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Income Tax Appellate Tribunal, DELHI BENCH ‘E’: NEW DELHI
Before: SHRI CHALLA NAGENDRA PRASAD & SHRI AVDHESH KUMAR MISHRA
Appellant by Sh. Tarandeep Singh, Advocate Respondent by Shri Amit Katoch, Sr. DR Date of Hearing 03/04/2025 Date of Pronouncement 30/04/2025 ORDER PER AVDHESH KUMAR MISHRA, AM
These contra appeals of the assessee and the Revenue for the Assessment Year (hereinafter, the ‘AY’) 2016-17 are directed against the order dated 24.04.2019 of the Commissioner of Income Tax (Appeal)-22, New Delhi (hereinafter ‘CIT(A)’).
& 5984/Del/2019 M/s. Mawana Sugar Ltd.
These appeals contain common facts; therefore, these were heard together and are being disposed off by this common order.
Vide five grounds of appeal; the assessee has challenged following three disallowances upheld by the Ld. CIT(A): i. Rs.1,70,11,500/- made under section 36(1)(iii) of the Income Tax Act, 1961 (hereinafter, the ‘Act’), ii. Rs.4,42,817/- under section 14A of the Act and iii. Rs.2,71,362/- out of maintenance expenses.
3.1 On the other hand, the Revenue, vide five grounds, has also challenged following three disallowances deleted by the Ld. CIT(A): i. Rs.3,13,30,219/- under section 14A of the Act, ii. Rs.1,04,73,000/- out of staff welfare expenses and iii. Rs.19,28,480/- out of maintenance expenses.
The relevant facts giving rise to these appeals are that the assessee, a Sugar Mill Company, filed its Income Tax Return (hereinafter, the ‘ITR’) on 17.10.2016 declaring Nil income as per normal provisions of the Income Tax Act and loss of (-) Rs.3,92,12,53,873/- under section 115JB of the Act. The case was picked up for scrutiny. During the course of assessment proceedings, the Assessing Officer (hereinafter, the ‘AO’) noticed that the assessee, on one hand, had given interest free loans & advances of Rs.15,46,50,000/- to its subsidiaries & sister concerns and on another hand, it had taken interest 2 & 5984/Del/2019 M/s. Mawana Sugar Ltd. bearing loans & advances from banks and other for its business and paid interest of Rs.619.21 million thereon. Therefore, the AO did not see any business prudence in such transactions. The AO did not get satisfied with the justification of assessee for advancing interest free loans to sister concerns and taking loan on interest; therefore, he disallowed the interest paid on the borrowed fund @ 11%, which resulted the disallowance of Rs.1,70,11,500/-, which was upheld by the Ld. CIT(A) on the reasoning that the similar disallowance had been upheld by him in the assessee’s case for AYs 2013-14 to 2015-16 (para 5 of the impugned order).
4.1 The AO noticed that the assessee had made suo moto disallowance of Rs.4,42,817/- under section 14A of the Act. However, the same was not in accordance with the Rule 6D of the Income Tax Rules. Therefore, the AO applied Rule 6D of the Income Tax Rules and made further disallowance of Rs.3,13,30,219/- which was deleted by the Ld. CIT(A) (para 6 of the impugned order).
4.2 The AO also made disallowance of 30% of staff welfare expenses and maintenance expenses on the reasoning that these were not found incurred wholly and exclusively for the business purposes. Thus, the consequential disallowance of Rs.1,04,73,000/- and Rs.21,99,842/- was made by the AO out of staff welfare and maintenance expenses respectively. In appeal, the Ld. CIT(A) deleted the entire disallowance of Rs.1,04,73,000/- made out of staff welfare (para 8 of the impugned order). As far as the second disallowance of 3 & 5984/Del/2019 M/s. Mawana Sugar Ltd. Rs.21,99,842/- made out of maintenance expenses is concerned, the Ld. CIT(A) has restricted it to Rs.2,71,362/- (para 9 of the impugned order).
The first issue is in respect of the disallowance of Rs.1,70,11,500/- made under section 36(1)(iii) of the Act by the AO and upheld by the Ld. CIT(A).
5.1 The Ld. AR submitted that there was no factual difference on this score than the assessee’s cases of preceding years and in particular AYs 2014-15 and 2015-16. He contended that the issue of disallowance of interest of Rs.1,70,11,500/- was squarely covered by the decisions of the Tribunal in assessee’s own case in the & 6301/Del/2015, & 5830/DEL/2016, ITA Nos.5489 & 5490/DEL/2018, ITA No.516 & 6081/DEL/2016 and ITA No.5835 & 5836/DEL/2018 (order dated 26.03.2025). Further, the Ld. AR submitted that the interest free loans & advances were given to M/s Seil Financial Services Ltd. and M/s SFSL Investment prior to 2006 out of own funds. Further, the Ld. AR placed emphasis on para-19 to 30 and 34 of the above-mentioned Tribunal order dated 26.03.2025.
5.2 The Ld. AR further contented that the Courts had taken the consistent view that where the assessee's own funds were in excess of the interest free loans & advances, etc. no disallowance out of interest could be made. He placed reliance on following cases:
(i) Woolcombers of India Ltd. 134 ITR 219 227 (Cal) 4 & 5984/Del/2019 M/s. Mawana Sugar Ltd. (ii) Alkali and Chemical Corporation of India Ltd. 161 ITR 820 (Cal) (iii) Hotel Savera 239 ITR 795 799-800 (Mad) (iv) Radico Khaitan Ltd. 274 ITR 354 (All) (v) Britannia Industries Ltd. 280 ITR 525 (Cal) (vi) Reliance Utilities and Power Ltd. 313 ITR 340 (Bom) (vii) East India Pharmaceutical Works Ltd. 224 ITR 627 (SC) (viii) Munjal Sales Corporation 298 ITR 298 (SC) (ix) South Indian Bank Ltd. 438 ITR 1 (SC)
5.3 The Ld. AR contended that the Hon'ble Supreme Court in the cases of East India Pharmaceutical Works Ltd. (supra), Munjal Sales Corporation (supra) and South Indian Bank Ltd. (supra) had also approved the mixed fund theory, inasmuch as, in South Indian Bank Ltd. (supra), it had been held by the Apex Court that no disallowance of interest could be made where non- interest bearing funds were more than the investments made in tax free securities.
On the other hand, the Ld. Sr. DR supported the order of the AO.
We have given a thoughtful consideration to the entire facts of the case and submissions/contentions/arguments of both parties and are of the considered view that this issue is squarely covered by the decision of the coordinate bench of Tribunal in the assessee’s own cases in the & 6301/Del/2015, & 5830/DEL/2016, ITA Nos.5489 &
ITA No.5235 & 5984/Del/2019 M/s. Mawana Sugar Ltd. 5490/DEL/2018, & 6081/DEL/2016 and & 5836/DEL/2018. We therefore, following the reasoning given by the coordinate bench of Tribunal in the assessee’s own cases in the ITA Nos.6300 & 6301/Del/2015, ITA Nos.457 & 5830/DEL/2016, ITA Nos.5489 & 5490/DEL/2018, ITA No.516 & 6081/DEL/2016 and ITA No.5835 & 5836/DEL/2018, set aside the finding of the Ld. CIT(A) on this score and delete the disallowance of Rs.1,70,11,500/- made under section 36(1)(iii) of the Act and upheld by the Ld. CIT(A). Accordingly, this ground stands decided in favour of the assessee.
The next issue is in respect of the disallowance of Rs.3,13,30,219/- made under section 14A of the Act by the AO and deleted by the Ld. CIT(A). The Revenue has challenged the finding of the Ld. CIT(A), whereas the assessee has sought relief of Rs. Rs.4,42,817/- under section 14A of the Act on the reasoning that the assessee inadvertently made suo-moto disallowance of Rs.4,42,817/- under section 14A of the Act in its Income Tax Return. Since the Hon’ble Courts have held that where the assessee has not earned any exempted/dividend income forming part of the total income during the year under assessment, section 14A read with Rule 8D is not attracted.
8.1 With respect to the Revenue appeal in respect of the disallowance of Rs.3,13,30,219/- made under section 14A of the Act, the Ld. AR submitted that there was no factual difference on this score than the assessee’s cases of preceding years and in particular AYs 2014-15 and 2015-16. He contended 6
ITA No.5235 & 5984/Del/2019 M/s. Mawana Sugar Ltd. that the issue of disallowance of Rs.3,13,30,219/- made under section 14A of the Act was squarely covered by the decisions of the Tribunal in assessee’s own case in the & 6301/Del/2015, & 5830/DEL/2016, ITA Nos.5489 & 5490/DEL/2018, ITA No.516 & 6081/DEL/2016 and ITA No.5835 & 5836/DEL/2018 (order dated 26.03.2025). Further, the Ld. AR placed emphasis on following finding in the above-mentioned Tribunal order dated 26.03.2025:
“33.1 Grounds No.3, 3.1, 4 & 5 of assessee's appeal in AY 2011-12 is against upholding the action of the AO in making a disallowance u/s 14A read with Rule 8D. At the outset, ld. AR of the assessee submitted that undisputedly there is no exempt income earned by the assessee during the year under consideration, therefore, section 14A is not applicable. In this regard, he relied on the decision of Hon'ble Delhi High Court in the case of PCIT vs. Era Infrastructure India Ltd. In 448 ITR 674 (Delhi). On the other hand, ld. DR of the Revenue did not controvert this proposition. Accordingly, respectfully following the decision of Hon'ble Delhi High Court in the case of Era Infrastructure Ltd. (supra), we are inclined to delete the disallowance made by the AO and confirmed by the ld. CIT(A) and allow the ground of the assessee. ………..
The Revenue has taken the issue involving deletion of disallowance made u/s 14A of the Act in three AYs i.e.2012-13, 2014-15 & 2015-16. Since the issue involved is common we are taking the facts from AY 2012- 13 for the sake of brevity.
The Assessing Officer on examination of record seen that the assessee has invested Rs.317.47 million in the instruments which will result in tax exempt income and the assessee was asked to show cause as to why disallowance u/s 14A should not be made. In this regard, assessee vide letter dated 19.12.2014 objected to any disallowance u/s 14A read with Rule 8D on various grounds. The AO after going through the objections raised by the assessee rejected the same and expenses attributable to & 5984/Del/2019 M/s. Mawana Sugar Ltd. exempt income are computed and made a disallowance of Rs.1,98,44,735/-.
Aggrieved assessee preferred an appeal before the ld. CIT (A). Ld. CIT (A) observed that the issue is covered in favour of the assessee by the decision of Hon'ble jurisdictional High Court in the case of Cheminvest Ltd. reported in 378 ITR 33 holding that a disallowance u/s 14A cannot be made, if there is no exempt dividend income. Accordingly, ld. CIT (A) deleted the addition made by the Assessing Officer.
Aggrieved Revenue is in appeal before us and the ld. DR of the Revenue relied on the order of the Assessing Officer.
On the other hand, ld. AR of the assessee submitted that there is no exempt income earned by the assessee during the year under consideration, therefore, section 14A is not applicable. He relied on the findings of the ld. CIT (A) and also relied on the decision of Hon'ble Delhi High Court in the case of PCIT vs. Era Infrastructure India Ltd. reported in 448 ITR 674 (Del.).
Considered the rival submissions and material available on record. We observed that this issue is squarely covered in favour of the assessee by the decision of Hon'ble jurisdictional High Court in Cheminvest Ltd. (supra), relied on by the ld. CIT (A) and also in the case of PCIT vs. Era Infrastructure India Ltd. (supra), relied on by the assessee. The Hon'ble Courts have categorically held that where the assessee has not earned any dividend income forming part of the total income during the year under assessment, section 14A read with Rule 8D is not attracted. So, finding no illegality or perversity in the order of the ld. CIT (A), we hereby dismiss the ground taken by the Revenue.
Accordingly, the grounds involving deletion of addition u/s 14A read with Rule 8D in all the three Revenue's appeal for AYs 2012-13, 2014-15 & 2015-16 are dismissed.”
On the other hand, the Ld. Sr. DR supported the order of the AO.
We have given a thoughtful consideration to the entire facts of the case and submissions/contentions/arguments of both parties and are of the 8
ITA No.5235 & 5984/Del/2019 M/s. Mawana Sugar Ltd. considered view that this issue is squarely covered by the decision of the coordinate bench of Tribunal in the assessee’s own cases in the & 6301/Del/2015, & 5830/DEL/2016, ITA Nos.5489 & 5490/DEL/2018, ITA No.516 & 6081/DEL/2016 and ITA No.5835 & 5836/DEL/2018. We therefore, following the reasoning given by the coordinate bench of Tribunal in the assessee’s own cases in the ITA Nos.6300 & 6301/Del/2015, ITA Nos.457 & 5830/DEL/2016, ITA Nos.5489 & 5490/DEL/2018, ITA No.516 & 6081/DEL/2016 and ITA No.5835 & 5836/DEL/2018, set aside the finding of the Ld. CIT(A) on this score and decline to interfere with the finding of the Ld. CIT(A). Accordingly, this ground stands decided against the Revenue.
As far as the issue of relief of Rs. Rs.4,42,817/- sought by the assessee on the reasoning that the assessee inadvertently made suo-moto disallowance of Rs.4,42,817/- under section 14A of the Act in its Income Tax Return. We decline to accept the argument of the Ld. AR in this regard on the simple reasoning that the assessee made suo-moto disallowance of Rs.4,42,817/- under section 14A of the Act in its Income Tax Return on the basis of judicial pronouncements at that point of time. The relief sought with respect to the disallowance of Rs.4,42,817/- under section 14A of the Act would result the returned income into loss; i.e. the income below than the income disclosed in the Income Tax Return, eligible to be carried forward. Hence, appreciating the facts in entirety and considering submissions/contentions/arguments of both & 5984/Del/2019 M/s. Mawana Sugar Ltd. parties, we are of the considered view that the claim of the assessee is not justified. Hence, this ground stands decided against the assessee.
The last issue is in respect of the disallowance of Rs.21,99,842/- made by the AO out of maintenance expenses. The Ld. CIT(A) has restricted it to Rs.2,71,362/- (para 9 of the impugned order). Both the Revenue and assessee has challenged this issue [Revenue - the relief of Rs.19,28,480/- given by the Ld. CIT(A) and the assessee – the disallowance of Rs.2,71,362/- upheld by the Ld. CIT(A)].
12.1 With respect to the Revenue appeal in respect of the disallowance of Rs.21,99,842/- made by the AO out of maintenance expenses, the Ld. AR submitted that there was no factual difference on this score than the assessee’s cases of preceding years and in particular AYs 2014-15 and 2015- 16. He contended that the issue of disallowance out of maintenance expenses was squarely covered by the decisions of the Tribunal in assessee’s own case in the & 6301/Del/2015, & 5830/DEL/2016, ITA Nos.5489 & 5490/DEL/2018, ITA No.516 & 6081/DEL/2016 and ITA No.5835 & 5836/DEL/2018 (order dated 26.03.2025). It was submitted that the assessee had made payment of Rs.21,28,906/- to its sister concern; Usha International Ltd., which had disclosed the same in its receipts as income. The CIT(A) had given categorical finding after verification and there was no element of business expenditure.
& 5984/Del/2019 M/s. Mawana Sugar Ltd. 13. On the other hand, the Ld. Sr. DR supported the order of the AO.
We have given a thoughtful consideration to the entire facts of the case and submissions/contentions/arguments of both parties and are of the considered view that there is no infirmity in the finding of the Ld. CIT(A) as none of these parties brought any material contradictory to the finding of the Ld. CIT(A). We therefore, decline to interfere with the finding of the Ld. CIT(A). Accordingly, the respective ground of both parties stands decided against them.
To sum up, the assessee’s appeal is partly allowed as above and the appeal of the Revenue is dismissed as above.
Order pronounced in open Court on 30th April, 2025