M/S MunishForge Pvt Ltd, Ludhiana V. Deputy Commissioner of Income Tax, Ludhiana

ITA 835/CHANDI/2016

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8326 (ITAT-CHANDIGARH)
• Duration Of Justice: 7 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: 2010-2011
• Appeal Filed On: 05-07-2016
• 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

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NOS.835 TO 837/CHD/2016 (ASSESSMENT YEARS : 2010-11 TO 2012-13) M/S MUNISH FORGE PVT. LTD., VS. THE D.C.I.T., C-128, FOCAL POINT, CENTRAL CIRCLE-1, LUDHIANA. LUDHIANA. PAN: AABCM2155Q (APPELLANT) (RESPONDENT) APPELLANT BY : S/SHRI ASHWANI KUMAR & ADITYA KUMAR RESPONDENT BY : SHRI S.K. MITTAL, DR DATE OF HEARING : 23.11.2016 DATE OF PRONOUNCEMENT : 08.02.2017 O R D E R PER ANNAPURNA GUPTA, A.M . : ALL THE ABOVE APPEALS HAVE BEEN FILED BY THE SAME ASSESSEE AGAINST THE SEPARATE ORDERS OF LEARNE D COMMISSIONER OF INCOME TAX (APPEALS)-5, LUDHIANA RELATING TO ASSESSMENT YEARS 2010-11, 2011-12 AND 2 012- 13. SINCE THE ISSUE INVOLVED IN ALL THE THREE APPE ALS IS COMMON, THEY WERE HEARD TOGETHER AND ARE BEING DISP OSES OFF BY THIS COMMON ORDER. 2. WE SHALL BE DEALING WITH THE FACTS IN ITA NO.835/CHD/2016 FOR THE SAKE OF CONVENIENCE, AND TH E 2 DECISION GIVEN IN THIS APPEAL WILL APPLY TO OTHER A PPEALS OF THE ASSESSEE IN ITA NO.836/CHD/2016 AND ITA NO.837/CHD/2016 MUTATIS MUTANDIS. ITA NO.835/CHD/2016 (ASSESSMENT YEAR 2010-11) : 3. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER: 1. THAT ORDER PASSED U/S 250(6) OF THE INCOME TAX ACT, 1961 PASSED BY LD. COMMISSIONER OF INCOME .TAX (APPEALS) -5, LUDHIANA IS AGAINST LAW AND FACTS ON THE FILE IN AS MUC H HE WAS NOT JUSTIFIED TO ARBITRARILY UPHOLD DISALLOWANC E OF RS. 10,67,682/- MADE BY THE LD. ASSESSING OFFICER U/S 1 4A OF THE ACT. 2. THAT THE LD. CIT(A) WAS NOT JUSTIFIED TO UPHOLD THE ABOVE MENTIONED DISALLOWANCE IN VIEW OF:- A) THE APPELLANT DID NOT ENJOY ANY EXEMPT INCOME DURING THE YEAR. B) THE INVESTMENTS HAD BEEN MADE PURELY FOR BUSINES S CONSIDERATIONS. C) THE INVESTMENTS WERE MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE APPELLANT. 3. THAT THE LD. CIT(A) WAS NOT JUSTIFIED TO FURTHER ARBITRARILY UPHOLD A DISALLOWANCE OF RS.1,71,718/- B Y RESORT TO PROVISIONS OF SECTION 40(A)(IA). 4. AT THE OUTSET, IT MAY BE STATED THAT GROUND NO. 3 WAS NOT PRESSED BY THE ASSESSEE AND THE SAME IS THEREFORE, TREATED AS DISMISSED. 3 5. GROUND NOS.1 AND 2 ARE AGAINST THE DISALLOWANCE MADE UNDER SECTION 14A OF THE INCOME T AX ACT, 1961 (IN SHORT THE ACT). 6. BRIEF FACTS RELATING TO THE CASE ARE THAT DURIN G THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER F OUND THAT THE BALANCE SHEET OF THE ASSESSEE SHOWED INVESTMENTS AMOUNTING TO RS.2,51,80,575/- AS AGAINS T RS.1,54,76,168/- IN THE PRECEDING YEAR. THE ASSESS ING OFFICER OBSERVED THAT SINCE THESE WERE CAPITAL IN N ATURE AND THE INCOME EARNED AS DIVIDEND, IF ANY, WAS EXEM PT, HE INVOKED THE PROVISIONS OF SECTION 14A OF THE ACT AND MADE DISALLOWANCE OF RS.10,68,682/- AS PER THE CALCULATION MADE UNDER RULE 8D OF THE INCOME TAX RU LES. THE LD. CIT (APPEALS) UPHELD THE DISALLOWANCE MADE. 7. AGGRIEVED BY THE SAME, THE ASSESSEE HAS NOW COME UP IN APPEAL BEFORE US. DURING THE COURSE OF HEARING, THE LD. COUNSEL FOR THE ASSESSEE RAISED TH E SOLE CONTENTION BEFORE US AGAINST THE DISALLOWANCE MADE THAT SINCE IT HAD EARNED NO DIVIDEND INCOME/EXEMPT INCOM E DURING THE YEAR, NO DISALLOWANCE UNDER SECTION 14A OF THE ACT COULD BE MADE. THE LD. COUNSEL FOR THE ASSESSE E PLACED RELIANCE ON THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT, FARI DABAD VS. LAKHANI MARKETING INC. IN ITA NO.970 OF 2008 AN D THE DECISION OF THE HON'BLE DELHI HIGH COURT IN THE CAS E OF CHEM INVEST LTD. VS. CIT, 126 DTR 289 (DEL). 4 8. THE LD. DR, ON THE OTHER HAND, RELIED UPON THE ORDER OF THE CIT (APPEALS). 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE AUTHORITIES BELOW. WE FIND MERIT IN THE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE THAT IN THE ABSENCE OF ANY EXEMPT INCOME NO DISALLOWANCE UNDER SECTION 14A OF THE ACT CAN BE MADE. THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF LAKHANI MARKETING INC. (SUPRA) HAS CATEGORICALLY HELD SO. THE HON'BLE HIGH COURT AT PARA 10 OF ITS ORDER UPHELD T HE ORDER OF THE TRIBUNAL IN THE AFORESAID CASE STATING AS FOLLOWS : 10. VIDE ORDER DATED 16.5.2008, ANNEXURE A.III, THE TRIBUNAL ON APPEAL BY THE REVENUE WHILE UPHOLDING THE FINDING RECORDED BY THE CIT(A) NOTICED AS UNDER: WE HAVE HEARD RIVAL SUBMISSIONS AND HAVE PERUSED THE MATERIAL ON RECORD. FROM THE READING OF SECTION 14A OF THE ACT, IT IS CLEAR THAT BEFORE MAKING ANY DISALLOWANCE THE FOLLOWING CONDITIONS ARE TO EXIST: A) THAT THERE MUST BE INCOME TAXABLE UNDER THE ACT, AND B) THAT THIS INCOME MUST NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT, AND C) THAT THERE MUST BE AN EXPENDITURE INCURRED BY THE ASSESSEE, AND D) THAT THE EXPENDITURE MUST HAVE A RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE ACT. 5 9. THEREFORE, UNLESS AND UNTIL, THERE IS RECEIPT OF EXEMPTED INCOME FOR THE CONCERNED ASSESSMENT YEARS (DIVIDEND FROM SHARES), WE ARE OF THE VIEW, SECTION 14A OF THE ACT CANNOT BE INVOKED. IN THIS APPEAL, THE REVENUE HAS NOT DISPELLED THE FINDINGS OF THE CIT(A), NOR THE STATEMENT OF THE ASSESSEE BEFORE AO THAT ASSESSEE IS NOT IN RECEIPT OF ANY DIVIDEND INCOME AND HENCE ACCORDING TO US, THE ASSESSING OFFICER HAS ERRED IN INVOKING SECTION 14A OF THE ACT, TO DISALLOW VARIOUS INTEREST PAYMENTS ON CAPITAL ACCOUNT, SECURITY DEPOSITS AND UNSECURED LOANS. THIS CONCLUSION OF OURS FINDS SUPPORT IN THE DECISION OF BOMBAY BENCH OF THE TRIBUNAL IN THE CASE OF JOINT COMMISSIONER OF INCOME TAX V. HOLLAND EQUIPMENT CO. B.V. REPORTED IN (2005) 3 SOT 810 (MUMBAI) AND THE RELEVANT PORTION OF THE ORDER OF THE BOMBAY BENCH OF THE TRIBUNAL IS REPRODUCED BELOW: REGARDING APPLICATION OF SECTION 14A OF THE ACT, THE CONTENTION OF THE LEARNED DEPARTMENT REPRESENTATIVE HAS TO BE REJECTED ON THE FACE OF IT INASMUCH AS THE ENTIRE INCOME OF THE ASSESSEE IS TAXABLE UNDER THE ACT. SECTION 14A IS APPLICABLE ONLY WHEN ANY PART OF THE INCOME IS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE AND THE EXPENDITURE RELATING TO THAT PART OF INCOME IS CLAIMED BY THE ASSESSEE AS DEDUCTION. IN SUCH CASES ONLY, THE EXPENDITURE RELATING TO THE EXEMPTED INCOME CAN BE DISALLOWED AND NOT OTHERWISE. SINCE IN THE PRESENT CASE, THE ENTIRE INCOME IS FOUND TO BE TAXABLE, NO 6 DISALLOWANCE CAN BE MADE UNDER SECTION 14A OF THE ACT. 10. MOREOVER, THE AO HAS NOT ESTABLISHED THE NEXUS BETWEEN INVESTED FUNDS AND THE INTEREST BEARING FUNDS, SINCE THE INVESTMENTS IN SHARES ARE IN THE YEARS 1995-96, 1998-99 AND 1999- 2000 AND THE INTEREST DISALLOWANCE IS FOR THE ASSESSMENT YEARS 2000-01 AND 2001-02. ON THE CONTRARY PERUSAL OF THE BALANCE SHEET FOR THE YEAR ENDING 31.3.1995, 31.3.1998 AND 31.3.1999, IT IS CLEAR THAT INTEREST BEARING FUNDS HAVE NOT BEEN UTILIZED FOR INVESTMENT FOR PURCHASE OF SHARES. 11. FOR THE AFORESAID REASONS, WE SEE NO REASON TO INTERFERE WITH THE ORDER OF CIT(A) CONCERNING ASSESSMENT YEAR 2000-01 AND 2001- 02 AND HENCE THE DECISION OF CIT (A) IN DELETING THE DISALLOWANCE OF INTEREST BY INVOKING SECTION 14A OF THE ACT IS CORRECT AND IN ACCORDANCE WITH LAW. 10. FURTHER, EVEN THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEM INVEST LTD. VS. CIT, 126 DTR 289 (DEL) HAS UPHELD THE SAME PROPOSITION. THEREFORE, IT IS CLEAR THAT IN THE ABSENCE OF ANY EXEMPT INCOME NO DISALLO WANCE UNDER SECTION 14A OF THE ACT CAN BE MADE BUT HAVING SAID SO, WE FIND THAT THE ASSESSEE HAD SUBMITTED BEFORE THE CIT(A) THAT IT HAD RECEIVED RS.1.5 LACS AS DIVIDEND AGAINST INVESTMENT IN THE MUTUAL FUNDS. IN VIEW OF THE SAM E, SINCE THE FACT IS CONTRARY TO THE STAND TAKEN BY TH E ASSESSEE BEFORE US THAT IT HAD EARNED NO EXEMPT INC OME DURING THE YEAR, WE RESTORE THE MATTER BACK TO THE FILE OF 7 THE ASSESSING OFFICER TO EXAMINE THE FACTS OF THE C ASE AFRESH AND THEREAFTER DECIDE THE MATTER IN ACCORDAN CE WITH LAW AS PER THE JUDICIAL PRONOUNCEMENTS OF HON'BLE JURISDICTIONAL HIGH COURT AS REPRODUCED ABOVE. IN VIEW OF THE SAME, THE APPEAL OF THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ITA NOS.836 TO 837/CHD/2016 (ASSESSMENT YEARS 2011-12 TO 2012-13) : 11. IT IS RELEVANT TO OBSERVE HERE THAT THE FACTS AND CIRCUMSTANCES OF THESE TWO CASES ARE SIMILAR TO THA T IN ITA NO.835/CHD/2016 AND THE FINDINGS GIVEN IN ITA NO.835/CHD/2016 SHALL APPLY TO THESE TWO CASES ALSO WITH EQUAL FORCE. 12. THESE APPEALS OF THE ASSESSEE ARE ALSO ALLOWED FOR STATISTICAL PURPOSES. 13. IN THE RESULT ALL THE THREE APPEALS OF THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 8 TH FEBRUARY, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH