M/s Laksons Footwear Pvt. Ltd., New Delhi V. ITO, Faridabad

ITA 585/DEL/2017

• Counselvise Citation: [2022] 106 COUNSELVISE.COM (IT) 9754 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 4 month(s) 4 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-06-2022
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: E
• Assessment Year: 2012-2013
• Appeal Filed On: 01-02-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Keywords: Proportionate interest; Rule 8D
• Section: 143(3); 14A

Judgement Text

I.T.A. No. 585/Del/2017 1 IN THE INCOME TAX APPELLATE TRIBUNAL [ DELHI BENCH “E” NEW DELHI ] BEFORE SHRI G. S. PANNU, PRESIDENT A N D SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER आ.अ.स ं ./I.T.A No. 585/Del/2017 िनधाªरणवषª/Assessment Year: 2012-13 M/s. Laksons Footwear Pvt. Ltd., H. No. W-9, Gr. Kailash – II, New Delhi – 110 048. बनाम Vs. Income Tax Officer, Ward : 11 (1), Faridabad. PAN : AAACL3114B अपीलाथê / Appellant ÿÂयथê / Respondent िनधाªåरतीकìओरसे / Assessee by : None; राजÖवकìओरसे / Department by : Ms. Garima Sharma, Sr. D. R.; स ु नवाईकìतारीख/ Date of hearing : 7/06/2022 उĤोषणाकìतारीख/Pronouncement on : 7/06/2022 आदेश / O R D E R PER C. N. PRASAD, J. M. : 1. This appeal filed by the assessee is against the order of the ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as CIT (Appeals)] Faridabad, dated 7.11.2016 for assessment year 2012-13. I.T.A. No. 585/Del/2017 2 2. The assessee has raised the following effective grounds of appeal:- “2. That Ld. CIT(A) erred in confirming the disallowance of other expenditures of Rs.4,73,121/- under Section 14A as per rule 8D(2)(iii) of the Income Tax Rules; 3. That the Ld. CIT(A) has erred in confirming the disallowance of proportionate interest of Rs,6,00,000/- on account of advances given despite of the fact that advances were given in the ordinary course of business. “ 3. In spite of issue of several notices to the assessee none appeared on behalf of the assessee nor any adjournment was moved. Therefore, we dispose of this appeal on hearing the ld. DR. 4. The ld. DR submits that while completing the assessment under Section 143(3) of the Income Tax Act, 1961 (the Act) on 30.01.2015 the Assessing Officer noticed that the assessee made investments which are capable of earning income and such income is exempt under Section 10(34) of the Act. The ld. DR submits that the Assessing Officer computed the disallowance under Section 14A of the Act at Rs.42,78,563/- comprising of interest disallowance of Rs.38,05,442/- under Rule 8D(2)(ii) and Rs.4,73,420/- in terms of Rule 8D(2)(iii) being 0.5% of average investments. On appeal the ld. CIT (Appeals) deleted the interest disallowance made under Rule 8D(2)(ii) and sustained the disallowance of Rs.4,73,420/- made under Rule 8D(2)(iii). The ld. DR placed reliance on the orders of the authorities below. 5. We have heard the ld. DR and perused the orders of the authorities below. We notice from the assessment order that the Assessing Officer disallowed Rs.38,05,442/- under Rule 8D(2)(iii) towards interest expenditure and Rs.4,73,420/- towards administrative expenses I.T.A. No. 585/Del/2017 3 being 0.5% of the average investment. The ld. CIT (Appeals) deleted the interest expenditure observing that the assessee had reserves and surplus to the tune of Rs.4.55 crores at the beginning of the year and Rs.4.56 crores at the end of the year. The ld. CIT (Appeals) also observed that the assessee had interest free funds available in the form of sundry creditors and un-secured loans to the tune of Rs.34.36 crores at the beginning of the year and Rs.14.54 crores at the close of the year and there were no secured loans at the beginning and close of the year. Therefore, the ld. CIT (Appeals) held that assessee was able to substantiate that most of the interest free funds were utilized in making investments in respect of which no dividend income had been earned by the assessee. In so far as disallowance of Rs.4,73,420/- is concerned the ld. CIT (Appeals) held that the Assessing Officer has correctly applied the provisions of Rule 8D(2)(iii) and made the disallowance. These findings have not been controverted by the assessee. In the circumstances we do not see any valid reason to interfere with the findings of the ld. CIT (Appeals). We sustain the order of the ld. CIT (Appeals) and reject ground No. 2 raised by the assessee. 6. Coming to ground No. 2 i.e. disallowance of proportionate interest of Rs.6 lakhs on the advances given the ld. DR submits that the Assessing Officer while completing the assessment noticed that the assessee company debited interest in its profit and loss account and further the assessee had given advances to various parties. Therefore, the assessee was required to explain as to why proportionate interest on interest free advances should not be disallowed. The ld. DR submits that assessee contended that it had advanced moneys for the purpose of import of trading items for construction line. However, due to some dispute terms could not be finally agreed upon and part amounts had already been received back by the assessee. It was also contended by I.T.A. No. 585/Del/2017 4 the assessee that no specific borrowing was made for the purpose of advances and assessee has earned the profits during the current year as well as in earlier years when advances were given. Not convinced with the submissions of the assessee the Assessing Officer disallowed proportionate interest applying the rate of 12% per annum on Rs.1.51 crores of advances made by the assessee and accordingly an amount of Rs.18,12,000/- was disallowed. The ld. CIT (Appeals) in so far as the interest of Rs.12,12,000/- on advances with M/s. Lakhani India Ltd. is concerned deleted holding that it is only an advance against purchases and this position has been accepted by the Assessing Officer in earlier assessments. However, in so far as the advance standing in the name of D. R. Builders & Promoters Pvt. Ltd., the ld. CIT (Appeals) sustained the interest to the extent of Rs.6 lakhs following the order of his predecessor for the assessment years 2010-11 and 2011-12. The ld. DR placed reliance on the order of the ld. CIT (Appeals). 7. On hearing the ld. DR and perusing the orders of the authorities below, we find that the Assessing Officer disallowed proportionate interest of Rs.6 lakhs at 12% per annum on the advances made by the assessee to D. R. Builders & Promoters Pvt. Ltd. and the ld. CIT (Appeals) sustained the said disallowance following his predecessor’s order for the assessment years 2010-11 and 2011-12. It was also observed by the ld. CIT (Appeals) that the facts in the assessment years 2010-11 and 2011-12 remain identical to the facts for the present assessment year. The ld. CIT (Appeals) observed that the decision of the Bombay High Court in the case of Reliance Powers relied on by the assessee is distinguishable on the facts of the assessee’s case. None of the above findings of the ld. CIT (Appeals) have been rebutted by the assessee before us. Thus, we sustain the order of the ld. CIT (Appeals) and dismiss ground No. 3 of the grounds of appeal of the assessee. I.T.A. No. 585/Del/2017 5 8. In the result, appeal of the assessee is dismissed. Order pronounced in the open court on : 07/06/2022. Sd/- Sd/- ( G. S. PANNU ) ( C. N. PRASAD ) PRESIDENT JUDICIAL MEMBER Dated : 07/06/2022. *MEHTA* Copy forwarded to : 1. Appellant; 2. Respondent; 3. CIT 4. CIT (Appeals) 5. DR: ITAT ASSISTANT REGISTRAR ITAT, New Delhi. Date of dictation 07.06.2022 Date on which the typed draft is placed before the dictating member 07.06.2022 Date on which the typed draft is placed before the other member 07.06.2022 Date on which the approved draft comes to the Sr. PS/ PS 07.06.2022 Date on which the fair order is placed before the dictating member for pronouncement 07.06.2022 Date on which the fair order comes back to the Sr. PS/ PS 07.06.2022 Date on which the final order is uploaded on the website of ITAT 07.06.2022 Date on which the file goes to the Bench Clerk 07.06.2022 Date on which the file goes to the Head Clerk The date on which the file goes to the Assistant Registrar for signature on the order Date of dispatch of the order