ABIS EXPORT INDIA PVT. LTD.,RAJNANDGAON,RAJNANDGAON vs. DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE-1(1), BHILAI, DURG

आयकर अपीलीय अिधकरण, रायपुर �यायपीठ, रायपुर IN THE INCOME TAX APPELLATE TRIBUNAL RAIPUR BENCH, RAIPUR �ी र�वश सूद, �याियक सद�य एवं �ी अ�ण खोड़�पया, लेखा सद�य के सम� । BEFORE SHRI RAVISH SOOD, JM & SHRI ARUN KHODPIA, AM आयकर अपील सं./ITA No. 194/RPR/2023 िनधा�रण वष� /Assessment Year: 2018-19 Abis Export India Pvt. Ltd. Vs The Deputy Commissioner of Income IB, Corporate House, Indamara, Tax, Circle-1(1), Bhilai Rajnandgaon (C.G.)-491 441 PAN: AACCA2881J (अपीलाथ� /Appellant) (��यथ� / Respondent) .. िनधा�रती क� ओर से /Assessee by : Shri Bikram Jain, CA राज�व क� ओर से /Revenue by : Smt. Ila M. Parmar, CIT-DR सुनवाई क� तार�ख / Date of Hearing : 22/08/2023 घोषणा क� तार�ख/Date of Pronouncement : 17/10/2023 आदेश / O R D E R Per Arun Khodpia, AM: The captioned appeal is filed by the assessee against the order passed by the Ld. Pr. Commissioner of Income Tax (Appeals), NFAC, Delhi u/s. 263 of the Income Tax Act, 1961 (for short ‘the Act’) dated 28.03.2023 for A.Y.2018-19. The grounds of the appeal raised by the assessee are as under: “1. On the fact and in the circumstances of the case, the Ld. Principal Commissioner of Income Tax—Raipur-1 has erred in holding the assessment order passed by the National e-assessment Centre (NEAC) on 01.03.2021 as erroneous and prejudicial to the interest of revenue as the order was passed without making any enquiry on the issues of applicability of section 14A of the I. T. Act, 1961. The assessment order passed by the NEAC is neither erroneous nor prejudicial to the interest of revenue and therefore the order u/s 263 passed by the Ld. CIT is unjustified, unwarranted, and uncalled. 2. The assessee reserves the right to add, amend or alter any grounds of appeal at any time of hearing.”

2 ITA No. 194/RPR/2023 2. Brief facts in this case are that the assessee company is engaged in the business of manufacturing and trading of poultry feeds, cattle feed, pet food, aqua feed and soya value added products and poultry equipment etc. The assessee company has 5 boilers for generating steam power and claimed deduction u/s.80IA (4)(iv) at the rate 25% on it. The case of the assessee was selected for complete scrutiny assessment on the following issues: i. Claim of Any Other Amount Allowable as Deduction in Schedule BP ii. Reduction of Income in Revised Return & Claim of Refund iii. Refund Claim iv. Duty Drawback v. Deduction Claimed for Industrial Undertaking u/s 801A /80IAB /80IAC /IB/IC/IBA/801D/801E/10A/10AA vi. ICDS Compliance and Adjustment vii. Deduction from Total Income under Chapter VI-A.

3 ITA No. 194/RPR/2023 per CBDT Circular No.5/2014 dated 11.02.2014 wherein it was clarified that disallowance u/s. 14A r.w.r. 8D can be made irrespective of the fact whether any such income had been earned during the financial year or not. The total disallowance u/s.14A of the Act is worked out at Rs.16,94,37,000/-, calculation of disallowance as arrived at by the Ld. Pr. CIT is culled out as under:

Considering the aforesaid working, according to the facts narrated by the Ld. Pr. CIT, it was observed by the Ld. Pr. CIT that the assessment order passed u/s.143(3) r.w.s. 143(3A) & 143(3B) of the Act dated 01.03.2021 was considered to be erroneous in so far it was prejudicial to the interest of the revenue, therefore, needs to be revised under provisions of Section 263 of the Act since the issue discussed had not been properly verified while passing assessment order by conducting proper enquiries and examination of the accounts, therefore, assessment order passed u/s.143(3) r.w.s. 143(3A) & 143(3B) of the Act dated 01.03.2021 is erroneous in so far as it was prejudicial to the interest of revenue in light of section 263 of the Act. In respect to the notice u/s.263 of the Act issued by the Ld. Pr. CIT, the assessee submitted reply asserting that provisions of Section 14A in the present case of the assessee is not applicable because the

4 ITA No. 194/RPR/2023 pre-requisite for applying provision of section 14A is not fulfilled. The assessee has placed reliance on the various judgments and requested the Ld. Pr. CIT to drop the revisionary proceedings initiated u/s.263 of the Act. Considering the replies of the assessee wherein the assessee had raised two specific contentions viz. (i) with respect to exempt income that the assessee had not earned any exempt income in the relevant year, therefore, disallowance u/s.14A could not be made; (ii) contention of the assessee that it had sufficient interest free funds available to cover up the investment. However, as observed by the Ld. Pr. CIT, on a perusal of the accounts of the assessee, this contention does not seem to be correct. Under such observations wherein the assessee’s contentions were not found to be satisfactory and convincing by the Ld. Pr. CIT, he set-aside the order of A.O to his file for making necessary enquiries and to pass a speaking order after proving adequate opportunity of being heard to the assessee.

5 ITA No. 194/RPR/2023 poultry feed , cattle feed , pet food , aqua food and soya value added product. The asseesees has filed its revised return of income electronically on 31.03.2019 for A.Y. 2018-19 declaring total income at Rs. 143,24,43,070/-. The case of the assessee was selected for complete scrutiny and assessment order was passed u/s 143(3) by National e- assessment centre on 01.03.2021 by accepting the retuned income as assessed income. 2. Thereafter the PCIT, Raipur had issued notice for hearing in respect of revision proceeding u/s 263 of the I.T.Act, 1961 by stating that "The assessee company had shown substantial investment of Rs. 3278.38 lakh in F.Y. 2017-18 (Investment shown in balance sheet in shares and securities) , income from which does not for part of total income . However no expenditure was disallowed u/s 14A r.w.r 8D of the I.T.Rules in this respect. The RAP has referred CBDT circular No 5/2014 dated 11.02.2014, it was clarified that disallowances u/s 14A r w.r. 8D can be made irrespective of the fact whether any such income has been earned during the financial year or not. Total disallowances u/s 14A of the Act was worked out at Rs. 16,94,37,000/-". In view of this order passed by the A.O. is erroneous and prejudicial to the Interest of the revenue and therefore, needs to be revised under the provisions of section 263 of the I.T.Act, 1961. "(For notice of hearing kindly refer page 1-2 of PB). 3. The asssese has submitted briefly four arguments along with various case laws in support of the argument, during 263 proceeding. (Reply is enclosed at pages 3-11 of PB) These are as under: - i. No dividend income earned out of these investment during the year. ii. Sufficient interest free fund to cover the Investment iii. CBDT circular cannot be basis for making addition. iv. Jurisdiction ITAT judgements are binding to the A.O. 4. The PCIT without properly considering the submission of the assessee, set aside the order of the A.O. by treating the order of the A.O. as erroneous and prejudicial to the interest of the revenue by giving following observation (refer page no 11-16 of the 263 order) :- i. The assessee is not having sufficient interest free fund, The funds are in the nature of security premium which is a restrictive fund and cannot be used for making the Investment. ii. The assessee hold the shares as stock in trade and 14A gets triggered if the shares are held as stock in trade even though in absence of dividend income. Submission before Honorable Bench of ITAT 1. Before going into the discussion regarding applicability of section 14A , we would like to draw your honor attention regarding the method and rule of calculation adopted for disallowance u/s 14A r.w.r. 8D by the PCIT:- In the present case the method adopted as per rule 8D of Income Tax Rule, 1962 by the PCIT is not correct. In the 263 order, the PCIT has adopted old method which has been substituted on 02.06.2016. Kindly

6 ITA No. 194/RPR/2023 refer page no 82 of PB for •rule 8D of the Income Tax Rule, 1962. Further there are also certain error in calculation as per old method also. The revised working of disallowances if any as per current method is enclosed at page 84 of paper book. As per revised working, the disallowances if any required to be made as per the 263 order, the same should be Rs. 32,78,381/-. Legal Reply — Regarding initiation of 263 on the basis of audit objection and applicability of section 14A of the I.T.Act, 1961 2. Revision u/s 263 cannot be initiated on the basis of RAP objection (audit objection).The said contention of the assessee is supported by various judicial pronouncement are as under :- • Commissioner Of Income Tax Vs. Sohana Woollen Mills, (2006) 74 CCH 0755 PHHC (Refer page no 1-2 of PB-II) • Sri Kumar Pappu Singh Vs. Deputy Commissioner Of Income Tax, (2018) 103 CCH 0343 Vihakapatnam Trib(Refer page no 3-4 of PB-II) • Sarlaben Bhansali Charities Trust Vs. Commissioner Of Income Tax (Exemptions) (2017) 51 CCH 0464 Kol Trib (Refer page no 5-6 of PB-II) • Surinder Kumar Jain Vs. Income Tax Officer, (2016) 48 CCH 0158 DelTrib(Refer page no 7-9 of PB-II) 3. Further, the observation of the PCIT as mentioned in order passed u/s 263 is not correct. The assessee is having sufficient Interest free fund in the form of Share capital, retained earning and securities premium to cover the Investment. The detail of share capital and reserves & surplus is as under: -

7 ITA No. 194/RPR/2023 In view of above chart it is evident that the assessee is having sufficient interest free fund to cover the Investment and it is a settled principle that where interest free fund are sufficient to cover the Investment, then it can be presumed that investments are made from the said funds and also no disallowances is required to be made u/s 14A of the I.T. Act. The assessee has relied various case laws including jurisdictional ITAT judgements in support of the said contention are as under:-  South India Bank Limited vs. Commissioner of Income Tax [(2021) 112 CCH 0005 ISCC] -Refer page no 85-87 of PB  CIT vs. Reliance Industries Limited [(2019) 104 CCH 0038)],Apex Court-Refer page no 88-91 of PB  PCIT vs. M/s Ashok Apprels Pvt. Ltd [(2020) 423 ITR 0412], Mumbai HC -Refer page no 92-93 of PB  Shree Nakoda Industries Limited vs. DCIT , ITA No. 81/RPR/2016, Raipur Bench of ITAT - Refer page no 101-108 of PB  M/s S.B. Multimedia Pvt. Ltd vs. DCIT , ITA No. 173/RPR/2016 , Raipur Bench of ITAT- Refer page no 109-114 of PB  DCIT vs. Arvind Smart Spaces Ltd. [(2020) 58 CCH 0311], Ahmd. Trib Refer page no 94-997 of PB  Maruti Udyog Limited vs. DCIT [(2005) 92 TTJ 987] Del Trib :- Refer page no 98-100 of PB 4. Further during the year the assessee has not received any dividend income out of the investment. Kindly refer computation of Income at page 13 of PB and also page 49-50 of PB i.e. the schedule of Other Income of financial statement. Since there is no exempt income earned during the year , 14A cannot be invoked in the present case of the assessee. The said contention is supported by various judicial pronouncement are as under :-  CIT vs. Chettinad Logistic Pvt. Ltd [ (2017) 98 CCH 0151], Chennai HC -Refer page no 115-121 of PB  PCIT vs. Oil Industries Development Board [(2018) 101 CCH 0452], Del HC - Refer page no 122-124 of PB  CIT vs. Holcim India Pvt. Ltd [(2014) 90 CCH 081], Delhi -HC, Refer page no 127-129 of PB  Sgepl Infrastructure Pvt. Limited vs. ACIT-3(1), Raipur, ITA No.65/RPR/2018, Raipur Bench of ITAT Further the shares are not held as stock in trade and the same is showing as investment (non-current assets). Kindly refer page no 26 and 42 of the paper book. Case law of “Maxopp” is not correctly interpreted by PCIT. 5. Further as regard to one dividend item showing in other Income under audited financial statement (Refer Note no 21 of the Balance sheet at page 50 of the PB), it is to submit that it is not in the nature of Dividend , this is the nomenclature used asper Ind -AS . The detail of dividend of Rs. 22.43 lacs showing at page no 50 of the PB is as under :-

8 ITA No. 194/RPR/2023

9 ITA No. 194/RPR/2023 so far as it was prejudicial to the interest of the revenue was bad in law. The Ld. AR further submitted that there were number of case laws involved in the assessee’s contention raised which are extracted hereinabove in the written submission of the Ld. AR. The first contention of the assessee is that if there is no dividend income earned by the assessee during the relevant assessment year there could not be any addition in the hands of the assessee and if there is certain exempt income then the addition should restricted to the amount of such exempt income. Second contention raised by the assessee is that sufficient interest free funds were available with the assessee to cover up the investment therefore, there could not be any addition. Third contention of the assessee pertains to the CBDT Circular that CBDT circular cannot be the basis for making any addition, since, jurisdictional ITAT had dealt and decided the identical issue pertaining to the addition u/s.14A and such order is binding upon the A.O. Under such circumstances, it was submitted by the Ld. AR that the order of the A.O could not be treated as erroneous in so far as it was prejudicial to the interest of the revenue.

10 ITA No. 194/RPR/2023

11 ITA No. 194/RPR/2023 for information/document may be issued subsequently. Such a mention by the A.O was found to be correct as per draft assessment order wherein it is stated that notice u/s.142(1) a/w. questionnaire was issued and served on the assessee on 13.01.2021 and 22.01.2021 through system and in response, the assessee has filed details through system on the manufacturing and trading of poultry feeds, cattle feed, pet food, aqua feed and soya value added products and poultry equipment etc. respectively.

12 ITA No. 194/RPR/2023 Representative of both the parties, we find substantial force in the claim of the Ld. AR that now when the assessee company had admittedly not received any exempt income during the year under consideration, therefore, no disallowance u/s.14A of the Act was called for in its hand. Our aforesaid view is fortified by the judgment of the Hon’ble Supreme Court in the case of CIT Vs. Chettinad Logistics Pvt. Ltd. (2018) 257 Taxmann 2 (SC) and also of the Hon’ble High Court of Delhi in the case of Cheminvest Limited Vs. CIT, (2015) 378 ITR 33 (Delhi). Backed by the aforesaid judicial pronouncements, it was submitted by the Ld. AR that as per the settled position of law no disallowance u/s.14A in absence of any exempt income could have been made in the hands of the assessee. In the backdrop of the facts involved in the case before us read with the aforesaid settled position of law we find substance in the claim of the Ld. AR that now when the assessee company had not received any exempt dividend income during the year under consideration, therefore, no disallowance u/s.14A of the Act was warranted in its case. We, thus, in terms of our aforesaid observations vacate the disallowance of Rs.21,99,136/- made by the assessing officer and thus the ground of appeal no. 2 is allowed.”

Similar view has been taken by the Hon’ble Delhi High Court in the case of PCIT Vs. Oil Industries Development Board (2018) 101 CCH 452 (Del-HC) and that of CIT Vs. Holcim India Pvt. Ltd., (2014) 90 CCH 81 (Del-HC).

12.1 Another contention of the assessee that, if Sufficient interest free fund are available with the assessee to cover the Investment, then disallowance under section 14A r.w.r. 80D cannot be triggered. We find force in this contention also, in view of various judgments relied upon by the Ld. AR, listed as under: -  South India Bank Limited vs. Commissioner of Income Tax [(2021) 112 CCH 0005 ISCC] -Refer page no 85-87 of PB  CIT vs. Reliance Industries Limited [(2019) 104 CCH 0038)],Apex Court-Refer page no 88-91 of PB  PCIT vs. M/s Ashok Apprels Pvt. Ltd [(2020) 423 ITR 0412], Mumbai HC -Refer page no 92-93 of PB  Shree Nakoda Industries Limited vs. DCIT , ITA No. 81/RPR/2016, Raipur Bench of ITAT - Refer page no 101-108 of PB  M/s S.B. Multimedia Pvt. Ltd vs. DCIT , ITA No. 173/RPR/2016 , Raipur Bench of ITAT- Refer page no 109-114 of PB  DCIT vs. Arvind Smart Spaces Ltd. [(2020) 58 CCH 0311], Ahmd. Trib Refer page no 94-997 of PB  Maruti Udyog Limited vs. DCIT [(2005) 92 TTJ 987] Del Trib :- Refer page no 98-100 of PB

13 ITA No. 194/RPR/2023 13. In view of the aforesaid judicial pronouncements and settled principle of law laid down by the Hon’ble high court and Hon’ble Apex Court, we are of the considered view that, if the assessee company had not earned any exempt income during the year under consideration or there are sufficient funds available to cover the investment in question then no disallowance u/s 14A can be made. Such contentions were raised by the assessee before the Ld PCIT also but the same were disregarded on account of insufficient information or by distinguishing the interpretation of judgments. However, in our considered opinion the settled position of law as laid down by the Hon’ble Apex Court and various high courts, the issues are now reached to a logical conclusion, but of course with the verification of facts. Revenue authorities are thus duty bound to follow such ratio of law.

14 ITA No. 194/RPR/2023 therefore, no infirmity did emerge from the said order. Accordingly, we uphold the same. At the same time, assessee is at liberty to explain its claim and also submitted necessary documents/evidence before the Ld A.O in order to substantiate the contention raised, thus, the order of the Pr. CIT could not be said to be causing any prejudice or damage to the rights of assessee to represent its case, thus, the same though found to be incorrect on account of calculation made qua addition or disallowance u/s.14A r.w.s. 8D could not be termed as inferior, but needs further enquiries and verification of facts.

Order pronounced in the open court on 17/10/2023.

Sd/- Sd/- (RAVISH SOOD) (ARUN KHODPIA) �याियक सद�य / JUDICIAL MEMBER लेखा सद�य / ACCOUNTANT MEMBER रायपुर/Raipur; �दनांक Dated 17 /10/2023 SB

15 ITA No. 194/RPR/2023 आदेश क� �ितिल�प अ�े�षत/Copy of the Order forwarded to : 1. अपीलाथ� / The Appellant- 2. ��यथ� / The Respondent- 3. आयकर आयु�(अपील) / The CIT(A), 4. आयकर आयु� / CIT िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, रायपुर/ DR, ITAT, 5. Raipur 6. गाड� फाईल / Guard file. आदेशानुसार/ BY ORDER, // True Copy //

(Assistant Registrar) आयकर अपीलीय अिधकरण, रायपुर/ITAT, Raipur

ITA No. 194/RPR/2023

Date Initial 1. Draft dictated on Sr.PS 2. Draft placed before author Sr.PS 3. Draft proposed & placed before the second JM/AM member 4. Draft discussed/approved by Second JM/AM Member. 5. Approved Draft comes to the Sr.PS/PS Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. File sent to the Bench Clerk Sr.PS 8. Date on which file goes to the Sr.PS 9. Date on which file goes to the Head Clerk. 10. Date of dispatch of Order.