M/s JVR Forging Limited, Ludhiana V. JCIT, Ludhiana

ITA 67/CHANDI/2013

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77150 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 4 month(s) 27 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2014
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 05-06-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 23-01-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO. 67/CHD/2013 ASSESSMENT YEAR: 2008-09 JVR FORGING LIMITED VS. JCIT, GURU GOBIND SINGH COLONY RANGE V LUDHIANA LUDHIANA PAN NO. AAACJ4111C (APPELLANT) (RESPONDENT) APPELLANT BY : WRITTEN SUBMISSIONS. RESPONDENT BY : SHRI AKHILESH GUPTA DATE OF HEARING : 05.06.2014 DATE OF PRONOUNCEMENT : 19.06.2014 ORDER PER T.R.SOOD, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER DATED 18.12.2012 OF CIT (APPEALS)-II, LUDHIANA. 2. IN THIS APPEAL THE ASSESSEE HAS RAISED THE FOLLO WING GROUNDS:- I. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS-II) LUDHIANA HAS ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE JOINT COMMISSIONER OF INCOME TAX, RANGE V, LUDHIANA UNDER SECTION 14 A OF THE INCOME TAX ACT 1961 AMOUNTING TO RS. 1,19,060/- WITHOUT CONSIDERING THE LEGALITY AND CIRCUMSTANCES OF THE CASE. II. THAT IT IS PRAYED THAT THE ORDER OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEAL) PATIALA MAY KINDLY BE SET-A-SIDE AND THE DISALLOWANCE SO MADE B Y 2 THE THEN JOINT COMMISSIONER OF INCOME TAX, RANGE V, LUDHIANA MAY KINDLY BE ALLOWED. 3. AFTER HEARING THE LD. DR AND GOING THOUGH THE WR ITTEN SUBMISSIONS WE FIND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSI NG OFFICER NOTICED THAT ASSESSEE WAS PARTNER IN A FIRM FROM WHERE THE PROFI T AMOUNTING TO RS. 11,82,523/- WAS EARNED WHICH WAS EXEMPT FROM TAX. THE ASSESSING OFFICER ASKED THE ASSESSEE AS TO WHY THE PROVISIONS OF SECT ION 14A SHOULD NOT BE APPLIED AND IN RESPONSE IT WAS STATED THAT NO EXPENDITURE W AS INCURRED FOR EARNING THIS TAX EXEMPT INCOME BUT NO EVIDENCE TO THIS EFFECT WA S FILED. THE ASSESSING OFFICER INVOKED THE PROVISIONS OF SECTION 14A READ WITH RULE 8D AND COMPUTED THE DISALLOWANCE UNDER CLAUSE (II) & (III) OF RULE 8D AT RS. 1,02,344/- AND RS. 16,725/- RESPECTIVELY AND MADE TOTAL DISALLOWANCE OF RS. 1,19,069/-. 4. ON APPEAL BEFORE CIT(A) IT WAS MAINLY CONTENDED THAT SECTION 14A IS NOT APPLICABLE IN THE CASE OF INCOME FROM THE PARTNERS HIP FIRM IN THE ABSOLUTE SENSE BECAUSE FIRM HAS ALREADY BEEN TAXED AT THE NORMAL R ATES AND, THEREFORE, APPLICATION OF SECTION 14A WOULD AMOUNT TO DOUBLE T AXATION. THE LD. CIT(A) FOLLOWING THE DECISION OF SPECIAL BENCH OF THE TRIB UNAL IN THE CASE OF VISHNU ANANT MAHAJAN VS. ACAIT (SPECIAL BENCH) (AHD) (TRIB .) DECIDED THE ISSUE AGAINST THE ASSESSEE. THE SPECIAL BENCH HAS HELD AS UNDER: - THOUGH A FIRM AND ITS PARTNERS ARE NOT DIFFERENT E NTITIES IN GENERAL LAW, UNDER THE ACT THEY ARE TREATED AS SEPA RATE ENTITIES. THE SALARY AND INTEREST PAID BY THE FIRM TO THE PARTNERS IS DEDUCTIBLE IN THE HANDS OF THE FIRM AND TAXABLE IN THE HANDS OF THE PARTNERS U/S 28(V). THE BALANCE PR OFITS ARE TAXED IN THE HANDS OF THE FIRM AND EXEMPT IN THE HA NDS OF THE PARTNERS U/S 10(2A). AS S. 10(2A) PROVIDES THAT THE SHARE OF PROFIT OF THE PARTNER SHALL NOT BE INCLUDED IN HIS TOTAL INCOME, IT IS NOT POSSIBLE TO HOLD THAT THE SHARE INCOME IS NOT EXCLUDED FROM THE TOTAL INCOME OF THE PARTNER BECAU SE THE FIRM HAS ALREADY BEEN TAXED THEREON. WHEN S. 10(2A) SPEAKS OF ITS EXCLUSION FROM THE TOTAL INCOME IT MEANS THE TOTAL 3 INCOME OF THE PERSON WHOSE CASE IS UNDER CONSIDERAT ION I.E. THE PARTNER. AS THE SHARE INCOME IS EXCLUDED FROM H IS TOTAL INCOME, S. 14A WOULD APPLY AND ANY EXPENDITURE INC URRED TO EARN THE SHARE INCOME WILL HAVE TO BE DISALLOWED (DHAMASINGH M. POPAT V. ACIT(2010) 127 TTJ 61 (MUM) APPROVED; SUDHIR KAPADIA & HITESH GAJARIA REVERSED) ; 5. BEFORE US, THE WRITTEN SUBMISSIONS HAVE BEEN FIL ED VIDE LETTER DATED 20.2.2013 WITH A REQUEST TO DECIDE THE ISSUE ON THE BASIS OF WRITTEN SUBMISSIONS. IN THE WRITTEN SUBMISSIONS IT HAS BEEN CONTENDED AS UNDER:- A) THE ASSESSEE COMPANY EARNED SHARE PROFIT FROM M/S E ASTMAN IMPEX WHICH IS A REGISTERED FIRM AND THE ASSESSEE C OMPANY IS HAVING ONLY 5% SHARE OF PROFIT WHICH IS EXEMPT UNDE R SECTION 10(2A) OF THE INCOME TAX ACT 1961. B) THE COMPANY IS A PARTNER WITH M/S EASTMAN IMPEX WIT H 5% SHARE ONLY AND THE FOLLOWING ARE THE SHARE HOLDERS: - I) SHRI JAG DEEP SINGAL II) SHRI VINAY SINGAL III) SHRI RAJEEV SINGAL IV) SHRI DHARM PAL GUPTA V) MRS. BINDU GUPTA VI) MRS. KALPANA SINGAL VII) SMT. RACHNA SINGAL OUT OF THE ABOVE NOTED SHARE HOLDERS, THE FOLLOWING ARE THE DIRECTORS:- I) SHRI DHARMA PAL GUPTA II) SHRI VINAY SINGAL III) SHRI RAJIV SINGAL IV) SHRI JAG DEEP SINGAL DURING THE COURSE OF ASSESSMENT PROCEEDINGS, IT WAS SUBMITTED THAT THE ASSESSEE COMPANY HAS NOT INCURRED ANY EXPE NDITURE TO EARN THE SHARE PROFIT FROM THEREFORE, SAID FIRM. TH E ASSESSEE COMPANY RELIED UPON THE JUDGMENT OF TERRITORIAL HIG H COURT I.E. THE HONBLE PUNJAB & HARYANA HIGH COURT HAS HELD IN THE CASE OF CIT V M/S HERO CYCLES LIMITED IN THE ASSESSMENT YEAR 2004- 2005 REPORTED 323 ITR 518(2010) THAT THE DISALLOWAN CE UNDER SECTION 14 A REQUIRED A FINDING OF INCURRING OF EXP ENDITURE AND WHERE IT IS FOUND THAT EARNING EXEMPTED INCOME NO E XPENDITURE 4 HAS BEEN INCURRED DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX ACT 1961 CANNOT STAND. AS IT WAS FOR THE ASSESS ING OFFICER TO SPECIFICALLY POINT OUT THE EXPENDITURE WHICH HE FI NDS WAS INCURRED FOR EARNING THE EXEMPT INCOME. IN THE CASE UNDER CONSIDERATION, THE LEARNED ASSESSING OFFICER HAS NO WHERE ESTABLISHED THE EXPENSES INCURRED BY THE ASSESSEE C OMPANY TO EARN THE SAID SHARE FROM THE FIRM AT RS. 11,82,523/ - 6. ON THE OTHER HAND, THE LD. DR STRONGLY SUPPORTED THE ORDER OF CIT(A). 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS, WE PART LY AGREE WITH THE SUBMISSIONS THAT FOR EARNING INCOME FROM SHARE PROF IT FROM A FIRM NO EXPENDITURE IS REQUIRED TO BE INCURRED AND THEREFOR E, NO DISALLOWANCE IS POSSIBLE UNDER RULE 8D CLAUSE (III). HOWEVER, AT TH E SAME TIME RULE 8D HAS BEEN HELD TO BE APPLICABLE FROM ASSESSMENT YEAR 20 08-09 AS HELD BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF GODREJ & BOYCE MFG CO 328 ITR 81 (BOMBAY). IN THE CASE IT WAS FURTHER HELD THAT PRO VISIONS OF SECTION 14A ARE APPLICABLE IN RESPECT OF ALL HEADS OF INCOME. IN T HAT CASE BEFORE US, THE ASSESSEE HAS INCURRED CERTAIN INTEREST EXPENDITURE AND NO SEPARATE ACCOUNT OF FUNDS BEING INTEREST FREE FUNDS AND INTEREST BEARIN G FUNDS IS BEING MAINTAINED, THEREFORE, DISALLOWANCE UNDER RULE 8D(II) IS TO BE MADE. ACCORDINGLY, WE CONFIRM DISALLOWANCE OF INTEREST UNDER RULE 8D(II) AND AT THE SAME TIME DELETE THE DISALLOWANCE MADE UNDER RULE 8D(III) 8. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.06.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMER DATED : 19 TH JUNE, 2014 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR 5