M/S. LAULS LIMITED,FARIDABAD vs. ADDL. CIT, FARIDABAD

The first issue raised in this appeal is against confirmation of disallowance 18,81,666/- out of interest expenses. Briefly stated the facts are that the Assessing Officer observed the assessee to have made advances to the tune of Rs. 2.51 crore and odd to staff, contractors and others. It was found that no interest was charged on such advances as against the assessee having paid interest on certain borrowings made by it. By applying interest rate of 12%, the Assessing Officer made disallowance of Rs. 18,81,666/-, which came to be affirmed in the first appeal.

We have heard the rival submissions and perused the relevant material on record. It is seen that similar issue came up for consideration before the Tribunal in assessee’s own case for the immediately preceding assessment year, namely, 2009-10. Vide order dated 5.5.2016, the Tribunal in has deleted similar disallowance similar disallowance made on account of interest. Both the sides are in agreement that the facts and & 2321/Del/2015 circumstances of the instant year on this issue are mutatis mutandis similar to those of the assessment year 2009-10. Respectfully following the Tribunal order, we order to delete the addition of Rs. 18,81,666/- made on this score.

Second ground is against confirmation of disallowance of Rs. 12866/- made by the Assessing Officer under section 14A of the Act. Briefly stated the facts of this ground are that the assessee earned exempt dividend income of Rs. 330/-. The Assessing Officer observed that no disallowance was offered under section 14A. Invoking the provisions of section 14A read with Rule 8D, the Assessing Officer computed disallowance at Rs. 1,33,081/-. The learned CIT(A) reduced this disallowance to Rs. 12866/-. The assessee is aggrieved against the sustenance of addition to this extent.

We have heard both the sides and perused the relevant material on record. It is an admitted position that the assessee earned exempt dividend income of Rs. 330/- only. The Hon'ble Delhi High Court in the case Cheminvest Ltd. vs. CIT (2015) 378 ITR 33 (Del) has held that if there is no exempt income, there can be no question of making any disallowance u/s 14A of the Act. Similar view has been taken by the Hon'ble Delhi High Court in CIT vs. Holcim India P. Ltd. (2014) 90CCH 081-Del-HC. The net 3 & 2321/Del/2015 effect of these decisions is that the disallowance u/s 14A gets restricted to the extent of exempt income, even if the provisions of the section are attracted. In view of the above precedents, which are squarely applicable to the facts of the instant case, we limit the disallowance to the extent of exempt income of Rs.330/-. The impugned order is modified pro tanto.

Ground no. 3 relating to disallowance under section 40(a)(ia) was not pressed by the learned AR. The same is, therefore, dismissed as not pressed.

In the result, the appeal is partly allowed.

Having heard both the sides and perused the relevant material on record, it is seen as an admitted position that the facts and circumstances of & 2321/Del/2015 this ground are similar to those of the assessment year 2010-11. Following the view taken hereinabove, we order to delete the addition. 10. Ground no. 2 relating to disallowance under section 40(a)(ia) was not pressed by the learned AR. The same is therefore dismissed. 11. In the result, the appeal is partly allowed.