAIN) (A.D. JAIN) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 28 TH AUGUST, 2014 7 /RK/ COPY OF THE ORDER FORWARDED TO: 1. THE ASSESSEE: M/S PUNJAB RELIABLE INVESTMENT PVT. LTD., BALBIR TOWER, G.T. ROAD, JALANDHAR 2. INCOME TAX OFFICER, WARD-III(4), JALANDHAR 3. THE CIT(A), 4. THE CIT, 5. THE SR DR, I.T.A.T., TRUE COPY BY ORDER (ASSISTANT REGISTRAR) INCOME TAX APPELLATE TRIBUNAL, AMRITSAR BENCH: AMRITSAR.