Vijay Solvex Limited v. The Assistant Commissioner Of Income Tax, Circle-2, Alwar

HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH ATJAIPUR D.B. Income Tax Appeal No. 325 / 2017 Vijay Solvex Limited, Having Its Registered Office At BhagwatiSadan, Swami Dayanand Marg, Alwar. ----Appellant Versus The Assistant Commissioner of Income Tax, Circle-2, Alwar. ----Respondent Connected With D.B. Income Tax Appeal No. 326 / 2017 Vijay Solvex Limited, Having Its Registered Office At Bhagwati Sadan, Swami Dayanand Marg, Alwar. ----Appellant Versus The Assistant Commissioner of Income Tax, Circle-2, Alwar. ----Respondent _____________________________________________________ For Appellant(s) : Mr. Amol Vyas For Respondent(s) : Mr. Sameer Sharma for Mr. Anil Mehta _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Order 09/01/2018 1.By way of these appeals, the appellants havechallenged the judgment and order of the Tribunal whereby theTribunal has partly allowed the appeal of the assessee. 2.This Court while admitting ITA No.325/2017 on 13.12.2017 framed following substantial question of law: “ Whether in the facts and circumstances of thecase, the learned ITAT was justified in upholdingthe disallowance under Section 14A by applyingthe rule 8D without any rhyme and reason when undisputedly the assessee has reserves andsurplus far in excess of the investment made inthe year during the relevant assessment year?” 3.This Court while admitting ITA No.326/2017 on10.11.2017 framed following substantial question of law: “ Whether in the facts and circumstances of thecase, the learned ITAT was justified in upholdingthe disallowance under Section 14A by applyingthe rule 8D without any rhyme and reason whenundisputedly the assessee has reserves andsurplus far in excess of the investment made inthe year during the relevant assessment year?” 4.In both the appeals, the issue is now squarely covered by the decision of this Court in D.B. Income Tax AppealNo.90/2016, M/s. Vijay Solvex Ltd. vs. The Income Tax AppellateTribunal and Anr. decided on 04.08.2017 wherein Para No.3,observed as under:- 3. The issue is covered by the decision ofSupreme Court in Godrej & Boyce ManufacturingCompany Ltd. vs. Deputy Commissioner ofIncome Tax (2017) 81 taxmann.com 111 (SC)wherein it has been held as under:- “36. Section 14A as originally enacted by theFinance Act of 2001 with effect from 1.4.1962is in the same form and language as currentlyappearing in Sub-section (1) of Section 14A ofthe Act. Sections 14A (2) and (3) of the Actwere introduced by the Finance Act of 2006with effect from 1.4.2007. The finding of theBombay High Court in the impugned orderthat Subsections (2) and (3) of Section 14A isretrospective has been challenged by theRevenue in another appeal which is presentlypending before this Court. The said question,therefore, need not and cannot be gone into.Nevertheless, irrespective of the aforesaidquestion, what cannot be denied is that therequirement for attracting the provisions ofSection 14A(1) of the Act is proof of the factthat the expenditure sought to bedisallowed/deducted had actually beenincurred in earning the dividend income.Insofar as the Appellant-Assessee is concerned, the issues stand concluded in itsfavour in respect of the Assessment Years1998-1999, 1999-2000 and 2001- 2002.Earlier to the introduction of Subsections (2)and (3) of Section 14A of the Act, such adetermination was required to be made by theAssessing Officer in his best judgment. In allthe aforesaid assessment years referred toabove it was held that the Revenue had failedto establish any nexus between theexpenditure disallowed and the earning of thedividend income in question. In the appealsarising out of the assessments made for someof the assessment years the aforesaidquestion was specifically looked into from thestandpoint of the requirements of theprovisions of Subsections (2) and (3) ofSection 14A of the Act which had by thenbeen brought into force. It is on suchconsideration that findings have beenrecorded that the expenditure in questionbore no relation to the earning of the dividendincome and hence the Assessee was entitledto the benefit of full exemption claimed onaccount of dividend income. 37. We do notsee how in the aforesaid fact situation adifferent view could have been taken for theAssessment Year 2002-2003. Sub-sections (2)and (3) of Section 14A of the Act read withRule 8D of the Rules merely prescribe aformula for determination of expenditureincurred in relation to income which does notform part of the total income under the Act ina situation where the Assessing Officer is notsatisfied with the claim of the Assessee.Whether such determination is to be made onapplication of the formula prescribed underRule 8D or in the best judgment of theAssessing Officer, what the law postulates isthe requirement of a satisfaction in theAssessing Officer that having regard to theaccounts of the Assessee, as placed beforehim, it is not possible to generate therequisite satisfaction with regard to thecorrectness of the claim of the Assessee. It isonly thereafter that the provisions of Section14A(2) and (3) read with Rule 8D of the Rulesor a best judgment determination, as earlierprevailing, would become applicable. 38. In the present case, we do not find anymention of the reasons which had prevailedupon the Assessing Officer, while dealing withthe Assessment Year 2002- 2003, to hold thatthe claims of the Assessee that noexpenditure was incurred to earn the dividendincome cannot be accepted and why the orders of the Tribunal for the earlierAssessment Years were not acceptable to theAssessing Officer, particularly, in the absenceof any new fact or change of circumstances.Neither any basis has been disclosedestablishing a reasonable nexus between theexpenditure disallowed and the dividendincome received. That any part of theborrowings of the Assessee had been divertedto earn tax free income despite the availabilityof surplus or interest free funds available (Rs.270.51 crores as on 1.4.2001 and Rs. 280.64crores as on 31.3.2002) remains unproved byany material whatsoever. While it is true thatthe principle of res judicata would not apply toassessment proceedings under the Act, theneed for consistency and certainty andexistence of strong and compelling reasonsfor a departure from a settled position has tobe spelt out which conspicuously is absent inthe present case. In this regard we mayremind ourselves of what has been observedby this Court in Radhasoami Satsang v.Commissioner of Income Tax (1992) 193 ITR(SC) 321 [At Page 329]. We are aware of the fact that strictly speakingres judicata does not apply to income taxproceedings. Again, each assessment yearbeing a unit, what is decided in one year maynot apply in the following year but where afundamental aspect permeating through thedifferent assessment years has been found asa fact one way or the other and parties haveallowed that position to be sustained by notchallenging the order, it would not be at allappropriate to allow the position to bechanged in a subsequent year.” 5. In that view of the matter, the issues are answered in favour of the assessee and against the department. 6.Both the appeals stand allowed. 7.Copy of this order be placed in connected file. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Chouhan/70-71