THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1, KAKINADA vs. EAST COAST IMPORTS & EXPORTS, KAKINADA

Ground No. (i), (vi) and (vii) are general in nature which does not require specific adjudication.

Ground No. (ii) and (iii) are related to the disallowance of interest for diversion of interest bearing funds for non-business purposes. During the assessment proceedings, the Assessing Officer(AO) found that the assessee has advanced the loans and advances to the tune of Rs.7,16,46,145/- under the head ‘loans & advances’ to the following persons :

Against which the assessee went on appeal before the CIT(A) and the Ld.CIT(A) observed that out of total interest debited to Profit & Loss account amounting to Rs.3,26,53,868/-, the sum of Rs.2,59,86,116/- was interest claimed under the head ‘income from house property’. Only the M/s East Coast Imports & Exports, Kakinada balance amount was claimed under the head ‘income from business’. Out of the balance interest of Rs.66,67,752/-, the sum of Rs.21,62,408/- was paid on partner’s capital account and a sum of Rs.20,46,346/- was the interest relating to loan utilised for acquiring water plant. Thus the balance amount of Rs.24,58,998/- was held to be relatable to the diversion of interest bearing funds to non-business persons and accordingly, restricted the disallowance to the extent of Rs.24,58,998/- and partly allowed the appeal of the assessee.

Against which the department is in appeal before this Tribunal. During the appeal hearing, the Ld.DR supported the order of the AO and the Ld.AR relied on the order of the Ld.CIT(A).

We have heard both the parties and perused the material placed on record. The Ld.CIT(A) has given the details of total interest debited to the Profit & Loss account under various heads as follows : i) Interest on loans - Rs.2,59,86,116 ii) Interest on CC loan - Rs.24,58,998 iii) Interest on capital - Rs.21,62,408 iv) Interest on water plant loan - Rs.20,46,346 Total - Rs.3,01,94,870/- M/s East Coast Imports & Exports, Kakinada The AO disallowed the interest but not identified each loan and date of advance with interest bearing funds. The assessee is having capital account balance to the extent of Rs.4,80,00,000/- and sundry creditors to the extent of Rs.2,27,00,000/- which are non interest bearing and the assessee is permitted to use the sum for purpose of business. The assessee also explained that the sum of Rs.3.95 crores given to Emgeek Logistics Pvt.Ltd credited to Cosmos bank account for business purposes. Further the assessee contends that all the loans and advances utilized for business purposes and the department did not controvert the submission of the assessee. The CIT(A) has given a finding that disallowance of interest is only to the extent Rs.24,58,998/- on facts which was relatable to diversion of funds. During the appeal hearing, no other material was placed by the Ld.DR to controvert the finding given by the Ld.CIT(A). Therefore, taking into consideration of the explanation offered by the assessee and the clear finding given by the Ld.CIT(A), we find no reason to interfere with the order of the CIT(A) and the same is upheld.

Ground No.(iv)and (v) are related to the disallowance made by the AO u/s 14A r.w.s. 8D of the IT Rules relating to exempt income. The AO found that the assessee made investments in various companies to the extent of Rs.4,83,42,600/- which yield dividend income and the same is M/s East Coast Imports & Exports, Kakinada exempt from taxation under section 14A of the Act. Since, the assessee has not made any disallowance relatable to exempt income, the AO invoked Rule 8D of IT Rules and made the disallowance of Rs.43,81,908/- u/s 14A r.w.Rule 8D of IT Rules. On appeal, the Ld.CIT(A) observed that the assessee did not derive any exempt income u/s 14A of the Act. Therefore, following the decision of this Tribunal in the case of D.Veerabhadra Reddy (HUF) in I.T.A. 263/Viz/2014 dated 23.06.2017, held that in the absence of exempt income, there is no case for making the disallowance u/s 14A of the Act and accordingly deleted the addition and allowed the appeal of the assessee.

Against which the department is in appeal before this Tribunal.

We have heard both the parties and perused the material placed on record. There is no dispute that the assessee did not earn any exempt income during the year under consideration. This Tribunal has taken consistent view that in the absence of exempt income, there is no case for making disallowance u/s 14A of the Act. This Tribunal has followed the decision of Hon’ble Madras High Court in the case of Redington India Ltd. Vs. Addl.Commissioner of Income Tax 77 taxmann.com 257 and the decision of Hon’ble Delhi High Court in the case of Cheminvest Ltd. Vs.CIT, 61 taxmann.com 118 and the decision of Hon’ble Gujarat High Court in the M/s East Coast Imports & Exports, Kakinada case of Pr.CIT Vs. Sintex Industries Ltd., 82 taxmann.com 171. Since the Ld.CIT(A) has followed the order of this Tribunal and allowed the appeal of the assessee, we find no reason to interfere with the order of the Ld.CIT(A) and the same is upheld. The appeal of the revenue is dismissed.

The assessee filed cross objections and during the appeal hearing, the Ld.AR withdrawn the cross objection, therefore, the cross objections filed by the assessee is dismissed as withdrawn.

In the result, appeal of the revenue as well as the cross objections of the assessee are dismissed. Order pronounced in the open court on 17th September, 2021. (एन के चौिरी) (धड.एस .सुन्दर धसंह) (N.K.CHOUDHRY) (D.S.SUNDER SINGH) न्याधयक सदस्य/ JUDICIAL MEMBER लेखा सदस्य/ACCOUNTANT MEMBER Dated : 17.09.2021 L.Rama, SPS M/s East Coast Imports & Exports, Kakinada

The Pr.Commissioner of Income Tax-2, Visakhapatnam

The Commissioner of Income Tax (Appeals)-2, Visakhapatnam 5. तवभागीय प्रतितितर्, आयकर अिीिीय अतर्करण, तवशाखािटणम/DR, ITAT, Visakhapatnam 6.गार्ाफ़ाईि / Guard file आदेशािुसार / BY ORDER ////