Income Tax Appellate Tribunal - Chandigarh
M/S Deepak International Ltd., ... vs Assistant Commissioner Of Income Tax, ... on 5 February, 2019
आयकर अपील य अ धकरण,च डीगढ़ यायपीठ "ए", च डीगढ़
IN THE INCOME TAX APPELLATE TRIBUNAL,
CHANDIGARH BENCH 'A' , CHANDIGARH
ीमती दवा संह, याय$क सद%य एवं ीमती अ नपूणा( ग*ु ता, लेखा सद%य
BEFORE SMT.DIVA SINGH, JUDICIAL MEMBER
AND SMT.ANNAPURNA GUPTA, ACCOUNTANT MEMBER
आयकर अपील सं./ ITA No.462/Chd/2016
नधा रण वष / Assessment Year : 2012-13
M/s Deepak International Ltd., बनाम The A.C.I.T.,
Deepak Road, Industrial Area-B, Circle-5,
Ludhiana. Ludhiana.
थायी लेखा सं./PAN NO: A A A C D 7 9 8 0 K
नधा रती क ओर से/Assessee by : Shri Ashwani Kumar, CA
राज व क ओर से/ Revenue by : Smt.Chanderkanta, SR.DR
सन
ु वाई क तार"ख/Date of Hearing : 28.11.2019
उदघोषणा क तार"ख/Date of Pronouncement: 05.02.2019
आदे श/ORDER
Per Anna pur na Gupta, Account ant Member The present ap peal has been fi l ed by the as sessee agai nst the order of the Commi ssi oner of I ncome Ta x ( Appeal s) -2, Ludhi ana (in short 'CI T( A) ' dated 18.2.2016 passed u/s 250( 6) of the I ncome Ta x At, 1961 ( hereinafter referred to as 'Act') .
2. Ground No.1 raised by the assessee reads as under:
"1. That order passed u/s 250(6) of the Income Tax Act, 1961 is against law and facts on the file in as much Ld, Commissioner of Income Tax (Appeals)-2, Ludhiana was not justif ied to arbitrar il y uphold disallo wance of Rs. 14,01,113/- made by the Ld. Assessing Officer by resort to provisions of Section 14Aof the Income Tax Act, 1961."2 ITA No.462/Chd/2016
A.Y.2012-13
3. Brief facts relevant to the issue are that t he assessee company was i n the busi ness of Export of Cycl e, Auto & C ycl e pa rts, Food Produc ts and other Me rchandi se, Sal e of Batteri es etc. Duri ng the course of assessment proceedi ngs for the i mpugned year, the A.O. noted that the assessee had sho wn i nvestments of Rs. 11,93,53,882/- as on 31.03.2012 and Rs. 6,11,31,573/ - as on 31.03.20 11, i ncome from whi ch was e xempt u/s 10( 34) and 10( 2A) of the Act. The A.O. asked the assessee to e xpl ai n why e xpendi ture i ncurred i n rel ati on to earn thi s ta x free i ncome shoul d not be di sal l o wed u/s 14A of the I ncome Ta x Act. After consi deri ng the assessee's submi ssi ons, the A.O. computed the di sal l o wance to be made u/s 14A by i n voki ng the provi si ons of Rul e 8D. The total d i sal l o wance was worked out at Rs.14,01,113/- after gi vi ng eff ect of di sal l o wa nce of Rs. 21,47,376/- al re ady taken by the assessee. Thi s a mount was accordi ngl y di sal l o wed.
4. The matter was c arri ed i n appeal before the CI T(A) , who di smi ssed al l th e contenti ons ra i sed by the ass essee and uphel d the order of the A.O. on thi s count.
5. Before us, the Ld . counsel for ass essee poi nted ou t that i t had not earne d any e xempt i n come duri ng the year and, therefore, no di sal l o wance u/s 14A was warranted. The Ld. counsel for assessee dre w our attenti on to the submi ssi ons made before the Ld.CI T( A) i n thi s regard, reproduced at page 7 of the order as under:
3 ITA No.462/Chd/2016
A.Y.2012-13 "Without prejudice to the submissions made above, it is further elucidated that the Appellant Company has not earned any exempted income either u/s 10(34) or u/s 10(2A) under the Income Tax Act, 1961 during the A.Y. 2012-13. Since the Appellant Company was not in receipt of any exempt income during the relevant assessment year, section 14A cannot be invoked. This view has been affirmed by various courts of law."
6. The Ld. counsel for assessee thereafter drew our attenti on to the deci si on of the Hon'bl e Juri sdi ctional i n the case of CI T Vs. Lakhani Marketi ng I nc., reported at ( 2014) 272 C TR 265 ( P&H) , hol di ng that where no e xempt i ncome was earned, no di sal l o wance u/s 14A was warranted. Our attenti on was al so dra wn to the fol l o wi ng deci si ons of vari ous courts l a yi ng do wn thi s proposi ti on:
i) CIT v. Holcim India Pvt Ltd . [(2015) 272 CTR 282 (Delhi)]
ii) CIT v. Corrtech Energy Pvt Ltd. [(2014) 272 CTR 262 (Gujarat)]
iii) CIT v. Shivam Motors Pvt Ltd. [(2015) 272 CTR 277 (Allahabad)]
iv) Cheminvest Ltd. v. CIT-IV [2015] 378 ITR 33 (Delhi)
7. The Ld. DR, on t he other hand, r el i ed upon the or der of the Ld.CI T( A) and further dre w our attenti on to the fi ndi ngs of the Ld.CI T( A) , wherei n he had d i smi ssed thi s con tenti on of the assessee stati ng that i t had been by the Special Bench of the I . T.A. T. i n th e case of Chemi n vest Ltd. Vs. I TO , 121 I TD 318 that even i f no e xempt i nco me i s earned, di sal lo wance u/s 14A was w arranted. Our a ttenti on was dr a wn to the fi ndi ngs of the Ld.CI T( A) at page 12 of hi s order as under:
"(v) Sec.14A is applicable even in respect of investments which have not yielded any exempt income in the year. Also, the disallowance has to be of the entire amount of the expenditure so related and cannot be reduced by the receipt of interest which has no relation to such expenditure. Reference in this regard may be made to the decision of the Special Bench of Appellate Tribunal, Delhi in the case of Cheminvest Ltd Vs ITO (121 ITD 318), wherein it has been held that 4 ITA No.462/Chd/2016 A.Y.2012-13 disallowances u/s.14A can be made even in a year in which no exempt income has been earned or received by the appellant.
Relevant extract of the decision of the Spl. Bench is reproduced as under: When the expenditure of interest is incurred in relation to income which does not form part of total income, it has to suffer the disallowance, irrespective of the fact whether any incomers earned by the assessee or not. Section 14A does not envisage any such exception. This is so even if the interest paid on borrowings for the purchase of shares is allowable under section 57 as an expenditure incurred for earning or making income or under section 36(1)(iii) as an expenditure incurred wholly and exclusively for the purpose of business. When prior to introduction of section 14A, an expenditure both under sections 36 and 57 was allowable to an assessee without such requirement of earning or receipt of income, no such condition could be imported when it came to disallowance of the same expenditure under section 14A. Now since dividend was exempt, as a consequence thereof expenditure had to be disallowed. [Para 22] What one has to see is whether any expenditure has been incurred by an assessee in relation to an income that does not form part of total income of the assessee under this Act, and if the answer is in affirmative then that expenditure cannot be allowed, irrespective of the fact that it was allowable under different provisions of the Act where a different phraseology is used in allowing those expenditures as the focus has to be on disallowance within parameters of section 14A, an overriding provision over allowance provisions. It would result in disallowance even if no income has resulted or made or earned by the assessee in the year under consideration. Aslo, thedsa has to be of the entire amount of the expenditure so related and cannot be reduced by the receipt of interest which has no relation to such expenditure. [Para 43] (emphasis supplied)"
8. We have heard ri val contenti ons and perused the orders of the authori ti es bel o w. The i ssue before us rel ates to di sal l o wance of e xpendi ture i ncurred i n rel ati on to earni ng of e xempt i ncome as per the provi si ons of secti on 14A of the Act and the materi al fact, whi ch i s not di sputed, is that duri ng the i mpugned year, no e xe mpt has been ear ned by the assessee. Consi deri ng the judi ci al proposi ti on l ai d do wn by vari ous courts i ncl udi ng the H on'bl e Juri sdi cti onal Hi gh Court i n the case of Lakhani Marketi ng I nc. ( supra) that no 5 ITA No.462/Chd/2016 A.Y.2012-13 di sal l o wance u/s 14A i s warranted when no e xempt i ncome is earned, we have no hesi tati on in agreei ng wi th the contenti on of the assessee that i n the present case no di sal l o wance u/s 14A was warranted. The Ld. D R has been unabl e to poi nt out any deci si on contrar y to those ci ted by the Ld. counsel for assessee before us, more importantl y, rendered by the Hon'bl e Juri sdi cti onal Hi gh Court or Hon'bl e Ape x Court i n t hi s regard. I n vi e w of the above, we di rect that the di sal l o wance so made us 14A of the Act, amounti ng to Rs.14,01,113/- be del eted. Gro und of appeal N o.1 rai sed by the assessee i s al l o wed.
9. Ground of appea l No.2 rai sed by the assessee rea ds as under:
"2. That she was further not justified to arbitrarily upheld disallowance of Rs. 57,41,153/- out of interest account by resort to provisions of Section 36(1)(iii)."
10. Bri ef facts rel evant of the Act t he i ssue are tha t the assessee had gi ven fol l o wi ng i nterest free advances:
M/s Ma xxi s I nfrastructure Ltd. Rs.5,00,85,409/-
M/s Ramesh Forgi ngs & Rs. 10,00,000/-
M/s Ctech I ndustri es
11. The A.O. ask ed the assessee to e xpl ai n why
proporti onate i nterest pertai ni ng to these advances shoul d not be di sal l o we d u/s 36( 1) ( i i i ) of the Act. As regards the advance made to M/s Ma xxi s I nfrastructure Ltd., the assessee submi tted that the amount was gi ven from interest free funds avai l abl e wi th the assessee. As re gards the advances to M/s Ctech I ndustri es and M/s Rame sh Forgi ngs 6 ITA No.462/Chd/2016 A.Y.2012-13 were gi ven whi ch was pendi ng si nce many years, the assessee submi tted that for the assessment year 2008-09, the I TAT Chandi garh Bench had al l o wed the di sall o wance of i nterest made at Rs.1,20,000/- on account of advances gi ven to the above me nti oned t wo par ti es. After consi dering the assessee's submi ssi ons, the A.O. di sal l o wed i nterest u/s 36( 1) ( i i i ) of the Act by computi ng the di sal l o wance @ 12%. The total di sal l o wance of Rs.57,41,153/- ( Rs.56,21,153/- + Rs.1,20,000/-) was accordi ngl y made.
12. The Ld.CI T( A) up hel d the di sal l o wance so made.
13. Before us, the sol e contenti on raised by the Ld. counsel for assessee was that i t has suffi c i ent o wn funds, whi ch were i nterest free, for the purpose of maki ng the i mpugned advances, and therefore, no di sal lo wance u/s 36( 1)(i i i ) of the Act was warrant ed. Our attenti o n was dra wn to the Bal ance Sheet of the for the i mpugned year, pl aced at Paper Book page Nos.14 to 27. I t was poi nted out therefrom that share capi tal , reserves and surpl us of the assessee co mpany were Rs.25.33 crores whi l e the profi ts for the year were 2.91 crores and the advances made amounted to Rs.5 crores. Th e Ld. counsel for assessee stated that i t was evi dent that suffi ci ent o wn i nterest free funds were avai l abl e wi th the assessee for maki ng the i mpugned advances. The L d. counsel for assessee thereafter poi nted out that the Hon'ble Juri sdi cti onal Hi gh Court has r epeatedl y hel d t hat where o wn i nterest free funds are avail abl e, no di sal l o wance u/s 36( 1) ( i i i ) of the Act is warran ted. The Ld. c ounsel for 7 ITA No.462/Chd/2016 A.Y.2012-13 assessee rel i ed upon the fol l o wi ng deci si ons of the Hon'bl e Juri sdi cti onal Hi gh Court :
1) CI T Vs. Kapsons Associ ates ( 2015) 381 I TR 204
2) Bri ght Enterpri ses ( P) Ltd. Vs. CI T ( 2011) 381 I TR 107
14. The Ld. DR, on t he other hand re l i ed upon the or der of the CI T( A) , dra wi ng our attenti on to the rel i ance pl aced by the Ld.CI T( A) on the deci si on of the Hon'bl e Juri sdi cti onal Hi gh Court i n t he case of CI TVs . Abhi shek I ndustries Ltd., 286 I TR 1 ( P&H ) whi l e maki ng the i mpugned di sal l o wance and re jecti ng the contenti on of th e assessee that i n the l i ght of suffi ci ent o wn funds avai l abl e, no di sal l o wance was warranted.
15. We have heard ri val contenti ons and perused the orders of the authori ti es bel o w. The i ssue to be adjudi cated i n the present ground rel ates to di s al l o wance of i n terest u/s 36( 1) ( i i i ) of the Act. Undeni abl y, the Hon'bl e Jurisdi cti onal Hi gh Court i n a number of deci si ons has l ai d do wn the proposi ti on that where suffi ci ent o wn funds are avai l abl e, no di sal l o wance of i nterest u/s 3 6( 1) ( i i i ) is warr anted. The above deci si ons have been rendered subsequent to th e deci si on of the H on'bl e Juri sdi cti onal Hi gh Court in the case of Abhi shek I ndustri es Ltd. ( supra) . Therefore, the sai d proposi ti on woul d appl y i n the present case. Si nce the fact that the assessee had suffi ci ent o wn i nterest free funds i n the form of sha re capi tal and reserves to the e xtent of Rs.25.33 crores and profi ts for the i mpugned y ear to the e xtent of Rs.2.91 crores as agai nst the i nterest free advance 8 ITA No.462/Chd/2016 A.Y.2012-13 made of Rs.5 crores i s not di sputed, appl yi ng the aforesai d proposi ti on l ai d do wn by the Hon'bl e Juri sdi c ti onal Hi gh Court we hol d that no di sal l o wance of i nterest u/s 36( 1) ( i i i ) of the Act i s warranted. The di sal l o wance so made of i nterest of Rs.57,41,153/- i s, therefore, di rected to be deleted. Ground of appeal No.2 rai sed by the assessee i s al lo wed.
17. I n effect, the appeal of the assessee i s al l o wed.
O r d e r p r on o u n c ed i n t h e O p e n Cou r t .
Sd/- Sd/-
दवा संह अ नपण
ू ा( ग*ु ता
(DIVA SINGH) ANNAPURNA GUPTA)
याय$क सद%य/Judicial Member लेखा सद%य/Accountant Member
दनांक /Dated: 5th February, 2019
*रती*
आदे श क ( त)ल*प अ+े*षत/ Copy of the order forwarded to :
1. अपीलाथ,/ The Appellant
2. (-यथ,/ The Respondent
3. आयकर आय.
ु त/ CIT
4. आयकर आय.
ु त (अपील)/ The CIT(A)
5. *वभागीय ( त न1ध, आयकर अपील"य आ1धकरण, च3डीगढ़/ DR, ITAT, CHANDIGARH
6. गाड फाईल/ Guard File आदे शानस ु ार/ By order, सहायक पंजीकार/ Assistant Registrar