THE PR. COMMISSIONER OF INCOME TAX-2, CHANDIGARH vs. M/S. DABWALI TRANSPORT COMPANY LTD.

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ITA/237/2018HC Punjab & HaryanaPHHC01119085201820 March 2019Author: MR. JUSTICE AJAY KUMAR MITTAL,MRS. JUSTICE MANJARI NEHRU KAUL4 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the revenue's appeal was covered by this Court's judgment in ITA No. 322 of 2016 (Principal Commissioner of Income Tax-I, Chandigarh v. M/s Vardhman Chemtech Private Limited, Chandigarh), decided on August 28, 2018, wherein the revenue's appeal was dismissed. Therefore, following the precedent set in that case, the High Court dismissed the revenue's appeals. The specific reasoning of the Vardhman Chemtech judgment, which would have addressed the issues raised by the revenue, is not detailed in this order, but its dismissal implies that the revenue's contentions regarding Section 14A, CBDT Circular No. 5/2014, and the applicability of precedents were not accepted by the High Court in the earlier case. The operative direction was to dismiss the appeals.

What were the facts?

The assessee, M/s Dabwali Transport Company Pvt. Ltd., Bathinda, filed its return of income for Assessment Year 2012-13 on September 30, 2012. The Assessing Officer (AO) completed the assessment on March 31, 2015, at an income of ₹14,30,34,500/-, making an addition of ₹65,97,366/- on account of disallowance under Section 14A of the Income Tax Act, 1961. The assessee appealed to the Commissioner of Income Tax (Appeals) [CIT(A)], who allowed the appeal and deleted the addition. The revenue appealed to the Income Tax Appellate Tribunal (ITAT), which upheld the CIT(A)'s order and dismissed the revenue's appeal. The revenue has now filed an appeal before the High Court against the ITAT's order.

What were the issues?

The High Court had to decide the following substantial questions of law: 1. Whether the ITAT erred in deleting the addition of ₹65,97,366/- made under Section 14A read with Rule 8D on the ground that no tax-free income was earned, contrary to CBDT's Circular No. 5/2014. 2. Whether the ITAT erred in observing that Section 14A(3) would not apply where the assessee claimed no expenditure was incurred for income not forming part of total income, despite Section 14A(2) applying even if the AO is not satisfied with such a claim. 3. Whether the ITAT erred in ignoring the legislative intent of CBDT's Circular No. 5/2014, which states that expenses relatable to exempt income must be considered for disallowance irrespective of whether such income was earned in the financial year. 4. Whether the ITAT erred in following distinguishable High Court decisions and ignoring the Supreme Court's decision in CIT vs. Walfort Share and Stock Brokers P Ltd. (326 ITR 1) and the department's SLPs in similar cases. The revenue argued that the ITAT erred in deleting the disallowance under Section 14A, citing CBDT Circular No. 5/2014 and the Supreme Court decision in Walfort Share and Stock Brokers P Ltd. The assessee's arguments are not explicitly recorded, but their position was that the addition was wrongly made.

Which sections of the Income-tax Act were involved?

Section 14A,Section 14A(2),Section 14A(3),Section 143(3),Section 260A

AI-generated summary — verify with the full judgment below

ITA-237-2018 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA-237-2018 (O&M) Date of Decision: 20.3.2019 The Principal Commissioner of Income Tax-2, Chandigarh ....Appellant. Versus M/s Dabwali Transport Company Pvt. Ltd., Bathinda ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL. HON'BLE MRS. JUSTICE MANJARI NEHRU KAUL. PRESENT: Ms. Urvashi Dhugga, Sr. Standing Counsel for the appellant. *** AJAY KUMAR MITTAL, J.

1.

This order shall dispose of two appeals bearing ITA Nos. 237 and 416 of 2018, as according to learned counsel for the revenue, identical issues are involved therein. For brevity, the facts are being taken from ITA- 237-2018. 2. ITA-237-2018 has been preferred by the revenue under Section 260A of the Income Tax Act, 1961 (in short “the Act”) against the order dated 31.10.2017 (Annexure A-3) passed by the Income Tax Appellate Tribunal, Amritsar Bench, Amritsar (hereinafter referred to as “the Tribunal”) in ITA No. 76(Asr)/2017, claiming the following substantial questions of law:- i). Whether on the facts and in the circumstances of GURBACHAN SINGH 2019.04.24 10:44 integrity of this document

ITA-237-2018 -2- the case and in law, the Hon'ble ITAT has erred in deleting the addition of ` 65,97,366/- made u/s 14A read with Rule 8D on the ground that no tax free income has been earned by the assessee, in contravention to Board's Circular No. 5/2014 dated 11.02.2014? ii). Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT has erred in observing that as per Section 14A(3) where the respondent claimed that no expenditure had been incurred by it in relation to income which did not form part of the total income, the provisions of section 14A(2) would not apply whereas section 14A(2) specifically provided that provisions of section 14A(2) would apply even in relation to a case where the respondent claimed that no expenditure had been incurred in relation to income which did not form part of the income and the A.O. is not satisfied with the correctness of the claim made by the assessee? iii). Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT has erred in ignoring the legislative intent expressed in CBDT's Circular No. 5/2014 dated 11.02.2014 which explicitly states that expenses relatable to earning of exempt income have to be considered for GURBACHAN SINGH 2019.04.24 10:44 integrity of this document

ITA-237-2018 -3- disallowance irrespective of the fact whether any such income has been earned during the F.Y. or not? iv). Whether on the facts and in the circumstances of the case and in law, the Hon'ble ITAT has erred in following the decisions of Hon'ble High Courts whose facts were distinguishable from the taxpayers, ignoring the principal laid down by Hon'ble Supreme Court decision in CIT vs. Walfort Share and Stock Brokers P Ltd. 326 ITR 1 (SC) and that the department is in SLP in several cases on this issue 'Niligiri Infrastructure Development Ltd. ITA No. 135 of 2016 A.Y. 2009-10 of Delhi High Court and Instant Holding Ltd. ITA No. 2168 of 2011?

3.

Put shortly, the facts necessary for adjudication of the instant appeal as narrated therein may be noticed. The assessee filed its return of income on 30.9.2012 for the assessment year 2012-13 declaring an income of ` 13,60,37,129/-. The Assessing Officer vide order dated 31.3.2015 (Annexure A-1) completed the assessment under Section 143(3) of the Act at an income of ` 14,30,34,500/- by, inter alia, making the additions of ` 65,97,366/- on account of disallowance of interest under Section 14A of the Act to the returned income of the assessee.

4.

Feeling aggrieved, the assessee filed an appeal before the Commissioner of Income Tax (Appeals) [in short “the CIT(A)”] challenging the addition of ` 65,97,366/- on account of disallowance of interest under GURBACHAN SINGH 2019.04.24 10:44 integrity of this document

ITA-237-2018 -4- Section 14A of the Act. The CIT(A) vide order dated 20.10.2016 (Annexure A-2) allowed the appeal and deleted the said addition. The revenue challenged the order, Annexure A-2, before the Tribunal. The Tribunal vide order dated 31.10.2017 (Annexure A-3) upheld the order of the CIT(A) and dismissed the appeal of the revenue. Hence, the present appeal by the revenue against the deletion of disallowance made under Section 14A of the Act.

5.

We have heard learned counsel for the revenue.

6.

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.

7.

Accordingly, the appeals are dismissed in terms of ITA No. 322 of 2016 decided on 28.8.2018. (AJAY KUMAR MITTAL) JUDGE March 20, 2019 (MANJARI NEHRU KAUL) gbs JUDGE Whether Speaking/Reasoned Yes/No Whether Reportable Yes/No GURBACHAN SINGH 2019.04.24 10:44 integrity of this document

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