ACIT, Ludhiana V. M/s Vardhman Polytes Ltd., Ludhiana

ITA 62/CHANDI/2010

• Counselvise Citation: [2011] 140 COUNSELVISE.COM (IT) 51459 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 7 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-08-2011
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Next Hearing Date: 23-08-2010
• Assessment Year: 2002-2003
• Appeal Filed On: 12-01-2010
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUBHASH AGGARWAL
• Assessee Lawyers: JAI SHREE SHARMA
• Keywords: Earning of tax free income
• Section: 147; 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES ACHANDIGARH BEFORE MS SUSHMA CHOWLA, JUDICIAL MEMBER AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER ITA NO. 1139/CHD/2009 ASSESSMENT YEAR: 2002-03 M/S VARDHMAN POLYTEX LTD., V ACIT,CIRCLE 1, MUNDIAN KHURD, PO SAHABANA, LUDHIANA. LUDHIANA. PAN NO. AAACV-5821H & ITA NO. 62/CHD/2010 ASSESSMENT YEAR: 2002-03 ACIT, CIRCLE-1, V M/S V ARDHMAN POLYTEX LTD., LUDHIANA MUNDIAN KHURD, PO SAHABAN A, LUDHIANA. (APPELLANT) (RESPONDENT) ASSESSEE BY: SHRI SUBHASH AGGARWAL RESPONDENT BY : SMT.JAISHREE SHARM A DATE OF HEARING : 29.08.2011 DATE OF PRONOUNCEMENT : 30.08.2011 ORDER PER BENCH THE ASSESSEE AND THE REVENUE HAVE FILED THESE CROSS -APPEALS AGAINST THE ORDER OF CIT(A), DATED 28.10.2009 RELATING TO A SSESSMENT YEAR 2002-03 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF TH E I.T. ACT, 1961. BOTH THE APPEALS OF THE ASSESSEE AND OF THE REVENUE WERE HEARD TOGETHER AND ARE BEING DISPOSED OF BY THE CONSOLIDATED ORDER FOR THE SAKE OF CONVENIENCE. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL: 1. THAT THE LD. CIT(A) HAS ERRED IN DISALLOWING RS .1 LAC OUT OF DIVIDEND INCOME U/S 14A OF THE INCOME-TAX ACT,19 61. 2 2. THAT THE DISALLOWANCE IS AGAINST THE LAWS AND TH E FACTS OF THE CASE. 3. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: 1. THAT THE LD. CIT(A) HAS ERRED IN LAW & FACTS IN RESTRICTING THE ADDITION TO RS.1,00,000/- INSTEAD OF RS.6,38,16 5/- MADE BY THE AO U/S 14A OF THE INCOME-TAX ACT,1961 RELATING TO EXEMPT DIVIDEND INCOME. 2. THAT THE LD. CIT(A) HAS ERRED IN LAW IN HOLDING THA T THE PROVISIONS OF SECTION 234D OF THE INCOME-TAX ACT 19 61 ARE NOT APPLICABLE FOR THE ASSESSMENT YEAR 2002-03 AS T HE SAME ARE APPLICABLE FROM 01.06.2003, IGNORING THE F ACT THAT THE ASSESSMENT (SET ASIDE CASE) WAS COMPLETED U/S 143(3) ON 10.10.2008. 4. GROUND NO.1 RAISED BY THE ASSESSEE AND GROUND NO .1 RAISED BY THE REVENUE IS AGAINST THE COMPUTATION OF DISALLOWANCE OUT OF DIVIDEND INCOME U/S 14A OF THE INCOME-TAX ACT. 5. THE BRIEF FACTS RELATING TO THE ISSUE ARE THAT A SSESSMENT IN THE CASE WAS COMPLETED U/S 143(3) READ WITH SECTION 147 OF THE I NCOME-TAX ACT UNDER WHICH ADDITIONS ON VARIOUS GROUNDS WERE MADE. IN A PPEAL, THE CIT(A) PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. BOTH THE ASSES SEE AND THE REVENUE PREFERRED APPEALS BEFORE THE TRIBUNAL AND AFTER DEC IDING THE ISSUES, TRIBUNAL SET ASIDE CERTAIN ISSUES BACK TO THE FILE OF THE AO FOR FRESH ADJUDICATION. ONE SUCH ISSUE WHICH WAS SET ASIDE TO THE FILE OF AO WA S, WHETHER ANY EXPENSES WERE INCURRED IN RELATION TO EARNING OF DIVIDEND IN COME, IN TURN WARRANTING DISALLOWANCE U/S 14A OF THE ACT?. THE AO IN THE R EMAND PROCEEDINGS DELIBERATED UPON THE ISSUE. THE OBSERVATIONS OF TH E TRIBUNAL ARE INCORPORATED AT PAGE 5 & 6 OF THE ASSESSMENT ORDER. IN THE SAID REMAND PROCEEDINGS, THE COUNSEL FOR THE ASSESSEE POINTED O UT THAT THE INVESTMENT IN THE SHARES WERE MADE IN THE YEAR 1996-97 AND NO EXP ENDITURE WAS INCURRED BY 3 THE ASSESSEE FOR EARNING THE DIVIDEND INCOME. THE ASSESSEE WAS ALSO ASKED TO SUBMIT THE DETAILS OF FINANCIAL EXPENSES INCURRED F OR INVESTMENT IN SHARES EVEN IF PERTAINING TO THE EARLIER ASSESSMENT YEARS. THE AO NOTES THAT THE ASSESSEE, DESPITE REPEATED OPPORTUNITIES ALLOWED, F AILED TO SUBMIT ANY DETAILS OF THE SOURCES OF INVESTMENTS. IN THE ABSENCE OF TH E SAME, THE AO DISALLOWED THE EXPENSES ON PROPORTIONATE BASIS. APPLYING THE PROVISIONS OF SECTION 14A(3), THE AO COMPUTED THE DISALLOWANCE AT RS.6,31 ,865/- UNDER SECTION 14A OF THE INCOME-TAX ACT. THE CIT(A) RESTRICTED T HE DISALLOWANCE TO RS.1,00,000/-. THE ASSESSEE IS IN APPEAL AGAINST T HE SAID DISALLOWANCE OF RS.1,00,000/- UNDER SECTION 14A OF THE INCOME-TAX A CT AND THE REVENUE IS IN APPEAL AGAINST THE AFORESAID RESTRICTION BY THE CIT (A). 6. SHRI SUBHASH AGGARWAL APPEARED FOR THE ASSESSEE AND SMT.JAISHREE SHARMA APPEARED FOR THE REVENUE AND PUT FORWARD THE IR CONTENTIONS. 7. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RECORD. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, HAD RECEIVED D IVIDEND INCOME OF RS.62,91,120/- AND BREAK-UP OF THE SAME IS AS UNDER : S.NO. NAME OF THE SECURITY INVESTIBLE AMOUNT DIVIDEND AMOUNT ( IN LACS) 1. MAHAVIR SPINNING MILLS 2079.37 60,61,440/- LTD. 2. IDBI LTD. 8.37 2 ,29,680/- TOTAL 62,91,120/- 8. ADMITTEDLY, THE SAID INVESTMENT WAS MADE IN THE FINANCIAL YEAR 1996-97. THE CLAIM OF THE ASSESSEE IS THAT THE MAJO RITY OF THE DIVIDEND INCOME IS EARNED FROM A GROUP COMPANY UNDER THE SAM E MANAGEMENT BY WAY OF A SINGLE DIVIDEND WARRANT AND NO EFFORTS/EXPENSE S WERE SPENT OR INCURRED TO EARN THE SAME. THE INVESTMENT IN SHARES WAS MAD E IN THE EARLIER YEARS AND NO BORROWINGS AS PER THE ASSESSEE WERE RAISED T O MAKE THE AFORESAID INVESTMENT. THE CIT(A) HAS INCORPORATED THE REPLY O F THE ASSESSEE UNDER 4 PARA 4.1 AT PAGES 3 TO 9 OF THE APPELLATE ORDER. T HE TABULATED DETAILS OF INVESTMENTS MADE BY THE ASSESSEE STARTING FROM FINA NCIAL YEAR 1996-97 TO FINANCIAL YEAR 2001-02 REFLECTS THAT THE INVESTMENT MADE IN THE FINANCIAL YEAR 1996-97 IS CARRIED FORWARD TO THE FINANCIAL YE AR 2001-02. AS PER THE ASSESSEE, IT HAS SUFFICIENT EQUITY FUND AS WELL AS RESERVES AMOUNTING TO RS.14317 LACS, WHICH JUSTIFIES THE INVESTMENT MADE BY THE ASSESSEE. THE EXTRACT OF THE BALANCE SHEET RELATING TO FINANCIAL YEAR 1996-97 WAS ENCLOSED ALONG WITH THE WRITTEN SUBMISSIONS. THE CIT(A) RES TRICTED THE DISALLOWANCE TO RS.1,00,000/- U/S 14A OF THE ACT IN VIEW OF THE SIMILAR ISSUE BEING DECIDED IN ASSESSMENT YEAR 2004-05. 9. WE FIND THAT THE HON'BLE BOMBAY HIGH COURT IN GO DREJ & BOYCE MFG.CO.LTD V DCIT & ANR, [234 CTR 1 (BOM) REVERSIN G THE ORDER OF SPECIAL BENCH OF MUMBAI TRIBUNAL ON THE ISSUE HELD THAT THE PROVISIONS OF RULE 8D WERE NOT ULTRA VIRUS THE PROVISIONS OF SECT ION 14A AND IT WAS ALSO HELD THAT THE SAME DO NOT OFFEND ARTICLE 14 OF THE CONSTITUTION. IT WAS FURTHER HELD THAT THE PROVISION OF RULE 8D WAS TO B E APPLIED PROSPECTIVELY W.E.F. 01.04.2007 I.E. IN RELATION TO ASSESSMENT YE AR 2008-09 AND SUBSEQUENT YEARS AS THE MEMORANDUM EXPLAINING THE PROVISIONS O F THE FINANCE BILL 2006 STATES THAT THIS AMENDMENT WOULD TAKE EFFECT FROM 0 1.04.2007. THE COURT FURTHER HELD THAT EVEN IN THE ABSENCE OF SUB-SECTIO N (2) AND (3) OF SECTION 14A AND RULE 8D, THE ASSESSING OFFICER WAS NOT PREC LUDED FROM MAKING APPORTIONMENT ON ACCOUNT OF EXPENDITURE RELATABLE T O EARNING OF EXEMPT INCOME. 10. THE LD. AR FOR THE ASSESSEE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V HE RO CYCLES LTD., 323 ITR 518 (P&H) WHICH HAS BEEN RELIED UPON IN CIT V M ETALMAN AUTO P.LTD., 336 ITR 434 (P&H). LD. DR FOR THE REVENUE POINTED O UT THAT THE ISSUE BEFORE THE HON'BLE PUNJAB & HARYANA HIGH COURT WAS IN CONNECTION WITH 5 DISALLOWANCE OF FINANCIAL EXPENSES WHICH IS NOT THE ISSUE IN THE PRESENT APPEAL. WE FIND THAT THE HON'BLE PUNJAB & HARYANA HIGH COURT IN CIT V HERO CYCLES LTD. OBSERVED THAT IN VIEW OF THE FINDINGS REPRODUCED ABOVE, IT IS CLEAR THAT THE EXPENDITURE ON INTEREST WAS SET O FF AGAINST THE INCOME FROM INTEREST AND THE INVESTMENT IN THE SHARE AND FUNDS WERE OUT OF THE DIVIDEND PROCEEDS. IN VIEW OF THIS FINDING OF FACT, DISALLO WANCE UNDER SECTION 14A WAS NOT SUSTAINABLE. . FOLLOWING THE RATIO LAID DOWN BY THE HON'BLE BOMBAY HIGH COURT IN GODREJ & BOYCE MFG.CO.LTD V D CIT, WE UPHOLD THE DISALLOWANCE OF RS. 1,00,000/- BEING EXPENDITURE RE LATABLE TO THE EARNING OF THE EXEMPT INCOME BY INVOKING THE PROVISIONS OF SEC TION 14A OF THE ACT. THE GROUND OF APPEAL RAISED BY THE ASSESSEE IS THUS DISMISSED . 11. IN VIEW THEREOF, GROUND NO.1 RAISED BY BOTH THE ASSESSEE AND THE REVENUE ARE, THUS DISMISSED. 12. THE REVENUE VIDE GROUND NO.2 HAS RAISED THE ISS UE REGARDING APPLICATION OF PROVISIONS OF SECTION 234D OF THE IN COME-TAX ACT. THE AO HAD DIRECTED CHARGING OF INTEREST U/S 234D OF THE A CT. THE CONTENTION OF THE ASSESSEE BEFORE CIT(A) WAS THAT THE SAID SECTION WA S APPLICABLE FROM 01.06.2003 AS THE SAME WAS INTRODUCED BY FINANCE AC T, 2003 AND WAS NOT APPLICABLE TO THE YEAR UNDER CONSIDERATION. RELIAN CE WAS PLACED ON THE RATIO LAID DOWN BY THE SPECIAL BENCH OF DELHI TRIBUNAL RE PORTED IN ITO V EKTA PROMOTERS PVT. LTD., 117 TTJ 289 (DEL) (SB). THE C IT(A) FOLLOWING THE RATIO LAID DOWN BY THE SPECIAL BENCH OF DELHI TRIBU NAL IN ITO V EKTA PROMOTERS P.LTD. (SUPRA) HELD THAT THE LEVY OF INTE REST U/S 234D OF THE ACT WOULD APPLY PROSPECTIVELY I.E. FROM ASSESSMENT YEAR 2004-05 ONWARDS. THE REVENUE IS IN APPEAL AGAINST THE SAID DIRECTIONS OF THE CIT(A). 13. LD. DR FOR THE REVENUE POINTED OUT THAT THE ISS UE STANDS COVERED BY THE ORDER OF KERALA HIGH COURT IN CIT V KERALA CHEM ICALS & PROTEINS LTD., 6 323 ITR 584 (KER). LD. AR FOR THE ASSESSEE, ON THE OTHER HAND, POINTED OUT THAT THE HON'BLE DELHI HIGH COURT IN DIRECTOR OF IN COME TAX V JACABS CIVIL INCORPORATED, 330 ITR 578 (DEL) HAS HELD THAT SECTI ON 234D WAS APPLICABLE ONLY FROM ASSESSMENT YEAR 2004-05 ONWARDS. 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED RECORDS. BOTH THE LD. COUNSELS BEFORE US HAVE FAILED TO POINT OUT ANY RAT IO LAID DOWN BY THE JURISDICTIONAL HIGH COURT ON THE ISSUE OF LEVY OF I NTEREST U/S 234D OF THE ACT. LD. AR FOR THE ASSESSEE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HON'BLE DELHI HIGH COURT IN DIRECTOR OF INCOME TAX V JACABS CIVIL INCORPORATED (SUPRA) AND ALSO THE SPECIAL BENCH OF DELHI TRIBUNAL IN ITO V EKTA PROMOTERS P.LTD. (SUPRA) WHEREAS THE LD. DR FO R THE REVENUE HAS PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HON'B LE KERALA HIGH COURT IN CIT V KERALA CHEMICALS & PROTEINS LTD. (SUPRA). TH E HON'BLE DELHI HIGH COURT HAS LAID DOWN THE PROPOSITION THAT SECTION 23 4D WAS APPLICABLE ONLY FROM THE ASSESSMENT YEAR 2004-05 ONWARDS AND NOT IN THE EARLIER ASSESSMENT YEARS AND THEREFORE, NO INTEREST UNDER THAT PROVISI ON COULD BE LEVIED FOR THE PERIOD PRIOR TO THE ASSESSMENT YEAR 2004-05. ON TH E OTHER HAND, CONTRARY VIEW HAS BEEN HELD BY THE HON'BLE KERALA HIGH COURT IN CIT V KERALA CHEMICALS & PROTEINS LTD (SUPRA). HOWEVER, IN VIEW OF THE DIVERGING OPINIONS EXPRESSED BY THE TWO DIFFERENT HIGH COURTS THE ONE FAVOURING THE ASSESSEE IS TO BE APPLIED AS IS HELD BY VARIOUS COU RTS ON THIS ACCOUNT. APPLYING THE RATIO LAID DOWN BY THE HON'BLE DELHI H IGH COURT IN DIRECTOR OF INCOME TAX V JACABS CIVIL INCORPORATED (SUPRA) WE A RE IN AGREEMENT WITH THE ORDER OF CIT(A) THAT INTEREST U/S 234D OF THE A CT IS CHARGEABLE ONLY FROM ASSESSMENT YEAR 2004-05 ONWARDS. THE YEAR UNDER AP PEAL RELATES TO ASSESSMENT YEAR 2002-03. THE PROVISIONS OF SECTION 234D ARE NOT APPLICABLE 7 TO THE CAPTIONED ASSESSMENT YEAR. THUS, GROUND NO. 2 RAISED BY THE REVENUE IS DISMISSED. 15. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE AND THE REVENUE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 30 TH DAY OF AUGUST, 2011. SD/- SD/- (MEHAR SINGH) (SUSHMA CHOWLA) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 30 TH AUG.,2011 POONAM COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR BY ORDER ASSISTANT REGISTRAR, ITAT, CHANDIGARH