THE PR. COMMISSIONER OF INCOME TAX ( CENTRAL) ,LUDHIANA vs. M/S VARDHMAN INDUSTRIES LTD.

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ITA/254/2018HC Punjab & HaryanaPHHC01119104201803 May 2019Author: MR. JUSTICE AJAY KUMAR MITTAL,MRS. JUSTICE MANJARI NEHRU KAUL3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court dismissed the appeal filed by the revenue. The Court noted that the issue was covered by its own previous judgment in ITA No. 322 of 2016 (Principal Commissioner of Income Tax-I, Chandigarh v. M/s Vardhman Chemtech Private Limited, Chandigarh) decided on 28.8.2018, wherein the revenue's appeal on a similar matter was dismissed. Therefore, following its own precedent, the Court found no reason to interfere with the ITAT's order, which had upheld the deletion of the disallowance made under Section 14A of the Act. The ITAT had relied on its earlier decision concerning the same assessee for assessment year 2007-08 and the High Court's ruling in CIT v. Winsome Textiles. The operative direction was the dismissal of the revenue's appeal.

What were the facts?

The assessee, M/s Vardhman Industries Ltd., engaged in steel manufacturing and power generation, made investments totaling ₹9,64,38,000/- by March 31, 2011, and during the assessment year 2012-13. The Assessing Officer (AO) noted that these investments were capital in nature and any dividend income would be exempt. The assessee offered no expenditure disallowance. The AO, however, disallowed ₹32,17,309/- under Section 14A read with Rule 8D and added it to the returned income. The Commissioner of Income Tax (Appeals) deleted this addition, relying on a prior tribunal decision for the same assessee. The revenue appealed to the Income Tax Appellate Tribunal (ITAT), which upheld the CIT(A)'s order, citing its own previous ruling and a Punjab & Haryana High Court judgment in CIT v. Winsome Textiles. The revenue then filed this appeal before the High Court.

What were the issues?

1. Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT has erred in upholding the order of the Ld. CIT(A), deleting the addition of ₹32,17,309/- made on account of disallowance u/s 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 by ignoring the CBDT Circular No. 5/2014 dated 11.02.2014 which provides for disallowance of expenditure even where the taxpayer has not earned any exempt income in a particular year? 2. Whether the impugned order dated 12.12.2017 passed by the Hon'ble ITAT is sustainable in the eyes of law and maintainable in the facts and circumstances of the case when the assessee has claimed interest expenditure in P&L account and has made investments, income arising on which is not includible in taxable income u/s 14A of the Income Tax Act, 1961? Assessee's contentions: Not recorded in the judgment. Revenue's contentions: The ITAT erred in deleting the addition of ₹32,17,309/- made under Section 14A read with Rule 8D, by ignoring CBDT Circular No. 5/2014, which mandates disallowance even without exempt income. The ITAT's order is not sustainable as the assessee claimed interest expenditure and made investments yielding non-taxable income.

Which sections of the Income-tax Act were involved?

Section 14A

AI-generated summary — verify with the full judgment below

ITA-254-2018 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA-254-2018 (O&M) Date of Decision: 3.5.2019 The Principal Commissioner of Income Tax (Central), Ludhiana ....Appellant. Versus M/s Vardhman Industries Ltd., New Delhi ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MRS. JUSTICE MANJARI NEHRU KAUL. PRESENT: Mr. Rajesh Katoch, Sr. Standing Counsel for the appellant. AJAY KUMAR MITTAL, J.

1.

This appeal has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 12.12.2017 (Annexure A-III) passed by the Income Tax Appellate Tribunal, Chandigarh Bench 'B', Chandigarh (hereinafter referred to as “the Tribunal”) in ITA No. 1179/Chd/2017, for the assessment year 2012-13, claiming the following substantial questions of law:- (i) Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT has erred in upholding the order of the Ld. CIT(A), deleting the addition of ` 32,17,309/- made on account of disallowance u/s 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962 by ignoring the Circular No. 5/2014 dated 11.02.2014 issued by the CBDT which provides for disallowance of expenditure even where tax payer in particular year has not earned any exempt GURBACHAN SINGH 2019.05.06 16:46 I attest to the accuracy and integrity of this document

ITA-254-2018 -2- income? (ii) Whether the impugned order dated 12.12.2017 passed by the Hon'ble ITAT is sustainable in the eyes of law and maintainable in the facts and circumstances of the case when the assessee has claimed interest expenditure in P&L account and has made investments, income arising on which is not includible in taxable income u/s 14A of the Income Tax Act, 1961?

2.

Put shortly, the facts necessary for adjudication of the instant appeal as narrated therein may be noticed. The assessee is engaged in the business of manufacturing of Steel Ingots, GP Sheets/Coils, GC Sheets, CCL Sheets and generation of power. During the course of assessment proceedings, the Assessing Officer noticed that on 31.3.2011, the investments of ` 8,33,38,000/- were made by the assessee. The investments of ` 1,31,00,000/- were made during the year under consideration. Thus, the total investments of ` 9,64,38,000/- were made. The investments as declared were capital in nature and the income, if any, arising by way of dividend, out of such investment was exempt from taxation. The assessee had not offered any disallowance of expenditure in this regard. The Assessing Officer vide assessment order dated 18.3.2015 (Annexure A-I) made a disallowance of ` 32,17,309/- under Section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (in short “the Rules”) and added the same to the returned income of the assessee. Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] challenging the addition of ` 32,17,309/- GURBACHAN SINGH 2019.05.06 16:46 I attest to the accuracy and integrity of this document

ITA-254-2018 -3- on account of disallowance of expenses under Section 14A of the Act read with Rule 8D of the Rules. The CIT(A) vide order dated 1.5.2017 (Annexure A-II) allowed the appeal and deleted the said addition by relying upon the judgment of the Tribunal in the case of the same assessee for the assessment year 2007-08. The revenue challenged the order, Annexure A- II, before the Tribunal. The Tribunal vide order dated 12.12.2017 (Annexure A-III) upheld the order of the CIT(A) and dismissed the appeal of the revenue in view of its own judgment in the case of the same assessee for the assessment year 2007-08 and also relying upon the judgment of this Court in CIT v. Winsome Textiles (2009) 319 ITR 204 (P&H) and judgments of other High Courts. Hence, the present appeal by the revenue against the deletion of disallowance made under Section 14A of the Act.

3.

We have heard learned counsel for the revenue.

4.

It was not disputed by the learned counsel for the revenue that the aforesaid matter is covered by the judgment of this Court in ITA No. 322 of 2016 (Principal Commissioner of Income Tax-I, Chandigarh v. M/s Vardhman Chemtech Private Limited, Chandigarh) decided on 28.8.2018, wherein the appeal filed by the revenue was dismissed.

5.

Accordingly, the appeal is dismissed in terms of ITA No. 322 of 2016 decided on 28.8.2018. (AJAY KUMAR MITTAL) JUDGE May 3, 2019 (MANJARI NEHRU KAUL) gbs JUDGE Whether Speaking/Reasoned Yes/No Whether Reportable Yes/No GURBACHAN SINGH 2019.05.06 16:46 I attest to the accuracy and integrity of this document

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