DCIT, C-I, LUDHIANA vs. M/S RICO AUTO INDUSTRIES LIMITED, LUDHIANA

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ITA 801/CHANDI/2018Status: DisposedITAT Chandigarh18 December 2018AY 2016-173 pages
AI SummaryDismissed

What did the Tribunal hold?

The Tribunal confirmed the CIT(A)'s deletion of disallowance under Section 14A, following the jurisdictional High Court's view that it cannot be invoked without exempt income. The Tribunal also confirmed the deletion of interest disallowance under Section 36(1)(iii) considering the availability of interest-free funds.

What were the facts?

The Revenue appealed against the deletion of additions made by the Assessing Officer (AO) for disallowance under Section 14A and Section 36(1)(iii). The AO had disallowed expenses under Section 14A despite the assessee not earning any exempt income, and also disallowed interest on capital advances.

What were the issues?

Whether Section 14A can be invoked when no exempt income is earned, and whether interest on capital advances is disallowable when interest-free funds are available.

Which sections of the Income-tax Act were involved?

Section 14A,Section 36(1)(iii)

AI-generated summary — verify with the full judgment below

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Income Tax Appellate Tribunal, CHANDIGARH BENCH “B”, CHANDIGARH

For Appellant: Shri. Vipin Gupta
For Respondent: Smt. Renu Amitabh
Hearing: 23/10/2018Pronounced: 18/12/2018

आदेश/Order

PER DR. B.R.R. KUMAR, A.M:

The present appeal has been filed by the Revenue against the order of

the Ld. CIT(A)-1, Ludhiana dt. 23/03/2018.

2.

In the present appeal Revenue has raised the following grounds:

1.

Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in deleting the addition made on account of disallowance under section 14A of the Income Tax Act, 1961 ?

2.

Whether upon facts and circumstances of the case, the Ld. CIT(A) was justified in law and on facts in deleting the addition made on account of disallowance of interest under section 36(1)(iii) of the Income Tax Act, 1961 on capital advances ?

3.

That the order of the Ld. CIT(A) be set aside and that of the Assessing Officer be restored.

3.

Brief facts of the case are that the assessee is a resident company

engaged in the manufacturing and sale of Auto components and engine parts.

For the year under consideration i.e. A.Y.2017-18, the assessee has not

claimed any exempt income. However the Assessing Officer having observed

that the assessee had made investments to the tune of Rs. 136,87,41,450/- in the

equity of domestic group companies and that no separate account was being

maintained by the assessee invoked the provisions of section 14A read with Rule

8D, the AO computed the disallowance at Rs. 1,11,87,413/- and added back

the same to the returned income.

4.

The Ld. CIT(A) deleted the addition by holding as under:

It is an admitted fact that no exempt income was received/earned by the company during the year under consideration. Though the CBDT's circular dated 11th of February, 2014 [No. 5/2014; F No. 225/182/2013-ITA.II ] has clarified that Rule 8D read with section 14 A shall be applicable for disallowance of the expenditure even where tax payer in a particular year has not earned any exempt income, there are many decisions of various High courts holding contrary view. The jurisdictional High Court of Punjab and Haryana in the case of CIT, Faridabad Vs. Lakhani Marketing lnc[2014] 49 taxmann.com 257, vide order dated 2nd of April, 2014 has categorically held that unless and until there is a receipt of exempted income for the concerned assessment years, section 14A cannot be invoked. In doing so, the Hon'ble High Court made a reference to two earlier decisions of the same High Court: CIT Vs. Hero Cycles Ltd[2010] 323 ITR 518 and CIT Vs. Winsome Industries Ltd.[2009] 319 ITR 204, to hold that section 14 A cannot be invoked when no exempt income was earned. Subsequently, on 5thof September, 2014, the Hon'ble Delhi High Court followed the aforesaid decision of the Punjab and Haryana High Court in the case of CIT Vs. Holcim India (P.) Ltd.[2015] 57 taxmann.com 28.

5.

Since the decision of the Ld. CIT(A) is based on the decisions of the

Hon’ble Jurisdictional High Court which is squarely applicable to the facts of the

instant case, we hereby confirm the decision accorded by the Ld. CIT(A).

6.

Regarding the ground no. 2 of the addition made on account of

disallowance of interest under section 36(1)(iii), the facts on record reveal that

the assessee has advanced for purchase of land etc. an amount of Rs. 11.77

Crores against the availability of Rs. 470 Crores of interest free own funds.

Keeping in view the judgments of jurisdictional High Court in the case of Bright

Enterprises Pvt. Ltd. in ITA No. 224/2013 dt. 24/07/2015, CIT Vs. Kapsons Associates

Investments Pvt. Ltd. 381 ITR 204 (P&H) and the order passed by this Tribunal in

the assessees own case for the A.Y. 2010-11 in ITA No. 1093/CHD/2014, it is

hereby held that no disallowance of interest under section 36(1)(iii) is called for

in the case of the assessee. The order of the Ld. CIT(A) is hereby confirmed.

7.

As a result, appeal of the Revenue is dismissed.

Order pronounced in the Open Court. Sd/- Sd/- संजय गग� डा. बी.आर.आर, कुमार, (SANJAY GARG ) ( DR. B.R.R. KUMAR) �या�यक सद�य/ Judicial Member लेखा सद�य/ Accountant Member AG Date: 18/12/2018

आदेश क� ��त�ल�प अ�े�षत/ Copy of the order forwarded to :

1.

अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent 3. आयकर आयु�त/ CIT 4. आयकर आयु�त (अपील)/ The CIT(A) 5. �वभागीय ��त�न�ध, आयकर अपील�य आ�धकरण, च�डीगढ़/ DR, ITAT, CHANDIGARH 6. गाड� फाईल/ Guard File

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