APM INDUSTRIES LTD., Jaipur V. ACIT, Alwar

ITA 857/JPR/2014

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 5070 (ITAT-JAIPUR)
• Duration Of Justice: 1 year(s) 9 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 04-10-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 15-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R S DAGUR CIT DHK
• Assessee Lawyers: S L PODDAR
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S, JAIPUR JH DQY HKKJR] U;KF;D LNL; ,OA JH FOE FLAG ;KNO ] YS[KK LNL; DS LE{K BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YAD AV, AM VK;DJ VIHY LA-@ ITA NO. 857/JP/14 FU/KZKJ.K O'K Z@ ASSESSMENT YEAR : 2010-11 M/S APM INDUSTRIES LTD. SP 147, RIICO INDUSTRIAL AREA, BHIWADI, ALWAR CUKE VS. THE ACIT CIRCLE-2, ALWAR LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN NO. AACCA 5114 G VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ LS@ ASSESSEE BY : SHRI S.L. PODDAR ADVOCATE JKTLO DH VKSJ LS@ REVENUE BY : SHRI R.S. DAGUR (ADDL. CIT ) LQUOKBZ DH RKJH[K@ DATE OF HEARING : 01.08.2016 ?KKS'K .KK DH RKJH[K @ DATE OF PRONOUNCEMENT : 04/10/2016. VKNS'K@ ORDER PER SHRI VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF LD. CIT(A), ALWAR ORDER DATED 01.01.2014 WHEREIN THE ASSESSEE H AS TAKEN FOLLOWING GROUNDS OF APPEAL: (1) THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE ORDER PASSED BY THE LD. AO U/S 143(3) IS BAD IN LAW AND VOID-AB-INI TIO. 2) THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE C ASE, THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADDITION OF RS. 5,82,777/- U/S 14A OF THE IT ACT, 1961 WITHOUT CONSIDERING THE SUBMISSION OF THE ASSE SSEE. ITA NO. 857/JP/14 M/S APM INDUSTRIES LTD. ALWAR V. ACIT, CIRCLE-2, AL WAR 2 2. DURING THE COURSE OF HEARING, THE LD. AR DID NOT PRESS GROUND NO.1. HENCE THE SAME IS DISMISSED AS NOT PRESSED. 2.1 IN GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE ADDITION MADE BY THE AO OF RS. 5,82,777/- U/S 14A OF THE ACT. ON PERUSA L OF THE ASSESSMENT ORDER, IT IS NOTED THAT THE AO AFTER REVIEWING THE PROFIT AND LOSS ACCOUNT OF THE ASSESSEE NOTED THAT THE ASSESSEE HAS EARNED DIVIDEND INCOME OF RS. 1,03,270/- FROM SBBJ AND VISAKA INDUSTRIES LTD. THE AO FURTHER NOT ED THAT NO DIRECT EXPENSES WERE ATTRIBUTABLE TO EARNING THE DIVIDEND INCOME A ND SINCE THE DIVIDEND IS EARNED IN NORMAL COURSE OF BUSINESS, PROVISIONS OF SECTION 14 READ WITH RULE 8D OF THE ACT WERE INVOKED AND DISALLOWANCE OF RS. 5,82,777/- WAS MADE. THE ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE LD . CIT(A) WHO HAS CONFIRMED THE SAID ADDITION. 2.2 AS PER THE LD. AR, THE ASSESSEE HAS MADE TOTAL INVESTMENT OF RS. 1,75,97,416/- AND OUT OF THAT, AN AMOUNT OF RS. 1,69,20,000/- HAS BEEN INVESTED IN THE YEAR 2007 IN M/S VS LIGNITE POWER P VT. LTD. AS PER THE LD. AR, THE SAID INVESTMENT WAS MADE FOR STRATEGIC PURPOSES WHEREBY BY VIRTUE OF SHARE HOLDING IN THE SAID COMPANY, THE ASESSEE WO ULD BE ENTITLED TO 6 MW OF POWER AT A VERY LOWER RATE THAN THE RATE PRESCRIBE D BY THE STATE ELECTRICITY BOARD. THE SAID INVESTMENT WAS MADE FOR BUSINESS PURPOSES AND NOT FOR EARNING OF DIVIDEND INCOME AND THE SHARES OF THE S AID COMPANY ARE NOT TRADABLE AND FURTHER NO DIVIDEND HAS BEEN RECEIVED DURING THE YEAR. THE LD. AR FURTHER SUBMITTED THAT IN RESPECT OF OTHER INVE STMENT WHICH WERE MADE FOR DIVIDEND PURPOSES, THE ASSESSEE HAS SUO- MOTO DISAL LOWED RS. 3152/- IN ITS COMPUTATION OF INCOME. DURING THE COURSE OF APPELL ATE PROCEEDINGS, THE ASSESSEE HAS ALSO TAKEN A PLEA THAT THE INVESTMENT WERE MADE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE COMPANY AND THERE IS NO SATISFACTION ITA NO. 857/JP/14 M/S APM INDUSTRIES LTD. ALWAR V. ACIT, CIRCLE-2, AL WAR 3 RECORDED BY THE AO NEGATING THE SAID CONTENTION, HE NCE NO DISALLOWANCE IS CALLED FOR. 2.3 THE LD. CIT(A) HAS NEGATED THE ABOVE SAID CONTE NTIONS OF THE APPELLANT BY EXAMINING THE POSITION OF SHARE CAPITAL, RESERV ES AND SURPLUS AND INTEREST BEARING FUNDS FOR THE YEAR UNDER CONSIDERATION ENDE D ON 31.03.2010. AS WE HAVE NOTED ABOVE, THE MAJORITY OF THE INVESTMENT UN DER CONSIDERATION WAS MADE IN THE YEAR 2007 WHEREIN THE ASSESSEE HAD INVE STED IN M/S VS LIGNITE POWER LTD. THEREFORE, WHAT IS RELEVANT TO EXAMINE IS THE POSITION OF AVAILABILITY OF FUNDS AND UTILISATION THEREOF IN THE YEAR OF INV ESTMENT RATHER THAN IN THE YEAR UNDER CONSIDERATION. HOWEVER, THERE IS NO SUC H FINDINGS WHICH IS RETURNED BY THE AO OR BY THE LD. CIT(A). WE NOW REFER TO THE PROVISIONS OF SECTION 14A OF THE ACT WHICH HAVE A BEARING ON THE SUBJECT. SUB S ECTION (1) OF SECTION 14 CLEARLY STIPULATES THAT FOR THE PURPOSE OF COMPUTIN G THE TOTAL INCOME UNDER CHAPTER IV, NO DEDUCTION SHALL BE ALLOWED IN RESPEC T OF EXPENDITURE INCURRED BY THE ASSESSEE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THE SAID ACT. THE EXPRESSION EXPENDI TURE INCURRED REFER TO ACTUAL EXPENDITURE IN RELATION TO OR IN CONNECTION WITH OR PERTAINING TO THE EXEMPT INCOME. COROLLARY TO THE SAME IS THAT WHERE NO EXPENDITURE IS INCURRED IN RELATION TO THE EXEMPT INCOME, NO DISAL LOWANCE CAN BE MADE U/S 14A OF THE ACT. AS HELD BY THE SUPREME COURT IN CI T VS. WALFORT SHARE AND STOCK BROKERS PVT. LTD. (326 ITR 1), FOR ATTRACTING SECTION 14A, THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE WHICH IS ITS REL ATIONSHIP WITH THE TAX EXEMPT INCOME. THUS, IN THE ABSENCE OF SUCH PROXIM ATE CAUSE FOR DISALLOWANCE, SECTION 14A CANNOT BE INVOKED. THERE IS NO SUCH FINDING BY THE AO IN THE INSTANT CASE THAT THE ASSESSEE HAS INCURR ED CERTAIN EXPENDITURE IN RELATION TO THE EXEMPT INCOME AND IN PARTICULAR WHE THER THE ASSESSEE HAS UTILIZED INTEREST BEARING BORROWED FUNDS FOR THE PU RPOSE OF MAKING THE ITA NO. 857/JP/14 M/S APM INDUSTRIES LTD. ALWAR V. ACIT, CIRCLE-2, AL WAR 4 IMPUNGED INVESTMENT. FURTHER, SUB SECTION (2) OF S ECTION 14 PROVIDES THE MANNER IN WHICH THE AO IS TO DETERMINE THE AMOUNT O F EXPENDITURE INCURRED IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME PROVIDED THE AO IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLA IM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOE S NOT FORM PART OF THE TOTAL INCOME. FURTHER, SUB SECTION (3) OF SECTION 14A AP PLIES TO CASES WHERE THE ASSESSEE CLAIMS THAT NO EXPENDITURE HAS BEEN INCU RRED BY HIM IN RELATION TO INCOME WHICH DOES NOT FORM PART OF TOTAL INCOME UN DER THE ACT. AS HELD BY THE HONBLE DELHI HIGH COURT IN THE CASE OF MAXOPP INVESTMENT LTD. VS. CIT (347 ITR 272) WHERE IT WAS HELD AS UNDER: THE REQUIREMENT OF THE AO EMBARKING UPON A DETERMI NATION OF THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO EXEMPT INCOME WOULD BE TRIGGERED ONLY IF THE AO RETURNS A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITUR E. THEREFORE, THE CONDITION PRECEDENT FOR THE AO ENTERING UPON A DETERMINATION OF THE AMOUNT OF THE EXPENDITURE INCURRED IN RELATION TO THE EXEMPT INCO ME IS THAT THE AO MUST RECORD THAT HE IS NOT SATISFIED WITH THE CORRECTNES S OF THE CLAIM IN RESPECT OF SUCH EXPENDITURE. SUB SECTION (3) IS NOTHING BUT AN OFFSHOOT OF SUB S ECTION (2) TO SECTION 14A AND IN BOTH THE CASES, THE AO IF NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE THEN THE AO GETS JURISDICTION TO DETE RMINE THE AMOUNT OF EXPENDITURE INCURRED IN RELATION TO SUCH INCOME WHI CH DOES NOT FORM PART OF THE TOTAL INCOME IN ACCORDANCE WITH THE PRESCRIBED MET HOD PRESCRIBED UNDER RULE 8D OF THE SAID WHILE REJECTING THE CLAIM OF THE AS SESSEE WITH REGARD TO THE EXPENDITURE OR NO EXPENDITURE, AS THE CASE MAYBE I N RELATION TO EXEMPT INCOME. THE AO WOULD HAVE TO INDICATE COGENT REASO NS FOR THE SAME. IT IS ITA NO. 857/JP/14 M/S APM INDUSTRIES LTD. ALWAR V. ACIT, CIRCLE-2, AL WAR 5 THEREFORE CLEAR THAT THE DETERMINATION OF THE AMOUN T OF EXPENDITURE IN RELATION TO EXEMPT INCOME UNDER RULE 8D WOULD ONLY COME INTO PLAY WHEN THE AO REJECTS THE CLAIM OF THE ASSESSEE IN THIS REGARD. 2.4 IN LIGHT OF PROVISIONS OF SECTION 14A AND THE A BOVE PROPOSITION IN LAW, IN THE INSTANCE CASE, THE AO HAS NOT RETURN A FINDING THAT HE IS NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESEE IN RESP ECT OF EXPENDITURE NOT HAVING BEEN INCURRED IN RELATION TO THE EXEMPT INCO ME. IN ABSENCE OF AO RECORDING HIS SATISFACTION WITH CORRECTNESS OF THE CLAIM OF THE ASSESSEE, WE ARE OF THE VIEW THAT INVOCATION OF RULE 8D SIMPLICATOR WOULD NOT BE IN ACCORDANCE WITH THE PROVISIONS OF SECTION14A OF THE ACT. IN L IGHT OF THE THESE DISCUSSIONS, WE SET-ASIDE THE IMPUNGED ORDER ON THIS ISSUE AND T HE RESTORE THE MATTER TO THE FILE OF THE AO TO EXAMINE THE MATTER A FRESH AN D AFTER RECORDING HIS SATISFACTION VIS-A-VIS THE CLAIM OF THE ASSESSEE, R ECOMPUTE THE DISALLOWANCE, IF ANY, IN ACCORDANCE WITH LAW. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS A LLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 04/10 /2016. SD/- SD/- ( KUL BHARAT ) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER JAIPUR DATED:- 04/10/2016 PILLAI ITA NO. 857/JP/14 M/S APM INDUSTRIES LTD. ALWAR V. ACIT, CIRCLE-2, AL WAR 6 VKNS'K DH IZFRFYFI VXZSF'KR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S APM INDUSTRIEES LTD. ALWAR 2. IZR;FKHZ@ THE RESPONDENT- THE ACIT, CIRCLE-2, ALWAR 3. VK;DJ VK;QDR@ CIT ALWAR 4. VK;DJ VK;QDRVIHY@ THE CIT(A)-ALWAR 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR 6. XKMZ QKBZY@ GUARD FILE (ITA NO.857/JP/2014) VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASSISTANT. REGISTRAR