Income Tax Appellate Tribunal - Jaipur
Acit, Alwar vs Deepak Vegpro Pvt. Ltd, Alwar on 11 May, 2017
vk;dj vihyh; vf/kdj.k] t;iqj U;k;ihB] t;iqj
IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR
Jh dqy Hkkjr] U;kf;d lnL; ,oa Jh foØe flag ;kno] ys[kk lnL; ds le{k
BEFORE: SHRI KUL BHARAT, JM & SHRI VIKRAM SINGH YADAV, AM
vk;dj vihy la-@ITA No. 235/JP/2017
fu/kZkj.k o"kZ@Assessment Year :2008-2009
The ACIT, Central cuke M/s Deepak Vegpro Pvt. Ltd., Old
circle, Alwar. Vs. Industrial Area, Itarana Road, Alwar.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACD6118P
vihykFkhZ@Appellant izR;FkhZ@Respondent
vk;dj vihy la-@ITA No. 248/JP/2017
fu/kZkj.k o"kZ@Assessment Year :2007-2008
The ACIT, Central cuke M/s Deepak Vegpro Pvt. Ltd., Old
circle, Alwar. Vs. Industrial Area, Itarana Road, Alwar.
LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AAACD6118P
vihykFkhZ@Appellant izR;FkhZ@Respondent
fu/kZkfjrh dh vksj l@
s Assessee by : Shri P.C. Parwal (C.A.)
jktLo dh vksj ls@ Revenue by : Shri Ajay Malik ( Addl.CIT)
lquokbZ dh rkjh[k@ Date of Hearing : 05.05.2017
mn?kks"k.kk dh rkjh[k@Date of Pronouncement: 11/05/2017
vkns'k@ ORDER
PER: VIKRAM SINGH YADAV, A.M. These are two appeals filed by the Revenue against the orders of Ld. CIT(A), Alwar of even date 10.01.2017 for A.Y. 2008-09 and 2007-08. respectively. The grounds of appeal taken by the Revenue in both the appeals are as under:-
2 ITA No. 235 &248/JP/2017ACIT vs. M/s Deepak Vegpro Pvt. Ltd,Alwar.ITA No. 235/JP/17:
"1. Whether on the facts and in the circumstances of the case, the CIT(A) was right in deleting the addition of Rs. 37,11,212/- made by the AO on account of disallowance of interest expenditure u/s 14A of the I.T. Act, 1961 read with rule 8D of the I.T. Rules, 1962."ITA No. 248/JP/17:
"1. Whether on the facts and in the circumstances of the case, the CIT(A) was right in deleting the addition of Rs. 27,20,886/- made by the AO on account of disallowance of interest expenditure u/s 14A of the I.T. Act, 1961 read with rule 8D of the I.T. Rules, 1962."
2. For A.Y. 2008-09, briefly the facts of the case are that the assessee company has made investment in shares amounting to Rs. 688.45 lakhs in the prior years and during year under consideration an investment of Rs. 100 lakhs was made in the shares of M/s Dhruva Enclave Pvt. Ltd. There is no exempt income earned by the assessee during year under consideration. There is taxable dividend income of Rs. 90,53,584/- which has been received by the assessee company from a foreign company and which has been duly offered to tax in its return of income. In the original assessment proceedings, the AO had made an addition of Rs. 37,11,212/- u/s 14A read with rule 8D. The matter had come up thereafter before the Coordinate Bench who had vide its order dated 02.12.2014 has remanded the matter back to the Assessing Officer to examine the same afresh. In the instant proceedings, the Assessing Officer has repeated the addition which has been made earlier and the matter has again reached this Bench against the order of Ld. CIT(A).
3 ITA No. 235 &248/JP/2017ACIT vs. M/s Deepak Vegpro Pvt. Ltd,Alwar.
The ld. CIT(A) has given his finding stating that AO has failed to bring on record any evidence of proximate nexus between interest bearing funds and the investment made in the shares upto year 2003-04. The ld. CIT(A) has also taken into consideration the availability of interest free funds and the application thereof by the assessee company and also the decision of Bombay High Court in case of Reliance Utilities and Power Ltd. (178 Taxman 45) wherein it was observed that if there are funds available, both interest free and interest bearing, the presumption would arise that the investment have been made out of interest free funds generated or available of the company provided funds are sufficient to meet investments. Further, the ld. CIT(A) taken note of the fact that there is no exempt income which has been earned by the assessee company during year under consideration and following the decision of Hon'ble Delhi High in case of Chem Invest Ltd. (378 ITR 33) wherein it was held that the expression "does not form part of total income" in section 14A envisages that there should be an actual receipt of income, which was not includable in the total income, during the relevant previous year.
3. For A.Y. 2007-08, the similar fact pattern is on record where again the assessee company has not received any exempt income during year under consideration and all the investments have been made in the earlier years and there is no fresh investment which has been made during year under consideration. Following the same reasoning as in AY 2008-09 and also noting the fact that Rule 8D is not 4 ITA No. 235 &248/JP/2017 ACIT vs. M/s Deepak Vegpro Pvt. Ltd,Alwar.
applicable in the instant case, the ld. CIT(A) has deleted the disallowance under section 14A of the Act.
4. The ld. DR is heard who has vehemently argued the matter and taken us through the order of the Assessing Officer as well as the ld. CIT(A) and submitted that necessary satisfaction has been recorded by the Assessing Officer for invoking the provisions of section 14A read with rule 8D and disallowance has been worked out in terms of the Rule 8D. In light of above, the orders of the AO should be sustained.
5. The ld. AR reiterated its submission made before the ld. CIT(A) and submitted that firstly, there is no exempt income during the respective years and hence, the provisions of section 14A are not applicable. In this regard, it was submitted that this Bench in assessee own case vide its recent order dated 24.04.2017 has decided the matter in favour of the assessee company holding that where there is no exempt income which has been received by the assessee company during the relevant period, provisions of section 14A cannot be invoked. It was further submitted that the assessee company has sufficient interest free funds and most of the investments have been made in the earlier years and there is no nexus which has been established by the ld AO between the expenditure disallowed and earning of dividend income.
6. The matter relating to applicability of section 14A read with Rule 8D where there is no exempt income received or receivable during the relevant period had come up recently in bunch of cases involving the 5 ITA No. 235 &248/JP/2017 ACIT vs. M/s Deepak Vegpro Pvt. Ltd,Alwar.
assessee company in ITA No. 110/JP/2014 and others dated 24.04.2017 wherein we have held that the provisions of section 14A are not applicable. The relevant findings are reproduced as under:
"4.9. We have heard the rival contentions and pursued the material available on record. The first contention raised by the ld. AR is that no disallowance u/s 14A of the Act can be made in the year under consideration as no dividend income has been received in respect of investment made by the assessee and in support, the ld. AR has relied on the decision of the Hon'ble Delhi High Court in case of Chem Invest Limited (supra).
4.10 The substantial question of law under consideration before the Hon'ble Delhi High Court was "whether disallowance under section 14A of the Act can be made in a year in which no exempt income has been earned or received by the Assessee."
Briefly the facts of the case before the Hon'ble Delhi High Court were that in the year in question, the appellant borrowed funds on which interest expenditure of Rs. 1,21,03,367/- was incurred. In the said year, no dividend income was earned by the appellant from the amount invested in various shares. The Assessing Officer completed the assessment under section 143(3) of the Act disallowing Rs. 97,87,570/- out of the total expenditure incurred during the year under section 14A of the Act. The reason recorded by the AO for this disallowance was that the borrowed funds were utilized for the purpose of purchase of shares for the purpose to earn dividend income which is exempted under section 10(33) of the Act and thus, not forming a part of the total 6 ITA No. 235 &248/JP/2017 ACIT vs. M/s Deepak Vegpro Pvt. Ltd,Alwar.
income, and therefore the interest paid thereon had to be disallowed under section 14A.
In the above factual matrix, the Hon'ble Delhi High Court has held that section 14A of the Act will not apply if no exempt income is received or receivable during the relevant previous year and observed that the complete answer is provided by the decision of this very Court in CIT v. Holcim India (P.) Ltd. (2015) 57 taxmann.com 28 and in Para 15 of its order, it observed as under:
"15. ...In that case, a similar question arose, viz., whether the ITAT was justified in deleting the disallowance under section 14A of the Act when no dividend income had been earned by the assessee in the relevant AY. The Court referred to the decision of this Court in Maxopp Investment Ltd.'s case (supra) and to the decision of the Special bench of the ITAT in this very case i.e. Cheminvest Ltd. v. ITO (2009) 121 ITD 318. The Court also referred to three decisions of different High Courts which have decided the issue against Revenue. The first was the decision in CIT v. Lakhani Marketing Inc. (2014) 226 Taxmann 45/49 taxmann.com 257 of the High Court of Punjab and Haryana which in turn referred to two earlier decisions of the same Court in CIT v. Hero Cycles Ltd. (2010) 323 ITR 518/189 Taxman 50 and CIT v. Winsome Textile Industries Ltd. (2009) 319 ITR 204. The second was of the Gujarat High Court in CIT v. Corrtech Energy (P.) Ltd. ( 2014) 223 Taxman 130/45 taxmann.com 116 and the third of the Allahabad High Court in CIT v. Shivam Motors (P.) Ltd.(2015) 230 Taxman.com 262. These three decisions reiterated the position that when an Assessee 7 ITA No. 235 &248/JP/2017 ACIT vs. M/s Deepak Vegpro Pvt. Ltd,Alwar.
had not earned any taxable income in the relevant AY in question "corresponding expenditure could not be worked out for disallowance."
Thereafter, at Para 19, the Hon'ble High Court has held as under:
"19. In light of the clear exposition of the law in Holcim India (P.) Ltd.'s case (supra) and in view of the admitted factual position in this case that the Assessee has made strategic investment in shares of Max India Ltd.; that no exempted income was earned by the Assessee in the relevant AY and since the genuineness of the expenditure incurred by the Assessee is not in doubt, the question framed is required to be answered in favour of the Assessee and against the Revenue."
And at Para 23, the Hon'ble High Court has laid down the ratio decidendi as under:
"23. In the context of the facts enumerated hereinbefore, the Court answers the question framed by holding that the expression 'does not form part of the total income' in section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing an expenditure incurred in relation to the said income. In other words, section 14A will not apply if no exempt income is received or receivable during the relevant previous year."
4.11 In the instant case, the facts of the assessee company are identical in the sense that there is no dividend income which is received or receivable for the year under consideration in respect of its investments in shares. It is noted that said fact is on record and remain undisputed before us. No contrary authority has been brought to our 8 ITA No. 235 &248/JP/2017 ACIT vs. M/s Deepak Vegpro Pvt. Ltd,Alwar.
notice. In light of above discussions, respectfully following the decision of the Hon'ble Delhi High Court in case of Cheminvest Limited (supra), no disallowance under section 14A can be made in the instant case.
4.12 Now coming to the orders passed by the Coordinate Benches in earlier years where the matters have been set-aside to the file of the AO, it is noted that neither such contention (in terms of non- applicability of section 14A in absence of dividend income) has been raised by the appellant nor the decision of the Hon'ble Delhi High Court in case of Cheminvest Ltd. has been brought to the notice of the Coordinate Bench. In fact, the decision in case of Cheminvest Ltd. has been pronounced by Hon'ble Delhi High Court on 2nd of September, 2015 which is subsequent to the latest decision of the Coordinate Bench for AY 2008-09 which was passed on 2nd of December, 2014. Given that such contention was not raised earlier, the undisputed fact that no dividend income was received during the year and in light of decision of the Hon'ble Delhi High Court in case of Cheminvest Ltd which squarely applies in the instant case, no useful purpose would be served in setting aside the matter to the file of the AO as has been done by the Coordinate Benches earlier and in this regard, we are also guided by the decision of Coordinate Bench in case of Zuari Leasing (supra) where the power to remand has to be stated to be used sparily and in only exceptional cases.
4.13 In the light of above discussions and in the entirety of facts and circumstances of the case, disallowance u/s 14A is hereby deleted and the ground no. 2 of the assessee's appeal is allowed. "
9 ITA No. 235 &248/JP/2017ACIT vs. M/s Deepak Vegpro Pvt. Ltd,Alwar.
7. In the years under consideration, undisputedly the facts remain that there is no exempt income which is received or receivable by the assessee company. In AY 2008-08, there is dividend income from a foreign company which is not exempt and has been duly offered to tax by the assessee company. Therefore, following our earlier decision referred supra, the provisions of section 14A will not apply in absence of any exempt income received or receivable by the assessee company for both the years under consideration.
In the result, both the appeals of the Revenue are dismissed. Order pronounced in the open court on 11/05/2017 Sd/- Sd/-
¼dqy Hkkjr ½ ¼foØe flag ;kno½
(Kul Bharat) (Vikram Singh Yadav)
U;kf;d lnL;@Judicial Member ys[kk lnL;@Accountant Member
Tk;iqj@Jaipur
fnukad@Dated:- 11/05/2017.
*Santosh.
vkns'k dh izfrfyfi vxzfs 'kr@Copy of the order forwarded to:
1. vihykFkhZ@The Appellant- ACIT, Central Circle, Alwar
2. izR;FkhZ@ The Respondent- M/s Deepak Vegpro Pvt. Ltd. Old Industrial Area, Itarana Road, Alwar.
3. vk;dj vk;qDr@ CIT
4. vk;dj vk;qDr@ CIT(A)
5. foHkkxh; izfrfuf/k] vk;dj vihyh; vf/kdj.k] t;iqj@DR, ITAT, Jaipur.
6. xkMZ QkbZy@ Guard File {ITA No.235&248/JP/2017} vkns'kkuqlkj@ By order, lgk;d iathdkj@Asst. Registrar