Income Tax Appellate Tribunal - Chandigarh
Vardhman Polytes Ltd.,, Ludhiana vs Department Of Income Tax on 29 August, 2011
IN THE INCOME TAX APPELLATE TRIBUNAL
CHANDIGARH BENCHES 'A'CHANDIGARH
BEFORE MS SUSHMA CHOWLA, JUDICIAL MEMBER
AND SHRI MEHAR SINGH, ACCOUNTANT MEMBER
ITA No. 1139/Chd/2009
Assessment Year: 2002-03
M/s Vardhman Pol yt ex Ltd., V ACIT,Circle 1,
Mundian Khurd, PO Sahabana, Ludhiana.
Ludhiana.
PAN No. AAACV-5821H
&
ITA No. 62/Chd/2010
Assessment Year: 2002-03
ACIT, Circle-1, V M/s Vardhman Pol ytex Ltd.,
Ludhiana Mundian Khurd, PO Sahabana,
Ludhiana.
(Appellant) (Respondent)
Assessee by: Shri Subhash Aggarwal
Respondent by : Smt.Jaishree Sharma
Date of Hearing : 29.08.2011
Date of Pronouncement : 30.08.2011
ORDER
PER BENCH The assessee and the Revenue have filed these cross-appeals against the order of C IT(A), dated 28.10.2009 relating to assessment year 2002-03 against the order passed under section 143(3) of the I.T. Act, 1961. Both the appeals of the assessee and of the Revenue were heard together and are being disposed of by the consolidated order for the sake of convenience.
2. The assessee has raised the following Grounds of Appeal:
"1. That the ld. CIT(A) has erred in disallowing Rs.1 lac out of dividend income u/s 14A of the Income-tax Act,1961.2
2. That the disallowance is against the laws and the facts of the case."
3. The Revenue has raised the following Grounds of Appeal:
"1. That the ld. CIT(A) has erred in law & facts in restricting the addition to Rs.1,00,000/- instead of Rs.6,38,165/- made by the AO u/s 14A of the Income-tax Act,1961 relating to exempt dividend income.
2. That the ld. CIT(A) has erred in law in holding that the provisions of Section 234D of the Income-tax Act 1961 are not applicable for the assessment year 2002-03 as the same are applicable from 01.06.2003, ignoring the fact that the assessment (set aside case) was completed u/s 143(3) on 10.10.2008."
4. Ground No.1 raised by the assessee and Ground No.1 raised by the Revenue is against the computation of disallowance out of dividend income u/s 14A of the Income-tax Act.
5. The brief facts relating to the issue are that assessment in the case was completed u/s 143(3) read with Section 147 of the Income-tax Act under which additions on various grounds were made. In appeal, the CIT(A) partl y allowed the appeal of the assessee. Both the assessee and the Revenue preferred appeals before the Tribunal and after deciding the issues, Tribunal set aside certain issues back to the file of the AO for fresh adjudication. One such issue which was set aside to the file of AO was, "whether any expenses were incurred in relation to earning of dividend income, in turn warranting disallowance u/s 14A of the Act?". The AO in the remand proceedings deliberated upon the issue. The observations of the Tribunal are incorporated at page 5 & 6 of the assessment order. In the said remand proceedings, the counsel for the assessee pointed out that the investment in the shares were made in the year 1996-97 and no expenditure was incurred by 3 the assessee for earning the dividend income. The assessee was also asked to submit the details of financial expenses incurred for investment in shares even if pertaining to the earlier assessment years. The AO notes that the assessee, despite repeated opportunities allowed, failed to submit any details of the sources of investments. In the absence of the same, the AO disallowed the expenses on proportionate basis. Appl ying the provisions of Section 14A(3), the AO computed the disallowance at Rs.6,31,865/- under Section 14A of the Income-tax Act. The C IT(A) restricted the disallowance to Rs.1,00,000/-. The assessee is in appeal against the said disallowance of Rs.1,00,000/- under Section 14A of the Income-tax Act and the Revenue is in appeal against the aforesaid restriction by the C IT(A).
6. Shri Subhash Aggarwal appeared for the assessee and Smt.Jaishree Sharma appeared for the Revenue and put forward their contentions.
7. We have heard the rival contentions and perused record. The assessee during the year under consideration, had received dividend income of Rs.62,91,120/- and break-up of the same is as under :
S.No . Na me o f t he se cu rit y Inv e st i bl e A mo un t D iv i de nd A mo u nt ( i n la c s)
1. Ma ha v ir Sp i n n i n g Mi ll s 2 0 7 9 .3 7 6 0 ,6 1 ,4 4 0 / -
Ltd .
2. I DB I Ltd . 8 .3 7 2 ,2 9 ,6 8 0 / -
TO T AL 6 2 ,9 1 ,1 2 0 /-
8. Admittedl y, the said investment was made in the financial year 1996-97. The claim of the assessee is that the majorit y of the dividend income is earned from a group company under the same management by way of a single dividend warrant and no efforts/expenses were spent or incurred to earn the same. The investment in shares was made in the earlier years and no borrowings as per the assessee were raised to make the aforesaid investment. The C IT(A) has incorporated the repl y of the assessee under 4 para 4.1 at pages 3 to 9 of the appellate order. The tabulated details of investments made by the assessee starting from financial year 1996-97 to financial year 2001-02 reflects that the investment made in the financial year 1996-97 is carried forward to the financial year 2001-02. As per the assessee, it has sufficient equit y fund as well as reserves amounting to Rs.14317 lacs, which justifies the investment made by the assessee. The extract of the balance sheet relating to financial year 1996-97 was enclosed along with the written submissions. The CIT(A) restricted the disallowance to Rs.1,00,000/- u/s 14A of the Act in view of the similar issue being decided in assessment year 2004-05.
9. We find that the Hon'ble Bombay High Court in Godrej & Boyce Mfg.Co.Ltd V DC IT & Anr, [234 CTR 1 (Bom) reversing the order of Special Bench of Mumbai Tribunal on the issue held that the provisions of Rule 8D were not ultra virus the provisions of Section 14A and it was also held that the same do not offend Article 14 of the Constitution. It was further held that the provision of Rule 8D was to be applied prospectivel y w.e.f. 01.04.2007 i.e. in relation to assessment year 2008-09 and subsequent years as the Memorandum explaining the provisions of the Finance Bill 2006 states that this amendment would take effect from 01.04.2007. The Court further held that even in the absence of sub-section (2) and (3) of Section 14A and Rule 8D, the Assessing Officer was not precluded from making apportionment on account of expenditure relatable to earning of exempt income.
10. The ld. AR for the assessee placed reliance on the ratio laid down by the Hon'ble Punjab & Haryana High Court in CIT V Hero Cycles Ltd., 323 ITR 518 (P&H) which has been relied upon in C IT V Metalman Auto P.Ltd., 336 ITR 434 (P&H). Ld. DR for the Revenue pointed out that the issue before the Hon'ble Punjab & Haryana High Court was in connection with 5 disallowance of financial expenses which is not the issue in the present appeal. We find that the Hon'ble Punjab & Haryana High Court in CIT V Hero C ycles Ltd. observed that "In view of the findings reproduced above, it is clear that the expenditure on interest was set off against the income from interest and the investment in the share and funds were out of the dividend proceeds. In view of this finding of fact, disallowance under Section 14A was not sustainable.". Following the ratio laid down by the Hon'ble Bombay High Court in Godrej & Boyce Mfg.Co.Ltd V DCIT, we uphold the disallowance of Rs. 1,00,000/- being expenditure relatable to the earning of the exempt income by invoking the provisions of section 14A of the Act. The ground of appeal raised by the assessee is thus dismissed .
11. In view thereof, Ground No.1 raised by both the assessee and the Revenue are, thus dismissed.
12. The Revenue vide Ground No.2 has raised the issue regarding application of provisions of Section 234D of the Income-tax Act. The AO had directed charging of interest u/s 234D of the Act. The contention of the assessee before C IT(A) was that the said Section was applicable from 01.06.2003 as the same was introduced by Finance Act, 2003 and was not applicable to the year under consideration. Reliance was placed on the ratio laid down by the Special Bench of Delhi Tribunal reported in ITO V Ekta Promoters Pvt. Ltd., 117 TTJ 289 (Del) (SB). The CIT(A) following the ratio laid down by the Special Bench of Delhi Tribunal in ITO V Ekta Promoters P.Ltd. (supra) held that the levy of interest u/s 234D of the Act would appl y prospectivel y i.e. from assessment year 2004-05 onwards. The Revenue is in appeal against the said directions of the C IT(A).
13. Ld. DR for the Revenue pointed out that the issue stands covered by the order of Kerala High Court in CIT V Kerala Chemicals & Proteins Ltd., 6 323 ITR 584 (Ker). Ld. AR for the assessee, on the other hand, pointed out that the Hon'ble Delhi High Court in Director of Income Tax V Jacabs Civil Incorporated, 330 ITR 578 (Del) has held that Section 234D was applicable onl y from assessment year 2004-05 onwards.
14. We have heard the rival contentions and perused records. Both the ld. Counsels before us have failed to point out any ratio laid down by the jurisdictional High Court on the issue of levy of interest u/s 234D of the Act. Ld. AR for the assessee placed reliance on the ratio laid down by the Hon'ble Delhi High Court in Director of Income Tax V Jacabs Civil Incorporated (supra) and also the Special Bench of Delhi Tribunal in ITO V Ekta Promoters P.Ltd. (supra) whereas the ld. DR for the Revenue has placed reliance on the ratio laid down by the Hon'ble Kerala High Court in CIT V Kerala Chemicals & Proteins Ltd. (supra). The Hon'ble Delhi High Court has laid down the proposition that Section 234D was applicable onl y from the assessment year 2004-05 onwards and not in the earlier assessment years and therefore, no interest under that provision could be levied for the period prior to the assessment year 2004-05. On the other hand, contrary view has been held by the Hon'ble Kerala High Court in CIT V Kerala Chemicals & Proteins Ltd (supra). However, in view of the diverging opinions expressed by the two different High Courts the one favouring the assessee is to be applied as is held by various Courts on this account. Appl ying the ratio laid down by the Hon'ble Delhi High Court in Director of Income Tax V Jacabs Civil Incorporated (supra) we are in agreement with the order of CIT(A) that interest u/s 234D of the Act is chargeable onl y from assessment year 2004-05 onwards. The year under appeal relates to assessment year 2002-03. The provisions of Section 234D are not applicable 7 to the captioned assessment year. Thus, Ground No.2 raised by the Revenue is dismissed.
15. In the result, both the appeals of the assessee and the Revenue are dismissed.
Order Pronounced in the Open Court on this 30 t h day of August, 2011.
Sd/- Sd/-
(MEHAR SINGH) (SUSHMA CHOWLA)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Dated : 30 t h Aug.,2011
Poonam
Copy to:
1. The Appellant
2. The Respondent
3. The CIT
4. The CIT(A)
5. The DR
By Order
Assistant Registrar, ITAT, Chandigarh