COMMISSIONER OF INCOME TAX-II, LUDHIANA vs. M/S AYON CYCLES LTD.

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ITA/386/2011HC Punjab & HaryanaPHHC01095726201102 November 2011Bench: MR. JUSTICE M.M. KUMAR,MR. JUSTICE ALOK SINGH3 pages
AI SummaryDismissed

What did the High Court hold?

The High Court held that the questions of law raised by the Revenue were no longer res integra, having been decided by a Division Bench of the same Court. The Court referred to its judgment in Commissioner of Income Tax-III v. M/s Hero Cycles Ltd. (ITA No. 331 of 2009, decided on April 4, 2009). In that case, the Court observed that whether any expenditure was incurred which was to be disallowed under Section 14A is a question of fact. The Court held that disallowance under Section 14A requires a finding of incurring expenditure, and if no expenditure is found to have been incurred for earning exempted income, the disallowance cannot stand. The Court found that the finding against the revenue on this aspect was not perverse. Therefore, the disallowance was not permissible. The High Court dismissed the instant appeal in terms of the Division Bench judgment in M/s Hero Cycles Ltd. (supra), as the learned counsel for the appellant could not controvert the position or cite any contrary judgment.

What were the facts?

The Revenue (Commissioner of Income Tax-II, Ludhiana) filed an appeal under Section 260A of the Income-tax Act, 1961, against an order dated March 31, 2010, passed by the Income Tax Appellate Tribunal (ITAT), Chandigarh Bench 'B'. The appeal challenges the ITAT's deletion of a disallowance of ₹10,46,067 made under Section 14A of the Act. The Assessee is M/s Avon Cycles Ltd., Ludhiana. The High Court heard the learned counsel for the Revenue. The assessment year(s) are not explicitly stated in the provided text.

What were the issues?

1. Whether on the facts and in law, the ITAT was legally justified in deleting the disallowance of ₹10,46,067/- under Section 14A of the Income-tax Act, 1961, by ignoring the evidence relied on by the Assessing Officer and the judgment of the High Court of Punjab and Haryana in the case of M/s Abhishek Industries Ltd. (ITA No. 110 of 2005)? 2. Whether on the facts and in law, the ITAT was legally justified in deleting the disallowance of ₹10,46,067/- made under Section 14A of the Income-tax Act, 1961, by holding that a clear nexus has not been established when there is no such requirement to prove the nexus as per the provisions of law? Revenue's contentions: The Revenue argued that the ITAT was not justified in deleting the disallowance. It contended that the ITAT ignored evidence relied upon by the Assessing Officer and a High Court judgment. The Revenue also argued that the ITAT wrongly held that a clear nexus was not established, implying no such requirement exists under the law for disallowance under Section 14A. Assessee's contentions: The Assessee's specific contentions are not recorded in the judgment. The judgment states that the matter was no longer res integra and had been decided against the revenue by a Division Bench of the High Court.

Which sections of the Income-tax Act were involved?

Section 14A,Section 260A

AI-generated summary — verify with the full judgment below

IN THE HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH. ITA No. 386 of 2011 (O&M) Date of Decision: April 2, 2012 Commissioner of Income Tax-II, Ludhiana …Appellant Versus M/s Avon Cycles Ltd., Ludhiana …Respondent CORAM: CORAM: CORAM: CORAM: HON'BLE MR. JUSTICE M.M. KUMAR HON'BLE MR. JUSTICE M.M. KUMAR HON'BLE MR. JUSTICE M.M. KUMAR HON'BLE MR. JUSTICE M.M. KUMAR

HO HO HO HON’BLE MR. JUSTICE N’BLE MR. JUSTICE N’BLE MR. JUSTICE N’BLE MR. JUSTICE ALOK SINGH ALOK SINGH ALOK SINGH ALOK SINGH Present: Ms. Savita Saxena, Advocate,

for the appellant.

1.

To be referred to the Reporters or not?

2.

Whether the judgment should be reported in the Digest?

M.M. KUMAR, J. M.M. KUMAR, J. M.M. KUMAR, J. M.M. KUMAR, J. 1.

The revenue has filed the instant appeal under Section 260A of the Income-tax Act, 1961 (for brevity, ‘the Act’) against the order dated 31.3.2010, passed by the Chandigarh Bench ‘B’ of the Income Tax Appellate Tribunal (for brevity, ‘the Tribunal’). The following questions of law have been sought to be raised:- “1. Whether on the facts and in law, the ITAT was legally justified in deleting the disallowance of `10,46,067/- under Section 14A of the Income-tax Act, 1961, by ignoring the evidence relied on by the Assessing Officer and the judgment of High Court of Punjab and Haryana in the case of M/s Abhishek Industries Ltd., in ITA No. 110 of 2005? 2. Whether on the facts and in law, the ITAT was legally justified in deleting the disallowance of

ITA No. 386 of 2011 (O&M) 2 `10,46,067/- made under Section 14A of the Income-tax Act, 1961 by holding that a clear nexus has not been established when there is no such requirement to prove the nexus as per the provisions of law?” 2.

We have heard learned counsel for the revenue- appellant at some length and are of the view that the matter is no longer res integra. The aforementioned questions of law have already been decided against the revenue by the Division Bench of this Court in the case of Commissioner of Income Tax Commissioner of Income Tax Commissioner of Income Tax Commissioner of Income Tax-IIIIIIII v. v. v. v. M/s Hero M/s Hero M/s Hero M/s Hero Cycles Ltd. Cycles Ltd. Cycles Ltd. Cycles Ltd. (ITA No. 331 of 2009, decided on 4.4. (ITA No. 331 of 2009, decided on 4.4. (ITA No. 331 of 2009, decided on 4.4. (ITA No. 331 of 2009, decided on 4.4.2009) 2009) 2009) 2009) by observing as under:- “4.

……Whether, in a given situation, any expenditure was incurred which was to be disallowed, is a question of fact. The contention of the revenue that directly or indirectly some expenditure is always incurred which must be disallowed under Section 14A and the impact of expenditure so incurred cannot be allowed to be set off against the business income which may nullify the mandate of Section 14A, cannot be accepted. Disallowance under Section 14A requires finding of incurring of expenditure where it is found that for earning exempted income no expenditure has been incurred, disallowance under Section 14A cannot stand. In the present case finding on this aspect, against the revenue, is not shown to be perverse. Consequently, disallowance is not permissible.” 3.

For coming to the aforementioned conclusion, the Division Bench has placed reliance on the earlier view taken in the

ITA No. 386 of 2011 (O&M) 3 case of Commissioner of Income Tax Chandigarh II Commissioner of Income Tax Chandigarh II Commissioner of Income Tax Chandigarh II Commissioner of Income Tax Chandigarh II v. v. v. v. M/s Winsome M/s Winsome M/s Winsome M/s Winsome Textile Industries Limited, Chandi Textile Industries Limited, Chandi Textile Industries Limited, Chandi Textile Industries Limited, Chandigarh garh garh garh (ITA No. 504 of 2008, decided (ITA No. 504 of 2008, decided (ITA No. 504 of 2008, decided (ITA No. 504 of 2008, decided on 25.8.2009 on 25.8.2009 on 25.8.2009 on 25.8.2009). The same view has also been reiterated in the case of Commissioner of Income Tax II, Ludhiana Commissioner of Income Tax II, Ludhiana Commissioner of Income Tax II, Ludhiana Commissioner of Income Tax II, Ludhiana v. v. v. v. M/s Hero Cycles M/s Hero Cycles M/s Hero Cycles M/s Hero Cycles Limited, Ludhiana Limited, Ludhiana Limited, Ludhiana Limited, Ludhiana (ITA No. 157 of 2010, decided on 23.7.2010) (ITA No. 157 of 2010, decided on 23.7.2010) (ITA No. 157 of 2010, decided on 23.7.2010) (ITA No. 157 of 2010, decided on 23.7.2010). 4.

Learned counsel for the appellant has not been able to controvert the aforementioned position or cite any contrary judgment. Therefore, for the sake of consistency the instant appeal is dismissed in terms of the Division Bench judgment rendered in the case of M/s Hero Cycles Ltd. M/s Hero Cycles Ltd. M/s Hero Cycles Ltd. M/s Hero Cycles Ltd. (supra) (supra) (supra) (supra).

(M.M. KUMAR) (M.M. KUMAR) (M.M. KUMAR) (M.M. KUMAR) JUDGE JUDGE JUDGE JUDGE

(ALOK SINGH ALOK SINGH ALOK SINGH ALOK SINGH) April 2 April 2 April 2 April 2, 2012 , 2012 , 2012 , 2012

JUDGE JUDGE JUDGE JUDGE Pkapoor

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