M/s A.B. Sugars, Chandigarh V. Addl. CIT, Chandigarh

ITA 651/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 73518 (ITAT-CHANDIGARH)
• Duration Of Justice: 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-03-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 26-02-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 31-05-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Notional interest
• Section: 14A; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCH B, CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 650 & 651/CHD/2013 ASSESSMENT YEAR : 2008-09 & 2009-10 A.B. SUGARS LTD. VS. ADDL C.I.T. 77, SECTOR 11 RANGE I, CHANDIGARH CHANDIGARH AABCG 3045M (APPELLANT) (RESPONDENT) APPELLANT BY SHRI T.N. SINGLA RESPONDENT BY: SHRI AKHILESH GUPTA DATE OF HEARING 26.2.2014 DATE OF PRONOUNCEMENT 6 .3.2014 O R D E R PER T.R.SOOD, A.M THESE APPEALS OF THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 21.3.2013 OF THE LD CIT(A), CHANDIGARH. ITA NO. 650/CHD/2013 A.Y 2008-09 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS: 2 THAT THE LD. CIT(A) HAS ERRED IN NOT CONDONING T HE DELAY OF 5 DAYS IN THE FILING OF APPEAL. 3 THAT THE LD. CIT(A) HAS WRONGLY CONFIRMED DISALLOWA NCE OF RS. 10,23,222/- U/S 14A ON ACCOUNT OF INTEREST AND ADMI NISTRATION. 4 THAT THE LD. CIT(A) HAS WRONGLY CAPITALIZED PART OF INTEREST U/S 36(1)(III) AMOUNTING TO RS. 1,20,88,646/- ON ACCOUN T OF NOTIONAL INTEREST TO THE EXTENT OF FUNDS TRANSFERRED TO M/S K. SONS & ASSOCIATES. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT IN TH IS CASE THE LD. CIT(A) HAS DISMISSED THE APPEAL OF THE ASSESSEE IN LIMINI BECAUSE THE SAME WAS LATE BY FIVE DAYS AND ACCORDINGLY TO T HE LD. CIT(A) NO SPECIFIC REASONS HAVE BEEN GIVEN. THE LD. COUNSEL F OR THE ASSESSEE SUBMITTED THAT AN APPLICATION FOR CONDONATION OF DE LAY WAS SUBMITTED BEFORE THE FIRST APPELLATE AUTHORITY IN WHICH IT WA S CLEARLY STATED THAT THE ORDER WAS RECEIVED ON 20.12.2010 AND WAS GIVEN TO SHRI AJAY 2 KUMAR JAIN WHO COULD NOT ATTEND TO THE FILING OF AP PEAL BECAUSE OF TIME BARRING CASES. AN AFFIDAVIT OF SHRI AJAY KUMA R JAIN HAS BEEN FILED. HE FURTHER SUBMITTED THAT APPEAL HAS BEEN D ISMISSED IN LIMINI WITHOUT ADJUDICATING THE SAME ON MERIT. THEREFORE O NE MORE OPPORTUNITY MAY BE GIVEN. 4 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE STRONGLY SUPPORTED THE ORDER OF THE LD. CIT(A). 5 AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE REASONS FOR LATE FILING OF THE APPEAL WAS DULY EXPL AINED. AT LEAST IN CASE OF SMALL DELAY A LIBERAL APPROACH HAS TO BE AD OPTED. IN THIS REGARD WE WOULD LIKE TO REFER TO THE CELEBRATED DEC ISION OF HON'BLE SUPREME COURT IN CASE OF COLLECTOR, LAND ACQUISITIO N VS. MST. KATIJI AND OTHERS, 167 ITR 47. THE HON'BLE SUPREME COURT M ADE FOLLOWING OBSERVATIONS IN RESPECT OF LIMITATION ISSUES: THE LEGISLATURE HAS CONFERRED THE POWER TO CONDONE DELAY BY ENACTING SECTION 51 OF THE LIMITATION ACT OF 1963 IN ORDER T O ENABLE THE COURTS TO DO SUBSTANTIAL JUSTICE TO PARTIES BY DISPOSING OF M ATTERS ON MERITS. THE EXPRESSION SUFFICIENT CAUSE EMPLOYED BY THE LEGIS LATURE IS ADEQUATELY ELASTIC TO ENABLE THE COURTS TO APPLY THE LAW IN A MEANINGFUL MANNER WHICH SUBSERVES THE ENDS OF JUSTICE THAT BEING TH E LIFE PURPOSE OF THE EXISTENCE OF THE INSTITUTION OF COURTS. IT IS COMM ON KNOWLEDGE THAT THIS COURT HAS BEEN MAKING A JUSTIFIABLY LIBERAL APPROAC H IN MATTERS INSTITUTED IN THIS COURT. BUT THE MESSAGE DOES NOT APPEAR TO HAVE PERCOLATED DOWN TO ALL THE OTHER COURTS IN THE HIERARCHY. THEREAFTER THE HON'BLE HIGH COURT LAID DOWN FOLLOW ING GUIDELINES: 1 ORDINARILY, A LITIGANT DOES NOT STAND TO BENEFIT BY LODGING AN APPEAL LATE. 2 REFUSING TO CONDONE DELAY CAN RESULT IN A MERITOR IOUS MATTER BEING THROWN OUT AT THE VERY THRESHOLD AND CAUSE OF JUSTI CE BEING DEFEATED. AS AGAINST THIS, WHEN DELAY IS CONDONED, THE HIGHEST T HAT CAN HAPPEN IS THAT A CAUSE WOULD BE DECIDED ON MERITS AFTER HEARING TH E PARTIES. 3 EVERY DAYS DELAY MUST BE EXPLAINED DOES NOT ME AN THAT A PEDANTIC APPROACH SHOULD BE MADE. WHY NOT EVERY HO URS DELAY, EVERY SECONDS DELAY? THE DOCTRINE MUST BE APPLIED IN A RATIONAL, COMMON SENSE AND PRAGMATIC MANNER. 4 WHEN SUBSTANTIAL JUSTICE AND TECHNICAL CONSIDERAT ION ARE PITTED AGAINST EACH OTHER, THE CAUSE OF SUBSTANTIAL JUSTIC E DESERVES TO BE PREFERRED, FOR THE OTHER SIDE CANNOT CLAIM TO HAVE VESTED RIGHT IN INJUSTICE BEING DONE BECAUSE OF A NON-DELIBERATE DE LAY. 5 THERE IS NO PRESUMPTION THAT DELAY IS OCCASIONED DELIBERATELY, OR ON ACCOUNT OF CULPABLE NEGLIGENCE, OR ON ACCOUNT OF MALA FIDES. A LITIGANT DOES NOT STAND TO BENEFIT BY RESORTING TO DELAY. IN FACT, HE RUNS A SERIOUS RISK. 3 6 IT MUST BE GRASPED THAT THE JUDICIARY IS RESPECTE D NOT ON ACCOUNT OF ITS POWER TO LEGALIZE INJUSTICE ON TECHNICAL GRO UNDS BUT BECAUSE IT IS CAPABLE OF REMOVING INJUSTICE AND IS EXPECTED TO DO SO. IN THE CASE BEFORE US. DELAY IS ON ACCOUNT OF PRE- OCCUPATION OF THE LD. COUNSEL FOR WHICH THE ASSESSEE CANNOT BE PUNISH ED, THEREFORE WE CONDONE THE DELAY OF FILING OF APPEAL BEFORE THE LD. CIT(A) LATE BY FIVE DAYS AND REMIT THE MATTER TO HIS FILE FOR A DJUDICATION ON MERITS AFTER PROVIDING ADEQUATE OPPORTUNITY TO THE ASSESSEE. 6. IN THE RESULT, APPEAL OF THE ASSESSEE IN ITA NO. 650/CHD/2013 IS ALLOWED FOR STATISTICAL PURPOSES ONLY. ITA NO. 651/CHD/2013 A.Y 2009-10 7 IN THIS APPEAL ASSESSEE HAS RAISED THE FOLLOWING GROUNDS: 2 THAT THE LD. CIT(A) HAS WRONGLY UPHELD THE DISAL LOWANCE OF RS. 14,07,269/- U/S 14A ON ACCOUNT OF INTEREST. 3 THAT THE LD. CIT(A) HAS WRONGLY CONFIRMED THE DIS ALLOWANCE OF PART OF INTEREST U/S 36(1)(III) AMOUNTING TO RS. 17,67,9 10/- ON ACCOUNT OF NOTIONAL INTEREST TO THE EXTENT OF FUNDS TRANSFERRE D TO M/S K. SONS & ASSOCIATES. 4 THAT THE LD. CIT(A) HAS WRONGLY CAPITALIZED PART OF INTEREST U/S 36(1)(III) AMOUNTING TO RS. 6,83,384/- ON CAPITAL W ORK IN PROGRESS AND ADDITION TO FIXED ASSETS. 8 GROUND NO. 2 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICE NOTICED THAT THE ASSESSEE MADE INVESTMENTS OF RS. 2,63,88,310/- IN THE SHARES OF VARIOUS COMPANIES. THE ASSESSEE-COMPANY HAS NOT RE CEIVED ANY DIVIDEND BUT HE INVOKED PROVISIONS OF SECTION 14A READ WITH RULE 8D AND ULTIMATELY DISALLOWED A SUM OF RS. 14,07,269/-. 9 ON APPEAL THE ACTION OF THE ASSESSING OFFICER WAS CONFIRMED BY THE LD. CIT(A). 10 BEFORE US THE LD. COUNSEL FOR THE ASSESSEE RELIE D ON THE GROUND OF APPEAL. 11 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND THE LD. CIT(A). 12 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD, WE FIND IT HAS BEEN HELD BY THE SPECIAL BEN CH IN CASE OF 4 CHEMINVEST LTD. VS. ITO, 121 ITD 318 THAT EVEN IF N O INCOME IS RECEIVED, DISALLOWANCE U/S 14A IS STILL POSSIBLE. HEAD NOTE READS AS UNDER: SECTION 14 A, READ WITH SECTION 10(34), OF THE INCO ME-TAX ACT, 1961- EXPENDITURE INCURRED IN RELATION TO INCOME NOT INCL UDIBLE IN TOTAL INCOME ASSESSMENT YEAR 2004-05- WHETHER SINCE DIVIDEND INC OME IS EXEMPTED FROM TAX BY VIRTUE OF SECTION 10(34), INTEREST PAID ON BORRO WED CAPITAL UTILIZED IN PURCHASE OF SHARES, BEING EXPENDITURE INCURRED IN R ELATION TO DIVIDEND INCOME NOT FORMING PART OF ASSESSEES TOTAL INCOME CANNOT BE ALLOWED AS A DEDUCTION- HELD, YES WHETHER SUCH DISALLOWANCE UNDER-SECTION 14 A CAN BE MADE EVEN IN A YEAR IN WHICH NO EXEMPT INCOME HAS BEEN EARNED OR RECEIVED BY ASSESSEE- HELD YES. THIS DECISION WAS RENDERED IN THE LIGHT OF THE DECI SION OF HON'BLE SUPREME COURT IN CASE OF CIT VS. RAJINDER PRASHAD M OODY, 115 ITR 519, THEREFORE IT BECOMES CLEAR THAT EVEN IF NO DIV IDEND IS THERE EVEN THEN DISALLOWANCE U/S 14A CAN BE MADE. 13 FURTHER RULE 8D IS APPLICABLE IN ASSESSMENT YEAR 2008-09 AS HELD BY HON'BLE BOMBAY HIGH COURT IN CASE OF GODRE J & BOYCE VS. DCIT, 328 ITR 81 (BOM). THE LD. COUNSEL FOR THE AS SESSEE COULD NOT POINT OUT ANY DEFECT IN THE CALCULATION OF DIS ALLOWANCE MADE BY THE ASSESSING OFFICER. THEREFORE WE FIND NOTHING W RONG WITH THE ORDER OF THE LD. CIT(A) AND CONFIRM THIS DISALLOWAN CE. 14 GROUND NO. 3 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICE NOTICED THAT FROM THE DETAILS OF LOANS AND ADVANCES THAT THE ASS ESSEE HAD MADE A HUGE ADVANCES TO K. SONS & ASSOCIATES. DESPITE EN QUIRIES NO REASON WAS GIVEN AS TO WHY AMOUNT OF RS. 4,59,32,90 9/- WAS GIVEN TO K. SONS & ASSOCIATES, THEREFORE HE INVOKED PROVI SIONS OF SECTION 36(1)(III) AND DISALLOWED PROPORTION INTEREST AMOUN TING TO RS. 17,67,910/-. 15 ON APPEAL IT WAS MAINLY SUBMITTED THAT THE ASSES SEE IS A PARTNER IN K. SONS & ASSOCIATES AND THE ASSESSING O FFICER HAS ALREADY MADE DISALLOWANCE U/S 14A IN RESPECT OF IN VESTMENT MADE 5 AS CAPITAL. FURTHER DISALLOWANCE HAS BEEN MADE ON ACCOUNT OF ADVANCES WHICH IS NOT JUSTIFIED. 16 AFTER CONSIDERING THESE SUBMISSIONS, THE LD. CIT (A) DID NOT FIND FORCE IN THESE SUBMISSIONS AND CONFIRMED THE D ISALLOWANCE. 17 BEFORE US, THE LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT WHATEVER INTEREST HAS ALREADY BEEN CONSIDERED WHILE MAKING DISALLOWANCE U/S 14A, CANNOT BE DISALLOWED AGAIN AN D THEREFORE TO THAT EXTENT THE MATTER MAY BE RESTORED TO THE FILE OF ASSESSING OFFICER FOR RE-EXAMINATION OF THE ISSUE. 18 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE STRONGLY SUPPORTED THE ORDER OF ASSESSING OFFICER AND LD. CI T(A). 19 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD, WE FIND THAT IT IS NOT CLEAR FROM THE CALCU LATION MADE BY THE ASSESSING OFFICER WHETHER THE INTEREST PORTION WHIC H HAS BEEN DISALLOWED U/S 14A HAS BEEN AGAIN CONSIDERED WHILE MAKING DISALLOWANCE U/S 36(1)(III), THEREFORE IN THE INTER EST OF JUSTICE, WE SET ASIDE THE ORDER OF THE LD. CIT(A) ON THIS ISSUE AND REMIT THE MATTER BACK TO THE FILE OF ASSESSING OFFICER FOR MAKING VE RIFICATION. THE ASSESSING OFFICER SHOULD NOT DISALLOW INTEREST ONCE U/S 14A AND AGAIN U/S 36(1)()III). HOWEVER, THE SAME INTEREST IS NOT CONSIDERED AGAIN THEN DISALLOWANCE MAY BE MADE. 20 GROUND NO. 4 AFTER HEARING BOTH THE PARTIES WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICE NOTICED THAT ASSESSEE HAS SHOWN CAPITAL WORK IN PROGRESS AMOUNTI NG TO RS. 1,41,48,730/- SINCE THE ASSESSEE HAD BORROWED HUGE AMOUNTS THEREFORE INTEREST ON CAPITAL WORK IN PROGRESS, WAS DISALLOWED AMOUNTING TO RS. 6,83,384/-. 21 ON APPEAL THE ASSESSEE COULD NOT IMPROVE UPON HI S CAE AND HENCE APPEAL BEFORE US. 6 22 THE LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE ASSESSEE IS RUNNING INDUSTRIAL UNIT WHERE THE CAPITAL INVEST MENT IS MORE THAN RS. 200 CRORES AND CAPITAL WORK IN PROGRESS IS ONLY 1.41 CRORES WHICH CLEARLY SHOWS THAT SAME IS NOT FOR THE PURPOS E OF EXPANSION OF BUSINESS. 23 ON THE OTHER HAND, THE LD. D.R. FOR THE REVENUE SUPPORTED THE ORDER OF THE LD. CIT(A). 24 AFTER CONSIDERING THE RIVAL SUBMISSIONS AND THE MATERIAL ON RECORD, WE FIND THAT PROVISO TO SEC 36(1)(III) READ S AS UNDER: PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN RESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALIZED IN THE BOOKS OF ACC OUNTS OR NOT) FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAPITAL WAS BORROWED FOR ACQUISITION OF THE ASST TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUCTION). PLAIN READING OF ABOVE CLEARLY SHOWS THAT DISALLOWA NCE FROM INTEREST CAN BE MADE IN RESPECT OF BORROWINGS FOR ACQUISITIO N OF EXPANSION OF BUSINESS OR PROFESSION. THIS MEANS WHEN THE ASSESS EE IS TRYING TO EXPAND THE BUSINESS THEN DISALLOWANCE CAN BE MADE. IF THE ASSESSEE HAS ALREADY PUT UP A UNIT COSTING MORE THA N RS. 200 CRORES AND A SMALL SUM OF RS. 1,41 CORES IS SPENT TOWARDS SOME MINOR CAPITAL INVESTMENT THEN IT CANNOT BE SAID THAT THE SAME IS FOR THE PURPOSE OF EXPANSION OF BUSINESS. THEREFORE IN OUR OPINION, THIS DISALLOWANCE IS NOT JUSTIFIED AND ACCORDINGLY WE DE LETE THE DISALLOWANCE OUT OF INTEREST UNDER THIS HEAD. ACCOR DINGLY ASSESSEES APPEAL IS PARTLY ALLOWED. 25 IN THE RESULT APPEAL OF THE ASSESSEE IN ITA NO. 651/CHD/2013 IS PARTLY ALLOWED. 26 IN THE RESULT, ITA NO. 650/CHD/2013 IS ALLOWED F OR STATISTICAL PURPOSES ONLY AND ITA NO. 651/CHD/2013 IS PARTLY AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 6.3.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R. SOOD) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 6.3.2014 SURESH COPY TO: THE APPELLANT/THE RESPONDENT/THE CIT/THE C IT(A)/THE DR 7