PR COMMISSIONER OF INCOME TAX JAIPUR-II vs. MS ANAMIKA CONDUCTORS LTD

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Income Tax Appeal No. 125/2018 Pr. Commissioner Of Income Tax , Jaipur-Ii, Jaipur. ----Appellant Versus M/s. Anamika Conductors Ltd. , B-129, Rajendra Marg, Bapu Nagar, Jaipur ----Respondent For Appellant(s) : Mr. Prateek Kedawat for Mr. R.B. Mathur For Respondent(s) : HON'BLE MR. JUSTICE KALPESH SATYENDRA JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 10/07/2018 By way of this appeal, the appellant has challenged the judgment and order of the Tribunal whereby the Tribunal has dismissed the appeal of the department and allowed the cross objection filed by the assessee. Counsel for the appellant has framed following substantial questions of law:- “i) Whether on the facts and in the circumstances of the case in law, the ITAT was justified in upholding the deletion of addition made by the AO by way of disallowance of depreciation claimed on wind mill for Rs. 29,68,289/- by holding that depreciation @ 80% has to be allowed on complete wind mill without segregating investment on building part and on electric item. Moreso when depreciation @ 80% is allowable only on wind mill plant not on the other electrical fitting and construction etc.”

(2 of 4) [ITA-125/2018] ii) Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in upholding the order of CIT(A) in respect of disallowance u/s 40(a)(ia) of Rs. 27,94,439/- without appreciating the fact that the second proviso to this section was inserted w.e.f. 01.04.2013 and is applicable in relation to the AY 2013-14 and subsequent years. iii) Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in upholding the deletion of disallowance of Rs. 21,250/- made by Assessing Officer for depositing the employees’ contribution to PF & ESI beyond the prescribed time limit provided in respective Acts. iv) Whether on the facts and in the circumstances of the case and in law, the ITAT was justified in holding that employees’ contribution to PF & ESI are governed by the provision of section 43B and not by section 36(1) (va) r.w.s. 2 (24) (x) of the IT Act. v) Whether on the facts in the circumstances of the case and in law, the ITAT was justified in deleting the disallowance made u/s 14A, without appreciating the fact that the Assessing Officer made disallowance as per provision of section 14A (2)/14A(3).” Counsel for the appellant has taken us to the order of AO wherein it has been observed as under:- “6.1. As is evident from the balance sheet of the assessee, the assesse has made investments in equity shares earning exempted income u/s 10 of the Income Tax Act 1961. Thus, the assessee is liable for disallowance u/s 14A in light of the CBDT clarificatory Circular No. 5 dated 11.02.2014 wherein it has been held in Para 6 that:- “Thus, in light of the above, Central Board of Direct Taxes, in exercise of its powers under section 119 of the Act hereby clarifies that Rule 8D read with section 14A of the Act provides for disallowance of the expenditure even where taxpayer in a particular year has not earned any exempt income.” 6.3. The invocation of section 14A is automatic and comes into operation without any exception as soon as dividend income is claimed exempt. The possibility of incurring certain expensiture under the head administrative expenditure for earning dividend income cannot be ruled out. While allocating expenses relating to exempt income not only the direct expenses like receiving and depositing the dividend warrant has to be taken into consideration

(3 of 4) [ITA-125/2018] but also the indirect expenses including major managerial/clerical expenses which are involved in making and implementing the decision are also to be disallowed. The disallowance of administrative expenses and interest expenses on earning of dividend income claimed exempt is also held/permitted by the Hon’ble Supreme Court in the case of CIT vs. United General Trust, 200 ITR 488 (SC).” Taking into consideration that the question no. 1 & 2 are covered by the decision of this Court, the appeal qua question no. 1 and 2 stands dismissed. Regarding question no.3 & 4, this Court has already taken a view which is subject matter of SLP being no. 14857/2014 (CIT, Jaipur vs. M/s State Bank of Bikaner & Jaipur), therefore, these questions are decided subject to decision of SLP. The question no. 5 is now covered by the decision of Supreme Court in the case of Godrej and Boyce Manufacturing Company Ltd. vs. Deputy Commissioner of Income Tax & Ors; reported in (2017) 394 ITR 449 (SC). Though counsel for the appellant has relied upon the observations made in para 34 of the aforesaid judgment, however, in view of the observations made by the Supreme Court in para 36 & 37 which reads as under:- “36. Section 14A as originally enacted by the Finance Act of 2001 with effect from 1.4.1962 is in the same form and language as currently appearing in Sub- section (1) of Section 14A of the Act. Sections 14A (2) and (3) of the Act were introduced by the Finance Act of 2006 with effect from 1.4.2007. The finding of the Bombay High Court in the impugned order that Sub-sections (2) and (3) of Section 14A is retrospective has been challenged by the Revenue in another appeal which is presently pending before this Court. The said question, therefore, need not and cannot be gone into. Nevertheless, irrespective of the aforesaid question, what cannot be denied is that the requirement for attracting the provisions of Section 14A(1) of the Act is proof of the fact that the expenditure sought to be disallowed/deducted had actually been incurred in earning the dividend income. Insofar as the Appellant-Assessee is concerned, the issues stand concluded in its favour in respect of the Assessment Years 1998-1999, 1999-2000 and 2001-

(4 of 4) [ITA-125/2018] 2002. Earlier to the introduction of Sub-sections (2) and (3) of Section 14A of the Act, such a determination was required to be made by the Assessing Officer in his best judgment. In all the aforesaid assessment years referred to above it was held that the Revenue had failed to establish any nexus between the expenditure disallowed and the earning of the dividend income in question. In the appeals arising out of the assessments made for some of the assessment years the aforesaid question was specifically looked into from the standpoint of the requirements of the provisions of Sub-sections (2) and (3) of Section 14A of the Act which had by then been brought into force. It is on such consideration that findings have been recorded that the expenditure in question bore no relation to the earning of the dividend income and hence the Assessee was entitled to the benefit of full exemption claimed on account of dividend income. 37. We do not see how in the aforesaid fact situation a different view could have been taken for the Assessment Year 2002-2003. Sub-sections (2) and (3) of Section 14A of the Act read with Rule 8D of the Rules merely prescribe a formula for determination of expenditure incurred in relation to income which does not form part of the total income under the Act in a situation where the Assessing Officer is not satisfied with the claim of the Assessee. Whether such determination is to be made on application of the formula prescribed under Rule 8D or in the best judgment of the Assessing Officer, what the law postulates is the requirement of a satisfaction in the Assessing Officer that having regard to the accounts of the Assessee, as placed before him, it is not possible to generate the requisite satisfaction with regard to the correctness of the claim of the Assessee. It is only thereafter that the provisions of Section 14A(2) and (3) read with Rule 8D of the Rules or a best judgment determination, as earlier prevailing, would become applicable.” In view of the above, no substantial question of law arises in the appeal, the issue is answered in favour of the assessee against the department. The same stands dismissed. (VIJAY KUMAR VYAS),J (K.S.JHAVERI),J A.Sharma/5