ITO WARD - 16(3), NEW DELHI vs. MASTERWAY CONSULTANTS LIMITED, NEW DELHI

Brief facts of the case are that, the return of income declaring loss of Rs. 2,32,68,999/- was filed, the case was selected for scrutiny and notice u/s 143(2) Income Tax Act 1961 (‘Act’ for short) was issued and the detailed questionnaire along with notices u/s 142(1) of the Act was issued to the assessee. The assessee has participated in the assessment proceedings, the assessment order came to be passed on 25/12/2017 u/s 143(3) of the Act by making addition on account of interest expenses of Rs. 6,09,19,027/- and also disallowed Rs. 11,70,395/- u/s 14A of the Act.

Aggrieved by the assessment order dated 25/12/2017, the assessee has preferred an appeal before the CIT(A). The Ld.CIT(A) while adjudicating the appeal deleted the disallowance made by the A.O u/s 14A of the Act and further deleted the addition of Rs. 15,56,346/- out of Rs. 6,09,19,027/- made on account of disallowance of interest expenses.

As against partial sustaining the addition by the CIT(A), the assessee has not preferred any appeal but the Revenue has preferred the present appeal aggrieved by the deletion of the disallowance made u/s 14A of the Act read with Rule 8D of the Rules and partial deletion of Rs. 15,56,364/- made on account of disallowance of interest expenses.

The Ld. Counsel for the assessee submitted that, the assessee has not earned any exempt income, the assessee has also filed computation of income for the year under consideration before the CIT(A) to prove that there is no exempt income earned during the year under consideration. Now, it is well settled law that if there is noi exempt income is earned by the assessee then disallowance u/s 14A cannot be made. The said ratio has been laid down by the Hon'ble Supreme Court in the case of PCIT Vs. Oil Industry Development Board reported in 103 Taxman.com 326 & PCIT Vs. Caraf Builders and Construction reported in 112 Taxman.com 322.

The above factual aspects have not been disputed by the Ld. DR. Therefore, the Ground No. 1 & 2 of the Revenue deserves to be dismissed. Accordingly, Ground No. 1 & 2 of the Revenue are dismissed.

The Ground No. 3 is regarding deletion of addition of Rs. 15,56,346/- out of Rs. 6,09,919.027/- made on account of interest expenses. It is found from the records that the Ld. A.O. has not made disallowance of interest on proportionate basis for the period of delays for which the sister concerns/related parties utilized the interest free funds received from the Assessee. It is not in dispute that the Ld. A.O. for the AY 2014-15 made proportionate disallowance of interest for the period of days for which these interest free funds were utilized by the sister concerns/related parties of the assessee. The Ld. A.O. should have applied very same approach for the year under consideration. Further, the Ld.CIT(A) has worked out and tabulated proportionate disallowance interest at 14% for the period of delays for which the sister concern/related parties had utilized the interest free funds received from the assessee and worked out the disallowance of interest u/s 36(1)(3) of the Act at Rs. 4,53,55,563/- based on the period of delays for which the interest free funds advanced by the assessee out of the interest bearing funds were utilized by the sister concerns/related parties of the assessee. The order of the Ld.CIT (A) is well reasoned and very same method has also been followed by the A.O. in the Assessment Year 2014-15. Thus we do not find any error or infirmity in the approach of the Ld.CIT (A) in deleting the addition of Rs. 15,56,346/- out of 6,09,19,027 made on account of disallowance of interest expenses. Accordingly, Ground No. 3 of the Revenue is dismissed.

In the result, the appeal of the Revenue is dismissed.