ITA No.433 of 2010 IN HIGH COURT OF PUNJAB AND HARYANA AT CHANDIGARH ITA No.433 of 2010 Date of decision: 17.4.2017 M/s Nahar Spinning Mills Limited . Appellant Vs. Commissioner of Income Tax, Ludhiana ..Respondent CORAM: HON BLE MR. JUSTICE AJAY KUMAR MITTAL HON BLE MR. JUSTICE RAMENDRA JAIN Present: Mr. Sanjay Bansal, Sr. Advocate with Mr.Amit Parshad, Advocate for appellant-assessee. Mr. Rajesh Katoch, Senior Standing Counsel for respondent- revenue. Ajay Kumar Mittal,J. 1. This appeal has been preferred by assessee under Section 260A of Income Tax Act, 1961 (in short, Act ) against order dated 23.9.2009, Annexure A.3 passed by Income Tax Appellate Tribunal, Bench, Chandigarh (in short, Tribunal'), for assessment year 2006-07, claiming following substantial questions of law:- a) Whether on facts and in circumstances of case, Tribunal was legally correct in holding that disallowance of ` 1,35,270/- made under Section 14A of Act on estimation basis for earning dividend income which was exempt under section 10(34) [wrongly mentioned as (33)] of Act inspite of fact that no expenses were 1 of 7 ::: Downloaded on - 02-06-2017 10:20:17 ::: 2 ITA No.433 of 2010 incurred by appellant for earning said dividend income? b) Whether on facts and circumstances of case, Tribunal was legally correct in holding that estimation made by Assessing Officer of expenditure such as printing and stationery, postage and telegraph expenses and auditor s remuneration have any nexus to earn dividend income? c) Whether on facts and in circumstances of case, appellate Tribunal was justified in law in holding that sum of ` 12,20,670/- being value of 8860 pieces sent to Prime Minister Relief Fund for earthquake in Jammu and Kashmir was eligible for deduction under section 37 of Act 1961? d) Whether on facts and circumstances of case, Tribunal was legally correct in negating claim of appellant under section 80G of Act in respect of donation made by it towards Prime Minister Relief Fund for Jammu & Kashmir Earthquake Relief at call given by government authorities? 2. few facts relevant for decision of controversy involved as narrated in appeal may be noticed. assessee-company is engaged in business of manufacture and trading of textiles hosiery garments, yarn and knitted clothes. It filed its e-return of income tax on 22.11.2006 declaring total income of ` 12,81,94,033/- and paper return was filed on 29.12.2006 which was in time. During relevant assessment year, appellant had shown dividend income of ` 2,85,44,745/- on investments. During assessment proceedings, Assessing Officer directed assessee to work out expenses incurred to earn dividend 2 of 7 ::: Downloaded on - 02-06-2017 10:20:18 ::: 3 ITA No.433 of 2010 income which was claimed to have been exempt under section 10(34) of Act and also to give explanation as to why disallowance under section 14A of Act should not be made. assessee replied that no expenses were incurred to earn said dividend income and therefore no expenses could be disallowed under section 14A of Act. Assessing Officer rejected plea of assessee and estimated amount out of administrative expenses on proportionate basis and disallowed ` 1,35,270/- on basis of decision of Tribunal in case of M/s Nahar Industrial Enterprises Limited for assessment year 1997-98. In first appeal before Commissioner of Income Tax (Appeals) [CIT(A)], order passed by Assessing officer was sustained. Tribunal in its order dated 23.9.2009 in second appeal filed by assessee also sustained disallowance made by Assessing Officer on estimate basis and without any nexus of expenditure vis-a-vis dividend income earned by appellant. Further, assessee claimed deduction of ` 12,20,670/- under section 37(1) of Act on account of contribution made by assessee of 8860 pieces of woolen hosiery garments towards Prime Minister s Relief Fund. During assessment proceedings, explanation alongwith documentary evidence was filed vide letter dated 10.12.2007 which had been reproduced by Assessing Officer in its assessment order. In same letter, alternative claim was also made by assessee that since donation was made towards Prime Minister s Relief fund out of amount recoverable from institution and was debited to Donation account, therefore deduction under Section 80G of Act may be allowed. Assessing Officer rejected claim of assessee and made addition of ` 12,20,670/- to total income of assessee. CIT(A) in first appeal sustained order of Assessing Officer on basis of order passed by Tribunal in 3 of 7 ::: Downloaded on - 02-06-2017 10:20:18 ::: 4 ITA No.433 of 2010 assessee s own case for assessment year 2000-01. Tribunal also dismissed appeal of assessee on this issue by following its own order in ITA No.595/CHD/2005 dated 14.9.2007. Hence instant appeal by assessee. 3. We have heard learned counsel for parties. 4. With regard to Question (a) & (b) relating to disallowance of ` 1,35,270/- made under section 14A of Act for earning dividend income which was exempt under section 10(34) of Act, Assessing Officer had recorded that assessee had incurred certain expenses for earning said dividend income which were inadmissible in view of Section 14A of Act. Assessing Officer after considering totality of facts and circumstances had disallowed ` 1,35,270/- under Section 14A of Act following decision of Tribunal in case of M/s Nahar Industrial Enterprises Limited for assessment year 1997-98 on similar grounds. On appeal by assessee, disallowance of ` 1,35,270/- made by Assessing Officer under Section 14A of Act was upheld. Further appeal carried by assessee to Tribunal was rejected and order of Assessing Officer and CIT(A) was upheld on this count. It has been recorded by Tribunal that disallowance had been computed on reasonable basis and same did not show any irrational or irrelevant considerations. Thus, Tribunal did not interfere with determination of amount as made by Assessing Officer and CIT(A). relevant findings recorded by Tribunal on this issue read thus:- We have considered rival submission carefully. We find that quantum of disallowance has been considered by CIT(Appeals) in Para 3.3 of his order as under:- Coming to quantum of disallowance, Addl. CIT has worked out such disallowance on basis of very 4 of 7 ::: Downloaded on - 02-06-2017 10:20:18 ::: 5 ITA No.433 of 2010 logical and scientific method following decision of Hon ble jurisdictional ITAT in case of Nahar Industrial Enterprises Limited for assessment year 1997-98. Though in written submissions it is contended that printing and stationery as well as postage and telegram expenses have no nexus vis vis earning of dividend income and that therefore, expenses mentioned in these items should be excluded while computing disallowance under section 14A of Act, this contention of learned AR cannot be accepted. It is seen that in case of M/s Nahar Industrial Enterprises for assessment year 1997- 98, which has been relied upon by Addl. CIT, Hon ble jurisdictional bench of ITAT Chandigarh has considered administrative expenses under these two heads also for necessary disallowance under provisions of Section 14A of Act. Hon ble ITAT has therefore not held that these expenses had no nexus vis vis earning of dividend income. Therefore, Addl. CIT was fully justified in considering even expenses under these two heads of computing proportionate disallowance under section 14A of Act. In view of above discussion, disallowance of ` 1,35,270/- made by AO under provisions of Section 14A of Act is upheld. This ground of appeal is therefore dismissed. 7. We have considered discussion made by CIT(Appeals). Ostensibly, exercise of ascertaining expenditure in relation to exempt income does involve element of estimation, which in present case has been resorted to by income tax authorities. assessee does not challenge approach in principle, but only seeks to lower estimation. In this content, we find that disallowance has been computed on reasonable basis and same does not show any irrational or irrelevant considerations. In our considered opinion, no interference is called for in estimation made by CIT(Appeals). Infact, CIT(Appeals) has also considered reliance placed by assessee on 5 of 7 ::: Downloaded on - 02-06-2017 10:20:18 ::: 6 ITA No.433 of 2010 decision of Tribunal in case of M/s Nahar Industrial Enterprises Limited (supra) and has appropriately dealt with same. We find no reasons to interfere with decision of CIT(Appeals). Accordingly, on this ground assessee fails. Learned counsel for appellant-assessee has not been able to show that findings recorded by Tribunal are illegal or perverse warranting interference by this Court. judgments at Annexures A.6 and A.7 in ITA No.504 of 2008 (CIT vs. Winsome Textile Industries Limited) decided on 25.8.2009 and ITA No.331 of 2009 (CIT vs. Hero Cycles Limited) decided on 4.11.2009 relied upon by learned counsel for assessee being based on individual fact situation involved therein, no advantage can be derived therefrom. Accordingly, no substantial question of law arises. 5. Examining question (c), same is covered by judgment of this Court against assessee in ITA No.69 of 2008 (M/s Nahar Spinning Mills Limited vs. Commissioner of Income Tax, Ludhiana) decided on 28.7.2014. 6. Adverting to question (d), assessee had made donation by way of clothes towards Prime Minister Relief Fund for Jammu and Kashmir Earthquake Relief. deduction under Section 80G of Act was declined by Tribunal. Learned counsel for assessee was unable to show in light of Explanation 5 to Section 80G which was inserted by Finance Act 1976 effective from 1.4.1976 that deduction was admissible. Learned counsel for assessee argued that sum and substance of transaction is to be seen and amount was forgone and not goods. Therefore, it was in nature of cash and not goods. It would be apt to reproduce Explanation 5 to Section 80G of Act:- Explanation 5 For removal of doubts, it is hereby declared 6 of 7 ::: Downloaded on - 02-06-2017 10:20:18 ::: 7 ITA No.433 of 2010 that no deduction shall be allowed under this section in respect of any donation unless such donation is of sum of money. In view of above, assessee could not claim deduction under Section 80G of Act in respect of donations by way of clothes sent to Prime Minister Relief fund for Gujarat Earthquake relief same being in kind and not in cash, cheque or draft. Tribunal was right in declining benefit under Section 80G of Act. In view of express provision contained in Explanation 5 to Section 80G of Act, once it was goods, no deduction was admissible. Similar view has been expressed by this Court in case of assessee in ITA No. 69 of 2008 (M/s Nahar Spinning Mills Limited Vs. Commissioner of Income Tax, Ludhiana) decided on 28.07.2014. 7. Learned counsel for assessee has not been able to show any error in findings recorded by Tribunal. Consequently, no substantial question of law arises and appeal stands dismissed. (Ajay Kumar Mittal) Judge April 17, 2017 (Ramendra Jain) gs Judge Whether speaking/reasoned Yes Whether to be reportable Yes 7 of 7 ::: Downloaded on - 02-06-2017 10:20:18 ::: Nahar Spinning Mills Limited v. Commissioner of Income-tax, Ludhiana