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आदेश/Order
PER N.K. SAINI, VICE PRESIDENT
This is an appeal by the Department against the order dt. 22/04/2019 of Ld. CIT(A)-2, Chandigarh.
Following grounds have been raised in this appeal:
i) Whether in the facts and circumstances of the case and in law, the Ld.CIT(A)'s order is not perverse not erred in law as well as facts in allowing the appeal of the assessee without appreciating the facts of the case ?
(ii) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has not erred in deleting the addition of Rs. 23,28,787/- on account of advertisement expenses claimed as such when there was no business exigency for incurring such expenditure ? (iii) Whether on the facts and circumstances of the case and in law, the Ld CIT(A) was right in deleting the addition of Rs. 64,86,12,110/- on account of non-
charging of interest on amount receivable from Punjab Govt. In the context of interest paid on loans raised by the assessee to run the business ?
(iv) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has not erred in deleting the addition of Rs. 6,18,06,10,563/- on account of non-charging of interest on amount receivable from FCI in the context of interest paid on loans raised by the assessee to run the business ? (v) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has not erred in deleting the additions made on account of diversion of funds to the Punjab Govt, and FCI without charging interest and without business exigencies whereas the assessee is raising interest bearing loans for its business use?
(vi) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has not erred in deleting the addition of Rs. 36,58„281/- on account of Disallowance of Prior Period Expenses as the similar issue was confirmed by the Ld.CIT(A) in favour of the revenue in A.Y. 2014-15? (vii) Whether on the facts and circumstances of the case and in law, the Ld. CIT(A) has not 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 disallowance irrespective of the fact whether any such income has been earned during the F.Y. or not as confirmed by Apex Court in Maxopp. Investment Ltd. Vs. CIT, 91 Taxman.com 154(SC)? (viii) Whether on the facts and in the circumstances of the case, the Ld.CIT(A) is justified in restricting the disallowance to the extent of exempt income received, without appreciating the fact that applicability of section 14A or Rule 8D does not depend on earning of income as held by Supreme Court in the case of CIT vs. Rajender Prasad Moody (1978), 115 ITR 519 ? (ix) Whether on the facts and in the circumstances of the case, the Ld.CIT(A) is justified in restricting the disallowance to the extent of exempt income received, without appreciating the fact that there is no such restriction to disallow the interest to the extent exempt income earned stipulated either in section 14A of the Income Tax Act or Rule 8D of the Income Tax Rule ? (x) Whether on the facts and in the circumstances of the case, the Ld.CIT(A) is justified in restricting the disallowance to the extent of exempt income received, ignoring the principal of apportionment regardless of exempt income laid down by Hon'ble’ Supreme Court decision in CIT vs. Walfort Share and stock Brokers P Ltd: 326 ITR 1 (SC) and upheld by the Hon'ble’ Supreme Court in 91 Taxmann.com 154(SC) ? (xi) Whether on the facts and in the circumstances of the case, the Ld.CIT(A) is justified in restricting the disallowance to the extent of exempt income received, ignoring the fact that Hon'ble’ Supreme Court of India in Civil Appeal No. 1423 of 2015 filed by Avon Cycles Ltd. decided with Maxopp Investment Ltd. and many other cases has decided the issue in favour of department?
(xii) Whether on the facts and circumstances of the case and in law, Ld. CIT Appeal is not perverse in holding that it is now 'res integra' that disallowance u/s 14A cannot exceed exempt income, when Supreme Court has upheld the principles of apportionment? (xiii) Whether on the facts and in the circumstances of the case, the Ld. CIT(A) is justified in restricting the disallowance to the extent of exempt income received, ignoring the legality of CBDT Circular No. 5 of 2014 which is in consonance with legislative intent behind Section 14A and the charging sections 4 and 5 of the Income Tax Act, 1961, which lay down that total income under the Act would include income from all sources whether "received"," deemed to be received", "accrued" or "deemed to accrue"? (xiv) It is prayed that the order of Ld. CIT(A) be set aside and that of the Assessing officer may be restored. (xv) The appellant craves leave to add or amend any grounds of appeal before the appeal is heard or is disposed off.
Ground No. (i) is general in nature so do not require any comment on our part.
Vide Ground No. (ii) the grievance of the Department relates to the deletion of addition of Rs. 23,28,787/- made by the A.O. on account of advertisement expenses.
As regards to this issue the Ld. Counsel for the Assessee at the very outset stated that this issue has already been adjudicated by the ITAT in the cross appeals in ITA No. 726/Chd/2009 & 727/Chd/2009 for the A.Y. 2005-06 in assessee’s favour vide order dt. 31/10/2009 which has been followed in subsequent A.Y. 2006-07 in ITA No. 802/Chd/2009 & 875/Chd/2009, vide order dt. 30/06/2010, in ITA No. 1248 & 1249/Chd/2016 for the A.Y. 2012-13 and 2013-14 order dt. 25/01/2017 and for the A.Y. 2014-15 in ITA No. 1509/Chd/2017 vide order dt. 26/02/2018 copies of the said orders were furnished which are placed on the record.
The Ld. CIT DR although supported the order of the A.O. but could not controvert the aforesaid contention of the Ld. Counsel for the Assessee.
After considering the submissions of both the parties and the material available on the record, it is noticed that an identical issue having similar facts has already been adjudicated by this Bench of the ITAT in the aforesaid referred to orders, the relevant findings given in ITA No. 726/Chd/2009 for the A.Y 2005-06 vide order dt. 30/10/2009 in para 20 read as under:
We are of the view that the expenditure incurred by the assessee for promotion of first Indo Pak Games was in furtherance of its business and also enabled it to advertise and promote its products. The expenditure was thus incurred for the promotion of business of the assessee and is an allowable expenditure u/s 37(1) of the Act. In our view, CIT(A) wrongly allowed only 10% of the said expenditure treating the same in the nature of advertisement expenses and disallowing the balance. We find no merit in the said restriction of allowance placed by the CIT(A) especially taking into consideration the nature of expenditure. The expenditure in totality is allowable as a deduction u/s 37(1) of the I.T. Act and accordingly we direct the Assessing Officer to allow the same.
The said order has been followed in the subsequent assessment years, so respectfully following the earlier orders of the ITAT, we do not see any infirmity in the order of the Ld. CIT(A) on this issue, accordingly do not see any merit in the appeal of the Department for the issue agitated vide ground no. (ii).
The issue raised by the Department vide Ground no. (iii) to (v) relates to the deletion of addition made by the A.O. on account of non charging of interest on the amount receivable from Punjab Government and FCI in the context of interest paid on loan raised by the assessee to run the business.
As regards to these issues the Ld. Counsel for the Assessee submitted that these are also decided by the ITAT in the cross appeals in ITA No. 726/Chd/2009 & 727/Chd/2009 for the A.Y. 2005-06 in assessee’s favour vide order dt. 31/10/2009 which has been followed in subsequent A.Y. 2006-07 in ITA No. 802/Chd/2009 & 875/Chd/2009, vide order dt. 30/06/2010, in ITA No. 1248 & 1249/Chd/2016 for the A.Y. 2012-13 and 2013-14 order dt. 25/01/2017 and for the
A.Y. 2014-15 in ITA No. 1509/Chd/2017 vide order dt. 26/02/2018 copies of the said orders were furnished which are placed on the record.
The Ld. CIT DR although supported the order of the A.O. but could not controvert the aforesaid contention of the Ld. Counsel for the Assessee.
We have considered the submissions of both the parties and perused the material available on the record. It is noticed that an identical issue having similar facts has already been adjudicated in the earlier aforesaid referred to orders, we deem it appropriate to reproduce the ground raised and the findings given by the ITAT for the A.Y. 2006-07 in ITA No. 875/Chd/2009 of the Departmental appeal wherein the discussion has been made in paras 19 to 22 which read as under;
In the appeal of the Revenue, the two Grounds surviving, are Ground Nos. 3 & 4 relating to the additions made by the Assessing Officer of Rs.11,98,44,089/- and Rs.43,53,42,284/- on account of non-charging of interest from Punjab Government and Food Corporation of India (FCI) respectively.
Briefly put, the facts relevant to the aforesaid Grounds are that there were certain amounts outstanding for recovery from Punjab Government and FCI. As on 31.3.2006, a sum of Rs.1,71,20,58,413/- was outstanding from the Punjab Government whereas Rs.625,87,18,142/- was recoverable from FCI. The Assessing Officer disallowed notional interest amounting to Rs.11,98,44,089/- and Rs.43,53,42,284/- on account of the said interest-free outstandings/recoverables from Punjab Government and FCI respectively. In appeal before the CIT(Appeals), assessee contended that the aforesaid outstandings were against transactions of business. The assessee explained that it was working as State agency for procurement of wheat and paddy for FCI. The amount recovered from Punjab Government was on account of trade liabilities incurred during the course of the business of procurement of foodgrains. Similarly, the amount recoverable from FCI was also related to liabilities incurred during the business of foodgrains procurement. Accordingly, the CIT(Appeals) found that the amounts recoverable, were trade debits and therefore, the action of the Assessing Officer has been set aside and the additions made have been deleted.
Before us, learned DR has not brought out any material to negate the finding of the CIT(Appeals) that the impugned transactions are trade transactions. On the other hand, the learned counsel for the assessee has referred to the Paper Book wherein the material considered by the CIT(Appeals), has been placed. According to the learned counsel, the assessee has incurred the aforesaid amounts in the course of carrying on its business activities and the same were recoverable from the concerned agencies namely Punjab
Government and FCI in the course of business. In nut-shell, the order of the CIT(Appeals) is sought to be defended.
We have considered the rival submissions carefully. The assessee before us is a Co-operative Society, which is an agency of the State Government for procurement of wheat and paddy. It also undertakes such activities for FCI. In the course of carrying on of such activities, it incurred amounts which were recoverable from the State Government and FCI. Quite clearly, such recoveries are on account of trading activities carried out by the assessee. Therefore, the amount outstanding for recovery at the end of the year on account of such activities cannot be equated to interest-free advances so as to require the same to be decided in terms of Section 36(1)(iii) of the Act. In this regard, the CIT(Appeals) has categorically held that the Punjab Government and FCI are trade debtors and incomes thereof have been offered for taxation in the earlier assessment years. In the face of such a fact situation, we find no justification for the Assessing Officer to make any disallowance out of interest expenditure claimed by the assessee on account of impugned debits. Hence, in this background, we hereby affirm the order of the CIT(Appeals). Thus, Ground Nos. 3 & 4 raised are dismissed.
So respectfully following the aforesaid referred to order dt. 30/06/2010 for the A.Y 2006-07 which has been followed in the succeeding assessment years 2012-13 to 2014-15 also, we do not see any merit in these grounds of the Departmental appeal.
Vide Ground No. (vi) the grievance of the Department relates to the deletion of addition made by the A.O. on account of disallowance of prior period expenses.
As regards to this issue the Ld. Counsel for the Assessee at the very outset stated that the Ld. CIT(A) decided this issue in favour of the assessee by following the order of his predecessor for the A.Y. 2006-07 and that the Department has not raised this issue in appeal before the ITAT in ITA No. 875/Chd/2009 for the A.Y. 2006-07 which has been disposed off vide order dt. 30/06/2010 copy of same is placed at page nos. 16 to 33 of the assessee’s paper book. The aforesaid contention of the Ld. Counsel for the Assessee was not controverted by the Ld. CIT DR.
We have considered the submissions of both the parties and perused the material available on the record. In the present case it is noticed that the Ld. CIT(A) deleted this addition by following the order of his predecessor for the A.Y. 2006-07 and the relevant observations have been given in para 10.3 at pages 19 and 20 of the impugned order which read as under:
10.3 I have considered the submission of the appellant & perused the assessment order. Similar addition was made in the case of the assessee for the AY 2006-07. In the appeal, the said addition was delete by my predecessor. The findings of the then CIT(A) are as under:
2.3 I have carefully considered the rival submissions. I find that the assessee is consistently following a system of accounting in respect of guarantee fee. There is a time gap between the provisional and the actual rates. The assessee is dependent upon the decision of Government for fixation of the rates. The assessee has filed a copy of the order of the Government dated 23.11.05 wherein certain rates were fixed (copy placed at Annexure-1). The assessee has given sufficient evidence that certain amounts were crystallized for the Financial Year 2005-06. Moreover, the assessee is following consistently same method of accounting. It may be pointed out that the Assessing Officer has not disallowed the entire prior period expenses. The Assessing Officer has added back only the net amount after taking into account income credited by the assessee in respect of earlier Assessment Years. This shows that no rationale method has been adopted by the Assessing Officer for disallowing the prior period expenses. I am of the opinion that the addition made by the Assessing Officer is not justified. Thus, this ground of the assessee is allowed. The said issue of prior period expenses has attained finality as subsequent to above decision of CIT(A) no further appeal has been preferred by the Department either in the ITAT or High Court. It is also the case that the expenses are seen to have fructified during the year including the cases of payments arising out of orders emanating from Civil Courts, Consumer Disputes Redressal Forum. Respectively following the decision of my predecessor and in view of the above facts, this ground of appeal is Allowed.
From the aforesaid observations of the Ld. CIT(A), it is clear that the Department had accepted the decision of the then Ld. CIT(A) for the A.Y. 2006- 07 on the same issue and had not preferred any appeal at higher forum, we therefore keeping in view the principles of consistency do not see any valid ground to interfere with the decision given by the Ld. CIT(A) on this issue.
Vide Ground No. (vii) to (xiii) the grievance of the Department relates to the deletion of addition made by the A.O. by invoking the provisions of Section 14A of the Income Tax Act, 1961 (hereinafter referred to as ‘Act’).
As regards to this issue the Ld. Counsel for the Assessee submitted that the assessee had earned dividend income of Rs 6,72,480/- only while the disallowance was made at Rs. 14,98,902/- by the A.O. by invoking the provisions of Section 14A of the Act read with Rule 8D of the Income Tax Rules 1962. However, the Ld. CIT(A) by following the earlier order dt. 13/07/2018 in ITA Nos. 1532 to 1536/Chd/2017 for the A.Y. 2008-09 to 2011-12 and 2014-15 in assessee’s own case restricted the disallowance to Rs. 6,70,780/- which was the amount of dividend income earned by the assessee. It was further submitted that this issue is now settled by the ITAT and the Ld. CIT(A) had followed the said decision of the ITAT.
In his rival submissions the Ld. CIT DR although supported the order of the A.O. but could not controvert the aforesaid contention of the Ld. Counsel for the Assessee.
After considering the submissions of both the parties it is noticed that a similar issue has already been adjudicated by the ITAT in assessee’s own case in ITA No. 1532 to 1536/Chd/2017 for the A.Y. 2008-09 to 2011-12 and 2014-15 vide order dt. 13/07/2018 wherein the relevant findings have been given in para 9 to 10 which read as under:
Hon’ble Delhi High Court in the case of Joint Investments Pvt. Ltd. Vs. CIT and in case of Daba Global Chemical Pvt. Ltd. Coordinate Bench of ITAT Mumbai held that disallowance under section 14A r.w.r 8D of the Rules cannot exceed the exempt income. If any disallowance could be made that is to be restricted to the tax exempt income. Similar view has been taken by the Hon’ble Delhi High Court in the case of Cheminvest Ltd. 10. Hence, keeping in view the judicial pronouncement on the issue, the fact that the investments are old and made from the years 1970 to 2003, the assessee has not borrowed any funds or loans for investment purpose and the investments
has been done out of the surplus funds and based on the arguments of the Ld. AR , we hereby direct the disallowance be restricted to the dividend income earned.
In view of the aforesaid discussion we do not see any valid ground to interfere with the findings given by the Ld. CIT(A) on this issue.
Ground No. (xiv) and (xv) are general in nature, so do not require any comment on our part.
In the result, appeal of the Department is dismissed.
(Order pronounced in the open Court on 28/02/2022)
Sd/- Sd/-
सुधांशु �ीवा�तव एन.के.सैनी, (SUDHANSHU SRIVASTAVA) ( N.K. SAINI) �या�यक सद�य/ JUDICIAL MEMBER उपा�य� / VICE PRESIDENT AG Date: 28/02/2022
आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to :
अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File
आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar