Income Tax Appellate Tribunal - Chandigarh
Dcit, Chandigarh vs M/S Scott Edil Pharmacia Ltd., ... on 23 November, 2017
1
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH'B', CHANDIGARH
BEFORE SMT. DIVA SINGH, JUDICIAL MEMBER
AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER
ITA No.1407/Chd/2016
(Assessment Year : 2012-13)
Scott Edil Pharmacia Ltd. Vs. DCIT
Plott No. 54-55, Industrial Area Circle-1(1), Chandigarh
Phase-II, Chandigarh
PAN: AAHCS1643K
ITA No.114/Chd/2017
(Assessment Year : 2012-1)
DCIT Vs. Scott Edil Pharmacia Ltd.
Circle-1(1), Chandigarh Plott No. 54-55, Industrial Area
Phase-II, Chandigarh
(Appellant) (Respondent)
Assessee by : Shri Parikshit Aggarw al
Departm ent by : Shri. Manjit Singh
Date of hearing : 28.09.2017
Date of Pronouncement : 23/11/2017
O R D E R
PER Dr.B.R.R.KUMAR, A.M. :
Both appeals have been filed by the Assessee and the Revenue against the order of Commissioner of Income Tax (Appeals)-2, Amritsar, dated 02/10/2016.
2. The Assessee has raised the following grounds of appeal:
"1. That on the facts, circumstances and legal position of the case, the Worthy CIT(A) in Appeal No. 49/14-15 dated 02.10.2016 has erred in passing that order in contravention of the provisions of Section 250(6) of the Income Tax Act, 1961.
2. That on law, facts and circumstances of the case, the Worthy CIT (A) was not justified in confirming the action of Ld. AO whereby Worthy CIT(A) confirmed addition of Rs. 11,03,883/- as against made by Ld. AO at Rs. 37,10,530/- u/s 36(l)(iii) 2 of the Income Tax Act, 1961 by erroneously holding that said interest is disallowable on account of giving of interest free advances even when the owned funds of the appellant far exceeded the relevant interest free advances and also the interest on these advances was not disallowable u/s 36(l)(iii) on merits also.
3. That on law, facts and circumstances of the case, the Worthy CIT (A) has erred in confirming the action of Ld. AO of denial of deduction u/s 80IC on the other income of Rs. 4,30,909/- which non allowance is against the ratio of law laid down by Hon'ble SC in the case of CIT Vs Meghalaya Steels Ltd. (2016) 383 ITR217.
4. That on law, facts 8B circumstances of the case, the Worthy CIT(A) was not justified in confirming the action of Ld. AO whereby Ld. AO has erred in not allowing the benefit of set off & carry forward of MAT credit in respect of payment of education cess and surcharge paid on MAT liability in the preceding years and the Ld. AO had also erred in charging surcharge and education cess before the allowance of MAT credit even when firstly the MAT credit was allowable and on the resultant figure, the surcharge and education cess was leviable."
3. The Revenue has raised the following grounds of appeal :
1. On the facts & in the circumstances of the case and in law, the Ld.CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case.
2. The Ld.CIT(A) has erred in deleting the addition on account of disallowance of Rs.33,73,204/- u/s 80IC by ignoring the fact that the said profits were earned from trading activity of the assessee and not from the manufacturing activity?
3. The Ld.CIT(A) has erred in deleting the addition on disallowance of Rs.34,02,350/- u/s 14A r.w.s. 8D on account of investment in unquoted shares amounting to Rs.9,00,00,000/- the income earned (if any) from which is exempt from tax, without taking cognizance of Circular No. 5 of 2014 of CBDT on this issue?
4. It is prayed that the order of the Ld.CIT(A) be cancelled and that of the assessing officer may be restored.
4. Ground No.1 of the Assessee appeal is general in nature therefore needs no adjudication.
5. Ground No. 2 of the Assessee appeal relates to addition of Rs. 11,03,883/- on account of interest disallowed on interest free advances given by the assessee.
6. Brief facts of the case are that the assessee has shown advances to creditors and others including Directors and Sister concerns amounting to Rs. 5,54,70,874/-The AO held that the assessee had diverted interest bearing funds for other than business purposes or commercial expediency.
7. The Ld. CIT(A) has calculated disallowance on the average cost of debt basis taking into account average assets / liabilities against the interest cost 3 debited to P&L Account and worked out 3.57% and disallowed an amount of Rs. 11,03,883/- against the disallowance made by the AO of Rs. 33,73,204/-.
8. Before us the AR submitted that the amounts have been given for business expediency for purchase of raw materials. The AR further submitted that the assessee had interest free own funds of Rs. 48.59 Crores and the net profit for the year of Rs. 7.99 Crores against the average interest free advances given of Rs. 3.274 Crores. Thus we observe the interest free funds advanced are far less than the interest free funds available with the assessee.
9. Crisply to say that the disallowance of interest under section 36(1)(iii) on advances confirmed by the Ld. CIT(A) is on the principle that the assessee has given interest free advances for non business purposes. The Ld. CIT(A) reliance on Abhishek Industries 286 ITR 1 cannot be accepted in view of the further development of the judicial pronouncements on the issue. When the assessee has got own funds available at their disposal no disallowance is called for as enunciated in various judgments. In the case of Bright Enterprises Pvt. Ltd. Vs. CIT (Punjab & Haryana High Court in ITA No. 224/2013 dt. 24/07/2015 it was held that if there are interest free funds available then it will be presumed that these have been made out of interest free funds. Similar view was held in the case of CIT Vs. Kapsons Associates Investment Pvt. Ltd. [2015] 381 ITR 204 (P&H) wherein, the Hon'ble Court has held that interest on investment in other properties not for business purpose cannot be disallowed if the assessee is having sufficient interest free funds at its disposal. Similar view was taken in the case of Hero Cycles Pvt. Ltd. 63 Taxman 308 (Supreme Court) 2015 wherein the Hon'ble Supreme Court held that once it is a established that there is a nexus between the expenditure and the purpose of the business no disallowance is called for.
Since the facts are applicable to the instant case, respectfully following the ratio laid down by the various judicial pronouncements, the disallowance made on account of interest is hereby deleted.
10. Ground No. 3 of the assessee appeal is not pressed before us.
11. Ground No. 4 of the assessee appeal deals with benefit of set off and carry forward of MAT Credit in respect of payment of education cess and surcharge paid on MAT liability in the preceding years.
12. The Ld. CIT(A) has directed to compute the gross tax liability of the assessee in accordance with the method of computation provided in ITR- 6.
413. Ld. AR submitted that the contention of the assessee has been upheld in the case of DCIT Vs. Vacment India Ltd. 369 ITR 304 wherein the method of computation of MAT Credit and the sequence has been mentioned in detail. Since it is a factual issue the matter is being set aside to computation to the file of Assessing Officer to compute and to give credit of MAT as per the provisions relevant for the AY 2012-13.
14. This ground is treated as allowed for statistical purposes.
15. Ground No. 2 of the Revenue deals with denial of deduction under section 80IC on the other income and on trading activity.
16. During the year the assessee had trading and manufacturing activities. The Assessing Officer has disallowed deduction under section 80IC on the profit made on account of sales of Rs. 22,05,91,171/- on a proportionate basis of profit to trading turnover.
17. The CIT(A) has held that the assessee has done the exercise of determining the profits out of trading activity and manufacturing activity based on the actual transactions and documentary evidences and found no profit was earned on trading operations. He further held that no disallowance of deduction claimed by the assessee under section 80IC of the Act is called for on this exercise is to be made since the assessee had already clearly demonstrated that no profit has been earned from trading operations. The similar issue was dealt by the Coordinate Bench of ITAT Chandigarh in case of the assessee for the earlier AY 2011-12. Since the assessee could prove that no trading profits have been earned before the Ld. CIT(A), the decision of the Ld. CIT(A) deleting the disallowance of deduction under section 80IC on the alleged trading profits is hereby upheld.
18. The ground no. 3 of the Revenue appeal relates to the disallowance under section 14A.
19. The Assessing Officer observed that the assessee had investment of Rs. 9.00 Crores in M/s SEARLE Ltd. and disallowed Rs. 3402350/- under section 14 r.w.r 8D of the Income Tax Act.
520. The Ld. CIT(A) deleted the addition on the grounds that the assessee has not earned any income from these investments and there was no claim of any exempt income.
21. We refrain from interfering in the order of the Ld. CIT(A) as the assessee has not earned any exempt income during the year and the provisions of the Section 14A and Rule 8D cannot be applied. Moreover the Assessing Officer did not record any satisfaction before making adjustment in the disallowance. Keeping in view the decisions in the case of Swami Automobiles Pvt. Ltd. by the Hon'ble ITAT, Chandigarh in ITA No. 74/CHD/2015 dated 10/02/2016 and In view of the decision of Hon'ble Punjab & Haryana High Court in the case of CIT vs. Deepak Mittal (2014) 361 ITR 131(P&H) and also the decision of CIT vs. Lakhani Marketing Incl (2014) 272 CTR 265, the action of the Ld. CIT(A) is hereby upheld.
22. This ground of Revenue is therefore dismissed.
23. In the result, appeal of the Assessee is allowed and that of the Revenue is dismissed.
Order pronounced in the open court.
Sd/- Sd/- (DIVA SINGH) (DR. B.R.R. KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER Dated :23/11/2017 AG Copy to: 1. The Appellant 2. The Respondent 3. The CIT(A) 4. The CIT 5. The DR