Income Tax Appellate Tribunal - Rajkot
Asstt. Commr. Of Income Tax, Morbi ... vs Spectrum Johnsons Tiles P. Ltd.,, ... on 8 February, 2017
आयकर अपील य अ
धकरण, राजकोट यायपीठ, राजकोट ।
IN THE INCOME TAX APPELLATE TRIBUNAL
RAJKOT BENCH, RAJKOT
[ Conducted through E-Court at Ahmedabad ]
BEFORE SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER And
SHRI MAHAVIR PRASAD, JUDICIAL MEMBER
1. आयकर अपील सं./I.T.A. No.373/RJT/2016
2. आयकर अपील सं./I.T.A. No.374/RJT/2016
3. CO No.27/RJT/2016 ( In ITA No.373/RJT/2016 )
(Assessment Years : 2012-13 & 2013-14 respectivel y )
The ACIT बनाम/M/s. Spectrum Johnson
Morbi Circle Vs. Tiles Pvt.Ltd.
Morbi Survey No.242, 8-A,
National Highway
At Dhuva
Tal. Wankaner (Rajkot)
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. AAKCS 6586 N
(अपीलाथ /Appellant) .. ( यथ / Respondent)
Cross Objector
Revenue by : Shri Pravin Verma, Sr.DR
Assessee by : Shri D.M. Rindani, AR
ु वाई क$ तार ख /
सन Date of Hearing 01/02/2017
घोषणा क$ तार ख /Date of Pronounce ment 08/02/2017
आदे श / O R D E R
PER PRADIP KUMAR KEDIA, AM :
The captioned appeals are directed by the Revenue against the separate orders of the Commissioner of Income Tax(Appeals)-3, Rajkot ITA Nos.373 & 374/Rjt/2016 & CO No.27/RJT/2016 by Assessee ACIT Vs. M/s.Small Johnson Floor Tiles P.Ltd.
Asst.Years -2012-13 & 2013-14 -2- ['CIT(A)' in short] identically dated 04/07/2016 pertaining to Assessment Years (AYs) 2012-13 & 2013-24. The Assessee is in Cross Objection No.27/RJT/2016 for AY 2012-13 in Revenue's ITA No.373/RJT/2016.
2. Since the grounds raised by the Revenue in both the AYs are identical and facts being similar both the appeals and assessee's CO are disposed of by common order.
ITA No.373/RJT/20163. The grounds of appeal raised by the Revenue relevant to AY 2012- 13 read as under:-
1. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.17.66,181/-
made on account of disallowance u/s.14A of the I.T. Act as per Circular No.5 of 2014, dated 11.07.2014 wherein it is clearly stated that "legislative intent (for introduction of section 14A) is to allow only that expenditure which is relatable to earning of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial year or not".
2. On the facts and the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance made u/s.14A read with Rule 8D without even considering or appreciating the relevant decisions of the High Court on the identical issue, i.e. the Bombay High Court's decision in the case of Godrej & Boyce Mfg. Co.Ltd., 328 ITR 81 and High Court decisions ITA Nos.373 & 374/Rjt/2016 & CO No.27/RJT/2016 by Assessee ACIT Vs. M/s.Small Johnson Floor Tiles P.Ltd.
Asst.Years -2012-13 & 2013-14 -3- following the Bombay High Court decision on rule 8D w.e.f. A.Y. 2008-09.
3. On the facts and circumstances of the case and in law, the ld.CIT(A) has erred in deleting the disallowance u/s.14A read with Rule 8D while relying upon the decisions in the cases of Suzlon Energy Ltd. 354 ITR 630 (Gujarat) and Corrtech Energy Pvt.Ltd. 363 ITR 474 (Gujarat) simply because these cases are not applicable here as they pertain to assessment years prior to A.Y. 2008-09 [AY 2005-06 and AY 2006-07 respectively] when Rule 8D 2as not applicable at all.
4. Briefly stated, the return of income for the AY 2012-13 filed by the assessee was subjected to scrutiny assessment. In the course of assessment proceedings, it was noticed by the Assessing Officer (AO) that the assessee has made investment of Rs.413.60 lakhs in its 100% subsidiary company by acquiring shares therein. These shares are capable of yielding dividend income. The dividend income earned during the year however stands at NIL. It was submitted by the assessee before the AO that its investment in 100% subsidiary company or any other company was not made for earning dividend income per se. The capital gains arising at the time of sale of shares is not tax-free because the investment has been made in a private limited company and not a listed company. The assessee has not received any tax exempted dividend income during the year. It was submitted that the investment in 100% subsidiary company is a strategic investment solely for carrying on business activities as a separate vehicle. The AO however, relied upon ITA Nos.373 & 374/Rjt/2016 & CO No.27/RJT/2016 by Assessee ACIT Vs. M/s.Small Johnson Floor Tiles P.Ltd.
Asst.Years -2012-13 & 2013-14 -4- the CBDT Circular No.5 of 2014 dated 11/07/2014 on the issue and observed that the presence of actual receipt of dividend income is not necessary. This view is support by the use of term "includible" in the heading to section 14A of the Act as well as Rule 8D of the I.T. Rules, 1962. The AO also rejected the plea of the assessee that investment in Private Limited Company is not covered by section 14A of the Act owing to possibilities of taxable capital gains. The AO accordingly, applied the formula laid down in Rule-8D and worked out the disallowance of Rs.17,66,181/- in aggregate under section 14A of the Act.
5. In first appeal, the CIT(A), however, re-examined the issue and allowed the appeal of the assessee. The relevant extracts of the operative para of the order of the CIT(A) reads as under:-
"3.0 Decision:
3.1 The 1st ground of appeal is regarding disallowance u/s.14A of Rs.17,66,181/-. It was noted by AO that there was investment of Rs.4.13 crores in a 100% subsidiary company which was capable of yielding dividend income have been made during the year. It was informed by the appellant that during the instant year, no tax exempt income had been claimed. It was informed by appellant that the appellant has Reserve and Surplus of Rs.15.87 crores and as such the interest bearing loans were taken for other specific person and were not utilized for this specific investment. AO did not agree with above contentions stating interalia that non generation of tax ITA Nos.373 & 374/Rjt/2016 & CO No.27/RJT/2016 by Assessee ACIT Vs. M/s.Small Johnson Floor Tiles P.Ltd.
Asst.Years -2012-13 & 2013-14 -5- exempt income in a particular AY is not a bar for invoking section 14A as evident in the Circular No.5 of 2015 dtd. 11/7/2014 by CBDT which highlights the word "includible" and "income under the act". It was also stated by AO that the investment in the subsidiary company was fresh investment made during the current year which has also seen raising of fresh interest bearing loan and thus indirectly the interest bearing loan are the source of the these investments. Accordingly be computed disallowance u/s.14A under rule 8D at Rs.17,66,181/-. During the appellate proceedings same argument were reiterated i. 1) there is direct nexus of loan taken with other specific business purpose and as such no interest bearing loan was utilized for share investment as there was sufficient Reserve & Surplus [Reliance was placed on judgement of Hon'ble Gujarat High Court 354 ITR 0630 CIT vs. Suzlon Energy Ltd. and on 376 ITR 0353 (Guj.)there is no tax exempt income hence provision of section 14A does not come into picture as ruled by Hon'ble Gujarat High Court in case of CIT vs. Corrtech Energy Pvt.Ltd. 363 ITGR 047 (Gujarat). Further argument was also made that investment in subsidiary company is of the nature of strategic investment out of business expediency and therefore provisions of section 14A should not be invoked for disallowance of interest and other expenses incurred on such investment. I agree with Ld.AR in respect of all 3 arguments. The Hon'ble High Court has very very clearly ruled in (2015) 372 ITR 0079 (Guj) that:
(Quote) " Income AO made disallowance of expenditure of specified amount under section 14A--Disallowance was confirmed by CIT(Appeals)-Tribunal held that Assessee did not make any claim for exemption and in such situation. Section 14A could have no application-Held, S. 14A(1) provides that for the purpose of computing total income under chapter IV of the Act, no deduction shall be allowed in respect of expenditure incurred by the Assessee in relation to income which does not form part of the total income-
ITA Nos.373 & 374/Rjt/2016 & CO No.27/RJT/2016 by Assessee ACIT Vs. M/s.Small Johnson Floor Tiles P.Ltd.
Asst.Years -2012-13 & 2013-14 -6- Assessee did not make any claim for exemption and in such a situation. S.14A could have no application and Revenue's Appeal was dismissed." (Unquote) 3.2. Respectfully following the above, disallowance made u/s.14A is hereby deleted. Thus ground 1 & 2 are allowed.
4.0 The 3rd ground is regarding disallowance u/s.36(va) of an amount of Rs.76,500/- when AO noted that assessee has made belated payment employee's contribution towards provident fund for the month of March 2012. No explanation was submitted before the AO nor was any submission made before me. I do not find any fault in AO's action in making such disallowance. This ground is dismissed.
5.0 In the result, the appeal is allowed."
6. Aggrieved thereto, the Revenue is in appeal before the Tribunal.
7. In appeal before Tribunal by the Revenue against the impugned order of CIT(A), the Ld.DR for the Revenue Mr.Pravin Verma relied upon the order of the AO and in furtherance submitted that CBDT Circular No.5 of 2014 dated 11/07/2014 squarely covers the issue against the assessee. Thus, it was pleaded that the conclusion of the CIT(A) is wholly incorrect.
8. The Ld.AR Mr.D.M. Rindani, on the other hand, relied upon the findings of the CIT(A) and the judgement of Hon'ble Gujarat High Court ITA Nos.373 & 374/Rjt/2016 & CO No.27/RJT/2016 by Assessee ACIT Vs. M/s.Small Johnson Floor Tiles P.Ltd.
Asst.Years -2012-13 & 2013-14 -7- on the issue in the case of CIT vs. Corrtech Energy Pvt.Ltd. reported in 363 ITR 474(Guj.).
9. We have carefully considered the rival submissions and perused the orders of the authorities below. The question that arises for determination is whether section 14A is applicable when the assessee has not actually received any exempt income during the year from assets capable of yielding exempt income. In this regard, we note that the CBDT vide Circular No.5 of 2014 dated 11/02/2014 came out with the clarification that the legislative intend is to allow only that expenditure which is relatable to earning of taxable income It had laid emphasis on uses of term "includible" used in the heading in section 14A and Rule8D and stated that it indicates that exempt income need not necessarily be included in particular year's income for disallowance to be triggered. The CBDT is thus of the view that disallowance under 14A is not dependent on actual presence of tax free income. However, we note that the identical issue came up for consideration before Hon'ble Gujarat High Court in the case of CIT vs. Corretech Energy Pvt.Ltd.(supra) and host of other Judicial forums. The Hon'ble Gujarat High Court has held that when there is no exempt income and no claim of exemption has been made, section 14A and Rule 8D have no application and consequently no disallowance can be made. Although the judgement of the Hon'ble ITA Nos.373 & 374/Rjt/2016 & CO No.27/RJT/2016 by Assessee ACIT Vs. M/s.Small Johnson Floor Tiles P.Ltd.
Asst.Years -2012-13 & 2013-14 -8- Gujarat High Court in the case of Corretech Energy Pvt.Ltd.(supra) and many of the other High Courts have been rendered prior to introduction of Rule 8D, we observe that Rule 8D is only a machinery/mechanism to compute the disallowance. It is trite that the Rules are sub servient to the main enactment. Rules can never override the main provisions of the Act. If the facts of the case warrants no disallowance, the computational provision does not come into picture at all. Further, the Circulars of the CBDT prejudicial to Assessee do not exert binding force on the assessee. Accordingly, where no exempt income is received or receivable during the relevant financial year, provisions of section 14A would not operate. In this view of the matter, the disallowance made by the AO is not sustainable having regard to absence of any exempt income during the financial year relevant to the assessment year in question. Therefore, we concur with the action of the CIT(A) in deleting the disallowance made by the AO. No interference therewith is called for.
10. In the result, appeal of the Revenue in ITA No.373/RJT/2016 for AY 2012-13 is dismissed.
ITA No.374/RJT/201611. The grounds of appeal raised by the Revenue relevant to AY 2013- 14 read as under:-
ITA Nos.373 & 374/Rjt/2016 & CO No.27/RJT/2016 by Assessee ACIT Vs. M/s.Small Johnson Floor Tiles P.Ltd.
Asst.Years -2012-13 & 2013-14 -9-
1. On the facts and circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the addition of Rs.13,83,476/-
made on account of disallowance u/s.14A of the I.T. Act as per Circular No.5 of 2014, dated 11.07.2014 wherein it is clearly stated that "legislative intent (for introduction of section 14A) is to allow only that expenditure which is relatable to earning of income and it therefore follows that the expenses which are relatable to earning of exempt income have to be considered for disallowance, irrespective of the fact whether any such income has been earned during the financial year or not".
2. On the facts and the circumstances of the case and in law, the Ld.CIT(A) has erred in deleting the disallowance made u/s.14A read with Rule 8D without even considering or appreciating the relevant decisions of the High Court on the identical issue, i.e. the Bombay High Court's decision in the case of Godrej & Boyce Mfg. Co.Ltd., 328 ITR 81 and High Court decisions following the Bombay High Court decision on rule 8D w.e.f. A.Y. 2008-09.
3. On the facts and circumstances of the case and in law, the ld.CIT(A) has erred in deleting the disallowance u/s.14A read with Rule 8D while relying upon the decisions in the cases of Suzlon Energy Ltd. 354 ITR 630 (Gujarat) and Corrtech Energy Pvt.Ltd. 363 ITR 474 (Gujarat) simply because these cases are not applicable here as they pertain to assessment years prior to A.Y. 2008-09 [AY 2005-06 and AY 2006-07 respectively] when Rule 8D 2as not applicable at all.
12. The facts and the issue involved in this appeal are identical to Revenue's ITA No.373/RJT/2016 for AY 2012-13(supra).
13. For the parity of reasoning, the appeal of the Revenue's appeal in ITA No.374/RJT/2016 for AY 2013-14 stands dismissed. ITA Nos.373 & 374/Rjt/2016 & CO No.27/RJT/2016 by Assessee ACIT Vs. M/s.Small Johnson Floor Tiles P.Ltd.
Asst.Years -2012-13 & 2013-14
- 10 -
Cross Objection No.27/RJT/2016 for AY 2012-13
14. In the appeal of the Revenue in ITA No.373/Ahd/2016 for AY 2012-13 the assessee has filed Cross Objection.
15. The ground for Cross Objection raised by the assessee reads as under:-
1. The Learned Commissioner of Income-tax(Appeals)-3, Rajkot erred in upholding disallowance of ₹76,500/- u/s.36(1)(va) made by the assessing officer by way of employee's contribution towards provident fund.
16. The assessee in short has assailed the disallowance made under section 36(1)(va) r.w.s.2(24)(x) of the Act of an amount of Rs.76,500/- sustained by the CIT(A). On perusal of the order of the AO, it is seen that assessee has allegedly made belated payments of employees' contribution towards PF for the month of March-2012. It was observed by the CIT(A) that no explanation was submitted by the Assessee before the AO nor was any submission made before the him in this regard. The CIT(A) accordingly upheld the disallowance.
17. In the absence of any particulars regarding delayed payment, if any, even before us we are not in a position to comprehend the case of the assessee. Hence, we decline to interfere with the order of CIT(A).
ITA Nos.373 & 374/Rjt/2016 & CO No.27/RJT/2016 by Assessee ACIT Vs. M/s.Small Johnson Floor Tiles P.Ltd.
Asst.Years -2012-13 & 2013-14
- 11 -
18. In the result, Revenue's appeals as well as Assessee's Cross Objection all are dismissed.
Order pronounced in the Court on 08/02/2017 at Ahmedabad.
Sd/- Sd/-
( MAHAVIR PRASAD) ( PRADIP KUMAR KEDIA )
JUDICIAL MEMBER ACCOUNTANT MEMBER
Ahmedabad ; Dated 08/02/2017
ट .सी.नायर, व.+न.स./T.C. NAIR, Sr. PS
आदे श क
त ल प अ े षत/Copy of the Order forwarded to :
1. अपीलाथ / The Appellant
2. यथ / The Respondent.
3. संबं
धत आयकर आयु-त / Concerned CIT
4. आयकर आयु-त(अपील) / The CIT(A)-3, Rajkot.
5. 1वभागीय +त+न ध, आयकर अपील य अ धकरण,राजोकट/DR,ITAT, Rajkot
6. गाड? फाईल / Guard file.
आदे शानुसार/ BY ORDER, स या1पत +त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील!य अ"धकरण, राजोकट / ITAT, Rajkot
1. Date of dictation ..1.2.17 (dictation-pad 3+ pages attached at the end of this File)
2. Date on which the typed draft is placed before the Dictating Member .. 2.2.17
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S.......08.02.17
7. Date on which the file goes to the Bench Clerk.................. 08.02.17
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................