ACIT, Chandigarh V. M/s Mobility Solutions Ltd., Chandigarh

ITA 496/CHANDI/2015

• Counselvise Citation: 49621514 RSA 2015
• Duration Of Justice: 5 month(s) 30 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-11-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 04-11-2015
• Assessment Year: 2011-2012
• Appeal Filed On: 07-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGHDR
• Assessee Lawyers: AJAY JAIN SHRI T N SIN GLA
• Keywords: Earning of tax free income; Proportionate interest
• Section: 2; 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH,CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER AND MS.ANNAPURNA MEHROTRA, ACCOUNTANT MEMBER ITA NO. 496/CHD/2015 ASSESSMENT YEAR: 2011-12 THE ACIT, VS M/S MOBILITY SOLUTIONS LTD., CIRCLE 2(1), 75, INDUSTRIAL AREA, PHASE-1 CHANDIGARH. CHANDIGARH. PAN: AABCV0031G. (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI MANJIT SINGH,DR RESPONDENT BY : SHRI AJAY JAIN FOR SHRI T.N.SIN GLA DATE OF HEARING : 04.11.2015 DATE OF PRONOUNCEMENT : 06.11.2015 O R D E R PER BHAVNESH SAINI,JM THIS APPEAL BY REVENUE IS DIRECTED AGAINST THE ORDE R OF LD. CIT(APPEALS)-I CHANDIGARH DATED 25.02.2015 F OR ASSESSMENT YEAR 2011-12 ON THE FOLLOWING EFFECTIVE GROUNDS OF APPEAL : 2. WHETHER ON FACTS AND CIRCUMSTANCES OF THIS CASE THE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION AMOUNTING TO RS. 2,56,512/- M ADE ON ACCOUNT OF DISALLOWANCE U/S 14A WITHOUT AFFORDING AN OPPORTUNI TY TO THE A.O. BY RELYING UPON THE DECISION IN THE CASE OF IMPACT AGENCIES PVT. LT D., PARTICULARLY WHEN THE ASSESSEE AGREED FOR THE SAID DISALLOWANCE DURING SC RUTINY ASSESSMENT BEFORE THE A.O. 3. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) IS JUSTIFIED IN DELETING THE ADDITION OF RS. 12,06,015/- MADE ON AC COUNT OF PROPORTIONATE INTEREST 2 U/S 36(1)(III) BY RELYING UPON THE DECISION IN THE CASE OF M/S RANA POLYCOT PVT. LTD., WHEREAS IN THE SAME CASE IN A.Y. 2009-10 THE LD. CI T(A) HAS UPHELD THE ACTION OF THE A.O. ON THE SAME GROUND WHICH HAS ALSO BEEN UPH ELD BY THE HON'BLE ITAT VIDE ITS ORDER IN ITA NO. 359/CHD/2013, DATED 24.03 .2014. 2. ON GROUND NO. 2, THE LD. CIT(APPEALS) NOTED THAT ASSESSEE HAD PAID HUGE INTEREST ON BORROWED CAPITAL AND HAD MADE INVESTMENT, INCOME FROM WHICH WAS EXEMPT. THE ASSESSING OFFICER HAS MADE DISALLOWANCE OF RS. 2,56,512/- UNDER SECTION 14A READ WITHY RULE 8D OF THE INCOME TAX RULES. THE ASSESSEE SUBMITTED AT THE APPELLATE PROCEEDINGS THAT IT HAS NOT RECEIVED ANY EXEMPT INCOME AND SO NO DISALLOWANCE UNDER SECTION 14A WAS CALLED FOR IN VIEW OF THE JUDGEMENT DATED 02.04.201 4 OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF LAKHANI MARKETING INC IN ITA 970/2008. THE LD. CIT(APPEALS) FOUND THAT ITAT CHANDIGARH BENCH BY FOLLOWING THE ABOVE DECISION OF THE HIGH COURT IN T HE CASE OF LAKHANI MARKETING INC (SUPRA) HAS ALSO HELD IN T HE CASE OF IMPACT AGENCIES PVT. LTD. VIDE ORDER DATED 12.01.2015 IN ITA 35/CHD/2012 THAT IF THERE IS NO EXEMPT INCOME, THEN SECTION 14A IS NOT ATTRACTED. THE ASSESSING OFFICER WAS THEREFORE, DIRECTED TO VERIFY AND IF THERE IS NO EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION, THEN NO DISALLOWANCE IS TO BE MADE. 3. AFTER CONSIDERING RIVAL SUBMISSIONS, WE DO NOT F IND ANY MERIT IN THIS GROUND OF APPEAL OF THE REVENUE. THE LD. CIT(APPEALS) HAS DIRECTED THE ASSESSING OFFICER TO 3 VERIFY IF THERE IS NO EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION, THEN NO DISALLOWANCE IS PERMISSIBLE AS PER DECISION OF THE ITAT CHANDIGARH BENCH IN THE CASE O F IMPACT AGENCIES PVT. LTD.(SUPRA) AND JUDGEMENT OF HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF LAKHANI MARKETING INC. (SUPRA), NO ERROR HAVE BEEN POINTED OUT IN THE ORDER OF THE LD. CIT(APPEALS). THE LD. DR CONTENDED THAT SINCE ASSESSEE AGREED FOR DISALLO WANCE AT ASSESSMENT STAGE, THEREFORE, LD. CIT(APPEALS) SH OULD NOT HAVE ISSUED THIS DIRECTION. HOWEVER, THE REPLY OF THE ASSESSEE AT ASSESSMENT STAGE WAS THAT, DISALLOWANC E, IF ANY UNDER SECTION 14A MAY BE MADE. IT WOULD SHOW THAT ASSESSEE NEVER AGREED TO THE DISALLOWANCE AND WHEN ASSESSEE HAS BEEN ABLE TO EXPLAIN BEFORE THE LD. CIT(APPEALS), THAT DISALLOWANCE IS NOT CALLED FOR B ECAUSE NO EXEMPT INCOME WAS EARNED, THEREFORE, LD. CIT(APP EALS) WAS JUSTIFIED TO VERIFY THIS FACT. THIS GROUND OF A PPEAL OF REVENUE HAS NO MERIT, SAME IS THEREFORE, DISMISSED. 4. ON GROUND NO. 3, ASSESSEE CHALLENGED THE DISALLOWANCE OF RS. 12,06,015/- OUT OF INTEREST EXPENDITURE ON ACCOUNT OF CAPITALIZATION OF INTERES T ON CAPITAL WORK IN PROGRESS BEFORE LD. CIT(APPEALS). IT IS NOTED IN THE IMPUGNED ORDER THAT ASSESSEE HAD SHOWN CAPITAL WORK IN PROGRESS OF RS. 1,00,50,125/-. THE ASSESSING OFFICER NOTICED THAT ASSESSEE HAD DEBITED HUGE INTEREST ON UNSECURED LOANS. IT APPEARS THAT ASSES SEE DID NOT RESPOND TO THE QUERY MADE, THEREFORE, ASSES SING 4 OFFICER DISALLOWED 12% OF THE INTEREST AND MADE ADD ITION. DURING THE COURSE OF APPELLATE PROCEEDINGS, LD. COU NSEL FOR THE ASSESSEE SUBMITTED THAT WORK-IN-PROGRESS WA S NEITHER FOR START OF NEW WORK NOR FOR ANY EXPANSION AND SO NO INTEREST SHOULD HAVE BEEN DISALLOWED UNDER SE CTION 36(1)(III) OF THE ACT. IT WAS ALSO CONTENDED THAT DISALLOWANCE SHOULD BE RESTRICTED ON PRO-RATA BASIS AS IS HELD BY ITAT CHANDIGARH BENCH IN THE CASE OF M/S RA NA POLYCOT LTD. VIDE ORDER DATED 28.08.2014 IN ITA 260/CHD/2011. 5. THE LD. CIT(APPEALS) CONSIDERING THE EXPLANATION OF THE ASSESSEE HELD THAT DISALLOWANCE SHALL HAVE TO B E MADE UNDER SECTION 36(1)(III) OF THE ACT AS PER JUD GEMENT OF THE ABHISHEK INDUSTRIES LTD. 286 ITR 1, HOWEVER, ACCEPTED THE CONTENTION OF ASSESSEE THAT PRO-RATA I NTEREST SHALL HAVE TO BE DISALLOWED. THE CONTENTION OF ASS ESSEE THAT DISALLOWANCE UNDER SECTION 36(1)(III) OF THE A CT ON PRO-RATA BASIS MAY BE MADE AS PER DECISION OF THE CHANDIGARH BENCH IN THE CASE OF M/S RANA POLYCOT LT D. WHICH IS REPRODUCED IN THE APPELLATE ORDER. ACCORD INGLY, ASSESSING OFFICER WAS DIRECTED TO DISALLOW IT ON PR O-RATA BASIS. THE LD. DR CONTENDED THAT ITAT CHANDIGARH B ENCH IN THE CASE OF THE SAME ASSESSEE FOR ASSESSMENT YEA R 2009-10 IN ITA 359/2013 VIDE ORDER DATED 24.03.2014 CONFIRMED THE ADDITION. COPY OF THE ORDER IS PLACE D ON RECORD. HOWEVER, LD. COUNSEL FOR THE ASSESSEE SUBM ITTED THAT IN THIS ORDER, THE DECISION OF CHANDIGARH BENC H IN 5 THE CASE OF M/S RANA POLYCOT LTD. DATED 28.08.2014 WAS NOT CONSIDERED BECAUSE IT WAS DELIVERED LATER ON. 6. ON CONSIDERATION OF THE ABOVE FACTS, WE ARE OF T HE VIEW THERE IS NO MERIT IN THE DEPARTMENTAL APPEAL. THE LD. COUNSEL FOR THE ASSESSEE RIGHTLY CONTENDED THAT HE DECISION IN THE CASE OF M/S RANA POLYCOT LTD. (SUPR A) WAS A LATER DECISION WHICH WAS NOT CONSIDERED IN THE CA SE OF THE ASSESSEE IN ASSESSMENT YEAR 2009-10. THEREFORE , THERE WAS NO OCCASION TO CONSIDER THE ISSUE OF DISALLOWANCE ON PRO-RATA BASIS. THEREFORE, THERE I S NO ERROR IN THE ORDER OF LD. CIT(APPEALS) IN ISSUING DIRECTIONS TO THE ASSESSING OFFICER TO DISALLOW INT EREST UNDER SECTION 36(1)(III) OF THE ACT ON PRO-RATA BAS IS. THIS GROUND OF APPEAL OF REVENUE IS ALSO DISMISSED. 7. IN THE RESULT, THE DEPARTMENTAL APPEAL IS DISMIS SED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- (ANNAPURNA MEHROTRA) (BHAVNESH SAINI) ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 6 TH NOV., 2015. POONAM COPY TO: THE APPELLANT, THE RESPONDENT, THE CIT(A), THE CIT, DR ASSISTANT REGISTRAR, ITAT/CHD