Punjab State Industrial Development Corporation Limited, Chandigarh V. ACIT, Chandigarh

ITA 889/CHANDI/2017

• Counselvise Citation: [2017] 127 COUNSELVISE.COM (IT) 6858 (ITAT-CHANDIGARH)
• Duration Of Justice: 3 month(s) 21 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: Not Allotted
• Assessment Year: misc
• Appeal Filed On: 30-05-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A; 2

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH B, CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA NO.889/CHD/2017 (ASSESSMENT YEAR : 2012-13) PUNJAB STATE INDUSTRIAL VS. THE A.C.I.T., CORPORATION LIMITED, CIRCLE 21), UDYOG BHAWAN, SECTOR 17, CHANDIGARH. CHANDIGARH. PAN: AABCP1599F (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ATUL GOYAL RESPONDENT BY : NONE DATE OF HEARING : 24.07.2017 DATE OF PRONOUNCEMENT : 21.09.2017 O R D E R PER ANNAPURNA GUPTA, A.M . : THIS APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINS T THE ORDER OF LD.CIT(APPEALS)-1, GURGAON DATED 8.3.2 017 RELATING TO ASSESSMENT YEAR 2012-13. 2. AT THE OUTSET IT MAY BE STATED THAT ON THE DAT E OF HEARING AN APPLICATION WAS FILED ON BEHALF OF THE R EVENUE SEEKING EN MASSE ADJOURNMENT OF CASES FIXED ON THAT DATE SINCE THE PR.CCIT HAD DIRECTED ALL DRS TO ATTEND I NCOME TAX DAY CELEBRATIONS. FINDING NO MERIT IN THE APPLICATI ON THE SAME WAS REJECTED AND THE HEARING OF THE CASE PROCE EDED WITH. FURTHER THE APPEAL FILED, WE FIND WAS TIME BARRED BY 3 DAYS. CONSIDERING THE SHORTNESS OF THE PERIOD OF DE LAY, WE CONDONE THE SAME. 3. THE ONLY ISSUE IN THE PRESENT APPEAL PERTAINS T O DISALLOWANCE OF EXPENSES MADE BY INVOKING THE PROVI SIONS OF 2 SECTION 14A READ WITH RULE 8D OF THE INCOME TAX RUL ES, 1962 AND THE ASSESSEE HAS RAISED THE FOLLOWING GROU NDS BEFORE US: 1. THAT THE CIT(A) ERRED IN SUSTAINING A DISALLOWA NCE OF RS.94,82,905/- UNDER THE PROVISIONS OF SECTION 14A R EAD WITH RULE 8D OF THE INCOME TAX ACT, 1961. 2. THAT THE A.O. ERRED IN MAKING ADDITION UNDER THE PROVISIONS OF SECTION 14A READ WITH RULE 8D WITHOUT RECORDING THE SATISFACTION. 3. THAT THE PROVISIONS OF SECTION 14A WERE INSERTED BY FINANCE ACT 2000 ON AND WEF FROM 01.04,1962. HOWEVER, NO DISALLOWANCE HAD BEEN MADE BY THE A.O. FOR THE ASSESSMENT YEAR 2000-01 TO 2006-07. THAT TH E A.O. HAD ACCEPTED THAT NO EXPENDITURE HAS INCURRED B Y THE ASSESSEE TO EARN DIVIDEND INCOME. 4. THE LEARNED CIT(A) HAS WRONGLY APPLIED THE DECISI ON OF THE HON'BIE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF ABHISHEK INDUSTRIES LTD (286 ITR 1) TO THE CASE OF THE ASSESSEE AS THERE IS NO NEXUS BETWEEN THE INTEREST PAID AND THE INVESTMENTS. 5. THE LEARNED CIT (A) HAS WRONGLY CONCLUDED THAT T HE INVESTMENTS ARE NON-BUSINESS INVESTMENTS. A!! THE INVESTMENTS ARE BUSINESS INVESTMENTS MADE WITH THE CLEAR OBJECTIVE OF PROMOTION OF INDUSTRIES IN THE ST ATE OF PUNJAB. 6. THAT THE APPELLANT CRAVES FOR LEAVE TO AMEND OR ADD ANY GROUND OF APPEAL, SUBJECT OF COURSE, BEFORE FINALIZATION OF APPELLATE PROCEEDINGS. 4. BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT RETU RN DECLARING LOSS OF RS.20,70,97,868/- WAS FILED ON 28 .9.2012. THE ASSESSEE IS A STATE GOVERNMENT UNDERTAKING. THE ASSESSING OFFICER NOTED THAT AS PER THE BALANCE SHE ET, THE ASSESSEE HAD INVESTED RS.226,27,20,230/- IN SHARES OF DIFFERENT COMPANIES. THE ASSESSING OFFICER FURTHER NOTED THAT THE ASSESSEE HAD EARNED DIVIDEND INCOME OF RS.94,82,905/- WHICH WAS CLAIMED AS EXEMPT U/S 10(3 4) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). THE ASSESSING 3 OFFICER ACCORDINGLY ASKED THE ASSESSEE TO EXPLAIN W HY DISALLOWANCE U/S 14A MAY NOT BE MADE AND AFTER CONSIDERING THE ASSESSEE'S SUBMISSIONS, MADE DISALL OWANCE OF RS.21,43,20,768/- UNDER RULE 8D(2)(II) AND RS.1,15,98,960/- UNDER RULE 8D(2)(III) OF THE ACT. 5. THE MATTER WAS CARRIED IN APPEAL BEFORE THE LD.CIT(APPEALS) WHO FOLLOWING THE ORDER OF THE I.T. A.T. IN ASSESSEES OWN CASE FOR ASSESSMENT YEARS 2007-08 TO 2010- 14 VIDE ORDER DATED 10.11.2016 CONFIRMED THE DISAL LOWANCE MADE UNDER RULE 8D(2)(III), WHILE RESTRICTED THE DI SALLOWANCE MADE UNDER RULE 8D(2)(II) TO THE EXEMPT INCOME I.E. RS.94,82,905/-. 6. AGGRIEVED BY THE SAME, THE ASSESSEE HAS COME UP IN APPEAL BEFORE US. DURING THE COURSE OF HEARING BEFORE US, THE ONLY PLEA RAISED BY THE LD. COUNSEL FOR ASS ESSEE WAS THAT THE LD.CIT(APPEALS) HAD INCORRECTLY APPLIED TH E DECISION RENDERED IN THE CASE OF THE ASSESSEE IN TH E PRECEDING YEAR BY THE I.T.A.T. AS PER THE LD. COUNS EL FOR ASSESSEE, IN THE PRECEDING YEARS, THE I.T.A.T. HAD DEALT WITH THE ISSUE OF DISALLOWANCE MADE BY APPLYING RULE 8D( 2)(I) WHILE THE ISSUE IN THE PRESENT CASE PERTAINS TO RUL E 8D(2)(II). THEREFORE, THE LD. COUNSEL FOR ASSESSEE STATED THAT THE AFORESAID DECISION OF THE I.T.A.T. WOULD N OT APPLY IN THE FACTS OF THE PRESENT CASE. 7. WE HAVE HEARD THE CONTENTIONS OF THE LD. COUNSE L FOR ASSESSEE AND HAVE ALSO GONE THROUGH THE ORDER O F THE LD.CIT(APPEALS) AND THE ORDER OF THE I.T.A.T. IN TH E CASE OF 4 THE ASSESSEE FOR THE ASSESSMENT YEARS 2007-08 TO 20 10-11 WHICH HAS BEEN FOLLOWED BY THE LD.CIT(APPEALS). WE FIND NO MERIT IN THE CONTENTIONS OF THE LD. COUNSEL FOR ASS ESSEE. IN THE SAID CASE ALSO, THE ISSUE PERTAINED TO DISALLOW ANCE UNDER RULE 8D(2)(II) WHICH WAS INADVERTENTLY MENTIO NED AS RULE 8D(2)(I) IN THE CONCLUDING PART OF PARA 9 OF T HE SAID ORDER. ON GOING THROUGH THE ORDER PASSED BY THE I. T.A.T. IN THE PRECEDING YEARS IN ITA NO.990 TO 994/CHD/2014, A BARE READING OF THE FACTS OF THE CASE REVEALS THAT INITI ALLY THE ASSESSING OFFICER HAD MADE DISALLOWANCE UNDER RULE 8D(2)(I) WHICH HAD BEEN DELETED BY THE LD.CIT(APPEALS) BUT A T THE SAME TIME AN ENHANCEMENT NOTICE FOR MAKING DISALLOW ANCE UNDER CLAUSE (II) OF RULE 8D(2) WAS ALSO ISSUED. THEREAFTER IT IS REVEALED FROM THE FACTS OF THE CASE AS NARRAT ED IN PARAS 4 AND 5 OF THE ORDER THAT DISALLOWANCE UNDER CLAUSE (II) OF RULE 8D(2) WAS COMPUTED AND MADE. THE I.T. A.T., THEREFORE, HAD NO OCCASION TO DEAL WITH ANY DISALLO WANCE OF EXPENSES MADE BY APPLYING RULE 8D(2)(I). THE CONTE NTIONS RAISED BY THE LD. COUNSEL FOR ASSESSEE ARE FACTUALL Y INCORRECT. 8. BUT AT THE SAME TIME WE FIND THAT THE CIT(A) HA S MISUNDERSTOOD THE ORDER OF THE ITAT. THE ITAT HAD AFTER DEALING WITH BOTH THE DISALLOWANCES MADE U/R 8D 2(I I) &(III) CONCLUDED BY HOLDING THAT THE DISALLOWANCE U/S 14A SHOULD IN NO CASE EXCEED THE AMOUNT OF EXEMPT INCOME AND H AD RELIED UPON THE DECISION OF THE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS CIT(2015) 378 ITR AND CIT VS HOLCIM 5 INDIA PVT. LTD.(2014) 90 CCH 81 (DEL). THE RELEVANT FINDINGS OF THE ITAT ARE AS UNDER, AS REPRODUCED IN THE ORDE R OF THE CIT(A) ALSO: WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. THERE IS NO DOUBT ABO UT THE RECORDING OF SATISFACTION BY THE AO IN TERMS OF SEC TION 14A(2). IN SO FAR AS THE QUANTUM OF DISALLOWANCE IS CONCERN ED, RULE 8D IS ADMITTEDLY APPLICABLE FROM THE ASSESSMENT YEAR 200 8-09, WHICH IS THE YEAR UNDER CONSIDERATION. IN THAT VIEW OF THE MATTER, NO FAULT CAN BE FOUND WITH THE AO/CIT(A) RES ORTING TO RULE 8D FOR THE PURPOSE OF MAKING DISALLOWANCE. THI S DISALLOWANCE HAS BEEN MADE IN TWO PARTS. THE FIRST IS UNDER CLAUSE (III) OF RULE 8D(2) TOWARDS ADMINISTRATIVE EXPEN SES AT THE RATE OF ONE HALF PERCENT OF THE AVERAGE OF THE VALUE OF INVESTMENTS, INCOME FROM WHICH DOES NOT FORM PART F THE TOTAL INCOME. THE ADDITION TO THIS EXTENT IS UPHELD AS THE SAME IS IN ACCORDANCE WITH THE STATUTORY MANDATE. AS REGARDS, THE DISALLOWANCE UNDER CLAUSE (II) OF RU LE 8D(2), WE FIND THAT THE ASSESSEE CONTENDED BEFORE THE LD. CI T(A) THAT SUCH DISALLOWANCE WAS NOT CALLED FOR. IN THIS REGAR D WE FIND THAT THE HON'BLE BOMBAY HIGH COURT IN CIT V/S RELIANCE UTILITIES AND POWER LTD. (209) 313 ITR 340 (BOM) HA S HELD THAT IF THERE ARE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE SUFFICIENT TO MEET ITS INVESTMENT AND, AT T HE SAME TIME, LOAN HAS BEEN RAISED, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM INTEREST FREE FUNDS AND, RESULTANTLY, NO DISALLOWANCE OF INTEREST CAN BE MADE . IN DELETING THE DISALLOWANCE OF INTEREST, THE HON'BLE BOMB AY HIGH COURT RELIED ON THE JUDGMENT OF HON 'BLE SUPRE ME COURT IN EAST INDIA PHARMACEUTICAL WORKS V/S CIT (19 97) 224 ITR 627 (SC). IT IS FURTHER NOTICES THAT THE HON'BLE BOMBAY HIGH COURT IN CIT V/S HDFC BANK LTD. (2014) 366 ITR 505 (BOM), HAS HELD THAT WHERE ASSESSEE'S CAPITAL, PROFIT, AND RESERVES ETC. WERE HIGHER THAN THE INVESTMENT IN TAX FREE SECURITIES, IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE AND, CONSEQUENTLY, NO DISALLOWANCE COULD BE MADE U/S 14A OF THE ACT. SIMILAR VIEW HAS BEEN TAKEN IN SEVERAL CASES INC LUDING PRINCIPAL CIT V/S INDIA GELATINE & CHEMICALS LTD. (2 015) 376 ITR 353 (GUJ). IT, ERGO, BECOMES MANIFEST THAT THE DISALLOWANCE OF INTEREST AS PER CLAUSE (II) CANNOT B E MADE STRAIGHT WAY WITHOUT EXAMINING THE IMPORTANT ASPECT AS HAS 6 BEEN DISCUSSED IN THE ABOVE DECISION, WHICH THE LD. C IT(A) FAILED TO TAKE NOTE OF. AS NECESSARY INFORMATION ABOUT THE AVAILABILITY OF SHAREHOLDERS' FUND VIS-A-VIS THE AMOU NT INVESTED IN SHARES AND OTHER SECURITIES YIELDING EX EMPT INCOME IS NOT AVAILABLE ON RECORD, WE SET ASIDE THE IMPUGNE D ORDER AND REMIT THE MATTER TO FILE OF AO FOR COMPUTING THE DI SALLOWANCE UNDER CLAUSE (I) RULE 8D(2), IF ANY, IN CONSONANCE WITH V IEW TAKEN IN RELIANCE UTILITIES (SUPRA) ETC. IT IS HOWEVER MADE CLEAR THAT IN NO CASE, THE TOTAL AMOUNT OF DISALLOW ANCE U/S 14A SHOULD EXCEED THE AMOUNT OF EXEMPT INCOME A S HAS BEEN HELD BY THE HON 'BLE DELHI HIGH COURT IN CHEMINVEST LTD. V/S CIT(2015) 378 ITR (DEL) AND CIT V/S HOLCIM INDIA PVT. LTD. (2014) 90 CCH 081 DEL. HC. BOTH SIDES ARE IN AGREEMENT THAT THE FACTS AND CIRC UMSTANCES OF THE FOLLOWING TWO YEARS IN APPEAL ARE MUTATIS MUTANDIS S IMILAR TO THOSE OF THE ASSESSMENT YEAF 2008-09. FOLLOWING THE VIEW TAKEN HEREINABOVE, WE SET ASIDE THE IMPUGNED ORDERS FOR TH ESE TWO YEARS AS WELL AND REMIT THE MATTER TO THE FILE OF THE AO FOR COMPUTING THE DISALLOWANCE U/S 14A AS DIRECTED ABOVE IN RELATION TO THE ASSESSMENT YEAR 2008-09. ' 9. THE LD.CIT(A) HAS FOLLOWING THE AFORESAID ORDER , APPLIED THE RESTRICTION OF DISALLOWANCE TO THE EXTE NT OF EXEMPT INCOME EARNED, ONLY TO THE DISALLOWANCE MADE U/R 8D2(II) WHILE UPHOLDING THE DISALLOWANCE MADE U/R 8 D2(III) COMPLETELY. THIS, WE FIND HAS RESULTED IN THE DISAL LOWANCE MADE U/S 14A EXCEEDING THE EXEMPT INCOME EARNED BY THE ASSESSEE, WHICH WITHOUT ANY DOUBT, WE HOLD IS NOT I N CONSONANCE WITH THE ORDER BY THE ITAT IN THE CASE O F THE ASSESSEE IN THE PRECEDING YEAR AND ALSO THE PROPO SITION LAID DOWN BY THE VARIOUS DECISIONS OF THE HIGH COUR T CITED BY THE ITAT IN ITS ORDER. 10. WE THEREFORE HOLD THAT THE DISALLOWANCE OF EXPENSES MADE U/S 14A IN THE PRESENT CASE BE RESTRI CTED TO THE EXTENT OF EXEMPT INCOME EARNED I.E. RS.94,82,90 5/- AND DIRECT THAT THE BALANCE DISALLOWANCE UPHELD BY THE 7 LD.CIT(A) BE DELETED. 11. IN VIEW OF THE ABOVE, THE APPEAL OF THE ASSESS EE STANDS ALLOWED IN ABOVE TERMS. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (SANJAY GARG) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED : 21 ST SEPTEMBER, 2017 *RATI* COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT(A) 4. THE CIT 5. THE DR ASSISTANT REGISTRAR, ITAT, CHANDIGARH