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Income Tax Appellate Tribunal, DELHI BENCH: ‘A’, NEW DELHI
Before: SH. N.K. SAINI & SH. LALIET KUMAR
ORDER PER LALIET KUMAR, J.M.: The present appeal by the Revenue is directed against the order of Commissioner of Income Tax (Appeals)-V, New Delhi, dated 22.04.2015, on the following two effective grounds:
1. 1. That on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the disallowance of interest free loan advance of Rs.1,18,42,528/- given by the assessee.
2. That on the facts and circumstances of the case & in law, the Ld. CIT(A) has erred in deleting the disallowance of Rs.1,82,26,810/- made u/s 14A r/w rule 8D of the Act.
With respect to ground no.1, it was submitted by the learned Authorized Representative for the assessee that the Assessing Officer recorded the assessment order that the assessee has given interest free loans and advances against projects/properties, amounting to Rs.9,86,87,741/- which is outstanding since long time. It was further the case of the Assessing Officer that the amount of Rs.9,86,87,741/- were advanced, on which, the assessee had paid substantial interest of Rs.3,34,46,806/- after capitalization of interest of Rs.56,39,453/- and, therefore, the assessee had received interest of Rs.1,97,27,044/-. On query by the Assessing Officer, the assessee failed to justify the commercial expediency for advancing these interest free loans. As the assessee failed to justify the commercial expediency, the Assessing Officer, by invoking provision of law, had disallowed the proportionate interest of Rs.1,18,82,528/- as in the opinion of the Assessing Officer there was no business expediency for advancing these loans. 2.2 The assessee being aggrieved by the order passed by the Assessing Officer, filled appeal before the CIT(A). The learned CIT(A) had allowed the ground of the appeal of Assessee by mentioning that the same trade advances were given by the assessee in earlier years and the commercial expediency was examined by the learned CIT(A) and ITAT in earlier years and the order of the Assessing Officer passed in the earlier years were reversed by the learned CIT(A)/ITAT for the assessment years 2010-11 and 2011-12. 2.3 The learned Authorized Representative has drawn our attention to the order passed by the Tribunal in ITA No.4352/Del/2014, dt. 30.01.2018, for the assessment year 2011-12, on the same issue of trade advances was appearing for the assessment year 2010-11. Para 3 of the aforesaid Tribunal’s order, is reproduced as under: “3. We have perused the submissions advanced by both the sides in the light of the records placed before us and the decision of this Tribunal in assessee’s own case for assessment year 2010-11. This Tribunal decided this issue by observing as under: “10. We have heard both the parties and perused the records and case laws cited before us. We find that assessee company has not advanced any business advances during the year and the said advances are appearing as opening balance as on 1.4.2009 as well as closing balance on 31.3.2010 and therefore there cannot be any disallowance of interest expenses u/s 36(l)(ii). The assessee company is regularly assessed u/s 143(3) and was also assessed u/s. 143(3) for A.Y. 2009-10 accepting the returned income in which there were exactly same business advances amounting to Rs. 12,35,98,991/-. AO has neither considered any notional interest income nor disallowed any interest expenses in respect of these business advances/ advances for commercial expediency and always accepted the returned income of (he appellant company. Even the present Assessing Officer also passed order u/s 143(3) for A.Y. 2006-2007 and did not considered any notional interest or disallowed any interest expenses in respect of these business advances/ advances for commercial expediency. However, the same Assessing Officer has treated notional interest income of Rs. 1,48,31,879/ - as business income during the relevant year thereby himself accepting that these advances are business advances/advances for commercial expediency. Whereas business advances are neither subject to notional income nor interest expense is disallowable u/s. 36(l)(ii). In previous years the Revenue has taken a view of allowing the same and at this juncture cannot take a different stand. There should be consistency and definiteness while adopting the approach by the Revenue. The CIT (A) has taken into consideration the judgment of Karnataka High Court in case of CIT Vs. Sridevi Enterprises (1991) 192 ITR 165. The CIT (A) has also taken note of S. Builders Limited Vs. CIT, wherein the Hon'ble Supreme Court held that if amount is advanced to the subsidiary or associated company or any other party as a measure of commercial expediency, there cannot be any disallowance u/s 36(l)(iii). The CIT(A) also quoted following judgment:
i) CIT vs. GIVO Ltd. (ITA 941/2010) Delhi High Court ii) Godfrey Philips India Ltd. Vs. Addl.CIT(ITATMum) 2012 (12) TMI 865 iii) Pleasure Trading (P) Ltd. vs. DCIT (ITAT Mum) dt. 03.08.2012. The CIT(A) further given a finding that the assessee company had received much more interest free trade advances/unsecured loans as comparison to interest free trade advances given. Assessee company has not given any interest free trade advances to any parties out of borrowed funds. Thus there is no nexus between borrowed funds and trade advances given to parties. Therefore, there is no question of disallowance of interest/addition on account of notional interest income amounting to Rs. 1,48,31,879/- on trade advances. Thus the CIT(A) has rightly deleted the addition of Rs.1,48,31,879/- on estimation of interest on trade advances. The issue no. 1 is thus decided against the Revenue. ”
3.1. This Tribunal has observed while deciding the issue for assessment year 2010-11 that revenue has been taking similar view in the preceding assessment years and the stand cannot be taken differently now. Based on the similar reasoning, we are inclined to confirm the order passed by Ld.CIT(A). Accordingly this ground raised by revenue stands dismissed.”
2.4 The learned DR relied on the order passed by the Assessing Officer. 2.5 We have heard the rival contention and perused the relevant material available on record. In our opinion, no contrary decision has been cited by the Revenue and further once the issue is squarely covered by the earlier order of the Tribunal, we do not feel that earlier order is required to be tinkered with. In view of the above, we do not find any merit and, therefore, the ground raised by the Revenue is dismissed by respectfully following the order of the coordinate bench in assessee’s case for assessment year 2011-12 in (supra).
3. The second ground raised by the Revenue is with respect to the relief upheld by the learned CIT(A). 3.1 Learned DR drawn our attention to the order passed by the Assessing Officer whereby the Assessing Officer has recorded the satisfaction in the following manner: “4. During the course of assessment proceeding vide questionnaire dated 20.10.2014 assessee was asked to submit detailed note on applicability of Section 14A of Income-tax Act, 1961 (hereinafter referred to as "the Act"), 1961 in respect of assessee company. In response to the same assessee filed reply vide letter dated 29.10.2014 which reads as under: “Assessee has received share of profit (exempt u/s 10(2A)) from partnership firm amounting to Rs. 3,59,96,143/- and disallowed a sum of Rs. 11,161/- u/s 14A in the computation of income. A detailed note on the applicability of sec. 14A is also enclosed as annexure-2.” The reply of the assessee has been duly considered and has not been found to be acceptable because of the reason that Section 14A of the I T. Act provides that for the purpose of computing the total income no deduction shall be allowed in respect of expenditure incurred by the assessee in relation to income which does not form part of the total income. From perusal of books of accounts, it has been noticed that during the year under consideration the assessee was in receipt of exempt income. The assessee has claimed it as exempt. Further the assessee has not been able to differentiate that investment made are not from common pool of funds. Keeping in view with the provisions of law and being completely satisfied that substantial part of interest expense has been incurred for the purpose of earning income not includible in the total income, especially due to the complete absence of any justification or direct linkage of interest bearing funds not being used for the purpose of making investment and also considering the fact that had these investments not been made, the assessee company would not have raised additional interest bearing funds, the undersigned is satisfied that the disallowance u/s 14A made by the assessee suo- moto as per the computation of its total income has been incorrectly determined by it………………………………………………………………………”
3.2 In view of above, it was submitted by the learned Departmental Representative that the finding recorded by the learned CIT(A) in order, is incorrect, as the learned CIT(A) while recording the finding at page 19 had totally ignored the satisfaction recorded by the Assessing Officer as per Section 14A of the Income-tax Act, 1961. The learned CIT(A), thus, wrongly deleted the addition made by the Assessing Officer. 3.3 On the other hand, the learned Authorized Representative has drawn our attention to the paper book where the assessee has submitted that the investment made in joint venture is not resulted in the exempt income and, further, the case of the assessee is required to be considered in view of the judgment of Special Bench, ITAT (Delhi) in the case of ACIT Vs. Vireet Investment, dt. 16.06.2017. Further, it was submitted that this aspect has duly been considered by the learned CIT(A) and, therefore, the assessee is entitled to relief on merit. He also relies on the following decision: 1. Maxopp Investment Ltd. Vs. CIT [2018] 402 ITR 640 (SC) 2. CIT Vs. Taikisha Engineering India Ltd., (2015) 370 ITR 338 (Delhi) 3. Judgement of the ITAT, Delhi in the case of DCIT Vs. Jindal Photo Limited in ITA No. 4539/Del/2010
Judgment of Delhi High Court in the case of CIT Vs. Hindustan Tin Works Limited in dt. 13.052.2009.
Judgment of Delhi High Court in the case of Chemical & Metallurgical Design Co. Ltd., in ITA No. 803/2008, dt. 15.07.2008 6. Deciions of Hon’ble Delhi Bench of Tribunal in the case of Deputy Commissioner of Income Tax Vs. Maharashtra Seamless Ltd. in ITA No.4063/Del/2006 for AY 2003-04, dt. 16.12.2010 3.4 We have heard the rival contentions of the parties and perused the relevant material on record. In our view, the grievance of the Revenue in the present case is that the learned CIT(A), without considering the satisfaction recorded in the order of Assessing Officer, has wrongly come to the conclusion that the Assessing Officer has not given cogent reason or opinion about the correctness or otherwise of the assessee’s claim. Therefore, relying upon the decision of the Hon’ble Delhi High Court in the case of Maxopp Investment Ltd. Vs. CIT (2012) 347 ITR 272 (Delhi), it was concluded by the Ld. CIT(A) that the Assessing has not recorded the satisfaction as required in law. However, while going through the order of the Assessing Officer, as it was clearly brought on record by the able Departmental Representative, that the Assessing Officer has duly recorded the satisfaction as required in law. Therefore, in our opinion, the finding recorded by the learned CIT(A) is without any merit and perverse, therefore, the same is required to be reversed. As the learned CIT(A) has not decided the issue on merit, after allowing the claim of the assessee based on non-recording of the satisfaction, therefore we deem it appropriate to remand the matter back to the file of the learned CIT(A) to decide the issue on merit after considering the judgment of the Hon’ble Supreme Court in the case of Maxopp Investment Ltd. (supra) and the judgment of Special Bench, ITAT, Delhi in the case of Vireet Investment (Supra) and other applicable judgments. 4. In the light of the above, the appeal of the Revenue is allowed partly for statistical purposes. The decision is pronounced in the open court on 9th July, 2018.