M/s Chandigarh Distillers & Bottlers Pvt. Ltd., Mohali V. Pr. CIT (Central), Ludhiana

ITA 759/CHANDI/2022

AI Insights

The case involves an appeal by M/s Chandigarh Distillers & Bottlers Ltd. against the order of the Principal Commissioner of Income Tax (Central), Ludhiana, which was passed under Section 263 of the Income Tax Act, 1961. The original assessment for the year 2017-18 was completed under Section 143(3) of the Act, where the income was assessed as per the returned income. The PCIT later issued a show cause notice under Section 263, citing issues related to large increases in unsecured loans, substantial cash deposits during the demonetization period, and expenses debited to the profit and loss account for earning exempt income. The Tribunal found that the PCIT had erred in exercising revisionary powers as the original assessment had adequately addressed the concerns raised.

• Counselvise Citation: [2023] 140 COUNSELVISE.COM (IT) 127486 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-05-2023
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 26-04-2023
• Assessment Year: 2017-2018
• Appeal Filed On: 29-12-2022
• Laws Referred To: Income Tax Act
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Rule 8D
• Section: 263; 143(3); 142(1); 14A

Judgement Text

आयकर अपील य अ धकरण,च डीगढ़ यायपीठ , च डीगढ़ IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BENCH ‘A’ CHANDIGARH BEFORE: SHRI A.D.JAIN, VICE PRESIDENT AND SHRI VIKRAM SINGH YADAV, ACCOUNTANT MEMBER आयकर अपील सं./ ITA No. 759/CHD/2022 नधा रण वष / Assessment Year : 2017-18 M/s Chandigarh Distillers & Bottlers Ltd., Banur, SAS Nagar. बनाम VS The Pr. CIT (Central), Ludhiana. थायी लेखा सं./PAN /TAN No: AABCC3752B अपीलाथ /Appellant यथ /Respondent नधा रती क ओर से/Assessee by : Shri Nikhil Goyal, Advocate & Shri Ashok Goyal, CA राज व क ओर से/ Revenue by : Smt. Kusum, CIT-DR तार"ख/Date of Hearing : 27.04.2023 उदघोषणा क तार"ख/Date of Pronouncement : 25.05.2023 आदेश/ORDER PER A.D.JAIN, VICE PRESIDENT This is assessee's appeal for assessment year 2017-18 against the order dated 31.03.2022 passed by the ld. PCI T (Central) Ludhiana, u/s 263 of the Income Tax Act. The following grounds have been taken : 1. Whether Ld. PCIT has erred in exercising jurisdiction under Section 263 of the Act, where specific inquiry was already conducted by the Ld. AO? 2. Whether on facts and circumstances of the case and in law the Ld. CIT has exceeded legislative jurisdiction under Section 263 of the Act, and the order passed is bad in law? ITA 759/CHD/2022 A.Y.2017-18 Page 2 of 12 3. That the Ld. CIT has erred in passing an order under Section 263 of the Act in the absence of any erroneous position prejudicial to the interest of revenue, in the original assessment order passed by Ld. 1TO under Section 143(3) of the Act. 4. That Ld. CIT has erred in substituting an alternative view as against a view already adopted by the Ld. AO at the time of assessment proceedings under Section 143(3) of the Act. 2. The re is a delay of 214 day s in filing the appeal. As pe r the application for condonation of delay, on accou nt of searc h conducted at the asse ssee 's place of business fro m 03.03.2022 to 06.03.2022 and the post search e nquirie s conducte d thereafte r, the assesse e was unable to participate before the ld. PCI T, or to take the ne ce ssary act ion of filing appeal against the PCI T’s orde r by 30.05.2022, i.e., the las t date of limitation; that it is only now, that the assesse e was informed by its Tax Professional abou t the pass ing of the PCI T’s order, and the assesse e filed the appeal on 26.12.2022, incurring an inadve rtent and bonafide delay of 214 days. The applicatio n is accompanied by an affidav it of the as se ssee . 3. The conte nts of the applic ation, as above, are pate nt on record. The se arch on the assesse e was conducte d fro m 03.03.2022 to 06.03.2022. The reafte r, po st–se arch enquiries were also condu cted. The Show Cause Notice u /s 263 o f the Act was is sued within a we ek of the search, i.e., on 11.03.2022 and the impu gned order was passed on 31.03.2022. Obvious ly, there fore, the as se ssee is corre ct whe n it contends that it cou ld ITA 759/CHD/2022 A.Y.2017-18 Page 3 of 12 not come present before the PCI T in the revisionary proceedings and it was unaware of the passing of the impu gned order till the Tax Professional informe d the as se ssee about it, thus, delaying the filing of the appeal which delay was , he nce, inadverte nt and bonafide . Eve n othe rwise, the assesse e cannot be said to have gained any thing by filing its own appe al late . Thus, finding that the assesse e was pre ve nted by sufficient cause fro m filing appe al in time , we c ondo ne the de lay of 214 days in filing the appeal. 4. The rival conte ntions on the merits of the case ha ve been heard and the material on record has also bee n examine d. 5. A Show Cause Notice (APB 12-15) dated 11.03.2022 was issue d to the as se ssee by the PCI T u /s 263 of the Act. This notice also s tands reproduce d in para 2, at page s 1 to 4 of the impugne d orde r. In the Show Cause Notice , it was, inter-alia, state d that the case had be en sele cte d under complete scrutiny through CASS t o e xamine the issue s of (i) larg e incre ase in unsecure d loans during the ye ar, (ii) large value cash depo sits during the de monetization pe riod, and (iii) expe ns es debite d to the Profit & Los s Acco unt for e arning exempt income as compare d to inve st ments made to earn exempt income . I t was stated t hat scru tiny assessme nt in t he cas e had be en comple ted, where income had bee n assessed at the returned income ; that the asse ssee company ha d shown non-curre nt investme nt amou nting to Rs.28.50 C r du ring the ye ar, in its g roup co mpanie s. De tails of ITA 759/CHD/2022 A.Y.2017-18 Page 4 of 12 these non-curre nt investments were give n. I t was stated that income , if any earned/re ceived/re ce ivable on suc h investments is not includible in the taxable income , be ing taxable income; and that however, the provisions of Se ction 14A of the I ncome Tax Act read with those of Rule 8D o f the I T Rule s prov ide fo r disallowance of e xpenditure incurred for earning e xempt income /inc ome not inc ludible in t otal income. Re ferring to CBD T Circular No.14 of 2001, it was stat ed that the le gislative inte nt is to allow only that expenditure which is re latable to e arning of income , meaning there by, that expe nses which are relatable to earning of exempt income have to be cons idered for disallowance , irrespective of whe ther any such income has bee n earned during the year, or no t. I t was stated that the use of the te rm “includible” in the heading of Section 14A and that of Rule 8D, as also the fact that Se ctio n 14A use s the expre ssio n “inc ome unde r the Act’ and not “income of the ye ar”, indicates that fo r invoking disallowance u /s 14A, it is not material that t he asse ssee should have e arne d such e xe mpt income during the financial ye ar u nde r cons ideration. It was also stated that this position is substantiated by the langu age implie d in Rule s 8D(2)(ii) and 8D(2)(iii) o f the I T Rule s. The assessme nt orde r date d 28.12.2019 wa s, thus , s tate d to be e rroneous and prejudicial to the intere sts of the Revenue . ITA 759/CHD/2022 A.Y.2017-18 Page 5 of 12 6. By virtue of the impu gned order date d 31.03.2022, the ld. PCI T se t as ide the asse ssment order on the issue of Se ction 14A of the Ac t and dire cted the A O to pass a fre sh as sess ment orde r in accordance with law, after g ranting s ufficient opportunity to the asse ssee. While doing so, the ld. PCI T o bse rv ed, inte r-alia that; “It is also a matter of common sense that assessee who makes huge investments in securities incurs some expenditure. It is not possible / conceivable that investments can be made, managed and monitored without efforts and expenditure. The AO was required to give a finding on the claim of the assessee that no expenditure was incurred in earning exempt income or towards activities relating to investment and monitoring thereof. Once it is so then application of rule 8D comes into play and disallowance of part expenditure would get attracted. Therefore, in view of the aforesaid position of the law, I am of the view that the assessment order passed by the AO in the case of assessee for A.Y.2017-18 dated 28.12.2019, without consideration of circular No.5 of 2014 issued by the CBDT on the subject of disallowance u/s 14A read with rule 8D and the law as discussed above, is erroneous and prejudicial to the interest of revenue. Therefore the said assessment order is held to be erroneous and prejudicial to the interest of the revenue within the meaning of section 263 read with explanation 2 thereof.” 7. Thus, in effe ct, t he PCI T was of the vie w that the asse ssee would not have be en able to make the huge investme nts ma de by it without incurring some e xpenditure and that the AO had not given a ny finding on t he asse ssee 's claim that no expe nditure had bee n incurred; and that thus, the asse ss ment orde r was errone ous and prejudicial to the inte rests of the Rev enue. 8. Before us, the ld. Counsel for the assesse e has conte nde d that the ld. PCI T has erre d in exercis ing ju risdiction u /s 263 of the Act, where specific enquiry had already bee n conducted by the AO; t hat the ld. PCI T has erre d in passing the impug ne d ITA 759/CHD/2022 A.Y.2017-18 Page 6 of 12 orde r u/s 263 of the Act, in the absence of any erroneous position pre judicial to the interests of the Re ve nue taken by the AO in the original as se ss ment orde r; that the ld. PCI T has erre d in substit uting an alte rnative vie w in place of the view already adopted correctly by the AO at the time of the assessme nt procee dings u /s 143(3) of the Act. It has bee n submitte d that the assesse e company, during the year, had made inve stments of Rs.28.50 Cr in its group subsidiary c ompanie s; that the se investme nt s had be en made by the assesse e out of its surplus accu mulate d profits /reserve s, in the norma l course of its busine ss operations; that the asse ssee company had neithe r earne d any exempt income , nor had it claime d any expenditure relatable to earning e xempt income during the ye ar unde r cons ideration; that the investments we re not made from out of any funds borro wed from outside; that the company has not earne d any tax free income , like divide nd/intere st from s uch investme nt s du ring the ye ar and so, the provisions of Section 14A of the Act re ad with Rule 8D of the I T Rule s are not attrac te d and have wrongly be en applie d by the ld. PCI T during the year unde r c onsiderat ion. I t has bee n co ntended that month-wise details of total investme nts held by the asse ssee during the ye ar unde r considerat ion, in the pres cribed format, had bee n file d before the AO alongwith re ply dated 12.12.2019 (APB 4-8), in response to Show Cause N otice date d 07.12.2019 (APB 1-3), ITA 759/CHD/2022 A.Y.2017-18 Page 7 of 12 issued u/s 142(1) of the Act; that month-wise details of fresh investment of Rs.28.50 Cr during the year, alongwith bank statements had also been filed; and that details of investments alongwith copy of Current Account Statement for the year under consideration were also furnished. It has been contended that the fact that the information so requisitioned and duly furnished before the AO had been duly examined by the AO is evident from the assessment order itself, wherein, in para 3 thereof, the AO states, “...........the information requisitioned as per questionnaire and further called for was furnished, which is placed on record and examined. The reasons for selection of case by CASS were duly examined. After verification of information/documents filed by the assessee, the returned income as declared by the assessee at Rs.24,90,55,130/- is accepted.......”. It has been contended that in these facts and circumstances, the order passed by the AO having been passed after complete enquiry and being fully satisfied therewith, the invocation of revisionary powers by the ld. PCIT was not in accordance with law; and that therefore, the order passed by the ld. PCI T be quashed and that passed by the AO be revived, on allowing the appeal. 9. The ld. DR, on the other hand, has placed strong reliance on the impugned order. It has been contended that as rightly observed by the ld. PCIT, it is a matter of common sense that an assessee who makes huge investments in security incurs some ITA 759/CHD/2022 A.Y.2017-18 Page 8 of 12 expenditure, that it is not possible /conce ivable that inve st ments can be made, managed and monit ored, withou t efforts and expenditure ; that the AO was require d t o g ive a finding on the claim of t he assessee that no e xpenditure was incurre d in earning exe mpt inco me or towards activ ities re lating to investme nt and monitoring thereo f; that once it is so, application of Rule 8D come s into play and disallowance of part expenditure would ge t attracted; that there fore, the AO ought to have examine d t he asse ssee 's claim of no e xpenditure having bee n incu rre d, which has not bee n done ; that t his being so, t he orde r unde r appeal is we ll versed and it does not re quire any interfere nce; and that hence , the appeal file d by the as se ssee being shorn of me rit, the sa me be dis missed. 10. The s hort issue is as to whethe r indee d the asse ss ee has bee n able to make out a case that no e xpenditu re stood inc urre d so as t o dispel t he applicability of Section 14A of the Act re ad with Rule 8D of the I T R ules. 11. Before the AO, in re sponse to the notice issued u /s 142(1), on 07.12.2019, the assesse e had, inte r-alia, file d month-wise detail o f total investme nt s held by the assesse e during the ye ar. These deta ils are as follows : ITA 759/CHD/2022 A.Y.2017-18 Page 9 of 12 12. Further, the assessee had also filed details of fresh investments of Rs.28.50 Cr during the year. This detail is as follows : ITA 759/CHD/2022 A.Y.2017-18 Page 10 of 12 13. The assessee had also filed before the AO, details of investments made during the year under consideration. This detail is as follows : 14. It is seen that as per the Cash Flow Statement of the assessee for the year ended 31.03.2017, forming part of the Audit Report of the assessee, net cash from operating activities stands at Rs.56,92,31,992/-. Then, as per the notes forming part of the Financial Statements of the assessee as at 31.03.2017, forming part of the Audit Report of the assessee, share capital has been shown at Rs.17,50,00,000/-, whereas reserves and surplus are at Rs.1,76,79,87,805/-, meaning thereby, that the net total of the ITA 759/CHD/2022 A.Y.2017-18 Page 11 of 12 shareholders’ funds during the year, are of Rs.2,19,56,73,298/-, the investment is of Rs.28.50 Crs. This investment is, therefore, demonstratedly out of the assessee's own funds, which were sufficient to undertake the said investments by the assessee in its group concerns. 15. From the above, it is crystal clear that the investments of Rs.28.50 Cr made by the assessee during the year under consideration, in its group companies, were made out of the assessee's own surplus funds, i.e., it is own surplus accumulated profits and not from out of any borrowed funds. This position was duly taken into consideration by the AO while passing the assessment order, which is clear from the recital in the assessment order itself, as reproduced herein above and it is not in the hands of the assessee, as to how an assessment order is passed. The above position, however, has remained oblivious to the ld. PCIT and the impugned order has been passed in ignorance thereof. 16. From the above discussion, in our considered opinion, the assessment order did not suffer from the vice of either being erroneous, or being prejudicial to the interests of the Revenue. That being so, the ld. PCIT erred in invoking the provisions of Section 263 of the Act and in passing the impugned order. Accordingly, finding merit in the grievance sought to be raised by the assessee, the same is accepted. The order under appeal is, ITA 759/CHD/2022 A.Y.2017-18 Page 12 of 12 accordingly, reversed and that passed by the AO is ordered to be revived. Ordered accordingly. 17. In the result, the appeal is allowed. Order pronounced in the Open Court on 25 th May,2023. Sd/- Sd/- (VIKRAM SINGH YADAV) (A.D.JAIN ) ACCOUNTANTMEMBER VICE PRESIDENT “Poonam” आदेश क琉 灹ितिलिप अ灡ेिषत/ Copy of the order forwarded to : 1. अपीलाथ牸/ The Appellant 2. 灹瀄यथ牸/ The Respondent 3. आयकर आयु猴/ CIT 4. िवभागीय 灹ितिनिध, आयकर अपीलीय आिधकरण, च瀃डीगढ़/ DR, ITAT, CHANDIGARH 5. गाड榁 फाईल/ Guard File आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar