ACIT, CHANDIGARH vs. M/S A.B. SUGARS LTD., CHANDIGARH

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ITA 1051/CHANDI/2018Status: DisposedITAT Chandigarh21 February 2019AY 2011-126 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal upheld the CIT(A)'s decision, finding no infirmity in deleting the addition for interest expenditure as the assessee had sufficient interest-free funds. It also confirmed the restriction of Section 14A disallowance to the extent of exempt income earned.

What were the facts?

The Revenue appealed the CIT(A)'s order deleting additions made by the Assessing Officer regarding interest expenditure on advances to sister concerns and disallowance under Section 14A. The CIT(A) had relied on various High Court and Supreme Court judgments.

What were the issues?

Whether interest expenditure on advances to sister concerns is disallowable when the assessee has sufficient interest-free funds, and whether disallowance under Section 14A can exceed exempt income.

Which sections of the Income-tax Act were involved?

Section 36(1)(iii),Section 14A

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आदेश/Order

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the Revenue against the order dated 8.5.2018 of the Commissioner of Income Tax (Appeals)-1, Chandigarh [hereinafter referred to as CIT(A)].

2.

The Revenue has taken following grounds of appeal:-

1.

On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case.

2.

On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 21,50,686/- made u/s 36(l)(iii) of the I.T. Act, 1961, ignoring that the assessee has not maintained

ITA No. 1051/Chd/2018- M/s A.B. Sugars Ltd., Chandigarh 2

any separate account for interest bearing / interest free and hence the amount advanced to sister concern cannot be said to be made form interest free funds only.

3.

On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 21,50,686/- made u/s 36(l)(iii) of the I.T.Act, 1961, ignoring that the assessee has failed to establish any business expediency for advancing such a huge sum to its concern.

4.

On the facts and circumstances of the case, the Ld. CIT(A) has erred in deleting the addition of Rs. 21,50,686/- made u/s 36(l)(iii) of the I.T. Act, 1961, based on the submission of the assessee ignoring that neither the assessed has brought this fact into the notice of AO during the assessment proceedings nor this fact is apparent from the records, therefore the submission of the assessee is nothing but an after-thought only.

5.

On the facts and circumstances of the case, the Ld. CIT(A) has erred in restricting the addition of Rs. 11,08,624/- made u/s 14A of the I.T. Act, 1961, to Rs. 1.19 Lacs without taking cognizance of circular No. 5 of 2014 of CBDT on this issue, wherein it has been clarified that the provision of section 14A are applicable even when no exempt income has been earned.

6.

On the facts and in circumstances of the case and in law the ITAT has erred in deleting the addition made on account of capitalization of interest related to CWIP as there was a huge addition of fixed assets and interest was required to be capitalized on account of CWIP.

7.

On the facts and in circumstances of the case and in law the Ld. CIT{A) has erred in deleting the disallowance of additional depreciation as the Assessing officer had made a combined disallowance on account of excess depreciation & additional depreciation amounting to Rs. 5,56,98,007/- and the asseessee has failed to prove how excess rates of depreciation were allowable on the items and the

ITA No. 1051/Chd/2018- M/s A.B. Sugars Ltd., Chandigarh 3

assessee also failed to prove that those items were being used in its business.

8.

It is prayed that the order of the Ld. CIT(A) be cancelled and that of the assessing officer may be restored.

9.

The appellant craves leave to add or amend any grounds of appeal before the appeal is heard or is disposed off.

3.

Ground Nos. 1 to 4 : Vide ground Nos, 1 to 4, the Revenue has

agitated the action of the CIT(A) in deleting the addition of Rs.

21,50,686/- which was made by the Assessing officer u/s 36(1) (iii) of the

Income-tax Act, 1961 (in short 'the Act').

4.

The Assessing officer had made the impugned additions on account

of notional disallowance of interest expenditure in respect of the interest

free advances given by the assessee to its sister concern. The assessee

took the plea before the Ld. CIT(A) that, firstly, the advances were made

out of business expediency and secondly, that assessee had its own /

interest free sufficient funds to meet the investment.

5.

The Ld. CIT(A) deleted the addition made by the Assessing officer

while relying upon the decision of the Hon'ble Jurisdictional High Court

in Bright Enterprises (ITA No. 224 of 2013) and judgement of Hon'ble

Supreme Court in the case of M/s Hero Cycles (63 Taxman 308), wherein,

it has been held that if assessee had funds / interest free funds available

with it to make investment, the presumption will be that investment made

by the assessee is out of own funds.

6.

Now the issue is also squarely covered by the decision of the

ITA No. 1051/Chd/2018- M/s A.B. Sugars Ltd., Chandigarh 4

Hon'ble Supreme Court in in ‘CIT Vs. Reliance Industries Ltd’ [2019] 102

taxmann.com 52 (SC) / 410 ITR 466 (SC). We, therefore, do not find any

infirmity in the order of the Ld. CIT(A) on this issue.

7.

Ground No.5 : Vide this ground, the Revenue has agitated the

disallowance made by the Assessing officer of Rs. 11,08,624/- u/s 14A of

the Act at Rs. 1.19 lacs. The Ld. CIT(A) while relying upon the decision

of the Hon'ble Delhi High Court in the case of ‘Joint Investment Pvt Ltd.

(ITA No. 117/2015) and in the case of M/s Expire Packaging Pvt Ltd. in

ITA No. 415 of 2015 (P&H) has restricted the disallowance u/s 14A of the

Act to the extent of tax exempt income earned by the assessee. The issue

is squarely covered by the various decisions of the Hon'ble High Courts

including that of the Jurisdictional High Court of Punjab and Haryana in

the case of ‘CIT Vs. Winsome Textiles’ (2009) 319 ITR 204 (P&H) and

Hon'ble Delhi High Court in the case of ‘Cheminvest Ltd Vs. ITO’ (2015)

378 ITR 33 (Delhi) and of the Hon'ble Gujarat High Court in the case of

‘Corrtech Energy P. Ltd. (2014) 45 Taxman.com 116’ and further of the

Hon'ble Allahabad High Court in the case of ‘CIT Vs. M/s Shivam Motors

(P) Ltd’ (2014) 272 CTR (All) 277 and various other case laws. In all the

above referred to case laws, the Hon'ble High Courts have been unanimous

to hold that disallowance u/s 14A cannot exceed the tax exempt income

earned by the assessee.

We do not find any infirmity in the order of the CIT(A) on this issue.

Ground No.6: 8. Vide ground No.6, the Revenue has agitated the

action of the CIT(A) in deleting the addition made on account of

capitalization of interest relating to capital work in progress. The Ld.

ITA No. 1051/Chd/2018- M/s A.B. Sugars Ltd., Chandigarh 5

CIT(A) has dealt with this issue in para 8 of the impugned order, wherein,

he while relying upon the decision of the Tribunal in the own case of the

assessee for assessment year 2010-11 held that the funds invested in the

assets were only a small percentage of total fixed assets and could not be

termed as ‘substantial expansion’ and, therefore, the addition could not be

made under the proviso to section 36(1)(iii) of the Act. No distinguishing

fact or contrary decision has been cited by the Ld. DR on this issue.

In view of this, we do not find any infirmity in the order of the

CIT(A) on this issue also.

9.

Ground No.7: Vide this ground, the Revenue has agitated the

action of the CIT(A) in deleting the disallowance of additional

depreciation made by the Assessing officer. A perusal of the impugned

order of the CIT(A) on this issue reveals that the assessee had claimed

depreciation in respect of various items. However, the CIT(A) has directed

the Assessing officer to examine the additional depreciation claimed in

respect of each of the items and allow depreciation and additional

depreciation as per schedule by applying different rate of depreciation

applicable as per rules.

10.

We find that the Ld. CIT(A) has not deleted the addition on this

issue, rather, he has directed the Assessing officer to examine each item

and allow the depreciation and additional depreciation in accordance with

law and as per rules.

We do not find any infirmity in the order of the CIT(A) on this issue

also.

ITA No. 1051/Chd/2018- M/s A.B. Sugars Ltd., Chandigarh 6

11.

Ground Nos. 8 & 9 are general and do not require any specific adjudication.

In the result, there is no merit in the appeal of the Revenue and the same is accordingly dismissed. Order dictated and pronounced in the Open Court on 21.02.2019.

Sd/- Sd/- (अ�नपूणा� गु�ता / ANNAPURNA GUPTA) (संजय गग� / SANJAY GARG) लेखा सद�य/ Accountant Member �या�यक सद�य/ Judicial Member

Dated : 21.02.2019 “आर.के.” आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File

आदेशानुसार/ By order, सहायक पंजीकार/ Assistant Registrar

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