KIKANI EXPORTS P. LTD.,,COIMBATORE vs. DCIT, COIMBATORE

This is an appeal filed by the Assessee directed against the order of the Commissioner of Income Tax (Appeals)-1, Coimbatore, (in short ‘CIT(A)’) dated 23.11.2016 for the Assessment Year 2013- 14.

The brief facts of the case are as under: The appellant namely M/s. Kikani Exports Pvt. Ltd., is a company incorporated under the provisions of the Companies Act, 1956. It is engaged in the business of export of cotton yarn. The return of income for the assessment year 2013-14 was filed electronically on 29.09.2013 disclosing a total income of Rs.13,54,35,420/-. Against the said return of income, the assessment was completed by the Deputy Commissioner of Income Tax, Corporate Circle-2, Coimbatore (hereinafter referred as ‘AO') vide order dated 25.01.2016 passed U/s.143(3) of the Income Tax Act, 1961 (in short ‘the Act’) at total income of Rs.14,33,81,245/- after making addition of Rs.32,84,467/- U/s.14A of the Act and disallowing the claim of deduction of Rs. 22,17,051/- U/s.80IA of the Act.

Being aggrieved by the above additions, an appeal was preferred before Ld.CIT(A), who vide impugned order has partly allowed the appeal, by directing the AO to allow deduction U/s.80IA of the Act, by following the decision of the Hon’ble Supreme Court in the case of ACIT, Tirupur vs. Velayudhaswamy Spinning Mills P. Ltd., SLP(C) No.33475/2012, the decisions of the Hon’ble Madras High Court in the case of CIT vs. Velayuthasamy Spinning Mills (P) Ltd., reported in 21 Taxmann 95 (2012) and M/s. Eastman Exports Global Clothing (P) Ltd., reported in 54 Taxmann 408 (2015) and with regard to the disallowance U/s.14A of the Act, the Ld.CIT(A) considered the working of computation of disallowance made by the AO. Considering the fact that the disallowance is computed in accordance with Rule 8D(2)(ii) and 8D(2)(iii) of the Act, the Ld.CIT(A) confirmed the addition. Being aggrieved by this, the appellant is in appeal before us in the present appeal.

The Ld.Counsel for the assessee submitted that the provisions of Section 14A of the Act, has no application to the facts of the case, as no expenditure was incurred by the assessee to earn exempt income and the AO ought not to have made resort to the provisions of Section 14A of the Act, without recording satisfaction as to how the claim of the assessee that no expenditure was incurred to earn the exempt income is correct. He further submitted that the investments yielding exempt income was made out of the own funds and therefore no disallowance U/s.8D(2)(ii) of the Act is warranted.

We heard the rival submissions and perused the material on record. The sole issue involved in the present grounds of appeal is applicability of provisions of Section 14A of the Act. The indisputably the appellant earned exempt income in the form of dividend of Rs.43,12,221/-. The AO had recorded his satisfaction vide Para No.5.2 of the assessment order that the claim of the assessee that no expenditure was incurred to earn exempt income is incorrect by observing that the investments are made out of the own bank account, where the loan proceeds were credited to the loan account and incurring of expenditure on managerial personnel who are experts in advising the investments cannot be ruled out. Thus the contention of the Ld.AR that no satisfaction recorded was recorded by the AO as to how the claim of the appellant that no expenditure was incurred to earn exempt income is contradictory to the facts on record and cannot be accepted. As regards to other contention of the appellant that the investments are made out of the own funds not out of the borrowed funds, this plea was not taken before the lower authorities by leaving the necessary evidence on record. Hence, as it is a question of fact, this new plea cannot be accepted at this stage. Accordingly we do not find any merit in the appeal filed by the assessee and dismissed the appeal.

In the result, the appeal filed by the assessee is dismissed.