ACIT, SANGRUR vs. M/S LOTUS PROCESSORS PVT. LTD., BARNALA

Per Sanjay Garg, Judicial Member:

The present appeal has been preferred by the Revenue against the order dated 14.10.2016 of the Commissioner of Income Tax(A), Patiala [hereinafter referred to as ‘CIT(A)’].

Act, 1961 (in short 'the Act') as well as on account of disallowance made in relation to expenditure incurred for earning of tax exempt income earned u/s 14A of the Act.

2 3. At the outset, Ld. Counsel for the assessee has submitted that

for the year under consideration the assessee did not earn any tax

exempt income. He, therefore, submitted that in the light of the

decision of the Hon'ble Jurisdictional High Court in the case of

‘CIT Faridabad Vs. Lakhani Marketing Inc. Ltd’, ITA No. 970 of

2008 (O&M), no disallowance was attracted u/s 14A of the Act. He

in this respect has invited our attention to the order of the CIT(A)

wherein the Ld. CIT(A) following the decision of the Hon'ble

Jurisdictional High Court in the case of ‘CIT Faridabad Vs. Lakhani

Marketing Inc. Ltd’ (supra) has held that since the assessee did not

earn any tax exempt income during the year, hence, no disallowance

u/s 14A of the Act was attracted.

Assessing officer.

decisions of the different High Courts in favour of the assessee.

CIT, Faridabad Vs. Lakhani Marketing Inc.’ 226 Taxman 45 (P&H)

CIT Vs. Winsome Textiles’ (2009) 319 ITR 204 (P&H)

Cheminvest Ltd Vs. ITO’ (2015) 378 ITR 33 (Delhi)

Corrtech Energy P. Ltd. (2014) 45 Taxman.com 116 (Gujarat High Court)

CIT Vs. M/s Shivam Motors (P) Ltd’ (2014) 272 CTR (All) 277 3 In all the above referred to case laws, the Hon'ble High Courts have

been unanimous to hold that no disallowance is attracted u/s 14A of

the Act in case the assessee has not earned any income not forming

part of the total income.

of the CIT(A) on this issue and the same is upheld.

expenditure under the provisions of section 36 (i) (iii) of the Act, the

Ld. Counsel for the assessee has invited our attention to para 5.3 of

the impugned order of the CIT(A) wherein the Ld. CIT(A) has given

as categorical finding that during the year the assessee did not raise

any interest bearing loan. Only one loan was raised during the

financial year 2009-10 relevant to assessment year 2010-11, which

was for the specific purpose for purchase of assets. The Ld. Counsel

has submitted that the said loan was fully utilized for the purpose of

assets and no interest hearing funds have been diverted for making

interest free advances. The Ld. CIT(A) after going through the

record, has held that the Assessing officer could not controvert the

above submission of the assessee. Since the assessee had been able to

demonstrate before the Ld. CIT(A) that the term loan raised by the

assessee was used for specific purpose for purchase of assets and no

part of it was used for advancement of interest free advances, hence,

Ld. CIT(A) deleted addition on this issue.

4 8. After going through the order of the CIT(A) and hearing the

submissions of the Ld. counsel of parties we do not find any

infirmity in the order of CIT(A) on this issue.

action of the CIT(A) in deleting the addition of Rs. 55,11,651/-

made by the Assessing officer on account of generation of wastage /

scarp during the manufacturing process. The Assessing officer

observed that in the line of the trade business of the assessee, a lot of

wastage and scrap is generated, whereas the assessee had shown his

wastage at a vary law rate of 0.065%. He, therefore, show caused the

assessee as to why generation of scrap / wastage be not taken at

0.75% of the total turnover. The assessee in this respect explained

the process, which is carried out in the business process of dyeing of

fabrics and submitted that though the total wastage of the scrap in

the process comes out to about 6 to 7% of the material consumed,

however, the said wastage generated during the process did not carry

any marketable value. That during the year, the visible wastage

which had some marketable value, was only 0.305% of the raw

material against which the receipt of Rs. 52,135/- was generated and

that the assessee had duly accounted for the said amount in its books

of account. The Ld. Assessing officer, however, did not agree with

the above contention and estimated the wastage @ 7.5% of the total

turnover at Rs. 60,36,786/- after deducting the value of the wastage

declared by the assessee. He made the addition of Rs. 55,11,651/-.

5 10. In appeal, the Ld. CIT(A) deleted the addition observing that the Assessing officer had made the impugned addition purely on assumption and estimation basis. That the books of account of the assessee were duly audited and the Assessing officer had not pointed out any defect in the same. There is no rationale or basis for the Assessing officer for holding that the total wastage / generation was at 7.5% of the total turnover. The Ld. CIT(A) considering the overall facts and circumstances held that the addition made by the Assessing officer was purely on assumption and presumption basis and the same were not sustainable in the eyes of law. We do not find any infirmity in the order of the CIT(A) on this issue also and we uphold the same. In the result, the appeal of the Revenue is hereby dismissed.

Order pronounced in the Open Court

Sd/- Sd/- (ANNAPURNA GUPTA) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated : 02.07.2018 Rkk Copy to: • The Appellant • The Respondent • The CIT • The CIT(A) • The DR