ACIT, Ludhiana V. M/s Sovereign Exports, Ludhiana

ITA 96/CHANDI/2014

• Counselvise Citation: [2014] 140 COUNSELVISE.COM (IT) 77144 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-06-2014
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 02-06-2014
• Assessment Year: 2009-2010
• Appeal Filed On: 21-01-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Commercial expediency
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES B CHANDIGARH BEFORE SHRI T.R. SOOD, ACCOUNTANT MEMBER AND MS. SUSHMA CHOWLA, JUDICIAL MEMBER ITA NO.96/CHD/2014 ASSESSMENT YEAR: 2009-10 THE ACIT, VS. M/S SOVEREIGN EXPORTS, CIRCLE-V, LUDHIANA LUDHIANA PAN NO. AAHFS6585P (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI ASHOK SHARMA RESPONDENT BY : SHRI SUDHIR SEHGAL DATE OF HEARING : 02.06.2014 DATE OF PRONOUNCEMENT : 19.06.2014 ORDER PER T.R.SOOD, A.M. THIS IS AN APPEAL FILED BY THE REVENUE AGAINST THE ORDER DATED 19.11.2013 OF CIT (APPEALS)-II, LUDHIANA. 2. IN THIS APPEAL, REVENUE HAS RAISED THE FOLLOWIN G GROUNDS:- 1. (A) THAT THE LD. CIT(A)-II, LUDHIANA, ON FACTS A S WELL AS IN LAW HAS ERRED IN DELETING DISALLOWANCE O F RS. 9,40,219/- MADE U/S (I)(III) OF THE I.T. ACT, 1961. (B) THAT THE LD. CIT(A), LUDHIANA HAS FAILED TO APPRECIATE THAT THE MONEY WAS INVESTED FOR NON- BUSINESS PURPOSE SINCE THE ASSESSEE IS NOT ENGAGED IN SALE AND PURCHASE OF PROPERTY. (C) THAT THE LD. CIT(A)-II, LUDHIANA HAS FAILED TO APPRECIATE THAT THE ASSESSEE HAS ADMITTED THAT THE INVESTMENT OF RS. 9,40,219/- WAS TO EARN CAPITAL GA IN. AS SUCH THIS IS FOR NON-BUSINESS PURPOSE AND THE 2 DECISION OF THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD., IS SQU ARELY APPLICABLE. 2. (A) THAT THE LD. CIT(A)-II, LUDHIANA, ON FACTS A S WELL AS IN LAW HAS ERRED IN DELETING DISALLOWANCE O F RS. 2547/- MADE U/S 14A OF I.T. ACT, 1961 READ WITH RUL E 8- D OF I.T. RULES. (B) THAT THE LD. CIT(A)-II, LUDHIANA HAS FAILED TO APPRECIATE THAT THE ASSESSEE HAD MADE INVESTMENTS WHICH WOULD GENERATE EXEMPTED INCOME AND THUS SECTION 14A READ WITH RULE 8D OF THE I.T. ACT, 1961 COMES INTO PLAY WHICH CONSIDERS AVERAGE VALUE OF INVESTMENTS INCOME FROM WHICH DOES NOT OR SHALL NO T FORM PART OF TOTAL INCOME. 3. AFTER HEARING BOTH THE PARTIES WE FIND THAT DURI NG ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER FOUND THAT ASSESS EE HAS SHOWN CAPITAL WORK IN PROGRESS TOWARDS PURCHASE OF LAND AND BUILD ING CONSTRUCTION. IT WAS CONTENDED THAT THE SAME WAS FOR THE PURPOSE OF BUSINESS. IT WAS FURTHER CONTENDED THAT WHATEVER GAINS HAVE BEEN MAD E ON SALE / PURCHASE OF BUILDING HAVE ALREADY BEEN DECLARED IN THE RETUR N OF INCOME AS SHORT TERM GAIN AND, THEREFORE, SECTION 36(I)(III) FOR DISALLOWANCE OF INTEREST FOR DIVERSION OF FUNDS WAS NOT APPLICABLE. HOWEVER, THE ASSESSING OFFICER DID NOT FIND FORCE IN THESE SUBMISSIONS AND IN VIEW OF THE DECISION OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CI T V ABHISHEK INDUSTRIES LTD (286 ITR 1), DISALLOWED THE INTEREST . 4. ON APPEAL, IT WAS MAINLY CONTENDED THAT THE ASSE SSEE FIRM HAD SPENT MONEY FOR PURCHASE OF PROPERTY AT COUNTRY HOME LAND AND SOLD THE SAME IN THE SAME YEAR. SOME MONEY WAS SPENT ON PURCHASE OF LAND AND CONSTRUCTION OF A BUILDING AT DHANDHARI KALAN AND T HE SAME WAS REFLECTED IN THE BUILDING ACCOUNT IN THE BALANCE SHEET. THERE FORE, IN VIEW OF THESE 3 FACTS AND DECISION OF CIT(A) VS. ABHISHEK INDUSTRIE S (SUPRA) WAS NOT APPLICABLE. WHATEVER PROFITS WERE GENERATED HAS AL READY BEEN DECLARED AS SHORT TERM CAPITAL GAIN IN THE RETURN OF INCOME. T HE LD. CIT(A) FOUND FORCE IN THESE SUBMISSIONS AND DELETED THE ADDITION . 5. BEFORE US, LD. DR STRONGLY SUPPORTED THE ORDER O F ASSESSING OFFICER. 6. ON THE OTHER HAND, THE LD. COUNSEL FOR THE ASSES SEE STRONGLY SUPPORTED THE IMPUGNED ORDER AND SUBMITTED THAT MON EY HAS BEEN SPENT FOR THE PURPOSE OF BUSINESS. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS CAREFUL LY. THE LD. CIT(A) HAS DECIDED THIS ISSUE VIDE PARAS 4.5 TO 4.7 , WHICH ARE AS UNDER:- 4.5 I HAVE CAREFULLY CONSIDERED THE APPELLANTS SUBMISSIONS. REGARDING THE DISALLOWANCE OF INVESTME NT IN LAND AT COUNTRY HOME LAND IS CONCERNED IT IS APPARE NT THAT THE AFORESAID PAYMENTS WERE MADE FOR TRANSACTION IN IMMOVABLE PROPERTY WITH THE INTENTION OF EARNING IN COME WHICH IS TAXABLE UNDER THE I.T. ACT. THERE WAS THUS COMMERCIAL EXPEDIENCY INVOLVED IN THE AFORESAID PAY MENTS. THE HONBLE SUPREME COURT IN THE CASE OF M/S S.A. BUILDERS AS REPORTED IN 288 ITR 1 HAS HELD THAT WHERE THE MO NEY HAS BEEN EXPENDED FOR COMMERCIAL EXPEDIENCY, DEDUCTION U/S 36(1)(III) IS AVAILABLE. THIS IS NOT A CASE WHERE M ONEY HAS BEEN ADVANCED FOR NON-BUSINESS PURPOSES AND THERE I S NO BENEFIT TO THE APPELLANT. THE DECISION IN THE CASE OF M/S ABHISHEK INDUSTRIES LTD. IS THEREFORE NOT APPLICABL E IN THIS CASE. THE AR OF THE APPELLANT HAS ALSO GIVEN DETAILS OF VARIOUS LOANS TAKEN AND THEIR UTILIZATION AND HAS C LAIMED THAT ALL THE LOANS TAKEN WERE FOR SPECIFIC PURPOSES FOR FINANCING THE WORKING CAPITAL NEEDS OF THE APPELLANT AND NO I NTEREST BEARING FUNDS WERE UTILIZED FOR PURCHASE OF LAND. P ERUSAL OF THE ASSESSMENT ORDER REVEALS THAT THE ISSUE HAS NOT BEEN 4 EXAMINED BY THE AO PROBABLY IN V VIEW OF THE FACT T HAT THE HONBLE PUNJAB & HARYANA HIGH COURT IN THE CASE4 OF CIT VS. ABHISHEK INDUSTRIES LTD. HAS HELD THAT THE ISSU E OF NEXUS BETWEEN FUNDS ADVANCED AND FUNDS BORROWED IS NOT RE LEVANT. HOWEVER, THIS WOULD BE TRUE ONLY WHERE THE FACTS AR E SIMILAR TO THAT CASE. IN THE INSTANT CASE, EVEN IF THERE WA S A DIRECT NEXUS BETWEEN THE FUNDS BORROWED AND THE FUNDS UTIL IZED FOR PURCHASE OF LAND THEN THE INTEREST ON SUCH BORROWIN GS WOULD ADD TO THE COST OF LAND AND WOULD THEN BE ALLOWABLE AS DEDUCTION WHILE COMPUTING CAPITAL GAINS. HOWEVER, I N THAT CASE IT WOULD BE ALLOWABLE IN THE YEAR OF SALE. 4.6 SIMILAR ISSUE WAS DECIDED BY ME IN THE APPELLAN TS OWN CASE FOR ASSESSMENT YEAR 2008-09. IN THIS CASE VIDE MY ORDER DATED 24.04.2012 THE DISALLOWANCE MADE ON THIS ACCO UNT WAS DELETED. THE FACTS FOR THE CURRENT YEAR ARE IDENTIC AL TO THE FACTS FOR ASSESSMENT YEAR 2008-09. 4.7 IN VIEW OF THE AFORESAID FACTUAL AND LEGAL POSI TION, THE DISALLOWANCE MADE BY THE AO ON THIS ACCOUNT IS DELE TED. 8. THE LD. CIT(A) HAS CORRECTLY DELETED THE ADDITIO N BECAUSE IT IS NOT A CASE WHERE MONEY HAS BEEN ADVANCED FOR NON BUSINE SS PURPOSES. THEREFORE, WE FIND NOTHING WRONG WITH THE ORDER OF LD. CIT(A) AND WE CONFIRM THE SAME. 9. GROUND NO.2: AFTER HEARING BOTH THE PARTIES WE F IND THAT DURING ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTICE D THAT DURING THE YEAR THE ASSESSEE HAS INVESTED A SUM OF RS. 2,52,332/- INCOME FROM WHICH IS EXEMPT. SINCE NO EXPLANATION WAS GIVEN BEFORE ASSE SSING OFFICER IN RESPONSE TO THE QUERIES IN THIS REGARD, THE ASSESSI NG OFFICER INVOKED RULE 8-D READ WITH SECTION 14A HAD DISALLOWED A SUM OF R S. 2,547/-. 10. ON APPEAL, IT WAS SUBMITTED THAT ASSESSEE HAS N OT INCURRED ANY EXPENDITURE FOR THE PURPOSE OF MUTUAL FUND INVESTME NT AND THE INVESTMENT 5 WAS MADE OUT OF ASSESSEES OWN FUNDS. FURTHER, NO I NCOME WAS THERE DURING THE YEAR. THE LD. CIT(A) FOUND FORCE IN THES E SUBMISSIONS AND FOLLOWING THE DECISION OF HON'BLE MADRAS HIGH COURT IN THE CASE OF CIT V DELITE ENTERPRISES IN ITA NO. 2983/M/2005 AND CHAND IGARH BENCH OF THE TRIBUNAL IN THE CASE OF GURDAS MANN V DCIT 21 DTR 5 7 DELETED THE ADDITION. 11. BEFORE US LD. DR STRONGLY SUPPORTED THE ORDER O F ASSESSING OFFICER. 12. ON THE OTHER HAND, THE LD. COUNSEL OF THE ASSES SEE SUBMITTED THAT SINCE NO EXEMPT INCOME WAS RECEIVED DURING THE YEAR , THEREFORE, PROVISIONS OF SECTION 14A COULD NOT BE INVOKED FOR MAKING ANY DISALLOWANCE. IN THIS REGARD HE RELIED ON THE DECIS IONS RELIED ON BEFORE THE CIT(A). 13. AFTER CONSIDERING THE RIVAL SUBMISSIONS WE FIND THAT THE QUESTION WHETHER THE PROVISIONS OF SECTION 14A CAN BE INVOKE D EVEN WHEN THERE IS NO EXEMPT INCOME CAME UP FOR CONSIDERATION BEFORE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT, FARIDABAD VS . LAKHANI MARKETING FARIDABAD IN ITA 970 OF 2008 (O&M). IN THIS CASE T HE HON'BLE COURT CLEARLY HELD THAT IF THERE IS NO EXEMPT INCOME THEN PROVISIONS OF SECTION 14A CANNOT BE INVOKED. THEREFORE, FOLLOWING THE AB OVE DECISION, WE DECIDE THIS ISSUE ALSO AGAINST THE REVENUE. 14. IN THE RESULT, APPEAL OF THE REVENUE IS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 19.06.2014 SD/- SD/- (SUSHMA CHOWLA) (T.R.SOOD) JUDICIAL MEMBER ACCOUNTANT MEMER DATED : 19 TH JUNE, 2014 RKK 6 COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR