Richa Holdings Limited, Faridabad V. ITO WARD- 2(2), Faridabad

ITA 1541/DEL/2020

• Counselvise Citation: [2021] 108 COUNSELVISE.COM (IT) 3606 (ITAT-DELHI)
• Duration Of Justice: 9 month(s) 5 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-06-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: SMC
• Assessment Year: 2016-2017
• Appeal Filed On: 03-09-2020
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARHAT KHAN
• Keywords: Earning of tax free income
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI SMC-1 BENCH: NEW DELHI (THROUGH VIDEO CONFERENCING ) BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER ITA NO.1541/DEL/2020 ASSESSMENT YEAR : 2016-17 M/S. RICHA HOLDINGS LTD., PLOT NO.29, DLF INDUSTRIAL AREA, PHASE-II, FARIDABAD. PAN-AABCC7401M VS ITO, WARD-2(2), FARIDABAD. APPELLANT RESPONDENT APPELLANT BY SH. I.P.BANSAL, ADV. & SH. VIVEK BANSAL, ADV. RESPONDENT BY SH. FARHAT KHAN, SR.DR DATE OF HEARING 01.04.2021 DATE OF PRONOUNCEMENT 08 .0 6 .2021 ORDER PER KUL BHARAT, JM : THIS APPEAL FILED BY THE ASSESSEE FOR THE ASSESSMEN T YEAR 2016-17 IS DIRECTED AGAINST THE ORDER OF LEARNED CIT(A), FARID ABAD DATED 18.03.2020. THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL :- 1. THAT UNDER THE FACTS AND CIRCUMSTANCES OF THE C ASE THE LD. CIT(A) HAS ERRED IN LAW AS MUCH AS IN FACT IN UPHOLDING TH E ADDITION OF RS.46,29,509/- MADE ON ACCOUNT OF DISALLOWANCE OF I NTEREST. WHILE UPHOLDING THE DISALLOWANCE LD. CIT(A) HAS FAILED TO APPRECIATE THAT THE DISALLOWANCE COULD NOT BE MADE: A. AS THE INTEREST PAID BY THE ASSESSEE IS ELIGIBL E FOR DEDUCTION U/S 36(L)(III) OF THE ACT. B. AS INTEREST FREE FUNDS AVAILABLE WITH THE ASSES SEE WERE SUFFICIENT TO COVER THE INTEREST FREE ADVANCES MADE BY THE ASSESSEE AND THUS, THE DISALLOWANCE WAS NOT CALLED FOR AS PE R LAW LAID DOWN ITA NO.1541/DEL/2020 2 | P A GE BY HON'BLE SUPREME COURT IN THE CASE OF CIT VS. REL IANCE INDUSTRIES [2019] 410 ITR 466(SC) AND OTHER DECISIONS RELIED U PON BEFORE THE LD. CIT(A) WHICH HAVE BEEN ARBITRARILY IGNORED BY L D. CIT(A) ON THE GROUND THAT THEY ARE NOT APPLICABLE TO THE FACTS OF THE PRESENT CASE. C. AS THE DISALLOWANCE ALSO COULD NOT BE MADE BY R EFERRING TO SECTION 14A OF THE ACT, WHICH IS APPLICABLE ONLY IF ANY TAX-FREE INCOME HAS BEEN EARNED BY THE ASSESSEE. IN THE PRES ENT CASE NO INTEREST FREE INCOME HAS BEEN EARNED BY THE ASSESSE E. 2. WITHOUT PREJUDICE TO THE ABOVE AND IN THE ALTERN ATIVE, THE DISALLOWANCE OF RS. 46,29,509/- COULD NOT BE MADE I N ITS ENTIRETY AND REFERRING TO THE FACTS AND CIRCUMSTANCES OF THE CAS E THE INTEREST EARNED BY THE ASSESSEE TO THE EXTENT OF RS. 39,14,863/- IS EL IGIBLE FOR SET-OFF AGAINST INTEREST PAYMENT OF RS. 46,29,509/-. THUS, ADDITION ONLY TO THE EXTENT OF RS. 7,14,646/- COULD BE MADE. 3. THAT EACH OF THE ABOVE GROUNDS IS INDEPENDENT AN D IS WITHOUT PREJUDICE TO EACH OTHER. 2. THE FACTS GIVING RISE TO THE PRESENT APPEAL ARE THAT THE CASE OF THE ASSESSEE WAS PICKED UP FOR SCRUTINY ASSESSMENT. TH E ASSESSMENT U/S 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT) WAS FRAMED VIDE ORDER DATED 26.12.2018. WHILE FRAMING THE ASSESSMENT, THE ASSE SSING OFFICER NOTICED THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE H AD EARNED INCOME OF RS.39,14,863/- FROM INTEREST. THE ASSESSEE HAS INC URRED INTEREST EXPENSES TO THE TUNE OF RS.46,29,509/-. IT WAS OBSERVED BY THE ASSESSING OFFICER THAT NO BUSINESS TRANSACTION WAS CARRIED OUT BY THE ASSESSE E DURING THE YEAR UNDER CONSIDERATION. FURTHER, THE ASSESSING OFFICER NOTI CED THAT THE ASSESSEE RAISED A SECURED LOAN FROM HDB FINANCIAL SERVICES LTD. DURIN G THE PREVIOUS YEAR WHICH ITA NO.1541/DEL/2020 3 | P A GE WAS RS.4,02,21,214/- AS ON 31.03.2015 AND RS.3,79,7 4,981/- AS ON 31.03.2016 AFTER REPAYMENT OF RS.68,75,741/- DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS ALSO RAISED UNSECU RED LOAN OF RS.25,00,000/- DURING THE FINANCIAL YEAR 2015-16 RELEVANT TO ASSES SMENT YEAR UNDER CONSIDERATION FROM SMT. SWETA GUPTA. IT WAS FURTH ER NOTICED BY THE ASSESSING OFFICER THAT THE ASSESSEE HAS GIVEN LOAN/ADVANCE TO SISTER CONCERNS/RELATED PARTIES. IT WAS FURTHER NOTICED BY THE ASSESSING O FFICER ON THE P&L ACCOUNT THAT THE ASSESSEE HAD RAISED INTEREST BEARING LOANS AND PAID INTEREST OF RS.46,29,509/- AND CLAIMED DEDUCTION FOR THE SAME. THE ASSESSING OFFICER DISALLOWED THE CLAIM ON THE GROUND THAT THE INTERES T FREE LOAN WAS GIVEN TO THE RELATED PARTIES FOR NON-BUSINESS PURPOSES. THEREFO RE, HE MADE ADDITION OF RS.46,29,509/- ON ACCOUNT OF DISALLOWANCE OF INTERE ST EXPENDITURE. 3. AGGRIEVED AGAINST THIS, THE ASSESSEE PREFERRED A PPEAL BEFORE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS AND MATERIAL ON RECORDS, SUSTAINED THE ADDITION. 4. NOW, THE ASSESSEE IS IN APPEAL BEFORE THIS TRIBU NAL. 5. LD. COUNSEL FOR THE ASSESSEE, SH. I. P. BANSAL, ADVOCATE, VEHEMENTLY ARGUED THAT THE ACTION OF THE AUTHORITIES BELOW IS CONTRARY TO THE JUDICIAL PRONOUNCEMENTS. HE SUBMITTED THAT THE ASSESSEE WAS HAVING SUFFICIENT INTEREST FREE FUND TO GIVE INTEREST FREE LOAN. HE TOOK ME THROUGH THE BALANCE SHEET OF THE ASSESSEE COMPANY AND PLACED RELIANCE ON THE JUDGEMENT OF HONBLE SUPREME COURT IN THE CASE OF CIT VS RELIANCE INDUSTRIES LTD. [2019] ITA NO.1541/DEL/2020 4 | P A GE 410 ITR 466 (SC) AND ALSO ON THE JUDGEMENT OF HONBLE BOMBAY HIGH C OURT IN THE CASE OF CIT VS RELIANCE UTILITIES AND POWER LTD. 313 ITR 34 0 (BOMBAY) TO BUTTRESS THE CONTENTION THAT WHEN THE INTEREST FREE FUNDS WERE AVAILABLE WITH THE ASSESSEE, THEREFORE, IN THE LIGHT OF THE ABOVE JUDGEMENTS, DISALLOWANCE WAS NOT CALLED FOR. 6. LD. SR. DR VEHEMENTLY OPPOSED THESE SUBMISSIONS AND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. HE CONTENDED THAT THE ASSESSING OFFICER HAS CATEGORICALLY STATED IN THE ASSESSMENT ORDER THAT T HE ASSESSEE FAILED TO ESTABLISH NEXUS BETWEEN THE INTEREST FREE ADVANCES GIVEN AND AVAILABILITY OF FUNDS. HE FURTHER CONTENDED THAT THE POINT OF AVAI LABILITY OF FUNDS IS REQUIRED TO BE DEMONSTRATED FROM THE DATE WHEN SUCH ADVANCE S HAVE BEEN GIVEN. 7. I HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED T HE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITI ES BELOW. THE ONLY DISPUTE IS WITH REGARD TO ALLOWABILITY OF INTEREST EXPENSES AS CLAIMED BY THE ASSESSEE. THE SUBMISSIONS OF THE ASSESSEE ARE THREE FOLDS, FI RSTLY THE DISALLOWANCE BY TAKING RESORT TO SECTION 14A OF THE ACT CANNOT BE M ADE AS THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME; SECONDLY WHEN THE ASSESSE E IS HAVING INTEREST FREE FUND THE EXPENDITURE OF INTEREST INCURRED ON BORROW ED FUNDS, CANNOT BE DISALLOWED MERELY ON THE GROUND THAT THE ASSESSEE I S REQUIRED TO PROVE NEXUS BETWEEN THE INTEREST FREE ADVANCES/LOAN GIVEN TO TH E RELATED PARTIES; AND THIRDLY WITHOUT PREJUDICE TO OTHER SUBMISSIONS, THE INTERES T EARNED BY THE ASSESSEE TO THE EXTENT OF RS.39,14,863/- IS ELIGIBLE FOR SET OF F AGAINST INTEREST PAYMENT OF RS.49,29,509/-. THUS, THE ADDITION TO THE EXTENT O F RS.7,14,646/- COULD BE ITA NO.1541/DEL/2020 5 | P A GE MADE. HOWEVER, THE LD.CIT(A) DISMISSED THE APPEAL PURELY ON THE BASIS THAT THE ASSESSEE FAILED TO ESTABLISH THAT BORROWED FUND WAS UTILIZED FOR THE PURPOSE OF BUSINESS. IT IS NOTICED EVEN BEFORE LD.CIT(A), IT WAS SUBMITTED THAT THE ASSESSEE HAD SUFFICIENT INTEREST FREE FUND AVAILABL E FOR MAKING ADVANCES. IT WAS ALSO STATED THAT SINCE NO TAX FREE INCOME IS EARNED , HENCE NO DISALLOWANCE COULD BE MADE. LASTLY, IT WAS ALSO STATED THAT THE ASSESSEE IS ELIGIBLE FOR SETTING OFF INTEREST EARNED AND OFFERED FOR TAXATION. ADMI TTEDLY, NO FINDING IS RECORDED BY THE LD.CIT(A) ON THESE SUBMISSIONS. 8. THE REVENUE HAS NOT DISPUTED THE FACT THAT THE AUTHORITIES BELOW HAVE NOT ALLOWED SET OFF OF THE INTEREST EARNED AND OFF ERED FOR TAX. MOREOVER, THE ASSESSEE HAS NOT EARNED ANY EXEMPT INCOME UNDER THE SE UNDISPUTED FACTS, THE ADDITIONS MADE BY INVOKING THE PROVISION OF SECTION 14A OF THE ACT IS HEREBY RESTRICTED TO A SUM OF RS.7,14,646/- AS PRAYED BY T HE ASSESSEE. THUS, GROUNDS RAISED BY THE ASSESSEE IN THIS APPEAL ARE ALLOWED. 9. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ABOVE DECISION WAS PRONOUNCED ON CONCLUSION OF VIR TUAL HEARING IN THE PRESENCE OF BOTH THE PARTIES ON 08 TH JUNE, 2021. SD/- (KUL BHARAT) JUDICIAL MEMBER * AMIT KUMAR * ITA NO.1541/DEL/2020 6 | P A GE COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI