DCIT, Ludhiana V. M/s Vardhman Acrylics Limited, Ludhiana

ITA 690/CHANDI/2016

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 5223 (ITAT-CHANDIGARH)
• Duration Of Justice: 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-04-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2009-2010
• Appeal Filed On: 02-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: SUBHASH AGGARWAL
• Keywords: Capital receipt
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.690/CHD/2016 (ASSESSMENT YEAR : 2009-10) THE D.C.I.T., VS. M/S VARDHMAN ACRYLICS LTD., CIRCLE-1, CHANDIGARH ROAD, LUDHIANA. LUDHIANA. PAN: AAACV7602E (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI SUSHIL KUMAR, CIT DR RESPONDENT BY : SHRI SUBHASH AGGARWAL DATE OF HEARING : 16.01.2017 DATE OF PRONOUNCEMENT : 11.04.2017 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL HAS BEEN FILED BY THE REVENUE AGAINS T THE ORDER OF CIT(APPEALS)-1, LUDHIANA DATED 28.3.20 16 RELATING TO ASSESSMENT YEAR 2009-10. 2. THE GROUND NO.1 RAISED BY THE REVENUE READS AS UNDER: 1. WHETHER UPON FACTS AND CIRCUMSTANCES OF THE CAS E, THE LD.CIT(A)WAS JUSTIFIED IN DISREGARDING THE FINDINGS OF THE AO AND TREATING THE SALES TAX SUBSIDY RECEIVED BY THE ASSESSEE AS CAPITAL IN NATURE 3. THE SAID GROUND IS AGAINST THE ACTION OF THE LD.CIT(A) IN TREATING SALES TAX SUBSIDY RECEIVED BY THE 2 ASSESSEE AS CAPITAL IN NATURE ,AS AGAINST REVENUE T REATED BY THE ASSESSING OFFICER. 4. BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT DURI NG THE IMPUGNED ASSESSMENT YEAR THE ASSESSEE HAD RECEI VED SALES TAX SUBSIDY AMOUNTING TO RS.8,26,62,081/-. T HE ASSESSING OFFICER TREATED THE SAME AS REVENUE IN NA TURE CONSIDERING THE NATURE OF SALES TAX SUBSIDY AND SCH EME UNDER THE GUJARAT GOVERNMENT ,WHERE THE UNIT OF THE ASSESSEE WAS LOCATED, AND FURTHER FOLLOWING THE DEC ISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE O F CIT VS. ABHISHEK INDUSTRIES LTD., 286 ITR 1 . FURTHER THE ASSESSING OFFICER HELD THAT THE CAPITAL STRUCTURE OF THE UNIT HAD NOT BEEN FINANCED BY THE SUBSIDY. ACCORDINGLY, HE REJE CTED THE CLAIM OF THE ASSESSEE THAT THE SALES TAX SUBSIDY RE CEIVED FROM THE GOVERNMENT OF GUJARAT IS CAPITAL IN NATURE AND TREATED THE SAME AS REVENUE AND MADE ADDITION OF RS.8,26,62,081/-. 5. AGGRIEVED BY THE SAME, THE ASSESSEE FILED AN APPEAL BEFORE THE CIT (APPEALS), WHO RELYING UPON T HE DECISION IN ASSESSEES OWN CASE IN APPEAL FOR ASSES SMENT YEAR 2011-12, DELETED THE ADDITION MADE. 6. AGGRIEVED BY THE SAME THE REVENUE HAS RAISED T HE PRESENT GROUND BEFORE US. DURING THE COURSE OF HEA RING THE LD. COUNSEL FOR THE ASSESSEE DREW OUR ATTENTION TO THE FACT THAT THE HON'BLE I.T.A.T. IN THE ASSESSEES OWN CAS E FOR ASSESSMENT YEAR 2001-02,2003-04, 2004-05, 2006-07, 2007- 3 08 AND 2010-11 HAS HELD THE SALES TAX SUBSIDY RECEI VED AS CAPITAL RECEIPT AND THUS NOT CHARGEABLE TO TAX. COP Y OF THE ORDER WAS PLACED BEFORE US. 7. THE LD. COUNSEL FOR THE ASSESSEE POINTED OUT TH AT THE LEARNED CIT (APPEALS) HAD DELETED THE ADDITION IN THE PRESENT CASE FOLLOWING THE DECISION OF THE CIT (APP EALS) IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2011-12, WH ICH IN TURN HAD BEEN ALLOWED FOLLOWING THE DECISION OF THE I.T.A.T. IN THE PRECEDING YEARS. THE LD. COUNSEL FOR THE AS SESSEE, THEREFORE, SUBMITTED THAT THE ISSUE WAS SQUARELY CO VERED IN ITS FAVOUR IN VIEW OF THE DECISION RENDERED BY THE I.T.A.T. IN THE PRECEDING YEARS. 8. THE LEARNED D.R., ON THE OTHER HAND FILED WRITT EN SUBMISSIONS ON THE ISSUE AND STATED THAT THE CIT (A PPEALS) HAD ERRED IN NOT CONSIDERING THE DECISION OF THE HO N'BLE SUPREME COURT IN THE CASE OF SAHNI STEEL & PRESS WO RKS LIMITED VS. CIT, 228 ITR 253 DATED 19.9.1997. 9. WE HAVE HEARD THE CONTENTIONS OF BOTH THE PARTI ES AND HAVE PERUSED THE ORDERS OF THE AUTHORITIES BELO W AS ALSO THE DOCUMENTS RELIED UPON BY BOTH THE PARTIES. WE FIND NO INFIRMITY IN THE ORDER OF THE LEARNED CIT (APPEALS) . ADMITTEDLY, SALES TAX SUBSIDY RECEIVED BY THE ASSE SSEE HAS BEEN TREATED AS CAPITAL IN NATURE BY THE I.T.A.T. I N ITS ORDER PASSED IN PRECEDING YEARS IN ITA NO.592/2007, 824/2 007, 773/2012, 283/2014 & 911/2013 VIDE ORDER DATED 21.10.2015. NO DISTINGUISHING FACTS HAVE BEEN BROU GHT TO 4 OUR NOTICE IN THE CASE BEFORE US. THE ISSUE, THEREF ORE WE HOLD, IS SQUARELY COVERED BY THE SAID DECISION OF T HE I.T.A.T., CONSIDERING WHICH THE CIT (APPEALS) HAS RIGHTLY DEL ETED THE ADDITION MADE ON ACCOUNT OF SALES TAX SUBSIDY TREAT ING THE SAME AS CAPITAL IN NATURE. IN VIEW OF THE ABOVE, G ROUND NO.1 RAISED BY THE REVENUE IS DISMISSED. 10. GROUND NO.2 RAISED BY THE REVENUE READS AS UNDER: 2. WHETHER UPON FACTS AND CIRCUMSTANCES OF THE CASE, THE LD.CIT(A)WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S 14A OF THE INCOME-TAX ACT, 1961, R/W RULE 8D OF INCOME-TAX RULES, 1962? 11. THE SAID GROUND RELATES TO DELETION OF DISALLO WANCE MADE UNDER SECTION 14A OF THE ACT. BRIEF FACTS REL EVANT TO THE ISSUE ARE THAT DURING ASSESSMENT PROCEEDINGS TH E ASSESSING OFFICER HAD OBSERVED THAT THE ASSESSEE HA D MADE INVESTMENT AMOUNTING TO RS.164.75 LACS IN DIFFERENT COMPANIES. THE ASSESSING OFFICER, PLACING RELIANCE ON THE DECISION OF THE HON'BLE JURISDICTIONAL IN THE CASE OF CIT VS. ABHISHEK INDUSTRIES LTD., 286 ITR 1, MADE DISALLOWA NCE OF RS.2,23,407/- UNDER SECTION 14A OF THE INCOME TAX A CT, 1961 (IN SHORT THE ACT) R.W.R. 8D OF THE INCOME T AX RULES, 1962. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD.CIT (APPEALS) WHERE THE ASSESSEE CONTENDED THAT IT HAD NOT EARNED DIVIDEND INCOME ON THE AFORESAID INCOME. TH E ASSESSEE FURTHER SUBMITTED THAT THE SAID INVESTMENT HAD BEEN MADE OUT OF SOCIO-LEGAL OBLIGATION ONLY. THE ASSESSEE STATED THAT ONLY ONE INVESTMENT HAD BEEN MADE BY IT IN 5 BHARUCH ECO-ACQUA INFRASTRUCTURE LTD. WHICH WAS MAD E IN EARLIER YEARS. THE ASSESSEE FURTHER SUBMITTED THAT THE SAID COMPANY WAS A SUBSIDIARY OF GUJARAT INDUSTRIAL DEVE LOPMENT CORPORATION, WHICH HAS BEEN ESTABLISHED UNDER GUJAR AT INDUSTRIAL DEVELOPMENT ACT, 1962. THE MAIN OBJECTI VE BEHIND THE INCORPORATION OF BHARUCH ECO-ACQUA INFRASTRUCTURE LTD., THE ASSESSEE SUBMITTED, WAS FO R LAYING DOWN A PIPELINE FOR CARRYING TREATED WATER FROM IND USTRIAL UNITS, ANKLESHWAR, JHAGADIA AND PANOLI INDUSTRIAL E STATES AND THE COST OF THE SAID PIPELINE WAS TO BE MET WIT H BY EQUITY CONTRIBUTION FROM THE BENEFICIARY UNITS, GID C, SUBSIDY AND GRANTS FROM GOVERNMENT AND TERM LOANS F ROM FINANCIAL INSTITUTIONS. THE ASSESSEE FURTHER SUBMI TTED THAT IN ASSESSEES OWN CASE FOR ASSESSMENT YEAR 2010-11, THE I.T.A.T. HAD HELD THAT THE INVESTMENT HAD BEEN MADE AS PER DIRECTIONS OF THE HON'BLE GUJARAT HIGH COURT AND BE ING A SECTION 25 COMPANY NO DIVIDEND COULD BE DECLARED BY IT, THEREFORE, SECTION 14A OF THE ACT COULD NOT BE APPL IED. THE ASSESSEE FURTHER RELIED UPON THE JUDGMENT OF THE HO N'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. LA KHANI MARKETING IN ITA NO.97/2008 DATED 2.4.2014. THE CI T (APPEALS) DELETED THE DISALLOWANCE MADE FOLLOWING T HE ORDER PASSED IN APPEAL FOR THE ASSESSMENT YEAR 2011-12. 12. BEFORE US THE LD. COUNSEL FOR THE ASSESSEE REL IED UPON THE ORDER OF THE CIT (APPEALS) AND STATED THAT THE ISSUE WAS SQUARELY COVERED IN ITS FAVOUR BY THE DECISION OF THE 6 I.T.A.T. FOR ASSESSMENT YEAR 2011-12 IN ITA NO.911/CHD/2013 DATED 20.1.2014. 13. THE LEARNED D.R., ON THE OTHER HAND FILED WRIT TEN SUBMISSIONS OF HIS ARGUMENTS AND STATED THAT A PLAI N READING OF SECTION 14A DOES NOT STATE ANYWHERE THAT FOR DISALLOWANCE TO BE MADE THERE HAS TO BE EXEMPT INCO ME. THE LEARNED D.R. STATED THAT THIS INTERPRETATION OF SEC TION 14A FINDS SUPPORT FROM THE DECISION OF THE HON'BLE SUPR EME COURT IN THE CASE OF CIT VS. WALFORT SHARE & STOCK BROKERS (P) LTD., 326 ITR 1. THE LEARNED DR ALSO STATED TH AT THE FACTS OF THE PRESENT CASE WERE DISTINGUISHABLE FROM THAT IN THE CASE OF LAKHANI MARKETING (SUPRA) AS IN THAT CA SE THE ASSESSING OFFICER HAD FAILED TO ESTABLISH THE NEXUS BETWEEN INTEREST BEARING FUNDS OF THE ASSESSEE AND INVESTME NT MADE, WHILE IN THE CASE OF THE ASSESSEE THERE WAS CATEGOR ICAL FINDING THAT THE ASSESSEE WAS HAVING MIXED FUNDS. 14. WE HAVE HEARD THE CONTENTIONS OF BOTH PARTIES AND HAVE GONE THROUGH THE ORDERS OF THE AUTHORITIES BEL OW AS ALSO THE DOCUMENTS PLACED BEFORE US. WE FIND NO IN FIRMITY IN THE ORDER OF THE CIT (APPEALS). IT IS AN ADMITTED FACT THAT IN ASSESSMENT YEAR 2010-2011 IDENTICAL DISALLOWANCE MA DE UNDER SECTION 14A ON ACCOUNT OF INVESTMENT MADE BY THE ASSESEE IN BHARUCH ECO-ACQUA INFRASTRUCTURE LTD. HA D BEEN DELETED BY THE I.T.A.T. IN ITS ORDER IN ITA NO.911/ CHD/2013 DATED 20.1.2014. FURTHER, FOLLOWING THE SAID DECIS ION, IDENTICAL DISALLOWANCE MADE IN ASSESSMENT YEAR 2011 -12 WAS DELETED BY THE CIT (APPEALS) IN ASSESSEES OWN CASE . THE 7 ISSUE BEFORE US IS SQUARELY COVERED BY THE DECISION OF THE ITAT IN A.Y 2010-11 AND WITH NO DISTINGUISHING FACT S HAVING BEEN BROUGHT TO OUR NOTICE WE FIND NO REASON TO INT ERFERE IN THE ORDER OF THE CIT (APPEALS) IN THE PRESENT CASE. THE GROUND OF APPEAL NO.2 RAISED BY THE REVENUE IS DISM ISSED. GROUND NO 3 & 4 RAISED BY THE REVENUE ARE GENERAL I N NATURE AND NEED NO ADJUDICATION. 15. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 11 TH APRIL, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH