KALPANA TRADING CORPORATION, MUMBAI V. ITO 12(3)(1), MUMBAI

ITA 652/MUM/2012

• Counselvise Citation: 65219914 RSA 2012
• Duration Of Justice: 2 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-09-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Next Hearing Date: 08-09-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 01-02-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: ASGHAR ZAIN V P
• Keywords: Earning of tax free income; Question of law
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, MUMBAI BEFORE SHRI JOGINDER SINGH, JUDICIAL MEMBER AND SHRI RAJENDRA, ACCOUNTANT MEMBER I.T.A. NO.652/MUM/2012 (ASSESSMENT YEAR : 2008-09) M/S. KALPANA TRADING CORPORATION, 701, TULSIANI CHAMBERS FREE PRESS JOURNAL MARG NARIMAN POINT MUMBAI-400 021. VS. INCOME TAX OFFICER-12(3)(1) AAYAKAR BHAVAN MUMBAI- 400020. PAN/GIR NO. AAAFK 7082 L (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI J.P. BAIRAGRA DEPARTMENT BY : SHRI ASGHAR ZAIN V.P. DATE OF HEARING : 08.9.2014 DATE OF PRONOUNCEMENT : 08.9.2014 O R D E R PER JOGINDER SINGH, JM : THE ASSESSEE IS AGGRIEVED BY THE IMPUGNED ORDER DATED 21-11-2011 OF THE LD. FIRST APPELLATE AUTHORI TY BROADLY CONFIRMING THE DISALLOWANCE OF SUM OF RS.10,12,366/-, BEING THE ADMINISTRATIVE EXPENSES O F RS.1,13,291/- AND FINANCE CHARGES (INTEREST PAID) O F RS.8,99,344/- FOR THE MONEY BORROWED ON THE AMOUNT ITA NO.652/M/12 AY: 07-08 2 UTILIZED FOR PURCHASE OF SHARES U/S. 14A OF THE INC OME TAX ACT, 1961 WHILE COMPUTING THE TOTAL INCOME OF THE A SSESSEE. 2. DURING HEARING OF THIS APPEAL, WE HAVE HEARD SHR I J.P. BAIRAGRA, LD. COUNSEL FOR THE ASSESSEE AND SHRI ASG HAR ZAIN V.P., LD. DR. THE CRUX OF THE ARGUMENT ADVANCED ON BEHALF OF THE ASSESSEE IS THAT SINCE THE ASSESSEE COMPANY HAS NOT CLAIMED ANY EXEMPT INCOME, THEREFORE, THERE IS NO Q UESTION OF DISALLOWANCE OF EXPENDITURE FOR WHICH RELIANCE W AS PLACED UPON THE DECISIONS IN THE CASE OF M/S. SIVA INDUSTRIES AND HOLDING LTD. VS. ACIT( CHENNAI TRIBU NAL ), CIT VS. SHIVAM MOTORS PVT. LTD. (ITA NO.88 OF 2014 ) AND ITA NO.1717/MAD/2013 ORDER DATED 31/07/2014 IN THE CASE OF ACIT VS. MR. M. BASKARAN . 2.1 ON THE OTHER HAND THE LD. SR. DR DEFENDED THE ADDITION BY PLACING RELIANCE UPON THE SPECIAL BENCH DECISION FROM DELHI TRIBUNAL IN THE CASE OF CHEMINVEST LTD. VS. ITO (2009) (124 TTJ (DEL.)(SB) 577) ORDER DATED 5/8/2009. ITA NO.652/M/12 AY: 07-08 3 3. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. THE FACTS IN BRIEF ARE THAT AT THE RELEVANT TIME THE ASSESSEE FIRM WAS ENGAGED IN THE BUSINESS OF COTTON TRADING ALONG WITH BUSINE SS OF IMPORT OF CERTAIN SPECIAL CHEMICALS FROM GERMANY/SWITZERLAND AND SOLD IN THE LOCAL MARKET. I T WAS OBSERVED BY THE AO THAT THE BORROWED FUND ON WHICH INTEREST WAS PAID WAS USED FOR INVESTMENT RELATING TO INCOME EXEMPT FROM TAXATION, CONSEQUENTLY, THE AO COMPUTED DISALLOWANCE U/S. 14A R.W. RULE 8D OF THE INCOME TAX RULES RESULTING INTO DISALLOWANCE OF RS.10,12,366/-. 3.1 THE AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE THE LD. CIT(A) WHEREIN FOLLOWING THE SPECIAL BENCH DECISION IN THE CASE OF CHEMINVEST LTD. VS. ITO (SUPRA), AFFIRMED THE VIEW TAKEN BY THE AO. WE NOTE THAT THE SPECIAL BENCH WHI LE COMING TO A PARTICULAR CONCLUSION HELD THAT WHEN TH E EXPENDITURE OF INTEREST IS INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME, IT HAS TO SUFFER THE DISALLOWANCE IRRESPECTIVE OF THE FACT WHETHER A N INCOME ITA NO.652/M/12 AY: 07-08 4 IS EARNED BY THE ASSESSEE OR NOT. IN THIS DECISION IT WAS ALSO HELD THAT SECTION 14A DOES NOT ENVISAGE ANY SUCH EX CEPTION WHETHER ANY EXPENDITURE WAS INCURRED BY THE ASSES SEE IN RELATION TO AN INCOME THAT DOES NOT FORM PART OF TH E TOTAL INCOME OF THE ASSESSEE UNDER THE ACT AND IF THE ANS WER IS IN THE AFFIRMATIVE THEN THE EXPENDITURE CANNOT BE A LLOWED IRRESPECTIVE OF THE FACT THAT IT WAS ALLOWABLE UNDE R DIFFERENT PROVISIONS OF THE ACT. FURTHER, DISALLOWANCE HAS TO BE OF THE ENTIRE AMOUNT OF THE EXPENDITURE SO RELATED AND CAN NOT BE REDUCED BY THE RECEIPT OF INTEREST WHICH HAS NO REL ATION TO SUCH EXPENDITURE. HOWEVER, HONBLE ALLAHABAD HIGH COURT IN THE CASE OF M/S. SHIVAM MOTORS PVT. LTD. (2014-TIOL-754- HC-ALL-IT) VIDE ORDER DATED 6-05-2014 WHILE DECIDING AN IDENTICAL QUESTION U/S. 14A VIDE PARA 10 HELD AS UN DER:- 1 0. AS REGARDS THE SECOND QUESTION, SEC.14A OF THE ACT PROVIDES THAT FOR THE PURPOSES OF COMPUTING THE TOTAL INCOME UNDER THE CHAPTER, NO DEDUCTION SHALL BE ALLOWED IN RESPECT OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. HENCE, WHAT SECTION 14A PROVIDES IS THAT IF THERE IS ANY INCOME WHICH DOES NOT FORM PART OF INCOME UNDER THE ACT, THE EXPENDITURE WHICH IS INCURRED FOR EARNING AN INCOME IS NOT AN ALLOWABLE DEDUCTION. FOR THE YEAR IN QUESTION, THE FINDING F FACT IS THAT THE ASSESSE E ITA NO.652/M/12 AY: 07-08 5 HAS NOT EARNED ANY TAX FREE INCOME. HENCE, IN THE ABSENCE OF ANY TAX FREE INCOME THE CORRESPONDING EXPENDITURE COULD NOT BE WORKED OUT FOR DISALLOWANCE. THE VIEW OF THE CIT(A), WHICH HAS BEEN AFFIRMED BY THE TRIBUNAL, HENCE DOES NOT GIVE RISE TO ANY SUBSTANTIAL QUESTION OF LAW, HENCE, THE DELETION OF DISALLOWANCE OF RS.2,03,752/- MADE BY THE AO WAS IN ORDER. 3.2 IN A LATER DECISION DATED 31/07/2014, THE CHENNAI BENCH IN THE CASE OF ACIT VS. MR. M. BASKAR AN ALSO FOLLOWED THE AFORESAID DECISION FROM HONBLE ALLAHABAD HIGH COURT IN THE CASE OF M/S. SHIVAM MOTORS PVT. LTD. AND ALSO CONSIDERED THE SPECIAL BENCH DECISION FROM DELHI TRIBUNAL IN CHEMINVEST LTD. VS. ITO (SUPRA). THE BENCH ALSO FOLLOWED AND DISCUSSED VARIOUS OTHER DECISIONS INCLUDING DECISION OF HONBLE GUJARAT HIGH COURT IN THE CASE OF CORRTECH ENERGY PVT. LTD.(TAX APPEAL NO.239 OF 2014 DATED 24/03/2014, WHEREIN IT WAS HELD AS UNDER :- WE HAVE GIVEN OUR THOUGHTFUL CONSIDERATION OF THE FACTS AND THE DECISIONS RELIED UPON BY LD.AR. THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. WINSOME TEXTILE INDUSTRIES LTS. REPORTED AT (2009) 319 ITR 204 (P&H) HAS HELD THAT IN THE PRESENT CASE, ADMITTEDLY, THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION. IN SUCH A SITUATION, SEC.14. ITA NO.652/M/12 AY: 07-08 6 A COULD HAVE NO APPLICATION. IN THIS CASE ALSO, THE ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME IN THIS YEAR. THEREFORE, RESPECTFULLY FOLLOWING THE JUDGEME NT OF HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. WINSOME TEXTILES INDUSTRIES LTD. (SUPRA), W E HEREBY ALLOW THIS GROUND AND DIRECT THE AO TO DELET E THE ADDITION. 3.3 IN ANOTHER CASE HONBLE BOMBAY HIGH COURT IN CIT VS. DELITE ENTERPRISES(TAX APPEAL NO.110 OF 200 9 ORDER DATED 26 FEB. 2009) , HERO CYCLES LTD. (320 I TR 518) AND M/S. LAKHANI MARKETING INCL (ITA NO.970 OF 2008) DATED 2/4/2014 AND CIT VS. WINSOME TEXTILE INDUSTRIES LTD. (319 ITR 204) FROM HONBLE PUNJAB & HARYANA HIGH COURT HELD THAT WHERE THERE IS NO CLAIM FOR EXEMPTION OF INCOME IN SUCH SITUATION SEC. 14A HAS NO APPLICATION. IN THE PRESENT APPEAL ALSO SINC E THE ASSESSEE COMPANY HAS NOT CLAIMED ANY EXEMPT INCOME DURING THE YEAR, THEREFORE, THERE IS NO QUES TION OF DISALLOWANCE OF EXPENDITURE. RESPECTFULLY FOLLOW ING THE AFORESAID DECISIONS WE DELETE THE DISALLOWANCE MADE U/S. 14A OF THE ACT AS THE ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME DURING THE YEAR. WE ALLOW THE APPEAL OF THE ASSESSEE. ITA NO.652/M/12 AY: 07-08 7 4. FINALLY THE APPEAL OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THIS 8 TH DAY OF SEPTEMBER, 2014 . SD/- ( RAJENDRA ) ACCOUNTANT MEMBER SD/- ( JOGINDER SINGH ) JUDICIAL MEMBER MUMBAI; DATED : 08/09/2014 JV. COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A) 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. BY ORDER, //TRUE COPY// (ASSTT. REGISTRAR) ITAT, MUMBAI