Income Tax Appellate Tribunal - Chandigarh
Punjab State Industrial Development ... vs Acit, Chandigarh on 21 September, 2017
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. :
Thi s appeal h a s b e e n f i l ed b y t he a s s e s s e e a g a i n st the order of Ld . CI T( A p p e a l s ) -1, Gurgaon d a t ed 8.3.2017 r e l a t i n g t o a s se ss m e n t y e ar 2 0 1 2- 1 3 .
2. A t t h e ou t s e t i t m a y b e st a t e d t ha t o n t he d a t e o f h e a r i n g a n a p p l i c a t i o n w a s f i l e d o n b e h a l f o f t he R e v e n u e s e e k i n g e n m a s se a d j o ur n m e n t of c a s e s f i xe d on t h a t d a t e s i n c e t h e P r . CCI T h a d d i r e c t e d a l l D R ' s t o a t t e n d I n c o m e t a x D a y c e l e br a t i o ns. F i n d i n g n o m er i t i n t he a p p l i ca t i o n t h e s a m e w a s re j e c te d a n d t h e h e a ri n g o f t h e c a s e p r o c e e d e d with.
F u r t h e r t he a p p ea l f i l e d , w e f i nd w a s t i m e ba r r e d b y 3 d a y s . C o n s i d er i ng t h e s h o r t n e s s o f t h e p e r i o d o f d e l a y , w e c o n d o n e th e s a me .
3. Th e only issue in the pr e s e nt appeal pertains to d i s a l l o w an c e of e x p e n s e s m a d e by i n v o k i ng t h e p r ov i s i o n s o f 2 s e c t i o n 1 4 A r e ad w i t h R u l e 8 D o f t h e I n c om e Ta x R u l e s , 1 9 6 2 a n d t h e as s e s s e e h a s ra i s e d t h e f o l l o w i ng g r o u n d s b e f o r e u s:
"1. That the CIT(A) erred in sustaining a disallowance of Rs.94,82,905/- under the provisions of Section 14A read 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 the A.O. had accepted that no expenditure has incurred by the assessee to earn dividend income.
4. The Learned CIT(A) has wrongly applied the decision 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 the Investments are non-business investments. A!! the Investments are business investments made with the clear objective of promotion of Industries in the State 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. B r i e f f a c t s re l e va n t t o t h e i s s u e a r e t h a t r e t u r n d e c l a r i n g l o s s o f R s . 2 0 , 70 , 9 7 , 86 8/ - w a s f i l e d o n 28 . 9 . 2 0 1 2 . Th e assessee is a State Government u n d e rta k i n g . Th e A s s e s s i n g O f fi c er n o t e d t h a t a s p e r t h e b a l an c e s h e e t , t h e assessee had invested Rs . 2 2 6 ,2 7 , 2 0 , 2 3 0/ - in shares of d i f f e r e n t c o m p an i e s . Th e A s s e ss i n g O f f i ce r f u rt h e r n o t e d that the as s es s e e had ea r ne d d i v i d e nd income of R s . 9 4 , 8 2 ,9 0 5 / - w h i c h w a s c l a i me d a s e x e m p t u / s 1 0 ( 3 4 ) o f t h e I n c o m e Ta x A c t , 1 9 6 1 ( i n s h or t ' t h e A c t ') . Th e A s s e s s i n g 3 Officer a c c o r di ng l y a s k ed the assessee to e xp l a i n w hy d i s a l l o w an c e u/ s 14A may not be made and after c o n s i d e r i n g t h e a s s e s s e e 's s u b m i s s i o n s , ma d e d i sa l l o w a n ce of R s . 21 , 4 3 , 20 , 7 6 8 / - u n d er rule 8 D ( 2) ( i i ) a nd R s . 1 , 1 5 , 98 , 9 6 0 /- u n d e r r ul e 8 D ( 2) ( i i i ) of t h e A c t .
5. Th e matter wa s c a r r i ed in a pp e a l b ef o r e the L d . CI T( A p p e a l s ) w h o f o l l o w i n g th e o r d e r o f t h e I . T. A . T. i n a s s e s s e e 's o w n ca s e f o r a s s es s m en t y e a r s 2 0 0 7- 08 t o 20 1 0 - 14 vide o r d e r da t e d 1 0. 1 1 . 2 01 6 c o n f i r m e d t h e d i s a l l o w a n ce m a d e u n d e r r u l e 8 D ( 2 ) ( i i i ) , w h i l e r e s t r i c te d t h e d is a l l o w a n ce made under r ul e 8D(2)(ii) to the exempt income i.e. R s . 9 4 , 8 2 ,9 0 5 / - .
6. A g g r i e v e d b y t h e s a m e , t h e a s s e ss e e h a s c o m e u p in appeal before us. D u r i n g t h e c o u r s e o f h e a ri n g b e f o r e u s , t h e o n l y p l e a r a i s e d b y t h e L d . c o u n s e l f o r a s se s s e e w a s that the Ld . CI T( A p p e a l s ) had i n c o r r e ct l y ap p l i e d the decision r e n d e re d in t he case of the a s s e s se e in t he p r e c e d i n g y e a r b y t h e I . T. A . T. A s p e r t h e Ld . c o u n s e l f o r a s s e s s e e , i n t he p r e c e d i n g y ea r s , t h e I . T. A . T. h a d d e a l t w i th t h e i s su e of d i sa l l o w a n c e m a de b y ap p l y i ng r ul e 8 D ( 2) ( i ) while the i ss u e in the p r e s e nt case p e r t ai n s to rule 8D(2)(ii). Th e r e f o r e , t h e L d . c ou n s e l f o r a s s e sse e s t a t e d t h a t t h e a fo r e s a i d d e c i s i o n o f t he I . T. A . T. w o u l d n o t a p p l y i n t h e f ac t s of t he p r e s e n t c a s e .
7. W e h a v e he a r d th e c o n t e nt i o n s of t h e L d . c o u n se l f o r a s s e s se e a nd h a v e a l so g o ne t h r o u g h t h e or d e r o f t he L d . CI T( A p p e a l s ) a n d t h e or d e r of t h e I . T. A . T. i n th e c a s e of 4 t h e a s s e s s e e f o r t h e a s s e s s m e n t y e a r s 2 0 0 7 - 0 8 t o 2 0 1 0 - 11 w h i c h h a s b e en fo l l o w e d b y th e Ld . CI T( A p p e a l s ) . W e f i n d n o m e r i t i n th e c o n te n t i o n s of t h e L d. c o u n s e l f o r a s se s s e e . In t h e s a i d c a s e al s o , t h e i s s u e p e r t a i n e d t o d i s a l l o w a n ce u n d e r r u l e 8 D ( 2) ( i i ) w hi c h w a s i n a d v e r t e nt l y m en t i o n e d as r u l e 8 D ( 2) ( i ) i n t h e c o n c l u d i n g p a r t o f p a r a 9 o f t h e sa i d order. O n g o i n g t h r o u g h t h e o r d er p a s s e d b y t he I . T. A . T. i n t h e p r e c e d i ng y ea r s i n I TA N o . 9 90 t o 9 9 4 / C h d / 20 1 4 , a b a r e r e a d i n g o f t h e fa c t s o f t h e ca s e r e v e a l s t h a t i ni t i a l l y t h e A s s e s s i n g O f f i ce r h a d m a d e d i s a l l o w a n c e u nd e r r ul e 8 D ( 2 ) ( i ) w h i c h h ad b e en d e l e t e d b y t h e L d . CI T( A p p e a l s ) b u t a t t h e s a m e t i m e a n e nh a n c e m e n t n o t i ce f o r m a k i n g d i sa l l o w a n c e u n d e r cl a u s e ( i i ) o f r ul e 8 D ( 2 ) wa s a l s o i s s ue d . Th e r e a f t e r i t i s re v e a l ed f ro m t h e f a c t s o f t h e c as e a s n ar r a t e d in paras 4 and 5 of the order that d i s a l l o w an c e u nd e r c l a u s e ( i i ) o f r u l e 8 D ( 2) w a s c o m p u t e d a n d m a d e . Th e I . T. A . T. , t h e r e f o r e, h a d n o o c c a s i o n t o d ea l w i t h a n y d i s a l l o w a n c e of expenses made by applying rule 8D(2)(i). Th e co n t e n t i o ns raised by the Ld. c o u n se l fo r a s s e s se e a re factually i n c o r r e c t.
8. B u t a t t h e s a m e t i m e w e f i n d t ha t t h e CI T( A ) h as m i s u n d e r st o o d th e o r d e r of t h e I TA T. Th e I TA T h a d after d e a l i n g w i t h b o th t h e d i s a l l o w a nc e s m a d e u / r 8 D 2 ( i i ) & ( i i i ) c o n c l u d e d b y h o l d i n g t h a t t h e d i sa l l o w a n c e u /s 1 4 A s h o u l d i n n o c a s e e x c ee d t h e a m o u nt o f e x e mp t i nc o me a n d h a d r e l i e d up o n th e d e c i s i o n o f th e De l h i H i g h C ou r t i n t h e ca se o f C h e m i n v es t L td . v s CI T( 2 0 1 5 ) 3 7 8 I TR a n d CI T v s H o l c i m 5 I n di a P vt . Lt d . ( 20 1 4 ) 9 0 C C H 8 1 ( D e l ) . Th e re l e v an t f i n di n gs o f t h e I TA T a r e a s u n d e r , a s r e pr o d u c e d i n t h e or d e r o f t he C I T( A ) al s o :
"We have heard the rival submissions and perused the relevant material on record. There is no doubt about the recording of satisfaction by the AO in terms of section 14A(2). In so far as the quantum of disallowance is concerned, Rule 8D is admittedly applicable from the assessment year 2008-09, which is the year under consideration. IN that view of the matter, no fault can be found with the AO/CIT(A) resorting to Rule 8D for the purpose of making disallowance. This disallowance has been made in two parts. The first is under clause (iii) of Rule 8D(2) towards administrative expenses 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 Rule 8D(2), we find that the assessee contended before the Ld. CIT(A) that such disallowance was not called for. IN this regard we find that the Hon'ble Bombay High Court in CIT V/s Reliance Utilities and Power Ltd. (209) 313 ITR 340 (Bom) has held that if there are interest free funds available with the assessee sufficient to meet its investment and, at the 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 Bombay High Court relied on the judgment of Hon 'ble Supreme Court in East India Pharmaceutical Works V/s CIT (1997) 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 including Principal CIT V/s India Gelatine & Chemicals Ltd. (2015) 376 ITR 353 (Guj). It, ergo, becomes manifest that the disallowance of interest as per clause (ii) cannot be made straight way without examining the important aspect as has 6 been discussed in the above decision, which the Ld. CIT(A) failed to take note of. As necessary information about the availability of shareholders' fund vis-a-vis the amount invested in shares and other securities yielding exempt income is not available on record, we set aside the impugned order and remit the matter to file of AO for computing the disallowance under clause (i) Rule 8D(2), if any, in consonance with view taken in Reliance Utilities (supra) etc. It is however made clear that in no case, the total amount of disallowance u/s 14A should exceed the amount of exempt income as 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 circumstances of the following two years in appeal are mutatis mutandis similar to those of the assessment yeaf 2008-09. Following the view taken hereinabove, we set aside the impugned orders for these 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. Th e L d . C I T( A ) has following the aforesaid order, a p p l i e d t h e r est r i c t i o n o f disallowance to the extent of e x e m p t i nc o m e ea r n e d , o nl y t o th e d i s a l l o w a n c e m a d e u / r 8 D 2 ( i i ) w h i l e u ph o l d i n g t h e d i s al l o w a n c e m a de u / r 8 D 2 ( i i i ) c o m p l e t e l y . Th i s, w e f i nd h a s r es u l t e d i n t h e d i s a l l o w a n ce m a d e u / s 1 4 A e x c e e d i n g t he e x em p t i n c o m e e ar ne d b y t h e assessee, which without an y do u b t , we ho l d is not in c o n s o n a n ce w i t h t h e o r d er b y t he I TA T i n t h e ca s e o f t he a s s e s s e e i n t h e p r e c e d i n g y e ar a n d also t h e p r o p o s i t i on l a i d d o w n b y t he v a r i ou s d ec i s i on s o f t h e Hi g h Co u r t c i t e d b y t h e I TA T i n i ts o r d e r .
10. We t h e r e f or e hold that th e d i s a l l o w an c e of e x p e n s e s m a d e u/ s 1 4 A i n t h e p r e s e n t c a s e b e r es t r i c t e d to t h e e x te n t o f e xem p t i n co m e e a r ne d i . e . R s .9 4 , 8 2 ,9 0 5 / - an d direct that t he b a l a nc e d i s al l o w a n c e u p h el d by th e 7 L d . CI T( A ) b e d el et e d .
11. I n v i e w of t h e ab o v e , t h e a p p e al o f t h e as s e s s ee s t a n d s a l l o w e d i n a b o v e te r m s .
O r d e r p r on o u n c ed i n t h e o p e n cou r t .
Sd/- Sd/-
(SANJAY GARG) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 21 s t 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