Principal Commissioner Of Income Tax-I, Ludhiana v. M/S Trident Limited, Ludhiana

ITA-354-2018 -1- IN THE HIGH COURT OF PUNJAB & HARYANA AT CHANDIGARH ITA-354-2018 (O&M) Date of Decision: 10.5.2019 Principal Commissioner of Income Tax-I, Ludhiana Versus ....Appellant. M/s Trident Limited, Ludhiana ...Respondent. CORAM:- HON'BLE MR. JUSTICE AJAY KUMAR MITTAL.HON'BLE MR. JUSTICE AVNEESH JHINGAN. PRESENT: Mr. Rajesh Katoch, Sr. Standing Counsel with Ms. Pridhi Jaswinder Sandhu, Jr. Standing Counsel for the appellant. *** AJAY KUMAR MITTAL, J. 1.This appeal has been preferred by the revenue under Section260A of the Income Tax Act, 1961 against the order dated 29.11.2017(Annexure A-III) passed by the Income Tax Appellate Tribunal, ChandigarhBench 'B', Chandigarh (hereinafter referred to as “the Tribunal”) in ITA No.184/Chd/2016, for the assessment year 2011-12, claiming the followingsubstantial question of law:- Whether upon facts and circumstances of the case, wasthe Hon'ble ITAT justified in law in restricting theaddition made u/s. 14A of the Income Tax Act, 1961 readwith Rule 8D of the Income Tax Rules, 1962 upto theexempt income earned by the assessee? A few facts necessary for adjudication of the instant appeal as ITA-354-2018 -2- narrated therein may be noticed. The assessee is engaged in the business ofmanufacturing and processing of Yarn, Terry Towel, Paper, Sulphuric Acidand General of Power. It filed its return of income on 30.9.2011 for theassessment year 2011-12 declaring 'nil' income and income under Section115JB of the Act at ` 91,69,03,125/-. The Assessing Officer vide orderdated 11.3.2014 (Annexure A-I) framed the assessment under Section 143(3) of the Act by making addition of ` 2,15,56,021/- under Section 14A ofthe Act read with Rule 8D of the Income Tax Rules, 1962 (in short “theRules”) besides other additions. Feeling aggrieved by the order, AnnexureA-I, the assessee filed an appeal before the Commissioner of Income Tax(Appeals) [for brevity “the CIT(A)”]. The CIT(A) vide order dated28.12.2015 (Annexure A-II) deleted the disallowance of ` 2,15,56,021/-made under Section 14A of the Act read with Rule 8D of the Rules.Against the order, Annexure A-II, the revenue filed an appeal before theTribunal. The Tribunal vide order dated 29.11.2017 (Annexure A-III)restricted the disallowance under Section 14A of the Act read with Rule 8Dof the Rules upto the exempt income earned by the assessee. Hence, thepresent appeal. 3.We have heard learned counsel for the revenue. 4.It was not disputed by the learned counsel for the appellant-revenue that the issue involved herein is concluded by the decision of this Court in ITA-270-2016 (The Pr. Commissioner of Income Tax, Patiala v. State Bank of Patiala) decided on 27.2.2017 wherein it was held that theamount of disallowance under Section 14A of the Act was restricted to theamount of exempt income only and not at a higher figure. Further, the Supreme Court in Civil Appeal Nos. 104-109 of ITA-354-2018 2015 (Maxopp Investment Ltd. v. Commissioner of Income Tax, New Delhi decided on 12.2.2018, had in para 40 held as under:- 3.We have heard learned counsel for the revenue. 4.It was not disputed by the learned counsel for the appellant-revenue that the issue involved herein is concluded by the decision of this Court in ITA-270-2016 (The Pr. Commissioner of Income Tax, Patiala v. State Bank of Patiala) decided on 27.2.2017 wherein it was held that theamount of disallowance under Section 14A of the Act was restricted to theamount of exempt income only and not at a higher figure. Further, the Supreme Court in Civil Appeal Nos. 104-109 of ITA-354-2018 2015 (Maxopp Investment Ltd. v. Commissioner of Income Tax, New Delhi decided on 12.2.2018, had in para 40 held as under:- “40. We note from the facts in the State Bank of Patialacases that the AO, while passing the assessment order,had already restricted the disallowance to the amountwhich was claimed as exempt income by applying theformula contained in Rule 8D of the Rules and holdingthat section 14A of the Act would be applicable. In spiteof this exercise of apportionment of expenditure carriedout by the AO, CIT(A) disallowed the entire deduction ofexpenditure. That view of the CIT(A) was clearlyuntenable and rightly set aside by the ITAT. Therefore,on facts, the Punjab and Haryana High Court has arrivedat a correct conclusion by affirming the view of theITAT, though we are not subscribing to the theory ofdominant intention applied by the High Court. It is to bekept in mind that in those cases where shares are held as‘stock-in-trade’, it becomes a business activity of theassessee to deal in those shares as a business proposition.Whether dividend is earned or not becomes immaterial.In fact, it would be a quirk of fate that when the investeecompany declared dividend, those shares are held by theassessee, though the assessee has to ultimately tradethose shares by selling them to earn profits. The situationhere is, therefore, different from the case like MaxoppInvestment Ltd. where the assessee would continue to ITA-354-2018 hold those shares as it wants to retain control over theinvestee company. In that case, whenever dividend isdeclared by the investee company that would necessarilybe earned by the assessee and the assessee alone.Therefore, even at the time of investing into those shares,the assessee knows that it may generate dividend incomeas well and as and when such dividend income isgenerated that would be earned by the assessee. Incontrast, where the shares are held as stock-in-trade, thismay not be necessarily a situation. The main purpose isto liquidate those shares whenever the share price goesup in order to earn profits. In the result, the appeals filedby the Revenue challenging the judgment of the Punjaband Haryana High Court in State Bank of Patiala alsofail, though law in this respect has been clarifiedhereinabove.” investee company. In that case, whenever dividend isdeclared by the investee company that would necessarilybe earned by the assessee and the assessee alone.Therefore, even at the time of investing into those shares,the assessee knows that it may generate dividend incomeas well and as and when such dividend income isgenerated that would be earned by the assessee. Incontrast, where the shares are held as stock-in-trade, thismay not be necessarily a situation. The main purpose isto liquidate those shares whenever the share price goesup in order to earn profits. In the result, the appeals filedby the Revenue challenging the judgment of the Punjaband Haryana High Court in State Bank of Patiala alsofail, though law in this respect has been clarifiedhereinabove.” 6. In view of the above, the present appeal is dismissed. (AJAY KUMAR MITTAL) JUDGE May 10, 2019 gbs (AVNEESH JHINGAN)JUDGE Whether Speaking/Reasoned Whether Reportable Yes/NoYes/No