IN INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES, JAIPUR BEFORE: SHRI BHAGCHAND, AM AND SHRI KUL BHARAT, JM ITA No. 172/JP/2013 Assessment Year : 2009-10. ITA No. 629/JP/2014 Assessment Year : 2010-11. ITA No. 112/JP/16 Assessment Year : 2011-12. M/s. Vijay Industries, Asstt. Commissioner of Income- C/o M/s. K.L. Datta & Co., Vs. tax, Circle-1 Chartered Accountants, Alwar. Clock Tower, Alwar. PAN No. AAAFV 7282 R Appellant Respondent ITA No. 199/JP/2013 Assessment Year : 2009-10. ITA No. 646/JP/2014 Assessment Year : 2010-11. ITA No. 213/JP/2016 Assessment Year : 2011-12. Asstt. Commissioner of Income- M/s. Vijay Industries, tax, Circle-1/ DCIT Central Vs. C/o M/s. K.L. Datta & Co., Circle, Chartered Accountants, Alwar. Clock Tower, Alwar. PAN No. AAAFV 7282 R Appellant Respondent Assessee by : Shri P.C. Parwal (C.A) Revenue by : Shri R.A. Verma (Addl. CIT) Date of Hearing : 13.10.2016. Date of Pronouncement : 21/10/2016. 2 ITA No. 172(6)/JP/2013 M/s. Vijay Industries. ORDER PER SHRI KUL BHARAT, JM. These are six appeals by assessee and revenue directed against separate order of ld. CIT (Appeals), Alwar dated 11.12.2012, 23.07.2014 and 30.12.2015 pertaining to A.Ys. 2009-10, 10-11 and 11-12. All these appeals are taken up together and are being disposed off by this consolidated order, for sake of convenience. First, we take up appeals pertaining to assessment year 2009-10 i.e. ITA No. 172/JP/2013 (assessee) and ITA No. 199/JP/2013 (revenue). assessee s appeal in ITA No. 172/JP/2013 raises solitary ground which reads as under :- That learned assessing officer has erred in law as well as on facts and circumstances of case in invoking provision of section 14A of Income Tax Act, 1961 and in making disallowance of Rupees 1126190.00 out of interest payment in as much as :- 1.1 assessee has not received any exempt income during year. 1.2 assessee has not made any investment in shares during year. 1.3 assessee has not incurred any expenses during year under consideration, and, 1.4 income from shares are not exempt income, since at time of sale of shares, capital is liable to tax. 1.5 Without establishing any nexus between income earned and expenses incurred in earning such exempt income. Therefore invoking of provision of section 14A under given circumstances is erroneous and also Honourable Commissioner of Income Tax (Appeals), Alwar has erred in upholding invoking provision of section 14A of Income Tax Act 1961 with reference to investment in shares of Rupees 1877160.00. 3 ITA No. 172(6)/JP/2013 M/s. Vijay Industries. 2. Briefly stated facts are that case of assessee was picked up for scrutiny and assessment under section 143(3) of Income Tax Act, 1961 (hereinafter referred to as Act) was framed vide order dated 30th December, 2011. While framing assessment, AO made trading addition of Rs.5,00,000/-, disallowance of interest of Rs. 11,26,190/-, disallowance of deduction u/s 80IA of Rs. 29,31,270/- and disallowance of excess remuneration of Rs. 11,32,957/-. Being aggrieved, assessee carried matter before ld. CIT (A), who after considering submissions partly allowed appeal. While partly allowing appeal, ld. CIT (A) deleted disallowance of trading addition. However, in respect of disallowance made of interest under section 14A was partly confirmed by ld. CIT (A) and in respect of disallowance of remuneration of Rs. 1,32,957/-, ld. CIT (A) deleted disallowance by following earlier order. ld. CIT (A) also deleted disallowance of Rs. 29,31,270/- in respect deduction under section 80IA. 3. Aggrieved by this order, both assessee and revenue have filed present appeals. 4. only ground in assessee s appeal is against confirming disallowance under section 14A of Act in respect of interest component. 4.1. ld. Counsel for assessee has reiterated submissions as made in written submission. ld. Counsel submitted that law is well settled that if assessee is having sufficient interest free funds available, it would be presumed that investment is made out of interest free funds. ld. Counsel submitted that issue is otherwise squarely covered by decision of Coordinate Bench of Tribunal in assessee s own case pertaining to A.Ys. 2007-08 and 2008-09. ld. Counsel has drawn our attention to decision rendered in 4 ITA No. 172(6)/JP/2013 M/s. Vijay Industries. ITA Nos. 787 & 825/JP/2011 and ITA Nos. 828 & 935/JP/2011 pertaining to A.Ys. 2007-08 and 08-09 respectively. 4.2. On contrary, ld. D/R opposed submissions of ld. Counsel for assessee. He submitted that it was incumbent upon assessee to establish nexus that investment is made out of interest free funds. 4.3. We have heard rival contentions, perused material available on record and gone through orders of authorities below. We find that Coordinate Bench in ITA No. 787/JP/2011 and ITA No. 825/JP/2011 has decided issue by observing as under :- 10. We have heard both sides on issue. After hearing both sides, we find that CIT (A) has rightly deleted addition for wrongly invoking provisions of section 14A of Act in respect of investment made in property at Hanuman Nagar, Jaipur. assessee has offered rental income of Rs. 2,16,000/- from said property, therefore, investment in said property cannot come under provisions of section 14A of Act. 10.1. However, with respect to investment in shares of Indian companies (Group Companies) of Rs. 18,77,160/-, we find that ITAT has given direction to AO to invoke provisions of section 14A only if relation of expenses of exempt income is established. After considering pleadings of both sides and case laws, we restore this issue to file of AO to decide afresh as per law. Since issue has been restored to file of AO to verify nexus between expenses and exempt income, facts in this year are identical and no change in facts and circumstances has been pleaded, therefore, taking consistent view, we restore this issue to file of AO to verify nexus between exempt income and expenses. This ground of assessee s appeal is allowed for statistical purposes. 5 ITA No. 172(6)/JP/2013 M/s. Vijay Industries. 5. Now we take up revenue s appeal in ITA No. 199/JP/2013. grounds raised by revenue are as under :- 1. Whether on facts and circumstances of case ld. CIT (A), Alwar was justified in deleting trading addition made by AO without appreciating facts that no laboratory test records were produced before AO. 2. Whether on facts and circumstances of case ld. CIT (A), Alwar was justified in deleting addition made by AO by disallowing excess remuneration for Rs. 11,32,957/- on insurance receipts without appreciating decision of Hon ble ITAT in case of Krishan Murari Agarwal vide ITA No. 64/JP/2007 dated 22.08.2008. 3. Whether on facts and circumstances of case ld. CIT (A), Alwar was justified in deleting addition made by AO on account of disallowance u/s 80IA amounting to Rs. 29,31,277/- without appreciating provisions of sub-section (5) of section 80IA of I.T. Act. 4. Whether on facts and circumstances of case ld. CIT (A), Alwar was justified in deleting addition made by AO on account of disallowance of interest expenses on investment of Rs. 65,65,000/- in house property, ignoring judgment of Hon ble Madras High Court in case of K. Somasundaram and Brothers vs. CIT, reported at 238 ITR 939. 6. In respect of all above grounds, ld. D/R supported order of AO and submitted that ld. CIT (A) was not justified in deleting addition/disallowances. 6.1. On contrary, ld. Counsel for assessee reiterated submissions as made in written submissions. He submitted that all these grounds have already been decided in favour of assessee vide various orders of Coordinate Benches of Tribunal, as mentioned in written submissions. 6 ITA No. 172(6)/JP/2013 M/s. Vijay Industries. 6.2. We have heard rival contentions and perused material available on record and gone through orders of authorities below. We find that all these grounds have already been decided by various Coordinate Benches of Tribunal in favour of assessee in assessee s own case. In respect of ground no. 1, Coordinate Bench in ITA No. 828/JP/2011 & ITA No. 787/JP/2011 in assessee s own case has decided issue in para 6 of its order by observing as under :- 6. We have heard both sides on issue. We have also gone through various case laws relied upon. In assessee s own case for assessment year 2006-07, while deciding ITA No.902 & 952/JP/2010 dated 23.09.2011, ITAT upheld order of CIT (A) for deleting addition. Respectfully following aforesaid decision of ITAT, we find no merits in this ground of revenue s appeal and this ground is dismissed. Therefore, respectfully following decision of Coordinate Bench, rendered in assessee s own case, we do not find any infirmity in order of ld. CIT (A), same is hereby upheld. Ground no. 1 of revenue is dismissed. 7. Ground no. 2 relates to deletion of disallowance of excess remuneration. 7.1. We find that this issue is squarely covered by decision of Coordinate Bench in assessee s own case in ITA No. 935/JP/2011. Coordinate Bench has decided issue in para 28 of its order by observing as under :- 28. We have heard both sides on this issue. We have also gone through material available on record, order of authorities below and also gone through order of ITAT, Jaipur Bench, Jaipur in case of S.P. Equipment, cited supra. We find that this issue is covered against revenue by decision of ITAT, Jaipur Bench, Jaipur. ITAT in aforesaid order held as under :- 7 ITA No. 172(6)/JP/2013 M/s. Vijay Industries. As per s. 40(b)(v)(2), allowable deduction is to be computed as per given percentage with reference to amount of "book profit". Book profit has been defined under Expln. 3 to mean net profit as shown in P&L a/c for relevant previous year, computed in manner laid down in Chapter IV-D as increased by aggregate amount of remuneration.......... bare reading of Expln. 3 makes it evident that selection of any head of income, more particularly of head "Profits and gains of business or profession", is nowhere required or envisaged by legislature. In other words, there is no warrant to select head of income so far as computation of permissible amount of deduction of remuneration under s.40(b) is concerned. It is not basically dispute between parties to tax receipts under particular head. legislature in its wisdom, having given specific definition of book profit in Expln. 3, there is no warrant to go beyond definition. In other words, net profit as shown has been subjected to two adjustments i.e., one, to be computed in manner laid in Chapter IV-D viz. disallowable expenditure to be added and second, such net profit to be increased by amount of remuneration, if already debited in P&L a/c. There is no substance in contention of Departmental Representative that simply because profit has to be computed in manner laid down in Chapter IV-D, part of receipt credited to P&L a/c should be assessed under particular head of income as classified under s. 14. On contrary, Explanation does not at all require selection of head of income under s. 14 for this purpose. Therefore, once assessee has shown net profit in its P&L a/c, what is required is only few adjustments thereto as required/permitted by law. This should not be confused with selection of head/s of income. qualifying words used in said Expln. 3 "computed in manner laid down in Chapter IV-D" has been purportedly used by legislature so as to ensure that all inadmissible expenditure though debited to P&L a/c should be added back so that real operational profits earned by assessee firm by collective efforts of partners be made basis to compute allowable remuneration with reference thereto only. It is under 8 ITA No. 172(6)/JP/2013 M/s. Vijay Industries. this background, legislature has not authorized exclusion of such receipts from P&L a/c even though may be non-business receipts. This theory also fits in underlying purpose of forming partnership firm and relations defined under s. 4 of Partnership Act. Explanation 3 nowhere empowers AO or AO does not get jurisdiction to go behind net profit shown in P&L a/c except to extent of adjustments provided in Expln. 3, nor he is empowered to decide under which head income is to be taxed. net profit as shown, is not to be allocated into different components. dispute relating to allowability of deduction of remuneration under s. 40(b) falls within group of ss. 28 to 44DB, falling under Chapter IV-D titled as "Profits and gains income of business or profession". Moreover, s. 40(b) starts with words, "notwithstanding anything to contrary in ss. 30 to 38, following amounts shall not be deducted in computing income chargeable under head 'Profits and gains of business or profession'." Therefore, it is pre-supposed that AO was already working under head profits and gains/income from business and profession only and not under different head. Thus, it is not stage of selection of proper head under s. 14. Above view also finds support from definition of partnership provided under s. 4 of Indian Partnership Act, 1932, which reads that "partnership is relation between persons who have agreed to share profit of business carried on by all or any of them acting for all". computation of remuneration to partners concerns relationship of partners. net profit declared in P&L a/c by partners is result of profit of business carried on by all or any of them acting for all. Since book profit has been defined to be net profit shown by partners in P&L a/c of firm, it is profits which partners have agreed to share and therefore, also such net profit has to be considered as business income and in any case at least for purpose of s. 40(b). provisions contained under s. 28(v) also support this view. Any interest, salary, bonus, commission or remuneration, by whatever name called, due to, or received by, partner of firm, despite their name and nature, shall be 9 ITA No. 172(6)/JP/2013 M/s. Vijay Industries. chargeable to income-tax under head "Profits and gains of business or profession". Needless to say, what partner shares is only share out of very net profit as shown by firm in P&L a/c. lf nature of income has been deemed by legislature to be business income by recipient, source also should bear same character i.e., business income. golden rule of interpretation is contextual interpretation. word has always to be interpreted only with context with which one is seized. Interpretation of provisions otherwise or way AO has done, if accepted, has effect of rendering very Expln. 3 totally nugatory or purposeless. Needless to say, that every word used by legislature is significant and cannot be lost sight of. AO was required to have computed book profit as per specific definition given under Expln. 3 below s. 40(b). Consequently, interest income be not excluded and net profit as declared by appellant be considered. In other words, impugned disallowance made because of different approach adopted by AO and confirmed by CIT(A), is hereby deleted. Respectfully following aforesaid order of ITAT, Jaipur Bench, Jaipur, we dismiss this ground of revenue s appeal. Therefore, respectfully following decision of Coordinate Bench, rendered in assessee s own case, we do not find any infirmity in order of ld. CIT (A), same is hereby upheld. Ground no. 2 of revenue is dismissed. 8. Ground No. 3 relates to deletion of disallowance under section 80IA of Act. 8.1. We find that this issue is squarely covered by decision of Coordinate Bench in assessee s own case in ITA No. 935/JP/2011. Coordinate Bench has decided issue in para 29 of its order by observing as under :- 10 ITA No. 172(6)/JP/2013 M/s. Vijay Industries. 29. In ground no.3 of revenue s appeal in ITA No.935/JP/2011, issue is deleting disallowance u/s 80IA on wind mills. This issue has been discussed by us above in para nos.15 to 20 in ITA No.828/JP/2011 for assessment year 2007-08 of this order and ground is dismissed. Following our observations made as above, we delete this ground of revenue s appeal. Respectfully following decision of Coordinate Bench, rendered in assessee s own case, we do not find any infirmity in order of ld. CIT (A), same is hereby upheld. Ground no. 3 of revenue is dismissed. 9. Ground No. 4 relates to deletion of disallowance of interest expenses with reference to investment in house property. 9.1. We have already dealt with this issue in assessee s appeal in ITA No. 172/JP/2013 in para 4.3 above and restored issue to file of AO to decide afresh as per law. issue is decided accordingly. 10. In result, appeal of revenue is dismissed. ITA Nos. 629/JP/2014 & 112/JP/2016 (Assessee s Appeal) ITA Nos. 646/JP/2014 & 213/JP/2016 (Revenue s Appeal) 11. issues involved in these four appeals are exactly same as involved in ITA Nos. 172/JP/2013 (Assessee) and ITA No. 199/JP/2013 (Revenue). We have arrived at decisions in these two appeals by following Coordinate Bench decisions referred above. Therefore, following decisions arrived at above, appeals of assessee are partly allowed whereas appeals of revenue are dismissed. 12. In totality, appeals of assessee are partly allowed and appeals of revenue are dismissed. 11 ITA No. 172(6)/JP/2013 M/s. Vijay Industries. Order is pronounced in open court on 21.10.2016. Sd/- Sd/- ( HkkxpUn ( dqy Hkkjr) ( BHAGCHAND) ( KUL BHARAT ) ys[kk lnL;@Accountant Member U;kf;d lnL;@Judicial Member Jaipur Dated:- 21/10/2016. Das/ vkns'k dh izfrfyfi vxzsf"kr@Copy of order forwarded to: 1. Appellant- M/s. Vijay Industries, Alwar. 2. Respondent ACIT Circle-1/DCIT Central Circle, Alwar. 3. CIT(A). 4. CIT, 5. DR, ITAT, Jaipur 6. Guard File (ITA No. 172(6)/JP/2013) vkns'kkuqlkj@ By order, lgk;d iathdkj@ Assistant. Registrar 12 ITA No. 172(6)/JP/2013 M/s. Vijay Industries. M/s. Vijay Industries v. Asstt. Commissioner of Income-tax, Circle-1 Alwar