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Income Tax Appellate Tribunal, PUNE BENCH “B”, PUNE
आदेश / ORDER PER ANIL CHATURVEDI, AM :
This appeal filed by the Revenue is emanating out of the order of 1. Commissioner of Income Tax (A) – 2, Nashik dated 29.12.2016 for the assessment year 2012-13.
The relevant facts as culled out from the material on record are as under :-
Assessee is a company engaged as Civil Contractor. Assessee filed its original return of income for A.Y. 2012-13 on 30.09.2012 declaring total income of Rs.5,97,32,548/-. Subsequently, assessee revised the return of income on 31.03.2014 wherein the total income was revised to
Rs1,33,62,455/-. The case was selected for scrutiny and thereafter
assessment was framed u/s 143(3) of the Act vide order dt.27.03.2015
and the total income was determined at Rs.10,12,60,322/-. Aggrieved
by the order of AO, assessee carried the matter before Ld.CIT(A), who
vide order dt.29.12.2016 (in appeal No.Nsk/CIT(A)-2/186/15-16)
granted partial relief to the assessee. Aggrieved by the order of
Ld.CIT(A), Revenue is now in appeal before us and has raised the
following grounds :
“1. On the facts and in the circumstances of the case and in law, th Ld.CIT(A) erred in deleting the disallowance of Rs.69r37,663 u/s14 r.w.Rue 8D by relying on the decision of CIT Vs HDFC Bank (2014) 16 DTR 140, which has not become final. Further, the assessee ha investment in the companies, whose income will/shall form part of the exempt income. 2. On the facts and in the circumstances of the case and in low, the Ld.CIT(A) erred in deleting the disallowance of Rs.10,62,382/- u/s 36(1)(iii) without appreciating the fact that the assessee has failed to prove the business nexus of the loans given to the sister concern. 3. The order of the Ld.CIT(A)-2, Nashik be cancelled on the above issues and that of the A.O be restored.”
First ground is with respect to disallowance u/s 14A of the Act.
3.1. During the course of assessment proceedings, AO noticed that
assessee had investments to the tune of 10.88 crores (rounded off).
Assessee was asked to file the working of the disallowance u/s 14A of
the Act which was worked out at Rs.40,307/-. The working of the
assessee was not found acceptable to the AO. AO thereafter worked out
the disallowance u/s 14A r.w. 8D of I.T. Rules at Rs.69,37,663/- and
made its addition. Aggrieved by the order of AO, assessee carried the
matter before Ld.CIT(A), who deleted the disallowance made by the AO
by noting the fact that assessee was having sufficient interest free funds
and therefore no interest expenditure can be said to have incurred in
respect of investment in the shares of the companies and for which
reliance was also placed on the decision of Hon’ble Bombay High Court
in the case of CIT Vs. HDFC Bank Limited (2014) 160 DTR 140.
Ld.CIT(A) also noted that assessee had not earned any exempt income in
respect of the investment in shares and that in the absence of exempt
income, no disallowance u/s 14A of the Act is called for. He thus
deleted the addition made by the AO.
Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal
before us.
Before us, Ld. D.R. supported the order of AO. Ld.A.R. on the
other hand, reiterated the submissions made before AO and Ld.CIT(A)
and further submitted that since assessee has not earned any exempt
income, no disallowance u/s 14A of the Act is called for. He thus
supported the order of Ld.CIT(A).
We have heard the rival submissions and perused the material on
record. The issue in the present ground is with respect to disallowance
u/s 14A of the Act. It is assessee’s contention that no exempt income
has been earned by the assessee and that the assessee has sufficient
interest free funds and therefore no disallowance on account of interest
expenses can be made. The aforesaid contentions of the assessee have
been accepted by the Ld.CIT(A) and it is not in dispute. The Hon’ble
Bombay High Court in the case of HDFC Bank Limited (supra) has held
that when the own funds are more than investments then no
disallowance of interest u/s 14A of the Act is called for. Before us,
Revenue has not placed any contrary binding decision in its support. As
far as the disallowance u/s 14A of the Act when no exempt income is
earned by assessee is concerned, we find that Hon’ble Apex Court in the
case of PCIT Vs. Oil Industry Development Board reported in (2019) 103
Taxmann.com 326 (SC) had dismissed the SLP filed by the Department
against the Hon'ble High Court’s decision which had upheld Tribunal’s
order that in the absence of any exempt income, disallowance u/s 14A
of any amount was not permissible. Considering the aforesaid facts and
in the light of the decisions cited hereinabove, we find no reason to
interfere with the order of Ld.CIT(A). Thus, the ground No.1 of Revenue
is dismissed.
2nd ground is with respect to disallowance u/s 36(1)(iii) of the Act.
6.1. During the course of assessment proceedings, AO has noted that
assessee has given interest free advance of Rs.54,28,625/- to its related
parties namely, M/s. M.K. Kotecha Engg and Contractor and M/s. M.K.
Kotecha Prestressed Products Pvt. Ltd. AO also noticed that assessee
had debited interest payment on loans of Rs.12 crores (rounded off). AO
thereafter worked out the average rate of interest on the borrowings at
Rs.19.5%. Applying the aforesaid rate on the amount advanced
interest free by the assessee to its related parties, he worked out the
disallowance at Rs.10,62,382/- and made its addition. Aggrieved by the
order of AO, assessee carried the matter before Ld.CIT(A), who after
noting the fact that Share Capital of the assessee was Rs.4.42 crores
and Reserves and Surplus was Rs.85.94 crores and had during the year
earned net profits of Rs.5.85 crores concluded that the interest free
funds available with the assessee were much more than amount
advanced of Rs.54.28 lakhs. He therefore relying on the decision of
Hon’ble Bombay High Court in the case of CIT Vs. Reliance Utilities &
Power Limited reported in (2009) 313 ITR 340 (Bom), deleted the
addition.
Aggrieved by the order of Ld.CIT(A), Revenue is now in appeal
before us.
Before us, Ld. D.R. supported the order of AO. Ld.A.R. on the
other hand, reiterated the submissions made before lower authorities
and submitted that assessee has sufficient interest free funds in the
form of Share Capital and Reserves and Surplus, which are much more
than the amounts advanced by the assessee to its related parties and in
such a case, presumption is that the amounts advanced are from
interest free funds and not from borrowed funds and therefore no
disallowance is called for in the present case. He thus supported the
order of Ld.CIT(A).
We have heard the rival submissions and perused the material on
record. The issue in the present ground is with respect to the
disallowance u/s 36(1)(iii) of the Act. Before us, it is assessee’s
contention that the availability of interest free funds in the form of Share
Capital, Reserves and Surplus are much more than the amount
advanced by the assessee to its related parties. The aforesaid
contention is not disputed by Revenue. We find that Ld.CIT(A) relying
on the decision of Hon’ble Bombay High Court in the case of Reliance
Utilities (supra) held that when interest free funds are more than the
amount advanced, then the presumption is that the amount advanced
are out of interest free funds. Before us, Revenue has neither pointed
out any contrary binding decision in its support nor placed any material
to controvert the findings of Ld.CIT(A). Considering the totality of the
aforesaid facts, we find no reason to interfere with the order of
Ld.CIT(A), and thus, the ground No.2 of the Revenue is dismissed.
In the result, the appeal of Revenue is dismissed.
Order pronounced on 12th day of September, 2019.
Sd/- Sd/- (SUSHMA CHOWLA) (ANIL CHATURVEDI) �या�यक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER
पुणे Pune; �दनांक Dated : 12th September, 2019. Yamini
आदेश क� ��त�ल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant 2. ��यथ� / The Respondent 3. CIT(A)-2, Nashik. Pr. CIT-2, Nashik. 4. 5 �वभागीय ��त�न�ध, आयकर अपील�य अ�धकरण, “बी” / DR, ITAT, “B” Pune; गाड� फाईल / Guard file. 6.
आदेशानुसार/ BY ORDER
// True Copy // व�र�ठ �नजी स�चव / Sr. Private Secretary आयकर अपील�य अ�धकरण ,पुणे / ITAT, Pune.