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Income Tax Appellate Tribunal, “ D ” BENCH, AHMEDABAD
Before: SHRI RAJPAL YADAV & SHRI WASEEM AHMED
आदेश / O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals)–1, Vadodara [CIT(A) in short] vide appeal no.CAB- 1/367/2015-16 dated 06.01.2017 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(hereinafter referred to as "the Act") dated 31/12/2015 relevant to Assessment Year (AY) 2013- 14.
The assessee has raised the following grounds of appeal:- The order of the learned Commissioner (Appeals) is against law and facts.
ITA No.645/Ahd/2017 Ankur Scientific Technologies Pvt.Ltd. vs. DCIT Asst.Year – 2013-14 - 2 - 1. The learned Commissioner (Appeals) erred in confirming disallowance made by the Assessing officer under section 14A amounting to Rs.7,32,684/- in addition to Rs.66,810/- already made in the Return of income by the appellant. Your appellant submits that the disallowance is not justified and prays that the same be deleted. 2. The learned Commissioner (Appeals) erred in confirming addition of Rs.16,20,000/- on account of interest free loan granted by the appellant. 3. The learned Commissioner (Appeals) erred in dismissing the appeal relating to credit not given for tax deducted at source for Rs.1,32,197/-.
Your appellant submits that the disallowance of tax credit for tax deducted is not justified and prays that credit be allowed for Rs.4,06,861/- as against the tax credit allowed to the extent of Rs.2,74,664/- only. 4. The learned Commissioner (Appeals) erred in dismissing the appeal relating to credit not given for the advance tax paid of Rs.15,00,000/-.
Your appellant submits that the disallowance of tax credit for advance tax paid is not justified and prays that credit be allowed for Rs.2,61,41,977/- as against the tax credit allowed to the extent of Rs.2,46,41,977/- only.
At the outset, the Ld. Counsel for the assessee submitted that he had been instructed by the assessee not to press the ground Nos. 3 & 4 of this appeal. Therefore, we dismiss the same as not pressed.
ITA No.645/Ahd/2017 Ankur Scientific Technologies Pvt.Ltd. vs. DCIT Asst.Year – 2013-14 - 3 - 4. The first issue raised in ground No. 1 is that the Ld.CIT (A) erred in confirming the addition made by the Assessing Officer (AO) for Rs. 7,32,684/- u/s 14A of the Act.
Briefly stated facts are that the assessee is a Private Limited Company engaged in the business of manufacturing of bio-mass gasifiers and biomass power generation. The assessee during the year has earned dividend income of Rs. 20,31,461/- which was claimed as exempt u/s 10(34)/10(35) of the Act.
5.1. The assessee against such income has made the disallowance u/s 14A of the Act, towards direct expenses and administrative expenses amounting to Rs. 16,241/- and Rs. 50,569/- respectively aggregating to Rs. 66,810/- only.
5.2. However, the AO found that the assessee has claimed interest expenses amounting to Rs. 51,76,488/- but there was no disallowance of such interest expenses u/s 14A of the Act.
5.3. The AO also noticed that the assessee has not considered the other expenses, utilization of assets for making the disallowance of administrative expenses. Accordingly, the Assessing Officer invoked the provisions of section 14A r.w. Rule 8D of the Income Tax Rules, 1962 and made the disallowance as under:
ITA No.645/Ahd/2017 Ankur Scientific Technologies Pvt.Ltd. vs. DCIT Asst.Year – 2013-14 - 4 - Sl.No.(s) Particulars Amount (in Rs.) 1. Direct expenses 16,241/- 2. Interest expenses 4,91,980/- 3. Administrative expenses 2,24,463/- � Total 7,32,684/-
5.4. Accordingly, the Assessing Officer disallowed the above expenses and added to the total income of the assessee.
Aggrieved assessee preferred an appeal before the Ld.CIT (A).
The assessee before the Ld.CIT (A) submitted that its own fund exceeds the amount of investment. Therefore, there cannot be any disallowance of interest expenses.
7.1. Regarding administrative expenses, the assessee submitted that the investments which have generated exempted income should only be considered for disallowance. Accordingly, the disallowance is coming for Rs. 2,302/- as compared to Rs. 50,569/- which has already been disallowed in the income-tax return.
7.2 However, the Ld.CIT (A) observed that the assessee had not furnished any fund flow statement justifying that the investment was made out of its interest-free fund.
ITA No.645/Ahd/2017 Ankur Scientific Technologies Pvt.Ltd. vs. DCIT Asst.Year – 2013-14 - 5 - 7.2. The principles laid down by the Hon’ble Gujarat High Court in the case of CIT vs. Corretech Energy Pvt.Ltd. reported in 45 taxmann.com 116 are not applicable to the facts of the instant case. It is because in that case there was no dividend income earned by the assessee whereas the assessee in the instant case has earned dividend income.
7.3. In view of the above, the Ld.CIT (A) confirmed the order of the AO.
Being aggrieved by the order of the Ld.CIT (A), the assessee is in appeal before us.
The Ld.AR before us filed a paper-book running from Page Nos.1 to 22 and submitted that its funds exceed the amount of investment. Therefore there cannot be any disallowance of interest expenses.
9.1. The Ld.AR also submitted that the disallowance concerning to administrative expenses should be worked out on the basis of the investments which have yielded dividend income in the year under consideration.
On the other hand, the Ld. DR submitted that the fund of the assessee has already been invested/blocked with the fixed assets. Therefore, in the absence of fund flow statement, it cannot be ascertained that the investment was made out of the own interest-free fund. The Ld. DR vehemently supported the orders of the authorities below.
ITA No.645/Ahd/2017 Ankur Scientific Technologies Pvt.Ltd. vs. DCIT Asst.Year – 2013-14 - 6 -
We have heard the rival contentions and perused the materials available on record. In the instant case, the issue involves for the disallowance of the expenses under section 14A r.w. Rule 8D of the Income Tax Rules for the amount as detailed under:
i. interest expenses Rs. 4,91,980.00 ii. administrative expenses Rs. 2,24,463.00
11.1. Regarding the disallowance of interest expenses, we note that the interest free fund available with the assessee exceeds the value of investments. This fact can be verified from the balance sheet filed by the assessee, which is placed on record. Therefore, a presumption can be drawn that the investment was made by the assessee out of its own fund available with it. In this regard we find support and guidance from the judgement of Hon’ble Gujarat High Court in the case of CIT Vs.UTI Bank ltd. reported in 32 taxmann.com 370 wherein it was held no disallowance of interest expenses is warranted if the own fund of the assessee exceeds the amount of investment.
11.2. Regarding the administrative expenses, the only argument of the assessee is that the disallowance under rule 8D should be made after considering the investment which have yielded exempt income during the year. We find force in the argument of the Ld. Counsel for the assessee.
ITA No.645/Ahd/2017 Ankur Scientific Technologies Pvt.Ltd. vs. DCIT Asst.Year – 2013-14 - 7 - 11.3. In holding so, we draw the principles laid down by the Hon’ble Delhi high court in the case of PCIT Vs. IL & FS energy development company Ltd. reported in 84 taxman.com 186 wherein it was held as under: “The words "in relation to income which does not form part of the total income under the Act for such previous year" in the rule 8D(1) indicates a correlation between the exempt income earned in the assessment year and the expenditure incurred to earn it. In other words, the expenditure as claimed by the assessee has to be in relation to the income earned in 'such previous year'. This implies that if there is no exempt income earned in the assessment year in question, the question of disallowance of the expenditure incurred to earn exempt income in terms of section 14A read with rule 8D would not arise.
The CBDT Circular upon which extensive reliance is placed by revenue does not refer to rule 8D(1) at all but only refers to the word "includible" occurring in the title to rule 8D as well as the title to section 14A. The circular concludes that it is not necessary that exempt income should necessarily be included in a particular year's income for the disallowance to be triggered.
This will be a truncated reading of section 14A and rule 8D particularly when rule 8D(1) uses the expression 'such previous year'. Further, it does not account for the concept of 'real income'. It does not note that under section 5, the question of taxation of 'notional income' does not arise.”
11.4. We also find support & guidance from the judgment of Hon’ble Jurisdictional High Court in the case of CIT vs. Corrtech Energy Private Ltd reported in 45 taxmann.com 116, wherein it was held as under:
“Section 14A(1) provides that for the purpose of computing total income under chapter IV, no deduction shall be allowed in respect
ITA No.645/Ahd/2017 Ankur Scientific Technologies Pvt.Ltd. vs. DCIT Asst.Year – 2013-14 - 8 - of expenditure incurred by the assessee in relation to income which does not form part of the total income under the Act. In the instant case, the Tribunal has recorded the finding of fact that the assessee did not make any claim for exemption of any income from payment of tax. It was on this basis that the Tribunal held that disallowance under section 14A could not be made. In the process tribunal relied on the decision of Division Bench of Punjab and Haryana High Court in case of CIT v. Winsome Textile Industries Ltd. [2009] 319 ITR 204 in which also the Court had observed that where the assessee did not make any claim for exemption, section 14A could have no application.”
11.5. In the above case, we note that there was no dividend income received by the assessee during the year under consideration. Therefore, the Hon’ble jurisdictional High Court directed not to make any disallowance of the expenses under section 14A read w. Rule 8D in the absence of any dividend income.
11.6. The formula specified under rule 8D for disallowance requires to take only those investments which have yielded dividend income. As in the above case, there was no dividend income, therefore there cannot be any question of making any disallowance under the provisions of section 14A r.w rule 8D of Income Tax Rule.
11.7. Accordingly, we note that the same principles can be applied to the case on hand. Thus we direct the AO to take only those investments for disallowance under section 14A read with rule 8D which have yielded dividend income during the year.
ITA No.645/Ahd/2017 Ankur Scientific Technologies Pvt.Ltd. vs. DCIT Asst.Year – 2013-14 - 9 - 11.8. However, the disallowance on account of administrative expenses cannot reduce below the amount offered by the assessee under section 14A r.w rule 8D of Income Tax Rules.
11.9. We hold accordingly. Hence, the ground of appeal of the assessee is allowed in terms of the above.
The next issue is raised in Ground No.2 is that the Ld. CIT(A) in confirming the addition of Rs.16,20,000/- on account of diversion of an interest-bearing loan. The assessee has shown an investment of Rs. 135 lacs in the Balance sheet as on 01/04/2012. But there was no such investment in the balance-sheet as on 31/03/2013.
12.1. The assessee submitted that it had made an advance of Rs.135 lacs for the purchase of immovable property to M/s.Vastu Shilp Infrastructure Pvt.Ltd. in the earlier years. But the deal was not materialized and accordingly, the money was received back by it.
12.2. However, the Assessing Officer on confirmation from Vastu Shilp Infrastructure Pvt.Ltd. (VIPL) noticed that it was classified as unsecured loan in the books of Vastu Shilp Infrastructure Pvt.Ltd. Therefore, the Assessing Officer was of the view that the assessee has diverted its interest-bearing fund to ‘non-interest advances’. Accordingly, the AO worked out the proportionate interest on Rs. 135 lacs amounting to Rs. 16,20,000/- and added back to the total income of the assessee.
ITA No.645/Ahd/2017 Ankur Scientific Technologies Pvt.Ltd. vs. DCIT Asst.Year – 2013-14 - 10 - 13. Aggrieved assessee preferred an appeal to the Ld.CIT (A). The assessee before the Ld.CIT (A) among others submitted that it has advanced money for the investment in the immovable property out of interest-free fund available with it. Therefore, there cannot be any disallowance of interest expenses.
13.1. However, the Ld.CIT (A) disregarded the contention of the assessee by observing that there was no fund flow filed by the assessee evidencing that the fund in the property was invested out of its interest- free fund. Accordingly, the Ld.CIT (A) confirmed the order of the AO.
Being aggrieved by the order of the Ld.CIT (A), now the assessee is in appeal before us.
The Ld.AR before us reiterated the submissions as were made before the Ld.CIT (A), whereas the Ld. DR vehemently supported the orders of the authorities below.
We have heard the rival contentions and perused the materials available on record. It is undisputed fact that the assessee has own fund exceeding the amount of advances given for the party as discussed above. Thus a presumption can be drawn that the fund was advanced by the assessee without charging any interest out of its own interest free fund available with it. In this regard we find support and guidance from the judgement of Hon’ble Gujarat High Court in the case of ACIT Vs.
ITA No.645/Ahd/2017 Ankur Scientific Technologies Pvt.Ltd. vs. DCIT Asst.Year – 2013-14 - 11 - Gijatrat Narmada Vally Fertilizers Co. Ltd. reported in 42 taxmann.com 579 where in it was held as under: “Apex Court in this decision of Munjal Sales Corn. (supra) on having found that the opening balance of the profits of the assessee-firm was huge and the profits were sufficient to cover the loan given to a sister concern, which was meager as compared to the profits of the firm and therefore, it held that the loans were from the assessee's own fund.”
16.1 In view of the above, we have no hesitation to reverse the order of the authorities below. Accordingly we set aside the order of the Ld.CIT (A) and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.
In the result, the appeal of the assessee is partly allowed for statistical purposes. This Order pronounced in Open Court on 01/02/2019
Sd/- Sd/- ( RAJPAL YADAV ) ( WASEEM AHMED ) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 01/02/2019
ट�.सी.नायर, व.�न.स./T.C. NAIR, Sr. PS
ITA No.645/Ahd/2017 Ankur Scientific Technologies Pvt.Ltd. vs. DCIT Asst.Year – 2013-14
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent. 3. संबं�धत आयकर आयु�त / Concerned CIT 4. आयकर आयु�त(अपील) / The CIT(A)-1, Vadodara �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, अहमदाबाद / DR, ITAT, Ahmedabad 5. 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, स�या�पत ��त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील�य अ�धकरण, अहमदाबाद / ITAT, Ahmedabad 1. Date of dictation 16.1.2019 (dictation pad 14- pages attached at the end of this appeal-file) 2. Date on which the typed draft is placed before the Dictating Member 16/18.1.2019 3. Other Member… 4. Date on which the approved draft comes to the Sr.P.S./P.S … 5. Date on which the fair order is placed before the Dictating Member for pronouncement…… 6. Date on which the fair order comes back to the Sr.P.S./P.S…….1.2.19 7. Date on which the file goes to the Bench Clerk…………………1.2.19 8. Date on which the file goes to the Head Clerk…………………………………... 9. The date on which the file goes to the Assistant Registrar for signature on the order…………………….. 10. Date of Despatch of the Order……………