Asstt.Commissioner of Income Tax, Ludhiana V. M/S Shree Ganesh Jewellers Ltd., Ludhiana

ITA 73/CHANDI/2016

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9155 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-08-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2011-2012
• Appeal Filed On: 05-02-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S K MITTALDR
• Assessee Lawyers: K J SHALLY
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND SH. PRASHANT MAHARSHI, ACCOUNTANT MEMBER ITA NO. 73/CHD/2016 ASSESSMENT YEAR: 2011-12 THE ACIT, VS M/S SHREE GANESH JEWELLERS LTD., CIRCLE 5, G.T.ROAD, MILLER GANJ, LUDHIANA. LUDHIANA. PAN: AAECS0983M (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI S.K.MITTAL,DR RESPONDENT BY : SHRI K.J.SHALLY DATE OF HEARING : 04.08.2016 DATE OF PRONOUNCEMENT : 09.08.2016 O R D E R PER BHAVNESH SAINI, JM THIS APPEAL BY REVENUE HAS BEEN DIRECTED AGAINST TH E ORDER OF LD. CIT(APPEALS) LUDHIANA DATED 19.11.2015 FOR ASSESSMENT YEAR 2011-12, CHALLENGING THE DELETION O F DISALLOWANCE OF RS. 56,36,829/- UNDER SECTION 14A O F THE INCOME TAX ACT. 2. BRIEFLY THE FACTS OF THE CASE ARE THAT THE ASSES SEE IS HAVING INCOME FROM MANUFACTURING/TRADING OF GOLD AN D DIAMOND JEWELLERY. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT ASSES SEE 2 HAD SHOWN INVESTMENTS OF RS. 7.19 CR AND RS. 5.31 C R RESPECTIVELY AS ON 31.03.2011 AND 31.03.2010 RESPECTIVELY, INCOME FROM WHICH DOES NOT OR SHALL N OT FORM PART OF TOTAL INCOME. THE ASSESSEE HAD ALSO INCURR ED FINANCIAL EXPENDITURE OF RS. 3.48 CR MENTIONED IN T HE PROFIT & LOSS ACCOUNT IN ADDITION TO THE OTHER ADMINISTRATIVE EXPENSES. THE ASSESSING OFFICER ASK ED THE ASSESSEE TO EXPLAIN WHY PROVISIONS OF SECTION 14A M AY NOT BE APPLIED. THE ASSESSEE EXPLAINED THAT THERE IS A MISTAKE IN COMPANYS FINAL BALANCE SHEET IN AS MUCH AS THE COST OF SHARES WERE WRONGLY CLUBBED WITH INVEST MENTS IN MUTUAL FUNDS AND WRONGLY CONTINUED TO BE PROJECT ED LIKE INVESTMENTS BY OUR CHARTERED ACCOUNTANT. FURTH ER, WE HAVE NEVER TAKEN ANY LOAN TO PURCHASE THE STOCK OF SHARES DURING THE RELEVANT PERIOD OR DURING ANY EAR LIER YEAR. IN SUPPORT OF THIS CONTENTION, CERTIFICATE O F BANK REGARDING PURPOSE OF LOANS ADVANCED BY THE BANK WAS FILED. IT WAS ALSO MENTIONED THAT FUNDS USED IN TH E SHARES ARE MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE COMPANY. IT WAS, THEREFORE, SUBMITTED THA T FUNDS USED FOR PURCHASE OF SHARES HAVE NOT BEEN OUT OF LOANS RAISED BY THE ASSESSEE COMPANY. ALL THE FUND S USED FOR PURCHASE OF SHARES HAVE BEEN UTILIZED FROM THE CASE PROFIT EARNED DURING THE RELEVANT YEAR. THEREFORE, NO DISALLOWANCE UNDER SECTION 14A COULD BE MADE. 2(I) IT WAS FURTHER SUBMITTED THAT IN THE RELEVANT YEAR, THERE WAS NO EXEMPT INCOME, THEREFORE, THERE IS NO 3 QUESTION OF DISALLOWANCE OF EXPENSES INCURRED TO EA RN EXEMPT INCOME. THE PROVISIONS OF SECTION 14A OF THE ACT WOULD NOT APPLY. HOWEVER, THE ASSESSING OFFICER DID NOT ACCEPT CONTENTION OF THE ASSESSEE AND MADE THE ABOV E DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX AC T. 3. THE ASSESSEE CHALLENGED THE ADDITION BEFORE LD. CIT(APPEALS) AND SAME SUBMISSIONS WERE REITERATED. IT WAS ALSO SUBMITTED THAT THE ASSESSEE DID NOT EARN A NY DIVIDEND INCOME NOR ANY DIVIDEND INCOME IS ACCRUED FROM ANY INVESTMENTS MADE IN THE SHARES BY THE ASSESSEE COMPANY. IT IS WELL SETTLED LAW THAT WHEN THERE IS NO DIVIDEND INCOME, IN SUCH A SITUATION PROVISIONS OF SECTION 14A OF THE ACT HAVE NO APPLICABILITY. IT WAS FURTH ER SUBMITTED THAT FUNDS USED FOR PURCHASE OF SHARES HA VE NOT BEEN MADE OUT OF LOANS RAISED BY THE ASSESSEE COMPA NY. THE INCREASE IN THE ASSET OF THE COMPANY IS MUCH MO RE THAN THE LOANS RAISED BY THE ASSESSEE COMPANY. THE ASSESSEE DID NOT USE ANY BORROWED CAPITAL FOR PURCH ASE OF SHARES. NO EXEMPT INCOME HAVE BEEN EARNED. THEREF ORE, NO DISALLOWANCE COULD BE MADE. THE ASSESSEE RELIED UPON DECISION OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF LAKHANI MARKETING INC 111 DTR 149. HE HAS ALSO RELIED UPON JUDGEMENT OF HON'BLE PUNJAB & HARYANA H IGH COURT IN THE CASE OF CIT V WINSOME TEXTILE INDUSTRI ES LTD. 319 ITR 204 AND OTHER DECISIONS IN SUPPORT OF THE CONTENTION. 4 4. THE LD. CIT(APPEALS), AFTER CONSIDERING THE RIVA L CONTENTIONS, AGREED WITH THE CONTENTION OF THE ASSE SSEE THAT ASSESSEE DID NOT EARN ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION, THEREFORE, NO DISALLOWANC E WAS WARRANTED UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D OF THE INCOME TAX ACT. SINCE THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME, THEREFORE, NO DISALLOWANCE COULD BE MADE. THE LD. CIT(APPEALS) RELIED UPON DECISION OF THE JURISDICTIONAL HIGH COURT IN THE CASE OF LAKHANI MA RKETING CO. (SUPRA). THE ASSESSING OFFICER WAS, THEREFORE, DIRECTED TO DELETE THE ADDITION AND ALLOWED THE APP EAL OF THE ASSESSEE. 5. AFTER CONSIDERING RIVAL SUBMISSIONS, WE DO NOT F IND ANY MERIT IN THE DEPARTMENTAL APPEAL. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF WINSOME TEXTILE INDUSTRIES LTD. 319 ITR 204 OBSERVED THAT ASSESSEE DID NOT MAKE CLAIM OF EXEMPTION 14A DO NOT APPLY. OW N FUNDS USED TO ACQUIRE SHARES AND NO EXPENSES INCURR ED. HON'BLE PUNJAB & HARYANA HIGH COURT ALSO IN THE CAS E OF LAKHANI MARKETING CO. 111 DTR 149 HELD THAT WHEN NO EXEMPT INCOME EARNED, NO DISALLOWANCE UNDER SECTION 14A. HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD. 380 ITR 652 HELD THAT ONUS IS ON THE ASSESSING OFFICER TO RECORD SATISFACTION THA T INTEREST BEARING FUNDS USED FOR INVESTMENTS TO EARN TAX FREE INCOME . HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF KAPSON ASSOCIATES 381 ITR 204 HELD THAT WHEN 5 ASSESSEE CLAIMED OLD INVESTMENTS OUT OF CAPITAL AND RESERVES, NO SEPARATE AMOUNT BORROWED FOR MAKING INVESTMENTS, NO DISALLOWANCE IS PERMISSIBLE. 6. CONSIDERING THE FACTS OF THE CASE IN THE LIGHT O F THE ABOVE DECISIONS AND SUBMISSIONS OF THE ASSESSEE WHI CH HAVE NOT BEEN REBUTTED BY THE DEPARTMENT THROUGH AN Y EVIDENCE OR MATERIAL ON RECORD, WE DO NOT FIND ANY MERIT IN THE DEPARTMENTAL APPEAL. SAME IS, ACCORDINGLY, DISMISSED. 7. IN THE RESULT, DEPARTMENTAL APPEAL IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (PRASHANT MAHARSHI) (BH AVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 9 TH AUGUST,2016. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT/CHD