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Income Tax Appellate Tribunal, DIVISION BENCH, ‘A’ CHANDIGARH
Before: SHRI SANJAY GARG, JUDICIAL MEMBE & Ms. ANNAPURNA GUPTA, ACCOUNTANTMEMBER
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)’].
The Department is aggrieved by the action of the CIT(A) in deleting the addition made by the Assessing officer on account of disallowance of interest expenditure u/s 36(1)(iii)of the Income-tax
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.
ITA No. 6/Chd/2017- Lotus Processors Pvt Ltd, Barnala
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.
The Ld. DR, on the other hand has relied on the findings of the
Assessing officer.
We find that the issue is now squarely covered by the following
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
ITA No. 6/Chd/2017- Lotus Processors Pvt Ltd, Barnala
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.
In view of the above, we do not find any infirmity in the order
of the CIT(A) on this issue and the same is upheld.
So far as the issue relating to the disallowance of interest
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.
ITA No. 6/Chd/2017- Lotus Processors Pvt Ltd, Barnala
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.
There is another ground taken by the Revenue agitating the
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/-.
ITA No. 6/Chd/2017- Lotus Processors Pvt Ltd, Barnala
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