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Income Tax Appellate Tribunal, “E” BENCH, MUMBAI
Before: &
This appeal by the Assessee are arising out of the order of Commissioner of Income Tax (Appeals)-3, Mumbai, [in short CIT(A)] in appeal No. CIT(A)-3/IT/415/2013-14 dated 02-11-2015. The Assessment was framed by the Income Tax Officer, Ward 1(3)(2), Mumbai (in short ITO) for the assessment year 2011-12 vide order dated 20.01.2014 under section 143(3) of the Income Tax Act, 1961(hereinafter ‘the Act’).
The first issue in this appeal of assessee is against the order of CIT(A) confirming the action of the AO in disallowing the interest amounting to ₹ 4,50,986/- out of total interest paid to Axis Bank 9 4 /Mum /2 0 16 Shah Investments Financials Developments & Consultants Pvt. Ltd. (A. Y. 2 0 1 1 -1 2 ) amounting to ₹ 12,85,782/- for the reason that interest bearing loan has been advanced as interest free loans amounting to ₹ 39,91,028/-. For this assessee has raised following ground No.1: -
“On the facts and in the circumstances of the case the learned Commissioner of Income tax (Appeals) 3. Mumbai. erred in confirming the order of the Assessing Officer in respect of disallowance of interest of Rs 4,50,986/- out-of interest paid to Axis Bank amounting to Rs. 12,85,782/-, on the ground that interest free loans were given of Rs. 39,91028/-, particularly when, loans were given out of share capital and Reserve & surplus amounting to Rs. 36,98,52,300/-, i.e. its own fund.
Briefly stated facts are that the AO during the course of assessment proceedings on perusal of profit and loss account noticed that the assessee has claimed interest expenses on OD balance with Axis bank at ₹ 12,85,782/-. The AO also noticed that assessee has advanced interest free loans to the following two parties:-
(i) Shri Minex Shah of ₹ 32,02,742/-
(ii) Smt. Usha S. Shah of ₹ 7,88,286/-.
According to AO, on one hand the assessee has taken overdraft facility to run its business while on the other hand it is giving interest free loan of ₹ 39,91,028/- at the rate of 11.3% and therefore, he disallowed at ₹ 4,50,986/-. Aggrieved, assessee preferred the appeal before CIT(A), who simply confirmed the disallowance of interest made by the AO, without any specific reasons. Aggrieved, now assessee is in second appeal before Tribunal 9 4 /Mum /2 0 16 Shah Investments Financials Developments & Consultants Pvt. Ltd. (A. Y. 2 0 1 1 -1 2 ) 4. The learned Counsel for the assessee before us stated that the assessee’s share capital is ₹ 2 crore and reserve and surplus is at ₹ 34,98,52,300/- as against the loan advanced to these two parties amounting to ₹ 39,91,028/-. According to the learned Counsel for the assessee these advance to these parties amounting to ₹ 39,91,028/- i.e. the interest free advance is from last many years and this OD balance with Axis bank Ltd. is very new and it cannot have any nexus with the interest free advances, once this is the position, we are of the view that no disallowance of interest on OD balance with Axis Bank Ltd. can be made by the Assessing Officer. When the balance sheet of the assessee was confronted to the learned Senior Departmental Representative, he fairly conceded the position on facts. After going through the facts in entirety that the assessee has advanced loans of ₹ 39,91,028/- in earlier years and OD balances with Axis Bank Ltd. is obtained in this very year amounting to ₹ 4,92,38,904/- and hence, no part of it has gone into interest free loans or advanced loans. Accordingly, we delete the disallowance of interest and allow this issue of assessee’s appeal.
The next issue in this appeal of assessee is against the order of CIT(A) confirming the disallowance of expenses relatable exempted income by invoking the provisions of section 14A of the Act read with Rule 8D of the IT Rules of 1962 (hereinafter the Rules). For this assessee has raised following ground No.2: -
“2. On the facts and in the circumstances of the case, the said learned Commissioner of Income tax has also erred in confirming addition of Rs. 2,82,232/-- under section 14A of the Income tax Act. 1961 r. w. Rule 8D of the Income tax Rules, 1962, particularly when, the appellant has not earned any exempted income.”
ITA No. 1 9 4 /Mum /2 0 16 Shah Investments Financials Developments & Consultants Pvt. Ltd. (A. Y. 2 0 1 1 -1 2 ) 6. At the outset, the learned Counsel or the assessee stated that there is no exempt income in the case of assessee and this fact is narrated by AO in its order in Para 8 at page 4 and accepted by Revenue. The learned Counsel for the assessee stated that this issue is covered in favour of assessee and against Revenue by the decision of the Hon’ble Delhi High Court in the case of Cheminvest Limited vs. CIT in dated 02-09-2015, reads as under: -
“23. In the context of the facts enumerated hereinbefore the Court answers the question framed by holding that the expression „does not form part of the total income‟ in Section 14A of the envisages that there should be an actual receipt of income, which is not includible in the total income, during the relevant previous year for the purpose of disallowing any expenditure incurred in relation to the said income. In other words, Section 14A will not apply if no exempt income is received or receivable during the relevant previous year.”
Respectfully, following the Hon'ble Delhi High Court in the case of Cheminvest Limited (supra), we confirm the order of CIT(A) deleting the disallowance. This issue of Revenue’s appeal is also dismissed.
The next issue in this appeal of Revenue is against the order of CIT(A) confirming the disallowance made by the AO amounting to ₹ 2,28,232/- by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules while book profit under section 115JB of the Act. For this assessee has raised following ground Nos. 3 and 4: -
"3. On the facts and in the circumstances of the case, the said learned Commissioner of Income tax. Mumbai, has also erred in confirming total income 9 4 /Mum /2 0 16 Shah Investments Financials Developments & Consultants Pvt. Ltd. (A. Y. 2 0 1 1 -1 2 ) under section 11 5JB of the Act, amounting to Rs. 75,97,1571- instead of Rs, 73,68,925/- declared by the appellant.
On the facts and in the circumstances of the case, the said learned Commissioner of Income tax, Mumbai. has also erred in confirming the order of the Assessing Officer in respect of disallowance under section 14A of the Act, amounting to Rs. 2,28,232/- while, computing the 'book profit' under
At the outset, the learned Counsel for the assessee stated that this issue is covered in favour of assessee and against Revenue by the decision of co-ordinate Bench of this Tribunal i.e. Special Bench of Delhi in the case of ACIT vs. Vireet Investments (P.) Ltd. [2017] 58 ITR (AT) 313 (Delhi - Trib.) (SB) wherein the Tribunal has clearly held that no disallowance under section 14A of the Act r.w.r 8D of the Rules can be made while computing book profit under section 115JB of the Act. The learned CIT Departmental Representative could not controvert the above proposition. Accordingly, we are of the view that this issue is covered by the special bench decision of this Tribunal in the case of Vireet Investments (P.) Ltd. (supra), respectfully following the same, we delete the disallowance and allow this issue of assessee’s appeal.
In the result, the appeal of assessee is allowed. 10.
Order pronounced in the open court on 10-11-2017.