Income Tax Appellate Tribunal - Chandigarh
Jamna Auto Industries Ltd., ... vs Assessee on 5 January, 2016
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, CHANDIGARH
BEFORE SHRI H.L.KARWA, VICE PRESIDENT
AND MS. RANO JAIN, ACCOUNTANT MEMBER
ITA No.495/Chd/2015
(Assessment Year : 2010-11)
M/s Jamna Auto Industries Ltd., Vs. The C.I.T.,
Jai Spring Road, Industrial Area, Panchkula.
Yamuna Nagar.
PAN: AAACJ3929N
(Appellant) (Respondent)
Appellant by : S/Shri Sandeep Sapra
& Kamal Khanna
Respondent by : Shri Manoj Mishra, DR
Date of hearing : 07.12.2015
Date of Pronouncement : 05.01.2016
O R D E R
PER RANO JAIN, A.M. :
The appeal filed by the assessee is directed against the order of learned Principal Commissioner of Income Tax, Panchkula dated 26.3.2015, passed under section 263 of the Income Tax Act, 1961 (in short 'the Act') for assessment year 2010-11.
2. Briefly, the facts of the case are that the assessment under section 143(3) of the Act was made as on 28.1.2013. After perusing the case records for the relevant assessment year, the learned Commissioner of 2 Income Tax observed that the assessee had made investment of Rs.5,24,99,200/- in the equity shares of Spring India Ltd. and Rs.1,99,99,000/- in the equity share of Jai Suspension System Limited. Since the assessee is debiting heavy amount of interest to the Profit & Loss Account, therefore, the proportionate interest disallowance should have been made by the Assessing Officer under section 14A of the Act on account of interest expenditure relating to exempt income. A show cause notice under section 263 of the Act was issued to the assessee in this regard.
3. Before the learned Commissioner of Income Tax, the assessee made elaborate submissions as regards the investment in Spring India Ltd. and also in Jai Suspension System Limited. Since no adverse view was formed by the learned Commissioner of Income Tax with regard to the investment in Spring India Ltd., we will not be referring to the facts in this regard. As regards Jai Suspension System Limited, it was stated before the learned Commissioner of Income Tax that the investment amounting to Rs.1,96,98,880/- was made in assessment years 2008-09 and 2009-10. The assessee had received dividend of Rs.2,99,98,500/- on i nvestment made i n shares of Jai Suspension System Limited. The investment amounting to Rs.2,00,080/- was made in assessment y e a r 2 0 0 8 - 0 9 , while the investment of Rs.1,94,98,800/- was made in assessment year 2009-10. It was submitted that the 3 investment of Rs.2 lacs in assessment year 2008-09 was made out of the profits after tax of Rs.1606.49 lacs earned during the year. Further, the investment of Rs.1,94,98,880/- in assessment year 2009-10 was made out of the share capital raised during the year and amount of Rs.1912.59 lacs received on account of share capital and share premium. The assessee had not taken any loan to make these investments. In fact, during the financial year 2008-09, the assessee had repaid the money of the loans raised by it in earlier years. It proves that no fresh loans were utilized for the purposes of making the investment in the share of Jai Suspension System Limited and the investments were made out of its sown funds with the assessee in the form of profits earned and fresh capital raised in these years. Relying of the judgment of the Hon'ble Jurisdictional Punjab & Haryana High Court in the case of CIT Vs. Winsome Textiles Industries Ltd., 319 ITR 204 and CIT Vs. M/s Hero Cycles Ltd., 323 ITR
518. It was submitted that the provisions of section 14A of the Act are not applicable to the present case. Further, on the jurisdiction of the Commissioner of Income Tax invoked under section 263 of the Act, it was submitted that the Assessing Officer vide para 20 of the questionnaire dated 24.2.2012 for the year under consideration has raised a query in response to which the assessee vide para 12 of letter dated 18.5.2012 filed details of dividend income in which it was specifically pointed out that the source of investment in shares of Jai 4 Suspension System Limited from whom the dividend income has been received was out of its own funds. It was further submitted that in the succeeding assessment year 2011-12 in assessee's own case the Assessing Officer vide letter dated 24.2.2014 specifically raised query as to why the provisions of section 14A of the Act may not be applied in respect of exempt income which was replied by the assessee vide its letter dated 24.2.2014 and after considering the submissions made by the assessee, no disallowance under section 14A was made in assessment year 2011-12. All these facts show that the Assessing Officer has properly applied his mind on the issue of disallowance under section 14A of the Act.
4. After considering the submissions of the assessee, the learned Commissioner of Income Tax did not find force in the same. He found that the share capital and share premium raised by the assessee had been utilized for the purposes of repaying the loans and the assessee has raised fresh loans amounting to Rs.18.12 crores, out of which investment in shares of Jai Suspension System Limited has been made. In the view of learned Commissioner of Income Tax, had the assessee not invested in the shares of Jai Suspension System Limited, it was not required to raise loans to that extent from banks and financial institutions. Reliance was placed on the judgment of CIT Vs. Abhishek Industries Ltd., 286 ITR
1. Further, he held that since the assessee has earned 5 dividend income on shares of Jai Suspension System Limited, the case laws relied on by the assessee are not applicable to the present case. On the argument taken by the assessee as regards the application of mind by the Assessing Officer, it was observed that the Assessing Officer had only enquired about the details of dividend income and nowhere asked the assessee specifically with respect to the disallowance of proportionate interest under section 14A of the Act. In view of this, the learned Commissioner of Income Tax held that the order passed by the Assessing Officer dated 28.1.2013 be cancelled to the extent of disallowance of interest expenditure under section 14A of the Act on the investment made by the assessee in purchase of shares of Jai Suspension System Limited and further directed the Assessing Officer to frame a fresh assessment after affording reasonable opportunity of being heard to the assessee.
5. Aggrieved by this order, the assessee has come up in appeal. Before us, the learned counsel for the assessee made submissions manifold. The first submission of the learned counsel for the assessee was that the learned Commissioner of Income Tax did not have jurisdiction to revise the order framed by the Assessing Officer as the same was passed after due application of mind by the Assessing Officer. In this regard, our attention was invited to Paper Book pages 11 to 16, whereby in a questionnaire dated 24.2.2012, the 6 assessee was asked to furnish the details of investment, source of investment in Jai Suspension System Limited and dividend earned on such investment. Further attention was invited to Paper Book pages 7 to 20, whereby the assessee duly replied the said questionnaire and at Paper Book page 21 in the form of chart, the assessee has given details of amount of dividend received from Jai Suspension System Limited with number of shares held and source of investment stated to be out of its own funds or out of profits of the company. In this way, it was submitted that the Assessing Officer had not only sought details of dividend but also sought the source of investment made in shares of Jai Suspension System Limited, which was duly filed before the Assessing Officer by submitting that source of investment was assessee's own funds from the profits of the company. The Assessing Officer had duly applied his mind while passing the order under section 143(3) of the Act and, therefore, not made disallowance of interest under section 14A of the Act with regard to investment in Jai Suspension System Limited. Our attention was further invited to Paper Book pages 22 and 23, which is a notice under section 154 dated 10.3.2014 issued by the Assessing Officer asking the assessee why not a disallowance under section 14A of the Act be made on investment in Jai Suspension System Limited. The assessee had filed the reply to the notice under section 154 of the Act dated 15.7.2014, which is placed at Paper Book pages 24 to 32 together with the 7 detailed note of disallowance under section 14A of the Act read with Rule 8D of the income Tax Rules at pages 33 to
41. The submission of the learned counsel for the assessee in this regard was that it appears that the Assessing Officer being satisfied with the submission of the assessee no order under section 154 of the Act was passed. Another argument put forward by the learned counsel for the assessee was that since the investments in Jai Suspension System Limited were being made from earlier years, no disallowance under section 14A of the Act was either made in earlier years or in the subsequent years. Copies of Balance Sheet, Profit & Loss Account and orders passed under section 143(3) of the Act for assessment years 2008-09 to 2011-12 were filed in the Paper Book. Further, in assessment year 2012-13, it was stated that a specific question with regard to section 14A of the Act has been raised by the Assessing Officer, which was duly replied by the assessee. All these pages were referred to emphasize that the material, which the learned Commissioner of Income Tax can relied on in proceedings under section 263 of the Act includes not only the record as it stands at the time when the assessment order in question was passed by the Assessing Officer but also the record as it stands at the time of examination by the learned Commissioner of Income Tax . Reliance was placed on the judgment of Hon'ble Delhi High Court in the case of Globus Infocom Ltd. Vs. CIT, 369 ITR 14. It was stated that the assessment order for the year under 8 consideration cannot be held to be erroneous and prejudicial to the interest of the Revenue, particularly when no disallowance of interest under section 14A of the Act with regard to the same investment has been made in earlier years or in subsequent years. A comparative chart for assessment years 2008-09 too 2012-13 was filed before us and reliance was placed on the judgment of Hon'ble Supreme Court in the case of Radhasoami Satsang Vs. CIT, 193 ITR 321 and CIT Vs. ARG Securities Printers, 264 ITR 276. Another argument raised by the learned counsel for the assessee was that the order for the year under consideration could not be held to be erroneous and prejudicial to the interest of the Revenue since the assessee had made strategic/business investment in shares of Jai Suspension System Limited. Another interesting argument made by the learned counsel for the assessee was that the order passed by the learned Commissioner of Income Tax under section 263 of the Act is self-contradictory and, therefore, illegal because on the one hand, disallowance of interest expenses under section 14A of the Act was directed to be made on the investment in Jai Suspension System Limited and on the other hand, t h e a s s e s s m e n t o r d e r p as s e d b y t h e As s e s s i n g O f f i c e r h a s b e e n c a n c e l l e d by i s s u i n g d i r e ct i o n t o t h e A s s e s si n g O f f i c e r t o f r a m e a f r e sh a s s e s s m e nt o r d er a f t e r a f f o rd i n g r e a s o n a b l e o p p o r t u n i t y o f be i n g h e ar d t o th e a s s e ss e e . On t h e b a s i s a l l t h e s e s ub m i ss i o n s , i t w as p ra y e d t h a t t h e o rd e r p a s s e d 9 by the learned Commissioner of Income Tax under section 263 of the Act be quashed.
6. The learned D.R. relied on the order of the learned Commissioner of Income Tax and further submitted that the issue of disallowance under section 14A of the Act was not investigated by the Assessing Officer, therefore, the order becomes erroneous to the extent prejudicial to the interest of the Revenue. Reliance was placed on the order of the Chandigarh Bench of the I.T.A.T. in the case of Vodafone South Ltd. Vs. CIT for the proposition that in case no enquiry was made by the Assessing Officer on a particular issue, the order is erroneous and prejudicial to the interest of the Revenue and hence, the Commissioner of Income Tax has jurisdiction under section 263 of the Act to revise the same.
7. We have heard the learned representatives of both the parties, perused the findings of the authorities below and considered the material available on record. The undisputed facts of the case are that the assessee had made investments amounting to Rs.1,99,99,000/- in the equity shares of Jai Suspension System Limited. Interest expenditure have also been debited to the Profit & Loss Account. The disallowance under section 14A of the Act may be called for in such circumstances, but the question to be decided by us is whether the order of the Assessing Officer is erroneous and prejudicial to the interest of the 10 Revenue so as to give the Commissioner of Income Tax the jurisdiction to revise the same under section 263 of the Act.
8. It is a trite law that for assumption of jurisdiction under section 263 of the Act by the Commissioner of Income Tax, the order of the Assessing Officer has to satisfy twin conditions of its being erroneous as well as prejudicial to the interest of the Revenue simultaneously i.e. the order has to be erroneous and at the same time also be prejudicial to the interest of revenue. We are not referring to the case laws for this proposition, since we are guided by the Act itself in this regard.
9. An order is said to be erroneous in case the Assessing Officer failed to make any enquiry on an issue which leads to a loss of revenue to the Department. In case the Assessing Officer makes the enquiry with regard to the issue in question and forms an opinion in this regard, just on the basis of an inadequate enquiry, the Commissioner of Income Tax cannot hold the order to be erroneous. However inadequate an enquiry may be, the Commissioner of Income Tax cannot impose his opinion over that of the opinion formed by the Assessing Officer. However, there can be an exception in case of inadequate enquiry, if Assessing Officer fails to do something which he is required to do under the law, the order may be erroneous. In this background, we now proceed to 11 examine the facts of the present case. At Paper Book page 12, questionnaire issued by the Assessing Officer during the assessment proceedings dated 24.2.2012 is annexed, whereby at point No.20, the Assessing Officer has raised a query which reads as under :
"20. Please f urnish detail of dividend i n c o me amounting to Rs.2,99,98,000/- in the f ollowing prof orma :
S.No. Amount of Name of the No.of other Original Source of Dividend company share held investment investment from which /year of dividend acquisition received
10. From the above, it is quite clear that the Assessing Officer intended to raise the query regarding dividend received by the assessee not only to the extent of amount of dividend but also with regard to the investments made and also the source thereof. In reply to the said questionnaire, the assessee filed a letter dated 18.5.2012 which is placed at Paper Book page 17, whereby at page 21, the detailed reply in the format as required by the Assessing Officer is enclosed. In this reply, the assessee had explained that an amount of Rs.2,99,98,0900/- is received on 19,99,900 shares of Jai Suspension System Limited, when original investment of Rs.1,96,99,000/- was made out of own fund, out of profits of the company. Thereafter no further query in this regard was raised by the Assessing Officer and he preferred not to make any disallowance under section 14A of the Act.
12
11. As regards the investments having been made out of owned funds of the assessee, our attention was invited to the Balance Sheet of the assessee as on 31.3.2008, which shows that an amount of Rs.2 lacs was invested in the shares of Jai Suspension System Limited. On perusal of Paper Book page 47, we see that the assessee had total investments of Rs.527 lacs while it had owned funds amounting to Rs.10362.16 lacs, which goes to prove that the investments were made out of owned funds. Further, from the perusal of Balance Sheet as on 31.3.2009 placed at Paper Book 74, we see that further investment of Rs.194.99 lacs was made during the year in equity shares of Jai Suspension System Limited. Further, on perusal of the same Balance Sheet, we see that the total investments are Rs.721.99 lacs while the owned funds are amounting to Rs.12,371.46 lacs, which further proves the fact that these investments were also made out of owned funds only. In view of the above, it is true that the assessee has made investments out of owned funds and no borrowed funds were used for such investments. In such a scenario, no disallowance under section 14A of the Act is called for.
12. Now, the situation emerges that the Assessing Officer raised a query which was duly replied by the assessee. The Assessing Officer having got satisfied by the said reply of the assessee preferred not to raise further query in this regard, nor did he make any such 13 disallowance. In this background, we do not see any error in the order of the Assessing Officer. The Assessing Officer was fully seized of the matter, he initiated the enquiry, which was fully co-operated by the assessee. The Assessing Officer got satisfied and did not make any disallowance. In such a scenario, the Commissioner of Income Tax cannot impose his opinion on the decision taken by the Assessing Officer. Since it is Assessing Officer's satisfaction which matters for making such a disallowance. On the facts and circumstances of the case, the Assessing Officer did not find it appropriate to carry on any elaborate investigation. It is Assessing Officer's prerogative to decide the extent of enquiry or investigation to be carried out by him. There is no law which directs the Assessing Officer the extent of enquiry to be made in such a case. This is, undoubtedly, not a case of lack of enquiry. Though we do not find it even a case of inadequate enquiry, even in that case, the Commissioner of Income Tax does not get the jurisdiction under section 263 of the Act. However inadequate the enquiry may be, the Commissioner of Income Tax cannot enter into the shoes of the Assessing Officer in the garb of assuming jurisdiction under section 263 of the Act. Therefore, we do not find any error in the order of the Assessing Officer. In view of the above, we set aside the order of the Commissioner of Income Tax.
14
13. Though, many other issues as regards jurisdiction of Commissioner of Income Tax under section 263 of the Act were raised before us, but, in view of our finding as above, we do not find any need to adjudicate the same.
14. In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on this 5th day of January, 2016.
Sd/- Sd/- (H.L. KARWA) (RANO JAIN) VICE PRESIDENT ACCOUNTANT MEMBER Dated : 5 t h January, 2016 *Rati*
Copy to: The Appellant/The Respondent/The CIT(A)/The CIT/The DR.
Assistant Registrar, ITAT, Chandigarh