DEPUTY COMMISSIONER OF INCOME TAX,, JALGAON vs. TAPI PRESTRESSED PRODUCTS LTD,, JALGAON

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.

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.”

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.

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).

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.

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.

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).

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.

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.