IN INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS. ANNAPURNA GUPTA, ACCOUNTANT MEMBER ITA No.515/Chd/2016 (Assessment Year : 2008-09) D.C.I.T., Vs. M/s Vardhman Acrylics Limited, Circle-1, Chandigarh Road, Ludhiana. Ludhiana. PAN: AAACV7602E (Appellant) (Respondent) Appellant by : Shri Sushil Kumar, DR Respondent by : Shri Subhash Aggarwal Date of hearing : 19.09.2016 Date of Pronouncement : 26.09.2016 ORDER PER ANNAPURNA GUPTA, A.M. : This appeal has been filed by Revenue against order of learned Commissioner of Income Tax (Appeals)-I, Ludhiana dated 26.2.2016 for assessment year 2008-09. 2. Ground No.1 raised by Revenue reads as follows : 1. Whether upon facts and circumstances of case, Ld. CIT(A) was justified in disregarding findings of Assessing Officer and treating 2 sales tax subsidy received by assessee as capital in nature? 3. This ground is against action of learned CIT (Appeals) in treating sales tax subsidy received by assessee as capital in nature, as against revenue treated by Assessing Officer. 4. facts relating to issue are that manufacturing unit of company located in state of Gujarat was exempt from payment of sales tax under Capital Investment Incentive to Premier/Prestigious Scheme 1995-2000 scheme. During year under consideration sum of Rs.12,13,51,879/- represented amount of exempted sales tax, which was reduced from taxable income of assessee, in its return of income, by claiming it as capital receipt. Assessing Officer, in his assessment order, held same to be revenue in nature and brought it to tax as Income from Other Scheme . matter was carried in appeal before learned CIT (Appeals), who held sales tax subsidy to be capital in nature relying upon decision of Hon'ble I.T.A.T., Chandigarh Bench, in assessee s own case for assessment years 2001-02, 2003-04, 2004-05, 2006-07, 2007-08 and 2010-11, vide order dated 21.10.2015. 5. Aggrieved by same, Revenue has come up in appeal before us. 3 6. During course of hearing before us, learned D.R. filed his arguments in writing and further submitted that learned CIT (Appeals) had erred in treating subsidy as capital relying upon decision of I.T.A.T. in assessee s own case without considering decision of Hon'ble Supreme Court in case of Sahney Steel & Press Works Limited & Others Vs. CIT, 228 ITR 253, wherein Hon'ble Supreme Court had held same to be Revenue in nature. learned D.R. stated that learned CIT (Appeals) ought to have followed decision of Hon'ble Supreme Court. 7. learned counsel for assessee, on other hand, stated that issue was covered by Tribunal s order in assessee s own case in assessment year 2010-11 in ITA No.911/Chd/2013 dated 21.10.2015, as rightly held by learned CIT (Appeals). 8. We have heard rival contentions and perused orders of authorities below as also documents placed before us.We find no infirmity in order of learned CIT (Appeals) holding impugned sales tax subsidy to be capital in nature, following decision of Hon'ble Tribunal in assessee s own case in earlier and later years vide its order dated 21-10-2015. issue, we find, does not require any consideration, since it has already been decided by Tribunal in assessee s own case in earlier and later years. scheme from which subsidy emanated is same as in earlier 4 and later years decided by Tribunal, wherein after going through scheme, it was held that purpose of giving subsidy was to trigger accelerated industrial development and economic growth. Thus Tribunal held that nature of receipt of subsidy in hands of assessee was capital. argument of learned D.R. that CIT (Appeals) should have considered decision of Hon'ble Supreme Court rendered in case of Sahney Steel & Press Works Limited & Others (supra) while deciding this issue and not decision of Tribunal in assessee s own case, we find has no merit, since decision of Tribunal was based on criteria outlined by Apex Court in case of CIT Vs. Ponni Sugars & Chemicals Ltd. & Others, 306 ITR 392 for determining nature of subsidy in hands of recipient to be based on purpose test. Further , Apex Court, while delivering its judgment in case of Ponni Sugars & Chemicals Ltd. & Others (supra) has relied heavily on its earlier decision in case of Sahney Steel & Press Works Limited & Others (supra) and stated that importance of judgment in case of Sahney Steel & Press Works Limited & Others (supra) lay in fact that it laid down basic test to be applied in judging character of subsidy, which was purpose for which it was given. Thus we find that decision of Tribunal in case of assessee in earlier and later years following ratio laid down by Apex Court in Ponni Sugars & Chemicals Ltd. & Others 5 (supra) cannot be said to be at variance or without considering decision of Apex Court in case of Sahney Steel & Press Works Limited & Others (supra). 9. In view of above, we uphold order of learned CIT (Appeals), treating sale tax subsidy received amounting to Rs.12,13,51,879/- to be capital in nature and dismiss ground of appeal of Revenue on this account. 10. Ground No.2 raised by Revenue reads as follows : 2. Whether upon facts and circumstances of case, Ld. CIT(A) was justified in deleting disallowance made u/s 14A of Income-tax Act, 1961, r/w Rule 8D of Income-tax Rules, 1962? 11. This ground of appeal is against action of learned CIT (Appeals) in deleting disallowance of expenses made under section 14A of Act to tune of Rs.3,16,191/-. 12. Brief facts relating to issue are that Assessing Officer disallowed interest and other expenses amounting in all to Rs.3,16,191/- under section 14A of Act r.w.s. 8D(ii() & (iii) on account of investment made by assessee in company i.e. Eco-Aqua Infrastructure Limited by holding that it was investment from which exempt income accrued to assessee. 6 13. assessee filed appeal against disallowance made before learned CIT (Appeals) who deleted same, following judgment of Hon'ble I.T.A.T., Chandigarh Bench in assessee s own case for assessment year 2010-11 in ITA No.911/Chd/2012 dated 20.1.2014, wherein it was held that section 14A could not be applied to impugned investments since same were made as per direction of Hon'ble Gujarat High Court and no dividend could be declared by said company, being section 25 company of Companies Act and further by following decision of Punjab & Haryana High Court in case of CIT Vs. Winsome Textiles (2009) 319 ITR 204 and CIT Vs. Lakhani Marketing Incl. (2014) 272 CTR 265 which held that since no exempt income was earned, section 14A could not be invoked. 14. Before us, learned D.R. filed his submissions in writing and stated that Apex Court in CIT Vs. Walfort Share & Stock Brokers (P) Ltd., 326 ITR 1 had held that as per section 14A expenses were to be allowed only to extent they were relatable to earning of taxable income, therefore, action of learned CIT (Appeals) in relying upon decision of Punjab & Haryana High Court and concluding that no disallowance under section 14A could be made is absence of exempt income was incorrect. 7 15. learned counsel for assessee, on other hand, relied upon order of CIT (Appeals) and Hon'ble I.T.A.T. in assessee s case for assessment year 2010-11 in ITA No.911/Chd/2013 dated 20.1.2014. 16. We have heard rival contentions and perused orders of authorities below as also documents placed before us. We find no infirmity in order of CIT (Appeals),deleting disallowance made following order of Hon'ble I.T.A.T. in case of assessee for assessment year 2010-11 in ITA No.911/Chd/2013, dated 20.1.2014. We find that issue in that case was identical to that in present case, being disallowance made under section 14A on account of investment made in Bharuch Eco-Aqua Infrastructure Ltd., which Hon'ble I.T.A.T. found was section 25 company of Companies Act i.e. non-profit making company which could not have generated any income and, therefore, no question arose of assessee earning any exempt income, being dividend from same and thus section 14A could not be invoked. Moreover learned CIT (Appeals) had correctly followed Jurisdictional High Court decision in case of Winsome Textiles (supra) and Lakhani Marketing Incl. (supra) in which it has been categorically held that in absence of exempt income no disallowance under section 14A can be made. We find no merit in argument of learned D.R. that decision of Jurisdictional High Court stands overruled by Apex Court decision in 8 Walfort Share & Stock Brokers (P) Ltd. (supra). learned D.R. while stating so, has relied upon following findings of Apex Court in Walfort Share & Stock Brokers (P) Ltd. (supra) : "17. insertion of s. 14A with retrospective effect is serious attempt on part of Parliament not to allow deduction in respect of any expenditure incurred by assessee in relation to income, which does not form part of total income under Act against taxable income (Circular No. 14 of 2001 dt. 22nd Nov., 2001). In other words, s. 14A clarifies that expenses incurred can be allowed only to extent they are relatable to earning of taxable income" 17. We find that Apex Court had stated so while interpreting section 14A in context of facts and circumstances of case before it, which was disallowance of loss on sale of shares under section 14A. While doing so Court had held that mandate of section 14A was to disallow only expenses incurred for earning exempt income and losses not being in nature of expenditure are not covered under it. It was neither issue before it, nor any observation was made by Apex Court on lines that even in absence of exempt income expenditure relatable to it is to be disallowed. decision of Apex Court in case of Walfort Share & Stock Brokers (P) Ltd. (supra) therefore cannot be relied upon for deciding aforesaid proposition. In fact, various High Courts have decided this issue in favour of assessee including 9 Jurisdictional High Court in Winsome Textiles (supra) and Lakhani Marketing Incl. (supra) which have been correctly followed by learned CIT (Appeals). 18. In view of above, we uphold order of learned CIT (Appeals) in deleting disallowance made under section 14A of Act to tune of Rs.3,16,191/-. This ground of appeal of Revenue is, therefore, dismissed. 19. In result, appeal of Revenue is dismissed. Order pronounced in open court. Sd/- Sd/- (BHAVNESH SAINI) (ANNAPURNA GUPTA) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated : 26 t h September, 2016 *Rati* Copy to: 1. Appellant 2. Respondent 3. CIT(A) 4. CIT 5. DR Assistant Registrar, ITAT, Chandigarh D.C.I.T., Circle-1, Ludhiana v. M/s Vardhman Acrylics Limited