ACIT, Sangrur V. M/s Lotus Processors Pvt. Ltd., Barnala

ITA 6/CHANDI/2017

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 7575 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 6 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-07-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: Not Allotted
• Assessment Year: 2013-2014
• Appeal Filed On: 02-01-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, A CHANDIGARH BEFORE SHRI SANJAY GARG, JUDICIAL MEMBE AND MS. ANNAPURNA GUPTA, ACCOUNTANTMEMBER ITA NO. 6/CHD/2017 ASSESSMENT YEAR : 2013-14 THE ACIT, CIRCLE, M/S LOTUS PROCESSORS PVT LTD, SANGRUR, VS. XIII-1689, LAKHI COLONY, BARNALA, PAN NO. AAKCS8706J (APPELLANT) (RESPONDENT) APPELLANT BY : SH. MANOJ KUMAR, SR.DR RESPONDENT BY : S/SH. ASHWANI KUMAR, CA SH. ADITYA KUMAR, CA DATE OF HEARING : 02.07.2018 DATE OF PRONOUNCEMENT : 02.07.2018 ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVE NUE AGAINST THE ORDER DATED 14.10.2016 OF THE COMMISSIONER OF I NCOME TAX(A), PATIALA [HEREINAFTER REFERRED TO AS CIT(A)]. 2. 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 ACCOUN T OF DISALLOWANCE MADE IN RELATION TO EXPENDITURE INCURRED FOR EARNIN G 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 N OT 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 OR DER OF THE CIT(A) WHEREIN THE LD. CIT(A) FOLLOWING THE DECISION OF TH E HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT FAR IDABAD VS. LAKHANI MARKETING INC. LTD (SUPRA) HAS HELD THAT SINCE TH E ASSESSEE DID NOT EARN ANY TAX EXEMPT INCOME DURING THE YEAR, HENCE, NO DISALLOWANCE U/S 14A OF THE ACT WAS ATTRACTED. 4. THE LD. DR, ON THE OTHER HAND HAS RELIED ON THE FINDINGS OF THE ASSESSING OFFICER. 5. WE FIND THAT THE ISSUE IS NOW SQUARELY COVERED B Y 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 ATTR ACTED U/S 14A OF THE ACT IN CASE THE ASSESSEE HAS NOT EARNED ANY INC OME NOT FORMING PART OF THE TOTAL INCOME. 6. IN VIEW OF THE ABOVE, WE DO NOT FIND ANY INFIRMI TY IN THE ORDER OF THE CIT(A) ON THIS ISSUE AND THE SAME IS UPHELD. 7. 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 ATTENT ION TO PARA 5.3 OF THE IMPUGNED ORDER OF THE CIT(A) WHEREIN THE LD. CI T(A) HAS GIVEN AS CATEGORICAL FINDING THAT DURING THE YEAR THE ASS ESSEE DID NOT RAISE ANY INTEREST BEARING LOAN. ONLY ONE LOAN WAS RAISE D 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 DIVE RTED FOR MAKING INTEREST FREE ADVANCES. THE LD. CIT(A) AFTER GOING THROUGH THE RECORD, HAS HELD THAT THE ASSESSING OFFICER COULD N OT CONTROVERT THE ABOVE SUBMISSION OF THE ASSESSEE. SINCE THE ASSESSE E HAD BEEN ABLE TO DEMONSTRATE BEFORE THE LD. CIT(A) THAT THE TERM LO AN RAISED BY THE ASSESSEE WAS USED FOR SPECIFIC PURPOSE FOR PURCHASE OF ASSETS AND NO PART OF IT WAS USED FOR ADVANCEMENT OF INTEREST FRE E 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. 9. THERE IS ANOTHER GROUND TAKEN BY THE REVENUE AGI TATING THE ACTION OF THE CIT(A) IN DELETING THE ADDITION OF R S. 55,11,651/- MADE BY THE ASSESSING OFFICER ON ACCOUNT OF GENERAT ION OF WASTAGE / SCARP DURING THE MANUFACTURING PROCESS. THE ASSESSI NG OFFICER OBSERVED THAT IN THE LINE OF THE TRADE BUSINESS OF THE ASSESSEE, A LOT OF WASTAGE AND SCRAP IS GENERATED, WHEREAS THE ASSESSE E HAD SHOWN HIS WASTAGE AT A VARY LAW RATE OF 0.065%. HE, THEREFOR E, 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 R ESPECT EXPLAINED THE PROCESS, WHICH IS CARRIED OUT IN THE BUSINESS P ROCESS 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 MATER IAL CONSUMED, HOWEVER, THE SAID WASTAGE GENERATED DURING THE PROC ESS DID NOT CARRY ANY MARKETABLE VALUE. THAT DURING THE YEAR, THE VIS IBLE WASTAGE WHICH HAD SOME MARKETABLE VALUE, WAS ONLY 0.305% O F THE RAW MATERIAL AGAINST WHICH THE RECEIPT OF RS. 52,135/- WAS GENERATED AND THAT THE ASSESSEE HAD DULY ACCOUNTED FOR THE SAID A MOUNT 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 VAL UE OF THE WASTAGE DECLARED BY THE ASSESSEE. HE MADE THE ADDITION OF R S. 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 ADDITIO N PURELY ON ASSUMPTION AND ESTIMATION BASIS. THAT THE BOOKS OF ACCOUNT OF THE ASSESSEE WERE DULY AUDITED AND THE ASSESSING OFFI CER HAD NOT POINTED OUT ANY DEFECT IN THE SAME. THERE IS NO RAT IONALE OR BASIS FOR THE ASSESSING OFFICER FOR HOLDING THAT THE TOTAL WA STAGE / GENERATION WAS AT 7.5% OF THE TOTAL TURNOVER. THE LD. CIT(A) C ONSIDERING THE OVERALL FACTS AND CIRCUMSTANCES HELD THAT THE ADDIT ION MADE BY THE ASSESSING OFFICER WAS PURELY ON ASSUMPTION AND PRES UMPTION BASIS AND THE SAME WERE NOT SUSTAINABLE IN THE EYES OF LA W. WE DO NOT FIND ANY INFIRMITY IN THE ORDER OF THE CI T(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