Income Tax Appellate Tribunal - Chandigarh
Dcit, C-4, Ludhiana vs M/S Aarti Steels Limited, Ludhiana on 24 May, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ, "ए" च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH, 'A', CHANDIGARH
ी एन. के. सैनी, उपा य एवं ी संजय गग , या यक सद य
BEFORE SHRI N.K. SAINI, VICE PRESIDENT &
SHRI SANJAY GARG, JUDICIAL ME MBER
आयकर अपील सं./ ITA No. 9 6 / C H D / 2 0 1 8
नधा रण वष / Assessment Year : 2011-12
The DCIT, Circle-4, Vs. M/s Aarti Steels
Chandigarh बनाम Ltd.,G.T.Road, Miller Ganj,
Ludhiana
थायी ले खा सं . / PAN NO: AABCA4455D
अपीलाथ&/ Appellant ()यथ& / Respondent
Appeal against the order of CIT(A)-2, Ludhiana dated 31.3.2016
आयकर अपील सं./ ITA No. 9 7 / C H D / 2 0 1 8
नधा रण वष / Assessment Year : 2012-13
The DCIT, Circle-4, Vs. M/s Aarti Steels
Chandigarh बनाम Ltd.,G.T.Road, Miller Ganj,
Ludhiana
थायी ले खा सं . / PAN NO: AABCA4455D
अपीलाथ&/ Appellant ()यथ& / Respondent
Appeal against the order of CIT(A)-2, Ludhiana dated 23.3.2015
&
आयकर अपील सं./ ITA No. 1 5 2 1 / C H D / 2 0 1 7
नधा रण वष / Assessment Year : 2013-14
The DCIT, Circle-4, Vs. M/s Aarti Steels
Chandigarh बनाम Ltd.,G.T.Road, Miller Ganj,
Ludhiana
थायी ले खा सं . / PAN NO: AABCA4455D
अपीलाथ&/ Appellant ()यथ& / Respondent
Appeal against the order of CIT(A)-2, Ludhiana dated 18.04.2016
ITA Nos. 1521-c-17, 96 & 97-c-18
M/s Aarti Steels Ltd, Ludhiana
2
नधा +रती क- ओर से / Assessee by : Sh. Subhash Aggarwal,
Advocate
राज व क- ओर से / Revenue by : Sh. Ashish Gupta, CIT DR
& Smt.Chandrakanta, Sr.DR
सु न वाई क- तार1ख / Date of Hearing : 26.02.2019
उदघोषणा क- तार1ख/ Date of Pronouncement : 24.05.2019
आदे श/ Order
Per Sanjay Garg, Judicial Member:
The present appeals by Revenue have been preferred against the separate orders of the Commissioner of Income Tax (Appeals)-2, Ludhiana [hereinafter referred to as CIT(A)].
2. First, we shall take up the appeal for the assessment year 2011-12 in ITA No, ITA No. 96/Chd/2018, wherein, following grounds have been taken by the Revenue :-
ITA No. 96/Chd/2018
i. Whether on the facts and circumstances of the case and in law the CIT(A) has erred in deleting the addition made on account of deduction claimed of Rs. 25,72,43,366/- u/s 80IA of the Act, by relying on his decision for the A.Y. 2010-11 without appreciating that allocation of expenses was not proper and profit shown in power generating unit was unreasonable and excessive.
ii. Whether on the facts and circumstance of the case and in law the CIT(A) was justified in deleting the addition of Rs. 26,28,364/- u/s 14A of the Act, while failing to ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 3 appreciate the grounds of appeal for A.Y. 2008-09 filed in the Hon'ble Punjab & Haryana High Court, Chandigarh in the case of the assessee.
iii. Whether on the facts and circumstances of the case and in law the CIT(A) has erred in deleting an addition of Rs. 1,16,84,195/- u/s 36(l)(iii) of the Act, by relying on the decision in ITA No. 268/Chd/2015 dated 30.11.2015 for the A.Y. 2009-10 in the case of the assessee without appreciating that the issue u/s 36(l}(iii) was never a part of that order.
3. Ground. No.1 : The brief facts relevant to the issue are that the assessee company which is engaged in the business of manufacturing of Iron & Steel Products, Ferro Alloys & Generation and Distribution of Power, filed its return of income for the year under consideration on 29.09.2011 declaring therein an income of Rs.11,89,054/-. As the tax payable by the assessee company under the provisions of section 115JB of the Act was more than the tax payable under normal provisions of the Act, the assessee company paid tax on book profits of Rs.59,29,95,259/- under section 115JB of the Act. During the course of assessment proceedings, the Assessing Officer examined the profit & loss account of the 40MW Power Plant Unit of the assessee company which was claiming deduction under section 80IA of the Act and noticed that the profits shown by this unit were quite excessive. The Assessing Officer w as of the opinion that this reflection of excessive profits by the assessee company was resulting in the ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 4 abnormally high claim of deduction under section 80IA of the Act. Accordingly, the Assessing Officer vide his office letter dated 11.02.2014 asked the assessee company to justify its excessive and unreasonable profits shown from running of the 40 MW Power Plant Unit in Orissa as well as the excessive and unreasonable claim in respect of deduction under section 80IA of the Act which was claimed on the basis of Audit Report in Form No. 10C. In response to this, the assessee company submitted reply vide its letter dated 20.02.2014 justifying the profits of the unit and its claim of deduction. The Assessing Officer vide his office letter dated 25.02.2014 also made enquiries from the Auditor of the assessee company namely N.K. Bector, CA, asking him to explain certain issues with regard to the claim of the assessee company under section 80IA of the Act. In response to this, Sh. N.K. Bector, CA submitted his reply vide letter dated 03.03.2014 reaffirming his audit report. However, the reply furnished by the assessee company as well as by Sh. N.K. Bector, CA with regard to claim of deduction under section 80IA of the Act was not found to be satisfactory by the Assessing Officer. The Assessing Officer, therefore, denied entire claim of deduction of Rs,25,60,54,312/- claimed by the assessee company under section 80IA of the Act and made an addition to the same extent to the returned income of the assessee company as he was of the opinion that the assessee ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 5 company could not justify excessive and unreasonable profits shown from the running of 40MW Power Plant Unit.
Being aggrieved by the above additions made by the Assessing officer, the assessee preferred appeal before the CIT(A).
4. The Ld. CIT(A), however, deleted the additions so made by the Assessing officer, observing as under:-
" 5 . 2 I h a v e c o n s i d e r e d t h e o b s e r v a t i o n s o f t h e A s s e s s in g Officer as made by him in the assessment order while denying entire claim of deduction claimed by the assessee company under section 8OIA of the Act. I have also considered written submissions filed by the assessee company through its learned AR vide letters dated 09.09.2017 and 02.11.2017 on the issue under reference. I have further considered various judicial pronouncements relied upon by the learned AR of the assessee company as well as other material placed by him on record. On careful consideration of the assessment order, it has been noticed that the Assessing Officer has denied entire claim of deduction claimed by the assessee company under section 8OIA of the Act basically on the ground that the assessee company in his opinion has s hown excessive and unr eas onable profits from running of its 40MW Power Plant Unit, the profits of which are eligible for deduction under section 8OIA of the Act. The Assessing Officer is of the opinion that the assessee company has not properly allocated the expenses to its 40MW Power Plant Unit which resulted in excessive and unreasonable profits of its 40MW Power Plant Unit which are exempt under section 80IA of the Act. The main reasons for denying entire claim of deduction claimed by the assessee company under section 80IA of the Act which have been culled out from the assessment order are as under:-
ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 6
(a). The assessee company has not been able to justify the excessive and unreasonable profits as shown from the 40MW Power Plant Unit which are eligible for deduction under section 80IA of the Act.
(b) The assessee company has merely submitted that it was getting coal supply from Mahanadi Coal Fields Limited and that the said cost of coal w a s m u c h l o w e r th a n t h e c o s t o f a u c t i o n e d c o a l .
(c) The assessee company has also not submitted the Financial Statement of any comparative unit of any other company which was generating similar excessive profits.
(d) Regarding the close connection between the different units of the assessee company which include two steel manufacturing units and a power plant unit, the assessee company has not justified that as to why the huge amount of funds have been invested from M/s Aarti Steel Limited to its Power Plant unit, which was claiming deduction under section 801A of the Act without any interest or consideration.
(e) There is no working and allocation of interest expenses on secured/unsecured loans to the eligible unit i.e. 40MW Power Plant Unit.
(f) Although the sale of electricity by the eligible unit to the steel plants of the assessee company at Odisha has been done at market price but the transfer of funds from the parent unit to the eligible unit i.e. 40MW Power Plant Unit at Odisha have not been done as per the said principle.
ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 7
(g) The interest expenses which should have been allocated as per the market rate of borrowing for the eligible unit (had the eligible unit borrowed the said funds directly from the market without approaching Head Office) has not been done in case of the assessee company.
(h) Inspite of the opportunity been provided to the assessee company to establish the allocation of the interest expenses from the parent unit to the eligible unit neither any justifiable reply has been submitted nor the working of allocation of interest expenses by the CA has been submitted which means that the allocation of interest expenses to eligible unit has not been properly done which resulted in reduction of actual expenses of the eligible unit.
(i) The assessee company has also not allocated any notional amount of interest for the funds utilized for setting up the Power Plant which were taken from other units of the assessee company which was required to be done as per provisions of section 80IA(8) of the Act.
(j) The assessee company has not properly allocated other expenses to eligible unit thereby enhancing its profits eligible for deduction under section 80IA of the Act.
(k) The auditor has not submitted working sheets on the basis of which profits of the eligible unit as well as deduction under section 80IA of the Act have been computed.
(l) The Auditor has not submitted his reply with regard to allocation of interest expenses.
(m) The claim of deduction under section 80IA of the Act is without any justification. On the other ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 8 hand, the learned AR of the assessee company through its learned AR had submitted that the Assessing Officer has denied the entire claim of deduction claimed by the assessee company under section 80IA of the Act without appreciating the submissions of the appellant company and its auditor which were made during assessment proceedings. It has also been submitted that the assessee company's income for the A.Y. 2010-11 was assessed under section 143(3) of the Act and the deduction under section 80IA of the Act was allowed with minor adjustments on account of allocation of certain expenses and disallowance of expenses under section 14A of the Act. It has further been submitted that the learned Assessing Officer while framing the assessment for the year under consideration had completely denied the deduction claimed by the asse_3S£e^pinpany under section 80IA of the Act disregarding the fact that he had already accepted and allowed deduction to the assessee company in A.Y. 2010-11. It has again been submitted that the assessee company had actually claimed deduction under section 80IA of the Act at Rs.59,29,94,2I2/- which was restricted to Rs.25,72,43,366/- as the assessee company was not having sufficient profits to claim its entire claim of deduction under section 80IA of the Act. It has again been submitted that the allegations of the Assessing Officer with regard to enhancing profits of eligible unit are totally baseless as the assessee company was not having even sufficient profits to claim entire deduction under section 80IA of the Act. It has again been submitted that there seems to be no logic in artificially enhancing the profits of eligible unit when entire deduction cannot be claimed in view of insufficient profits. It has again been submitted that the excessive profits in the Power Plant were on account of cheaper rate of coal supplies from M/s Mahanadi ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 9 Coalfields Limited. It has again been submitted that the Auditor of the assessee company has submitted proper reply to each and every query of the Assessing Officer and it is incorrect on the part of the Assessing Officer to say that the Auditor of the assessee company has not submitted any reply. It has again been submitted that the allocation of interest expenses has been done on actual basis and not on notional basis. It has again been submitted that the Assessing Officer has not taken any cognizance of various allegations leveled by him against the assessee company but proceeded to disallow the entire claim of deduction under section 80IA of the Act with predetermined mind and proper justification. It has again been submitted that if the method adopted by the Assessing Officer in A.Y. 2010-11 for allocation of various expenses is applied in A.Y. 2011-12 too than the assessee company will be eligible for more deduction to the claim actually made by it. It has again been submitted that this fact has indirectly been admitted by the Assessing Officer as he has not even tried to reallocate the expenses on the basis adopted by him in A.Y. 2010-11. It has again been submitted that the claim in respect of deduction, under section 80IA of the Act may be more or less but the Assessing Officer cannot deny entire deduction to the assessee company claimed by it under section 80IA of the Act as the assessee company fulfills all the necessary conditions for claiming such deduction. On careful consideration of the rival contentions, I am of the opinion that there is lot force in the arguments of the learned AR of the assessee company. I am also of the opinion that there is no prescribed formula to allocate the common expenses incurred by the assessee company but the expenses are required to be allocated to eligible unit on reasonable basis. I am ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 10 further of the opinion that the assessee company is eligible to claim deduction under section 80IA of the Act as it fulfills all the necessary conditions for claim of such deduction. I am again of the opinion that the claim of deduction under section 80IA of the Act can be reduced by reallocating the expenses if found not done properly by the assessee company but its entire claim of deduction cannot be denied unless and until it is established that the assessee company do not fulfill the necessary conditions for claim of such deduction and is not entitled for deduction under section 80IA of the Act. In my opinion, the Assessing Officer has absolutely failed in this regard. It has again been noticed that the same Assessing Officer has allowed deduction to the assessee company in A.Y. 2010-11 with minor variation under identical facts and there is no change of facts in the year under consideration. The observations of the Assessing Officer for denying deduction under section 80IA of the Act are of general nature and in my considered opinion deduction under section 80IA of the Act cannot be denied to the assessee company on the basis of such observations. It has again been noticed that if reallocation of expenses is done on the basis adopted by the Assessing Officer in A.Y. 2010-11 then the assessee company will be eligible for more deduction which has also been accepted by the Assessing Officer. It has also not been established on record that the assessee company is not eligible for deduction under section 80IA of the Act and as such deduction under this section cannot be denied to the assessee company. In my opinion, the assessee company has also filed proper justification for its claim with regard to deduction under section 80IA of the Act. It has again been noticed that the assessee company has claimed deduction under section 80IA of the Act only to the extent of Rs.25,72,43,366/-
ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 11 in view of insufficient profits as against its total claim of deduction at Rs.59,29,94,212- which means that minor variation in deduction will not adversely affect the assessee company. The judicial pronouncements relied upon by the learned AR of the assessee company also support its case. Under such circumstances, the action of the Assessing Officer in denying entire claim of deduction claimed by the Assessing Officer under section 80TA of the Act cannot be said to be justified. The Assessing Officer is, therefore, directed to allow deduction to the assessee company as claimed by it under section 80IA of the Act. In the result, the grounds No. 1 and 2 of appeal taken by the assessee company are allowed."
5. Being aggrieved by the above findings of the CIT(A), the rev has come in appeal before us.
6. After hearing the Ld. representatives of both the parties, we do not find any reason to interfere in the order of the CIT(A) on the above issue. The Ld. CIT(A) rightly held that there was no justification on the part of the Assessing officer to disallow the entire claim of deduction claimed by the assessee. If the Assessing officer was of the view that the assessee had exaggerated the profits of the units eligible for deduction u/s 80IA of the Act, at the most, he could have allocated some part of the profits to non- eligible units but without making any such exercise, he disallowed the entire claim of deduction. The Ld. CIT(A) has also observed ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 12 that even otherwise though the profits of the eligible units were at ₹ 59.29 crores, however, since the gross income of the assessee from all units was at ₹ 25.60 crores, the claim was restricted to that extent. The Ld. CIT(A) observed that any minor variation in the profits of the eligible units would not make any difference. Even otherwise, if the profits of the eligible units are to be computed on turn over basis, the resultant effect will be the enhancement of the profits than that has been declared by the assessee.
In view of this, we do not find any merit in ground No.1 of the appeal of the Revenue and the same is accordingly dismissed.
7. Ground No.2 : Vide ground No.2, the Revenue has agitated the action of the CIT(A) in deleting the addition of ₹ 26,28,364/- made by the Assessing officer u/s 14A read with Rule 8D of the Income Tax Rules in respect of disallowance of notional expenditure supposed to have been incurred for earning of tax exempt dividend income.
8. The Assessing officer noted that during the year the assessee had earned tax exempt income of ₹ 1,04,836/-. He invoking the provisions of section 14A read with Rule 8D of the Income Tax Rules and computed the disallowance of expenditure at ₹ ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 13 27,33,200/-. The Ld. CIT(A), however, restricted the disallowance u/s 14A to the extent of tax exempt income earned by the assessee i.e. at ₹ 1,04,836/-.
The issue is now squarely covered by the various decisions of the Hon'ble High Courts including that of the Jurisdictional High Court of Punjab and Haryana in the case of 'CIT Vs. Winsome Textiles' (2009) 319 ITR 204 (P&H) and Hon'ble Delhi High Court in the case of 'Cheminvest Ltd Vs. ITO' (2015) 378 ITR 33 (Delhi) and of the Hon'ble Gujarat High Court in the case of 'Corrtech Energy P. Ltd. (2014) 45 Taxman.com 116' and further of the Hon'ble Allahabad High Court in the case of 'CIT Vs. M/s Shivam Motors (P) Ltd' (2014) 272 CTR (All) 277 and various other case laws. In all the above referred to case laws, the Hon'ble High Courts have been unanimous to hold that disallowance u/s 14A cannot exceed the tax exempt income earned by the assessee.
We therefore, do not find any infirmity in the order of the Ld. CIT(A) on this issue also.
9. Ground No.3 : Vide this ground the Revenue has agitated the action of the CIT(A) in deleting the disallowance of notional interest of ₹ 1,16,84,195/- calculated on the investment made on Capital Work in progress (CWIP) by way of invoking the ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 14 provisions of section 36(1)(iii) of the Act.
10. The Assessing officer noted that the assessee has shown huge assets under Capital Work in Progress (CWIP) and had also given capital advances allegedly out of borrowed funds. In view of the opinion of the Assessing Officer, the interest expenses on funds utilized for the acquisition of assets which were yet to be used for business purposes were needed to be capitalized in view of provisions of section 36(l)(iii)of the Act. He, accordingly, made the impugned addition into the income of the assessee.
11. The assessee agitated the aforesaid addition made by the Assessing officer before the Ld. CIT(A).
12. The Ld. CIT(A) deleted the additions so made by the Assessing officer on this issue, observing as under:-
"8.2 I have considered the observations of the Assessing Officer as made by him in the assessment order while making the impugned addition. I have also considered written submissions filed by the assessee company through its learned AR vide letter dated 09.09.2017 on the issue under reference. I have further considered various judicial pronouncements relied upon by the learned AR of the assessee company as well as other material placed by him on record more particularly, the decision of the Honourable ITAT, Chandigarh in ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 15 1TA No. 268/Chd./2015 dated 30.11.2015 for the A.Y. 2009-10 in the case of the assessee company itself vide which the disallowance under section 36(l)(iii) of the Act was deleted under identical facts. On careful consideration of the rival contentions, it has been noticed that the facts of the case of the assessee company for the year under consideration are identical to the facts of the case of the assessee company for the A.Y. 2009-10. So, respectfully following the decision of Honourable ITAT, Chandigarh in ITA No. 268/Chd./2015 dated 30.11.2015 for the A.Y. 2009-10 in the case of the assessee company itself, the disallowance of Rs.1,16,84,195/- made by the Assessing Officer by invoking provisions of section 36(l)(iii) of the Act in this case is directed to be deleted as the assessee company is having sufficient own funds in invest in assets under consideration. In the result, the ground No. 6 of appeal taken by the assessee company is allowed.
13. Before us, Ld. DR has submitted that the CIT(A) has deleted the disallowance applying the presumption theory of own funds to say that if the assessee is possessed of sufficient own funds to meet the investments, then the presumption will be that the i n v e s t m e n t s h a v e b e e n m a d e o u t o f o w n f u n d s o f t h e a s s e s s e e . The Ld . D R pointed out that th e pres umptio n the ory h ad now been overru led by the Hon 'ble Apex Court in its decision in grou p o f cas es w ith the lead case b eing ' Maxopp Inves tmen t Ltd. Vs. CIT' (2 018) 402 ITR 640 (S C), w herein in the co ntext o f section 14 A, th e decision of t he H on'b le J ur is dictio nal Pu njab & Haryana H igh Court in the cas e ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 16 of 'A von Cycles Ltd. Vs. CIT' in ITA No. 27 7 of 201 3 w as als o und er cons ideration w her ein the H on'ble J ur is dictional H igh C ourt had uph eld th e dis allo w ance of inter es t u/s 14A w her e mi xed fund s w ere deplo yed by t he a ss ess ee, and this pr opos ition has been affi r med by the H on'ble A pex Court.
She has further submitted that if the presumption theory is applied, the reverse of the same will also be applicable to presume that the investment in work in progress has been made by the assessee only out of the borrowed funds.
14. On the other hand, the Ld. Counsel for the assessee has relied upon the recent decision of the Hon'ble Supreme Court in the case of 'CIT (LTU) Vs. Reliance Industries Ltd.' [2019] 410 ITR 466 (SC).
15. We have considered the rival submissions of the Ld. Representatives of the parties. A perusal of the details submitted by the assessee reveals that the opening balance of the investment in building was ₹ 2.20 crores and the investment during the year was at ₹ 1.95 crores and the closing balance of investment in building was at ₹ 4.15 crores. The opening balance in investment in plant & machinery was at ₹ 24.74 cores and investments during the year were at ₹ 42.55 crores. The closing balance of investment ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 17 in plant & machinery was at ₹ 67.29 cores. The opening balance of the capital advance was at ₹ 16.37 crores which is reduced to ₹ 4.89 crores at the end of the year. The Assessing officer computed the total disallowance under the provisions of section 36(1)(iii) of the Act at ₹ 3.49 crores, out of which the assessee has already capitalized the interest expenditure of ₹ 2.32 crores in respect of term loans. The Assessing officer, therefore, has made the addition of ₹ 1.16 crores. The case of the assessee is that the assessee has already capitalized the interest expenditure on term loan and that the investment on capital in work in progress and capital advances were out of own funds of the assessee. We find from the chart that in the year under consideration the paid up capital of the assessee for the year under consideration was at ₹ 10.42 crores, reserves and surplus at ₹ 297 crores and apart form that profit during the year was of ₹ 101 crores totalling ₹ 408 crores. Apart from the aforesaid work in progress, the total investments of the assessee at the end of the year was at ₹ 6.36 crores. In view of the above, the total amount incurred by the assessee on investments as well as capital work in progress is a meager amount as compared to the own funds available with the assessee.
16. The issue is now squarely covered by the various decisions of the High Courts including that of the decision of the Hon'ble Jurisdictional ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 18 High Court in the case of 'Bright Enterprises Pvt. Ltd Vs. CIT, Jalandhar' (supra), 'CIT Vs. Kapsons Associates' (2016) 381 ITR 204 (P&H) and the latest decision of the Coordinate Bench of the Tribunal in the case of 'ACIT Vs. Janak Global Resources Pvt Ltd' ITA No. 470/Chd/2018 order dated 16.10.2018, holding that that if the assessee is possessed of sufficient own interest free funds to meet the investments / interest free advances, then, under the circumstances, presumption will be that interest free advances / investments have been made by the assessee out of own funds / interest free funds. Reliance in this respect can also be placed on the decision of the Hon'ble Supreme Court in the case of 'Hero Cycles (P) Ltd Vs. CIT' 379 ITR 347 (SC) and also on the latest decision of the Hon'ble Supreme Court in the case of 'CIT (LTU) Vs. Reliance Industries Ltd.' [2019] 410 ITR 466 (SC).
17. However, we deem it appropriate to specifically deal with the arguments of the Ld. DR. So far as the contention of the Ld. DR that the reverse of the presumption theory is to be applied, we do not find any force in the above contention of the Ld. DR. There is no basis to apply the presumption that the assessee might have used the borrowed funds for CWIP, when as noted above, the assessee was possessed sufficient own funds.
18. So far as the reliance of Ld. DR on the decision of the Hon'ble Supreme Court in case of 'Avon Cycles Ltd. Vs. CIT ' (supra) and ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 19 'Hero Cycles Vs. CIT,'(supra) is concerned, we find that the aforesaid decision of the Hon'ble Supreme Court in the case of 'Avon Cycles Ltd Vs. CIT' (supra) with the lead case being 'Maxoppp Investment Ltd Vs. CIT' (supra) has come into consideration before the Coordinate Bench of the Tribunal in the case of 'ACIT Vs. Janak Global Resources Pvt Ltd' ITA No. 470/Chd/2018 order dated 16.10.2018, wherein, the issue has been decided in favour of the assessee also considering the decision of the Hon'ble Apex Court in the case of 'Hero Cycles Vs. CIT' 379 ITR 347 (SC). E v e n o t h e r w i s e t h e i s s u e i s s q u a r e l y c o v e r e d b y t h e recent decision of the Hon'ble Supreme Court in 'CIT (LTU) Vs. Reliance Industries Ltd.' [2019] 410 ITR 466 (SC).
19. The Ld. D R, however, has argued that the decision arrived at by this Tribunal in the case of 'ACIT Vs. Janak Global Resources Pvt Ltd' is not a correct decision and further that the proposition of law laid down in the latest decision of the Hon'ble Supreme Court in the case of 'CIT (LTU) Vs. Reliance Industries Ltd'. (supra) cannot be applied as the Hon'ble Supreme Court has not finally decided the matter as on some other issues and that, the matter has been remanded back to the Hon'ble High Court.
We are not convinced by the above arguments of the Ld. DR. If the Department is not satisfied with the decision of this Tribunal in the case of 'ACIT Vs. Janak Global Resources Pvt Ltd' (supra), ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 20 it is open to the Department to file an appeal before the Hon'ble High Court against the said decision. So far as the proposition of law said down by the Hon'ble Supreme Court in the case of 'Reliance Industries Ltd.' (supra) is concerned, we find that the issue has been finally settled by the Hon'ble Supreme Court in clear terms vide para 7 & 8 of the order which reads as under:-
"7. In so far as the first question is concerned, the issue raises a pure question of fact. The High Court has noted the finding of the Tribunal that the interest free funds available to the assessee were sufficient to meet its investment. Hence, if could be presumed that the investments were made from the interest free funds available with the assessee. The Tribunal has also followed its own order for assessment year 2002-03.
8. In view of the above findings, we find no reason to interfere with the judgement of the High Court in regard to the first question. Accordingly, the appeals are dismissed in regard to the first question."
20. A perusal of the above findings reveals that the Hon'ble Supreme Court has affirmed the proposition as given in the case of 'Janak Global Resources Pvt Ltd' (supra). Thus, the above arguments of the Ld. DR on this issue are misconceived.
In view of the above discussion, we do not find any infirmity in the order of the CIT(A) on this issue and the same is accordingly upheld.
ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 21 In the result, the appeal of the Revenue is dismissed. ITA No.97/Chd/2018 (A.Y. 2012-13):
21. In this appeal, the Revenue has taken following grounds of appeal:-
i. Whether on the facts and circumstances of the case and in law the CIT(A) has erred in deleting the addition made on account of deduction claimed of Rs. 127,76,82,177/-u/s 80IA of the Act, by relying on his decision for the A.Y. 2010-11 without appreciating that allocation of expenses was not proper and profit shown in power generating unit was unreasonable and excessive.
ii. Whether on the facts and circumstance of the case and in law the CIT(A) was justified in deleting the addition of Rs. 36,47,905/- u/s 14A of the Act, while failing to appreciate the grounds of appeal for A.Y. 2008-09 filed in the Hon'ble Punjab & Haryana High Court, Chandigarh in the case of the assessee.
iii. Whether on the facts and circumstances of the case and in law the CIT(A) has erred in deleting an addition of Rs. 90,24,421/- u/s 36(l)(iii) of the Act, by relying on the decision in ITA No. 268/Chd/2015 dated 30.11.2015 for the A.Y. 2009-10 in the case of the assessee without appreciating that the issue u/s 36(l)(iii) was never a part of that order.
22. Ground No. 1: Vide ground No.1, the Revenue has agitated the action of the CIT(A) in deleting the disallowance of deduction u/s 80IA of the Act. The facts of the case and issue involved are identical to that have been raised vide ground No. 1 of the Revenue's appeal in ITA No. 96/Chd/2018 relating to assessment year 2011-12. Hence, our findings ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 22 given above in ground No.1 of the Revenue appeal of assessment year 2011-12 will apply mutatis-mutandis on this issue and accordingly the ground No.1 of the appeal is dismissed.
23. Ground No. 2: Vide ground No.2, the Revenue has agitated the action of the CIT(A) in deleting the addition of ₹ 36,47,905/- u/s 14A of the Act. The facts of the case and issue involved are identical to that have been raised vide ground No. 2 of the Revenue's appeal in ITA No. 96/Chd/2018 relating to assessment year 2011-12. Hence, our findings given above in ground No.2 of the Revenue appeal of assessment year 2011-12 will apply mutatis-mutandis on this issue and accordingly the ground No.2 of the appeal is dismissed.
24. Ground No.3 : This ground is relating to the disallowance of interest of ₹ 90,94,421/- u/s 36(1)(iii) on investment in work in progress. The issue is identical to that has been raised by the Revenue vide ground No. 3 in its appeal relating to assessment year 2011-12 in ITA No. 96/Chd/2018 and has been adjudicated by us in the earlier part of our order. Hence, our findings arrived as above will apply mutatis- mutandis.
In the result, the appeal of the Revenue is hereby dismissed. ITA No. 1521/Chd/2017
25. Following grounds have been taken by the Revenue:-
ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 23
(i) Whether upon the facts and circumstances of the case, the Ld. CIT(A) as justified in deleting the disallowance u/s 14A of the Income-tax Act, 1961, r.w.
Rule 8D(ii)?
(ii) Whether, on the facts and circumstances of the case and law, the CIT(A) has erred in deleting the disallowance u/s 36(1)(iii) of the Act while ignoring the fact that interest free loan granted to various parties were not for any commercial / business purpose.
26. Ground No.1: Vide ground No.1, the Revenue has agitated the action of the CIT(A) in deleting the addition of ₹ 41,40,767/- made by the Assessing officer u/s 14A read with Rule 8D of the Income Tax Rules in respect of expenditure incurred on earning of tax exempt income.
27. The Ld. CIT(A) held that since the assessee was possessed of own sufficient funds to meet the investments, hence, no disallowance of interest expenditure under Rule 8D is attracted. So far as the disallowance under Rule 8D(ii) in respect of Administrative expenditure is concerned, the Ld. CIT(A) held that the same is to be worked out by taking only average of investments which yielded tax exempt income. The relevant part of the findings of the Ld. CIT(A) is reproduced as under:-
"I have considered the observations of the Assessing Officer as made by him in the ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 24 assessment order while making the impugned addition. 1 have also considered written submissions filed by the assessee company through its learned AR vide letter dated 03.08.2017 in connection with the issue under reference. I have further considered various judicial pronouncements relied upon by the learned AR of the assessee company as well as other material placed by him on record. On careful consideration of the assessment order, it has been noticed that the Assessing Officer has made the impugned addition by invoking provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 as the assessee company has earned dividend income of Rs.4,65,682/- from investment in share/mutual funds which has been claimed as exempt from tax under section 10 of the Act. In the opinion of the Assessing Officer, the expenses incurred by the assessee company for earning of dividend income cannot be allowed in view of the provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962. On the other hand, the learned AR of the assessee company has submitted that the reply furnished by the assessee company during assessment proceedings vide letters dated 09.12.2015 and 07.03.2016 has not been considered on its merits. It has also been submitted that the Assessing Officer straightway embarked upon computing the disallowance by referring to the provisions of section 14A of the Act without considering contentions of the assessee company with regard to investment made by the assessee company in shares/mutual funds. It has further been submitted that the assessee company was having sufficient interest free funds of its own in the form of share capital, reserves and surplus and other cash accruals which far exceed the investment made in shares/mutual ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 25 funds. In other words, it has been submitted that the assessee company has not used any borrowed funds in making investment in shares/mutual funds. It has again been submitted that as the interest free funds available with the company far exceeds the investment in shares/mutual funds under consideration, no disallowance should have been made out of interest expenses. It has again been submitted that the disallowance under section 14A of the Act read with Rule 8D(2)(iii) of the Income Tax Rules. 1962 is required to be made on average of investments yielding exempt income. In support of this contention, the learned AR of the assessee company has relied upon the decision of the Honorable ITAT, Chandigarh in the case of Sh. Shiv Parshad Aggarwal [A.Y. 2011-12] . It has again been submitted that the issue of disallowance under section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 stand decided by the Honourable ITAT, Chandigarh in assessee's own case for the A.Y. 2009-10 vide order dated 30.11.2015 wherein it has been held that if the availability of own funds is more than the investment in shares/mutual funds, no disallowance under section 14A of the Act read with Rule 8D(2)(ii) of the Income Tax Rules, 1962 is called for. It has again been submitted that the investments made by the assessee company were old one and no new investment has been made during the year under consideration. On careful consideration of the rival contentions, 1 find a lot of force in the contentions of the learned AR of the assessee company that the assessee company has sufficient interest free funds to make investment in shares/mutual funds which yield exempt income. Keeping in view this peculiar fact, no disallowance out of interest expenses in my considered opinion can be made in this case by invoking Rule 8D(2)(ii) of the Income Tax Rules, ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 26 1962. 1 am also of the opinion that the provisions of section 14A of the Act read with Rule 8D of Income Tax Rules, 1962 are clearly attracted in the case of the assessee company as it cannot be said that the assessee company has not incurred any expenses for earning dividend income. Moreover, the assessee company has itself admitted that expenses to the extent of Rs. 12,000/- have been incurred by it for earning dividend income. I also agree with the inion of the learned AR of the assessee company that the disallowance under Rule 8D(2)(iii) of the Income Tax Rules, 1961 should also be made on the average of investments yielding exempt income. This contention of the learned AR of the assessee company find support from the decision of Honourable ITAT, Chandigarh in the case of Sh. Shiv Parshad Aggarwal for the A.Y. 2011-12 which has been worked out by the assessee company at Rs.5,421/- only [0.5% of Average inves tment of Rs.10,84,167/-] . So, r espectfully following the decision of Honourable ITAT, Chandigarh in the case of Sh. Shiv Parshad Aggarwal for the A.Y. 2011-12, the disallowance under section 14A of the Act read with Rule 8D(2)(iii) of Income Tax Rules, 1962 made by the Assessing Officer in this case is restricted to Rs.5,421/-. However, the disallowance made by the Assessing Officer out of interest expenses by invoking provisions of section 14A of the Act read with Rule 8D(2)(ii) of the Income Tax Rules, 1962 is directed to be deleted. In nutshell, the disallowance made by the Assessing Officer in this case by invoking provisions of section 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 is restricted to Rs.17,421/- [Rs.12,000/- being direct expenses + Rs.5,421/-] and balance disallowance made by the Assessing Officer is directed to be deleted. In the result, the ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 27 grounds No. 1 and 2 of appeal taken by the assessee company are partly allowed."
28. So far as the disallowance in respect of interest expenditure under Section 14A read with Rule 8D(2)(ii) is concerned, since the assessee was possessed of sufficient own funds to meet the investment, hence, the issue is covered by the decision of the Coordinate Bench of the Tribunal in the case of 'ACIT Vs. Janak Global Resources Pvt Ltd' ITA No. 470/Chd/2018 order dated 16.10.2018. This issue is als o n ow s q u ar el y c o v er ed by th e l at es t d e cis io n o f t h e H o n 'b le S u p r eme C o u r t i n th e ca se o f ' C I T ( LT U ) V s . R el ia n ce I n d u s tr ies L td . ' [ 2 0 1 9 ] 4 10 I T R 4 6 6 ( S C ), w he r ei n , t h e H o n 'b le S u p r eme C o u r t h as r ei te r a te d t h e p r o p o s i ti o n th a t if t h er e a r e in te r es t fu n d s av a il ab l e w i t h t he as s ess e e, w h i ch ar e s u f fic ie n t t o m ee t th e i n v e s t m e n t, i t can b e p r e s u med th a t th e in v es tm en t s ar e ma d e fr o m th e in te r es t fr ee fu n d s av ai la b le w i th t h e as s es s ee.
So far as the action of the CIT(A) in directing to calculate the disallowance under Rule 8D(2)(iii) in respect of administrative expenditure incurred on earning of tax exempt income is concerned, the Ld. CIT(A) has followed the decision of the Chandigarh Bench of the Tribunal in the case of 'Shiv Parsad Aggarwal' (supra). No contrary decision has been cited before us. We, therefore, do not find any infirmity in the order of the CIT(A) on this issue.
In the result, the ground of the Revenue is hereby dismissed ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 28
29. Ground No.2 : The Revenue vide this ground has agitated the action of the CIT(A) in deleting the disallowance made by u/s 36(1)(iii) of the Act. The Ld. CIT(A) has deleted the aforesaid disallowance observing that the assessee was possessed of sufficient own funds to make the interest free advances to the parties. As noted above, the issue is squarely covered by the recent decision of the Hon'ble Supreme Court in 'CIT (LTU) Vs. Reliance Industries Ltd.' [2019] 410 ITR 466 (SC). We, therefore, do not find any infirmity in the order of the CIT(A) on this issue. This ground of the Revenue is therefore, dismissed.
This appeal of the Revenue is hereby dismissed. In the result, all the appeals of the Revenue are dismissed. Order pronounced in the Open Court on 24.5.2019 Sd/- Sd/-
(एन. के. सैनी / N.K. SAINI) (संजय गग! / SANJAY GARG) उपा#य$ / Vice President या%यक सद&य/ Judicial Member Dated : 24.05.2019 "आर.के."
आदे श क- ( त5ल6प अ7े6षत/ Copy of the order forwarded to :
1. अपीलाथ&/ The Appellant
2. ()यथ&/ The Respondent
3. आयकर आयु8त/ CIT
4. आयकर आयु8त (अपील)/ The CIT(A)
5. 6वभागीय ( त न:ध, आयकर अपील1य आ:धकरण, च<डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File आदे शानस ु ार/ By order, सहायक पंजीकार/ Assistant Registrar ITA Nos. 1521-c-17, 96 & 97-c-18 M/s Aarti Steels Ltd, Ludhiana 29