Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, DELHI BENCH “SMC-III”, NEW DELHI
Before: SHRI H.S. SIDHU
the impugned order dated 31/3/2016 passed by the Ld. Commissioner of Income Tax (Appeals)-Gurgaon on the following grounds:-
1. “Ld. CIT(A) has erred on fact and in law in deleting the disallowance of Rs. 72,36,462/- made by the Assessing
Officer under Section 14A of the Income Tax Act, 1961.
2. Ld.CIT(A) has erred on fact and in law in deleting
disallowance of Rs.72,36,462/- made by the Assessing
Officer u/s 14A of the Income Tax Act, 1951 ignoring
CBDT Circular NO.5 of 2014 dated 11.02.2014 clarifying that disallowance under Rule 80 read with Section 14A of the Income Tax Act is to be made even where taxpayer in a particular year has not earned any exempt income.
3. Ld.CIT(A) has erred on fact and in law in deleting the disallowance of Rs.10,66,950/- (7,11,932 + 3,12,899 +
42,119) made by the Assessing Officer on account of payment of interest paid to S.K. & Company, Kamal
Metal and Vikas Electronics without deduction TDS as per provision of Section 194A.
4. That the appellant craves for the permission to add,
delete or amend the grounds of appeal before or at the time of hearing of appeal."
The facts in brief are that the assessee company deals in manufacturing and trading of plastic moulded toys, school furniture, playground equipment, infrastructure and automotive products and pop products. Return declaring loss of (-) Rs. 9,10,87,560/- was filed online on 26.9.2011. this return was processed u/s. 143(1) of the I.T. Act, 1961 at the same income. The case of the assessee was selected for scrutiny. Accordingly, notice u/s. 143(2) of the Act was issued by the ACIT, Circle-II, Gurgaon on 7/16.8.2012. Later on the case was assigned to another AO i.e. JCIT, Range-II, Gurgaon.
Notices u/s. 143(2) and 142(1) of the I.T. Act were issued by the JCIT, R-II, Gurgaon on 21.8.2013 and notice u/s. 142(1) of the Act alongwith questionnaire was again issued on 2.9.2013. In response thereto, the assessee’s company Vice President and Director and Counsels for the assessee attended the proceedings from time to time. The assessment u/s. 143(3) of the I.T. Act, 1961 was completed on 07.3.2014 at Rs. 33,09,890/- by making various additions.
Aggrieved with the aforesaid assessment order, assessee preferred an appeal before the Ld. CIT(A), who vide his impugned order dated 31.3.2016 has deleted some of the additions and partly allowed the appeal of the assessee.
Now the Revenue is aggrieved against the impugned order and filed the present appeal before the Tribunal.
At the time of hearing Ld. DR relied upon the order of the AO and reiterated the contentions raised by the Revenue in the grounds and requested that Appeal of the Revenue may be allowed.
On the contrary, Ld. Counsel of the Assessee has relied upon the order of the Ld. CIT(A) and stated that Ld. CIT(A) has passed a well reasoned order which needs to be upheld and accordingly, the appeal of the Revenue may be dismissed.
I have heard both the parties and perused the records, especially the impugned order passed by the Ld. CIT(A). I find that Ld. CIT(A) has elaborately adjudicated the issue raised in ground no. 1 & 2 in dispute vide para no. 6.2 to 6.3 at page 20 of the impugned order as under:-
“6.2 In the course of appellate proceedings the appellant submitted written submissions that the figures adopted by the AO are incorrect without affording opportunity of being heard to the appellant. This has resulted into an assumption by the AO that investment is made to earn exempt income which is factually incorrect. Further, the calculation under Rule 8D has been made adopting wrong figures. The appellant had enough funds of its own to invest and did not require borrowed capital. The appellant relied upon decision of CIT vs. Cheminvest dated 2.9.2015 in ITA 749/214 stating that the Hon’ble High Court of Delhi has settled all controversies related to expenses on exempt income and has opined that there shall be no disallowance u/s. 14A read with rule 8D in the year where there is no exempt income earned by the assessee. It shall be worthwhile to mention that no exempt income has been earned by the company during the period under consideration.
6.3 I have given careful consideration to the arguments and in particular to the fact that during the year under consideration there is no income which is exempt from tax as contemplated u/s. 14A of the Act, therefore, respectfully following the decision of Hon’ble Jurisdictional High Court in the case of CIT vs. Lakhani Marketing Inc. (Punjab &
Haryana High Court), of 2008 (O&M) dated 02.4.2014, wherein it has been held in the case there is no income during the year under consideration, no disallowance invoking Section 14A of the Income Tax Act is permitted. The ground of appeal is allowed.”
7.1 After going through the findings of the Ld. CIT(A), as aforesaid, I find that during the year under consideration there is no income which is exempt from tax as contemplated u/s. 14A of the Act, therefore, Ld. CIT(A) has rightly respectfully followed the decision of Hon’ble Jurisdictional High Court in the case of CIT vs. Lakhani Marketing Inc. (Punjab & Haryana High Court), of 2008 (O&M) dated 02.4.2014, wherein it has been held in the case there is no income during the year under consideration, no disallowance invoking Section 14A of the Income Tax Act is permitted. Therefore, the addition in dispute was rightly deleted by the Ld. CIT(A) which does not need any interference on my part, hence, I uphold the same and dismiss the ground no. 1 & 2 raised by the Revenue.
7.2 I find that Ld. CIT(A) has further adjudicated the issue raised in ground no. 3 in dispute vide page 25 & 26 of the impugned order as under:-
“…..c) S.K. & Company, Kamal Metals and Vikash Electronics:- The Assessing Officer noticed payment of interest expenditure to these parties without TDS and hence disallowed.
The appellant contends that That the Learned Assessing Officer has further erred in adding a sum of Rs.7,11,932.00 + 3,12,899.00 totaling to Rs.10,24,831.00 being amount of interest paid to various banks on behalf of creditors to whom certain Letter of Credit were issued. That the appellant had to pay certain interest charged by 6 banks from where the creditors had availed the facility of discounting the letter of credits. That since the payment was made to the banks on interest/ discounting charges, no tax is required to be deducted on the same and hence the appellant is entitled to relief on this account. That your Honors kind attention is further drawn towards ACIT vs. Trimex Industries (P) Limited (ITAT Chennai) where it was held that any interest of compensatory nature does not come under the ambit of Section 194A. Copy of the said judgement is also enclosed herewith (pages 61 to 65 attached) for your Honors kind reference. That the addition of Rs 10,24,831.00, therefore, may kindly be deleted. That the Learned Assessing Officer has further erred in adding a sum of Rs 42,119.00 being amount of interest paid to a creditor due to late payment of outstanding balance to creditor. That your Honors kind attention is drawn towards ACIT v/s Trimex Industries (P) Limited (ITAT Chennai), cited above, where it was held that any interest of compensatory nature does not come under the ambit of Section 194A. That the addition of Rs 42,119.00, therefore, may kindly be deleted.
I have considered and find that the contention is not supported by any documentary evidence to show that the charges have been paid to the bank as own expenses of the appellant. In this case the charges have been paid by the respective parties and in turn the appellant claims these expenses as business expense by making payments through debit note of the respective parties. Such expense was not liable for any TDS because it has partaken the character of discount or reimbursement of expense incurred by the respective parties. There is no element of income in this transaction for the parties and the expense of the appellant is not of the nature which would warrant deduction of TDS. The disallowance is deleted to the extent of Rs. 10,66,950/- (which is total of Rs. 7,11,932/- + 3,12,899/-+ 42,119/-)”…… 7.3 After going through the findings of the Ld. CIT(A), as aforesaid, I find that the charges have been paid by the respective parties and in turn the asessee claims these expenses as business expense by making payments through debit note of the respective parties. Such expense was not liable for any TDS because it has partaken the character of discount or reimbursement of expense incurred by the respective parties. There is no element of income in this transaction for the parties and the expense of the assessee is not of the nature which would warrant deduction of TDS. Therefore, the addition in dispute i.e. Rs. 10,66,950/- (which is total of Rs. 7,11,932/- + 3,12,899/-+ 42,119/-) was rightly deleted by the Ld. CIT(A) which does not need any interference on my part, hence, I uphold the same and dismiss the ground no. 3 raised by the Revenue.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the Open Court on 20/01/2017.