Deputy Commissioner of Income Tax, Panchkula V. M/s Haryana Financial Corporation, Chandigarh

ITA 759/CHANDI/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8402 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-01-2017
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Next Hearing Date: 02-01-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 10-06-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 92; 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER & MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO. 759/CHD/2016 ASSESSMENT YEAR: 2009-10 THE DCIT, PANCHKULA CIRCLE, VS. HARYANA FINANCIAL CORPORATION, PANCHKULA CHANDIGARH PAN NO.AAACH4685B (APPELLANT) (RESPONDENT) APPELLANT BY : SH. RAVI SARANGAL RESPONDENT BY : SH. B.K. NOHRIA DATE OF HEARING : 02.01.2017 DATE OF PRONOUNCEMENT : 02.01.2017 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE ABOVE TITLED APPEAL HAS BEEN PREFERRED BY THE R EVENUE AGAINST THE ORDER DATED 30.03.2016 OF COMMISSIONER OF INCOME TA X (APPEALS)-2, GURGAON [(HEREINAFTER REFERRED TO AS CIT(A)]. 2. THE SOLE ISSUE TAKEN IN THIS APPEAL BY THE REVEN UE IS REGARDING THE ACTION OF THE CIT(A) IN RESTRICTING THE DISALLOWANCE U/S 1 4A UPTO THE EXEMPT INCOME RECEIVED BY THE ASSESSEE. 3. AT THE OUTSET, LD. AR OF THE ASSESSEE STATED THA T THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF EXPENDITURE U/S 14A IN RELATIN G TO THE EARNING OF EXEMPT INCOME. HE RELYING UPON THE DECISION OF THE COORDI NATE BENCH OF THE TRIBUNAL HAS STATED THAT AS PER THE LAW LAID DOWN BY THE VAR IOUS HIGH COURTS WHICH HAS BEEN FOLLOWED BY THE COORDINATE BENCH OF THE TRIBUN AL IN AARTI STEEL LIMITED, 2 LUDHIANA VS. DCIT IN ITA NO. 268/CHD/2015 VIDE ORDE R DATED 30.11.2015, THE DISALLOWANCE U/S 14A CANNOT BE MORE THAN THE EXEMPT INCOME EARNED. 4. THE LD. DR ON THE ON THE OTHER HAND HAS CONTENDE D THAT DISALLOWANCE U/S 14A IS TO BE MADE AS PER THE FORMULA PRESCRIBED UND ER RULE 8D OF THE I.T. RULES IRRESPECTIVE OF THE EXEMPT INCOME EARNED. 4. WE HAVE GONE THROUGH THE DECISION OF THE COORDIN ATE BENCH OF THE TRIBUNAL IN THE CASE OF AARTI STEEL LIMITED VS. DCI T (SUPRA). THE RELEVANT PARA OF THE ORDER FOR THE SAKE OF CONVENIENCE IS REPRODU CED HEREWITH:- 7. WE HAVE HEARD THE LEARNED REPRESENTATIVES OF BO TH THE PARTIES, PERUSED THE FINDINGS OF THE AUTHORITIES BE LOW AND CONSIDERED THE MATERIAL AVAILABLE ON RECORD. THIS I S AN UNDISPUTED FACT THAT THE DIVIDEND INCOME WHICH IS A TAX FREE INCOME HAS BEEN SHOWN DURING THE YEAR TO RS.98,870/ - ONLY. BY MAKING DISALLOWANCE OF AN AMOUNT OF RS.12,35,568 /-, THE ASSESSING OFFICER HAS NOT ONLY DISALLOWED THE EXPEN SES TO THE EXTENT OF ENTIRE EXEMPT INCOME, HE ALSO EXCEEDED TH E INCOME SO EARNED. IN THE CASE OF MASCOT FOOTCARE (SUPRA), THE HON'BLE PUNJAB & HARYANA HIGH COURT HAS HELD IN VER Y CLEAR TERMS THAT THE DISALLOWANCE UNDER SECTION 14A OF THE ACT CANNOT EXCEED THE DIVIDEND INCOME OR ANY OTHER TAX FREE INCOME EARNED BY THE ASSESSEE DURING THE YEAR. THOU GH THIS CASE WAS RENDERED BEFORE INSERTION OF RULE 8D OF TH E RULES, SINCE THE CASE RELATES TO ASSESSMENT YEAR 2000-01, WE OBSERVE THAT THE PROPOSITION HAS BEEN LAID DOWN BY THE HIGH COURT IN THE CONTEXT OF SECTION 14A OF THE ACT AND NOT IN THE CONTEXT OF RULE 8D OF THE RULES, WHICH IS ONLY ACOMPUTATIONAL PROVISION AND THIS IS A TRITE LAW THAT THE SUBSTANTIVE PROVIS IONS ARE CONSIDERED TO BE SUPERIOR IN LAW THAN THE MACHINERY PROVISIONS. THERE ARE A NUMBER OF JUDGMENTS OF OTHE R HIGH COURT INCLUDING THAT OF DELHI HIGH COURT IN THE CAS E OF CIT VS. HOLCIM INDIA P. LTD., ITA NO.486/299 OF 2014, D ATED 5.9.2014 AND THAT OF GUJARAT HIGH COURT IN THE CASE OF CIT VS. CORRTECH ENERGY P.LTD. (2015) 571 ITR 97 (GUJ), WHEREBY IT HAS BEEN HELD THAT IF THE ASSESSEE DOES NOT EARN ANY TAX 3 FREE INCOME, DISALLOWANCE UNDER SECTION 14A OF THE ACT CANNOT BE MADE. THE PROPOSITION AS REGARDS TO NO TA X FREE INCOME, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT HAS ALSO BEEN LAID DOWN BY THE JURISDICTIONAL PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. LAKHANI MARKETING IND. (2014) 111 DTR 149 (P&H). WE DO NOT FIND OURSELVES IN AGREEMENT WITH THE PROPOSITION THAT THE RULE 8D OF THE RULES BEING MANDATORY, DISALLOWANCE AS PER RULE 8D HAS TO BE MADE EVEN IN CASES WHERE NO TAX FREE INCOME HAS EAR NED OR WHERE TAX FREE INCOME EARNED IS LESSER THAN THE AMO UNT COMPUTED AS PER RULE 8D OF THE RULES. IN OUR VIEW, THE PROPOSITION LAID DOWN BY VARIOUS HIGH COURTS AS MEN TIONED HEREINABOVE IS APPLICABLE IN THE PRESENT CASE WITH FULL FORCE. IN VIEW OF THIS, WE DIRECT THE ASSESSING OFFICER TO LIMIT THE DISALLOWANCE MADE UNDER SECTION 14A OF THE ACT READ WITH RULE 8D OF THE RULES TO THE AMOUNT OF TAX FREE INCO ME EARNED BY THE ASSESSEE. THIS GROUND OF APPEAL RAISED BY TH E ASSESSEE IS ALLOWED. 5. IN VIEW OF THE ABOVE DECISION OF THE TRIBUNAL AN D THE PROPOSITION LAID DOWN BY THE VARIOUS HIGH COURTS INCLUDING THE JURI SDICTIONAL HIGH COURT IN THE CASE OF CIT VS. LAKHANI MARKETING INDUSTRIES (2 014) 111 DTR 149 (P&H), WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE LD . CIT(A) IN RESTRICTING THE DISALLOWANCE OF EXPENDITURE U/S 14A UPTO THE EXTENT OF EXEMPT INCOME EARNED. 6. IN VIEW OF THE ABOVE DISCUSSION, THE APPEAL OF T HE REVENUE STANDS DISMISSED. ORDER PRONOUNCED IN OPEN COURT ON 02.01.2007. SD/- SD/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED : 2 ND JANUARY, 2017 RKK 4 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR