CHIMANLAL SURESH KUMAR TEXTILES PRIVATE LIMITED, HYDERABAD,HYDERABAD vs. ACIT, CIRCLE-1(2), HYDERABAD, HYDERABAD

Brief facts of the case are that the assessee-company, engaged in the business of Wholesale Trading in Textiles, filed its return of income for the A.Y. 2008-09 declaring a loss of Rs. 38,95,260/-. The return was initially processed U/s. 143(1) of the Act on 10/03/2010. Thereafter, the case was selected for scrutiny and during the

Further, the Assessing Officer also observed that in the balance sheet under ‘Loan Funds’ (Schedule ‘C’ & ‘D’), the assessee has shown secured / unsecured loans amounting to Rs. 32,34,35,805/- and on perusal of the balance sheet, he found that the assessee has claimed that he has invested an amount of Rs. 1,21,68,825/- in lands. He also observed that the assessee has claimed interest on borrowed funds at Rs. 98,08,920/-. Observing that the investment in land is not related to the assessee’s business and does not derive any income, the A.O. disallowed the proportionate interest U/s. 14A of the Act i.e., Rs. 3,69,047/- and brought it to tax. Aggrieved, assessee preferred an appeal before the Ld. CIT(A), who confirmed the order of the A.O. and the assessee is in second appeal before us by raising the following grounds of appeal:

The Learned Counsel for the Assessee submitted that the entire addition of Rs. 80 lakhs is only on the basis of the receipt alleged to have been signed by Sri K. Ravinder Reddy, Managing Director of Sree Ramachandra Cements Pvt Ltd which was found and seized during the course of search in the case of M/s. Janapriya Engineers Syndicate Ltd. He submitted that this receipt is not issued by the assessee nor does it contain his signature and therefore, as far as the assessee is concerned, it does not relate to the assessee except for the mention of his name in the alleged receipt. He further submitted that even during the course of assessment proceedings, Sri K. Ravinder Reddy has denied the receipt of Rs. 1,40,00,000/- as mentioned in the alleged receipt. Therefore, he submitted that the entire addition is unwarranted and cannot be sustained.

As regards the disallowance U/s. 14A is concerned, Learned Counsel for the Assessee submitted that the land was held as stock-in- trade in assessee’s books of account and therefore, interest portion cannot be disallowed U/s. 14A of the Act.

The Ld. DR, on the other hand, submitted that the document found during the course of search is not a receipt but it is only an acknowledgement of a transaction and since it is found during the

As regards the disallowance U/s. 14A of the Ac, the Ld. DR relied upon the orders of the Authorities Below.

Having regard to the rival contentions and the material on record, I find that the seized document is not found from the possession of the assessee but it was found from the possession of the person who is alleged to have signed receipt. On a query from the Bench, the Ld. DR informed that no addition of Rs. 80 lakhs was made in the hands of either Sri K. Ravinder Reddy or Sree Ramachandra Cements Pvt Ltd. A transaction has to be examined from both the angles i.e., in the hands of the purchaser as well as the seller. Since the document was found in the hands of Sri K. Ravinder Reddy, and the Department has not deemed it fit to consider and make an addition in the hands of Sri K. Ravinder Reddy or the company i.e, Sree Ramachandra Cements Ltd., on receipt basis, I am of the opinion that no addition can be made in the hands of the assessee without any substantial evidence that the

As regards Grounds No. 4 and 5 against the disallowance U/s. 14A of the Act, it is the case of the assessee that the land was held as stock-in-trade and therefore, 14A is not applicable. Without prejudice to this argument the Learned Counsel for the Assessee also submitted that there is no exempt income earned during the year. Therefore, without going into the first argument and since I find that there is no exempt income earned by the assessee during the relevant assessment year I hold that no disallowance U/s. 14A can be made. The Hon’ble Delhi High Court in the case of Cheminvest Limited vs. CIT (ITA No.749/2014 dated 02/09/2015) has held that section 14A will not apply if no exempt income is received or receivable during the relevant previous year. Respectfully following the same, I direct the A.O. to delete the disallowance made U/s. 14A of the Act and Grounds no. 4 and 5 raised by the assessee are allowed.

In the result, assessee’s appeal is allowed.