Income Tax Appellate Tribunal - Ahmedabad
The Dy. Cit, Circle-1(1)(2),, ... vs M/S. Corrtech Energy Ltd.,, Ahmedabad on 3 February, 2021
IN THE INCOME TAX APPELLATE TRIBUNAL
AHMEDABAD "D" BENCH
(Virtual Court)
Before: Shri Rajpal Yadav, Vice President
And Shri Amarjit Singh, Accountant Member
ITA No. 1103/Ahd/2017
Assessment Year 2012-13
The DCIT, Corrtech Energy
Cir. 1(1)(2), Ltd., 22, Dhara
Ahmedabad Vs Centre, Near Vijay
(Appellant) Char Rasta,
Navrangpura,
Ahmedabad
PAN: AAACI8838F
(Respondent)
Revenue by: Shri Rajdeep Singh, Sr. D.R.
Assessee by: Shri Tushar Hemani, Sr. A.R.
And Shri Parimal Sinh Parmar, A.R.
Date of hearing : 22-01-2021
Date of pronouncement : 03-02-2021
आदे श/ORDER
PER : AMARJIT SINGH, ACCOUNTANT MEMBER:-
This assessee's appeal for A.Y. 2012-13, arises from order of the CIT(A)-1, Ahmedabad dated 27-02-2017, in proceedings under section 143(3) of the Income Tax Act, 1961; in short "the Act".
2. The assessee has raised following rounds of appeal:-
"(a) That the ld. CIT(A) erred in law and on facts in deleting the addition of Rs. 1,32,900/- made u/s 14A of the I.T. Act.I.T.A No. 1103/Ahd/2017 A.Y. 2012-13 Page No 2
Dy. CIT vs. Corrtech Energy Ltd.
(b) That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs.3,23,597/- made u/s 36(l)(iii) of the I.T. Act on account of disallowance of interest.
(c) That the ld.CIT(A) erred in law and on facts in deleting the addition of Rs,3,41,l8,332/- made u/s 2(22)(e) of the I.T. Act. on account of deemed dividend. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Officer to the extent mentioned above since the assessee has failed to disclose his true income/book profit."
3. The fact in brief is that return of income declaring loss of Rs. (- )1,85,25,248/- was filed on 30th Sep, 2012. Subsequently, the case was selected under scrutiny by issuing of notice u/s. 143(2) of the Act on 12th August, 2013. Assessment order u/s. 143(3) of the Act was finalized on 4th March, 2015. The Assessing Officer has made disallowance of 1,32,900/- u/s. 14A r.w.s. 8D of the I.T. Rule 1962, disallowance interest of Rs. 3,23,597/- u/s. 36(1)(iii) and disallowance of Rs. 3,41,18,332/- as deemed dividend u/s. 2(22)(e) of the I.T. Act, 1961. The assessee has contested these additions in appeal before the ld. CIT(A). The ld. CIT(A) has deleted all these additions made by the Assessing Officer. The grounds of appeal of the Revenue against deleting these additions are adjudicated as under:-
Ground No. 1 (Deleting addition of Rs. 1,32,900/- u/s. 14A of the Act)
4. During the course of assessment on verification of the balance sheet, the Assessing Officer has noticed that assessee has made substantial investment in shares as per P & L A/c and claimed interest expenditure incurred on loan but not made any disallowance u/s. 14A r.w.s. 8D of the I.T. Rule. On query, the assessee explained that it has not claimed any exempt income, therefore, disallowance the u/s. 14A r.w.r. 8D does not arise at all. The assessee has also submitted that the Hon'ble Gujarat High Court had adjudicated the similar issue on identical facts in the case of the assessee itself for assessment year 2009-10 holding that no addition u/s. 14A r.w.s.
I.T.A No. 1103/Ahd/2017 A.Y. 2012-13 Page No 3
Dy. CIT vs. Corrtech Energy Ltd.
8D is warranted. However, the Assessing Officer has not agreed with the submission of the assessee stating that section 14A r.w.s 8D provides for disallowance of expenditure even where taxpayer in a particular year has not earned exempt income.
5. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee after following the decision of Hon'ble Gujarat High Court in the case of the assessee itself pertaining to assessment year 2009-10.
6. Heard both the sides and perused the material on record. It is undisputed fact that the assessee has not received any exempt income during the year under consideration. The Hon'ble Gujarat High Court in the case of the assessee itself vide CIT vs. Corrteck Engineering Pvt. Ltd. 372 ITR 97 has held that in absence of exempt income disallowance u/s. 14A is unwarranted. Taking into consideration, the decision of Hon'ble Jurisdictional High Court, we do not find any infirmity in the finding of ld. CIT(A). Therefore, this ground of appeal of the revenue is dismissed.
Ground No. 2 ( Deleting addition on interest expenses of Rs. 3,23,597/- u/s. 36(1)(iii) of the Act)
7. During the course of assessment, the Assessing Officer noticed that assessee company has given interest free advances of Rs. 26,96,648/- to its related company namely Crosstown Power Pvt. Ltd. The Assessing Officer has issued show cause notice to the assessee to explain as to why interest expenses should not be disallowed to the extent of interest free advances I.T.A No. 1103/Ahd/2017 A.Y. 2012-13 Page No 4 Dy. CIT vs. Corrtech Energy Ltd.
given by the assessee. The assessee explained that out of total amount of Rs. 2,95,51,778/- an amount of 26,90,648/- has been given as a loan to Crosstown Power Pvt. Ltd. and the remaining amount were advanced as security deposit for securing tenders or capital advances towards acquisition of machineries and assets. The Assessing Officer has not accepted the submission of the assessee and determined interest of Rs. 3,23,597/- @ 12% on the loan amount of Rs. 26,96,648/- advanced to its associated concern.
8. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assessee after following the decision of Co-ordinate Bench of the ITAT in the case of the assessee itself on similar issue and identical facts pertaining to assessment year 2009-10 vide ITA No. 1650/Ahd/2012 dated 31st October, 2011 holding that assessee company had sufficient interest free funds.
9. Heard both the sides on this issue. During the course of assessment, the Assessing Officer noticed that assessee has given interest free advance of Rs. 26,96,648/- to its related company namely Crosstown Power Pvt. Ltd.. The Assessing Officer had made disallowance of Rs. 3,23,597/- u/s. 36(1)(iii) of the Act. The ld. CIT(A) has deleted the disallowance after following the decision of Co-ordinate Bench of the ITAT in the case of the assessee itself on identical issue and facts pertaining to assessment year 2009-10 vide ITA No. 1650/Ahd/12. On perusal of the material on record, it is noticed that assessee was having substantial interest free fund evident from annual accounts placed as annexure A in the submission of the assessee as under:-
I.T.A No. 1103/Ahd/2017 A.Y. 2012-13 Page No 5Dy. CIT vs. Corrtech Energy Ltd.
Share capital Rs. 2,10,00,000/-
Reserves & Surplus Rs. 27,05,05,249/-
Total Rs. 29,15,05,249/-
It is demonstrated from the account of the assessee that it was having interest free fund of Rs. 29,15,05,249/- as against interest free loan of Rs. 26,96,648/-. We have also considered the judicial pronouncements referred by the ld. counsel in the case of CIT vs. Reliance Industries Ltd. 410 ITR 466 (SC), CIT vs. Torrent Power Ltd. - 363 ITR 474 (Guj.), CIT vs. Suzlon Energy Ltd. -
354 ITR 630 (Guj), CIT vs. Gujarat Power Corporation Ltd.-352 ITR 583 (Guj), CIT vs. Reliance Utilities Power Ltd. - 313 ITR 340 (Bom) and Munjal Sales Corporation vs. CIT- 298 ITR 298 (SC). particularly on the issue that when assessee has substantial interest free funds disallowance u/s. 36(1) (iii) is unwarranted. In the light of the above facts and findings, we do not find any error in the decision of ld. CIT(A). Therefore, this ground of appeal of the revenue is dismissed.
Ground No. 3 ( Deleting addition of Rs. 3,41,18,332 u/s. 2(22)(e) of the Act)
10. During the course of assessment, the Assessing Officer noticed that during the year the assessee company had received an amount of Rs. 3,33,33,000/- from Corrteck International Pvt. Ltd. and Rs. 7,85,332/- from Crosstown Power India Pvt. Ltd. and both these companies were having substantial interest in the assessee company within the meaning u/s. 2(22)(e) of the Act. The Assessing Officer was of the view that when one subsidiary I.T.A No. 1103/Ahd/2017 A.Y. 2012-13 Page No 6 Dy. CIT vs. Corrtech Energy Ltd.
company receives loan and advances from another subsidiary company the provision of section 2(22)(e) of the Act are attracted. Therefore, the loan and advances of Rs. 3,41,18,332/- from Corrteck International and Crosstown India Pvt. Ltd. during the year was treated as deemed dividend within the meaning of section 2(22)(e) of the act and added to the total income of the assessee.
11. Aggrieved assessee has filed appeal before the ld. CIT(A). The ld. CIT(A) has deleted the addition after following the decision of Co-ordinate Bench of the ITAT on similar issue and identical facts in the case of the assessee itself for assessment year 2009-10 since the assessee company was not a shareholder in the Corrteck International Pvt. Ltd. and in the Crosstown Power India Pvt. Ltd.
12. Heard both the sides and perused the material on record. During the course of assessment, the Assessing Officer noticed that assessee has received funds from Corrteck International Pvt. Ltd. to the amount of Rs. 3,33,33,000/- and an amount of Rs. 7,85,332/- from Crosstown Power India Pvt. Ltd. totaling to Rs. 3,45,18,232/-. The Assessing Officer has made addition of Rs. 3,41,18,332/- u/s. 2(22)(e) of the Act as deemed dividend on the ground that the assessee company was a subsidiary of Corrteck Energy Ltd. and Crosstown Power India Pvt. Ltd. was a subsidiary of Corrteck International Pvt. Ltd. During the course of appellate proceedings, the ld. counsel has placed reliance on the following judicial pronouncements:-
DCIT vs. Corrtech Energy Ltd. ITA 1970/Ahd/2015 and others, M/s. Precimetal Cast. Pvt. Ltd. vs. ITO -ITA 3499/ahd/2015, I.T.A No. 1103/Ahd/2017 A.Y. 2012-13 Page No 7 Dy. CIT vs. Corrtech Energy Ltd.
ACIT vs. Leela Ship Recycling Pvt. Ltd. ITA 1658/Ahd/2012, CIT vs. Mahavir Inducto Pvt. Ltd. -Tax Appeal 891 of 2016, ACIT vs. Bhaumik Colors Pvt. Ltd. -118 ITR 1 (Mum)(SB) & CIT vs. Ankitech (P.) Ltd.- 340 ITR 14 (Del) The identical issue on similar fact has been adjudicated by the Co-ordinate Bench of the ITAT in the case of M/s. Precimetal Casts Pvt. Ltd. vs. ITO vide ITA No. 3499/ahd2015 dated 16-12-2020 after following the decision of Jurisdictional High Court in the case of Pr. CIT vs. Mahavir Inducto Pvt.ltd. dated 12th Jan, 2017 holding that for the applicability of section 2(22)(e) it is required that the assessee company must be a share holder in the company from whom the loan or advances has been taken and it does not provide that any share holders in the assessee company who had taken any loan or advance from another company in which such share holder is also a share holder having substantial interest. The relevant part of the decision is reproduced as under:-
"7. Heard both the sides and perused the material on record. The Assessing Officer noticed that assessee company has obtained unsecured loan from Gaurav Securities Pvt. Ltd. wherein one of the main shareholders of the assessee company Shri Umesh Bhatiya was holding substantial shares in Gaurav Securities Pvt. Ltd. Looking to the above facts, the Assessing Officer has made an addition to the extent of Rs. 13,21,198/- being accumulated profit of Gaurav Security Pvt. Ltd. for the reason that section 2(22)(e) prohibits advancing money among entities having common shareholders with substantial interest in the case of closely held company having accumulated profit. After perusal of the judicial pronouncements it is noticed that identical issue on common facts have been adjudicated by the Co-ordinate Bench of the ITAT Ahmedabad in the case of ACIT vs. Leela Ship Recyling Pvt. Ltd. vide ITA No. 1658/Ahd/2012 dated 12th March, 2020 and by the Jurisdictional High Court in the case of Pr. CIT vs. Mahavir Inducto Pvt. Ltd. dated 12-01-2017. With the assistance of ld. representatives, we have gone through the aforesaid two judicial pronouncements, it is noticed that in the case of ACIT vs. Leela Ship Recycling Pvt. Ltd. supra the Co-ordinate Bench of the ITAT has adjudicated the identical issue on same facts as under:-
"4. We have heard the rival contentions, perused the material on record and duly considered facts of the case and the applicable legal position.
5. Learned representatives fairly agree that the issue in appeal is now covered by Hon'ble jurisdictional High Court's judgment in the case of CIT Vs Mahavir Inductomelt Pvt Ltd (TA No. 890 of 2011; judgment dated 13th January 2017) wherein Their Lordships have extensively reproduced from Hon'ble Delhi High Court's judgment in the case of Anitech Pvt Ltd (supra), and concurred with the same. Thus, in a case in which an amount is received from a person other than the shareholder, as is the admitted position I.T.A No. 1103/Ahd/2017 A.Y. 2012-13 Page No 8 Dy. CIT vs. Corrtech Energy Ltd.
in this case, the provisions of Section 2(22)(e) cannot indeed be invoked. The CIT(A) was thus justified in granting the impugned relief in respect of the addition under section 2(22)(e). We, therefore, approve the conclusion arrived at by the learned CIT(A) in this regard, and decline to interfere in the matter on that count."
We have also through the decision of Hon'ble Gujarat High Court in the case of Pr. CIT vs. Mahavir Inducto Pvt. Ltd. supra wherein the identical issue on same facts was decided in favour of the assessee after following the decision of Bombay High Court in the case of CIT vs. Impact Containers Pvt. Ltd. and others vide IT Appeal No. 114 of 2012 and the decision of Delhi High Court in the case of CIT vs. Ankitech Pvt. Ltd. Ltd. reported in 340 ITR 14 Delhi. The relevant part of the decision is reproduced as under:-
"50. Identical question came to be considered by the Division Bench of this Court in Tax Appeal No. 253 of 2015. After considering the decisi on of the Bombay High Court in the case of CIT vs. Impact Containers Private Limited & ors rendered in ITA No. 114 of 2012 and the decision of the Delhi High Court in theca se of CIT vs. Ankitech Pvt Ltd reported in 340 ITR 14 (Del) and on interpreting Section 2 (22)(e), in para 4 has observed and held as under:
"4.Shri Bhatt, learned Counsel appearing on behalf of the revenue has as such tried to justify the decision of the Delhi Court in the case of Ankitech Pvt. Ltd. (Supra) and has vehemently submitted that the Delhi High Court has not considered the third category i.e. shareholder in the assessee Company holding not less than 10% of the voting power in the Company from whom the loan or advance is taken. However, on considering Section 2(22)(e) of the Act, we are not at all impressed with the aforesaid. If the contention on behalf of the revenue is accepted, in that case, it will be creating the third category / class, which is not permissible. What is provided under Section 2(22) (e) of the Act seems to be that the assessee HC-NIC Page 4 of 5 Created On Sat Aug 12 04:34:00 IST 2017 O/TAXAP/891/2016 JUDGMENT Company must be a shareholder in the Company from whom the loan or advance has been taken and should be holding not less t han 10% of the voting power. It does not provide that any shareholder in the assesseeCompany who had taken any loan or advance from another Company in which such shareholder is also a shareholder having substantial interest, Section 2(22)(e) of the act may be applicable.
5.1. Considering the aforesaid decision of the Division Bench of this Court and the facts narrated herein above, more particularly,considering the fact that the assessee was not share holder of Mahavir Rollin g Mills Pvt Ltd to whom loan was given, it cannot be said that the learned Tribunal has c ommitted any error in deleting the addition made by the Assessing Officer on deemed dividend."
In view of the findings as supra Hon'ble Jurisdictional High Court wherein it is held that for the applicability of section 2(22)(e), it is required that the assessee company must be a shareholder in the company from whom the loan or advance has been taken and it does not provide that any shareholder in the assessee company who had taken any loan or advance from another company in which such shareholder is also a shareholder having substantial interest.
I.T.A No. 1103/Ahd/2017 A.Y. 2012-13 Page No 9Dy. CIT vs. Corrtech Energy Ltd.
Since the facts of the case of the assessee are squarely covered by the aforesaid decisions of Hon'ble High Court and Co-ordinate Bench of the ITAT, the impugned addition is deleted. Accordingly, this ground of the assesse is allowed."
Taking into consideration the findings of the Co-ordinate Bench as supra, we do not find any error in the decision of the ld. CIT(A). Therefore, this ground of appeal of the Revenue stands dismissed.
13. In the result, the appeal of the revenue is dismissed.
Order pronounced in the open court on 03-02-2021
Sd/- Sd/-
(RAJPAL YADAV) (AMARJIT SINGH)
VICE PRESIDENT ACCOUNTANT MEMBER
Ahmedabad : Dated 03/02/2021
आदे श क त ल प अ े षत / Copy of Order Forwarded to:-
1. Assessee
2. Revenue
3. Concerned CIT
4. CIT (A)
5. DR, ITAT, Ahmedabad
6. Guard file.
By order/आदे श से,
उप/सहायक पंजीकार
आयकर अपील य अ धकरण,
अहमदाबाद