A.C.I.T., CIRCLE -3, SRINAGAR V. M/S KHYBER INDUSTRIES PVT . LTD, SRINAGAR

ITA 646/ASR/2017

• Counselvise Citation: [2019] 115 COUNSELVISE.COM (IT) 8389 (ITAT-AMRITSAR)
• Duration Of Justice: 2 year(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 09-10-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 29-08-2019
• Assessment Year: 2014-2015
• Appeal Filed On: 09-10-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: AMAR PAL ME ENA LD
• Assessee Lawyers: P K MISHRA LD
• Keywords: Earning of tax free income; Notional interest; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUN AL AMRITSAR BENCH, AMRITSAR BEFORE SH. B.R. BASKARAN, ACCOUNTANT MEMBER AN D SH. N.K.CHOUDHRY, JUDICIAL MEMBER ITA NO.646(ASR)/2017 ASSESSMENT YEAR:2014-15 ASST. CIT, CIRCLE-3, SRINAGAR VS. M/S KHYBER INDUSTRIES PVT. LTD. KHAYAM BUILDING NOWPORA SRINAGAR [PAN:AAACK 7457J ] (APPELLANT) (RESPONDENT) APPELLANT BY : SH. AMAR PA L MEENA (LD. DR) RESPONDENT BY: SH. P. K. MISHRA (LD. CA ) DATE OF HEARING: 29.08.2019 DATE OF PRONOUNCEMENT: 09.10.2019 ORDER PER N.K. CHOUDHRY, JM: THE INSTANT APPEAL HAS BEEN PREFERRED BY THE REVENUE DEPARTMENT AGAINST THE ORDER DATED 29.06.2017 IMPUG NED HEREIN PASSED BY THE LD. CIT(A), J&K, JAMMU U/S. 250(6) OF IN COME TAX ACT, 1961 (HEREINAFTER CALLED AS THE ACT). 2. IN THIS CASE THE REVENUE DEPARTMENT HAS RAISED TWO GRO UNDS, ONE RELATES TO THE DELETION OF ADDITION OF RS.2,37,13 ,315/- ON ACCOUNT OF INTEREST FREE LOANS GIVEN TO SISTER CONCERNS BY THE ASSE SSEE, SECONDLY THE DELETION OF ADDITION OF RS.11,02,182/- MA DE BY THE ASSESSING OFFICER U/S 14A OF THE ACT. 3. LET US TO DECIDE THE APPEAL GROUND WISE . ITA N0.646/ASR/ 2017 (A. Y: 2014-15) ACIT VS. KHYBER INDUSTRIES PVT. LTD. SRINAGAR 2 3.1 BY WAY OF GROUND NO.1 THE REVENUE DEPARTMENT HAS RAISED THE ISSUE QUA DELETION OF ADDITION OF RS.2,37,13,315/- ON ACCOUNT OF INTEREST FREE LOANS GIVEN TO SISTER CONCERNS BY THE ASSESSEE . WE REALIZE THAT THE LD. CIT(A) WHILE DECIDING THE DISALL OWANCE OF RS.2,37,13,315/- U/S 36(1)(III) OF THE ACT, NOT ONLY R ESPECTFULLY FOLLOWED THE DECISION OF HONBLE PUNJAB & HARYANA HIGH C OURT IN THE CASE OF CIT, JALNADHAR-1 VS. MAX INDIA LTD. REPORTED AT [2017] 80 TAXMANN.COM 98 , BUT ALSO FOLLOWED THE DECISION OF THE APEX COURT IN THE CASE OF HERO CYCLES LTD. [2010] 379 ITR 347 AND MUNJAL SALES CORPORATION VS. CIT, LUDHIANA (CIVIL APPEAL NO.1378/ 2008 DATED 19 TH FEB., 2008) AND ALSO ANALYZED THE FACTS THAT THE ASSESSEE HAD TOTAL INTEREST FREE FUNDS AMOUNTING TO RS.58,77,69,077/- WHICH INCLUDES SHARE CAPITAL, RESERVES AND SURPLUS AND LOANS AND ADVANCE S (DEPOSITS), WHEREAS ADVANCE PAID TO THE SISTER CONCERN WAS ONLY RS.18,59,86,785/- AND FINALLY CONCLUDED THAT SINCE THE INTEREST FREE LOANS HAVE BEEN ADVANCED OUT OF SURPLUS FUNDS AVAILABLE WITH THE AS SESSEE, NO NOTIONAL INTEREST @ 12.75% WAS REQUIRED TO BE CHARGED, THUS, THE ADDITION MADE BY THE AO DESERVES TO BE DELETED . RECENTLY, THE HONBLE APEX COURT IN THE CASE OF CIT VS. RELIANCE INDUSTRIES LTD. [2019] 102 TAXMANN.COM 52 (SC) HAS AFFIRMED THE VIEW OF THE HIGH COURT THAT IF THE INTEREST FREE FUND S AVAILABLE TO THE ASSESSEE WERE SUFFICIENT TO MEET ITS INVESTMENT, THEN IT COU LD BE PRESUMED THAT THE INVESTMENT WERE MADE FROM THE INTER EST FREE FUNDS AVAILABLE WITH THE ASSESSEE. IN OUR CONSIDERED VIEW THE L D. CIT(A) FOLLOWED THE DICTUM OF THE HONBLE HIGH COURTS AND THE APEX COURT AND RIGHTLY DELETED THE ADDITION BY HOLDING THAT TH E INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE WERE MORE THAN THE ADVANCE P AID TO THE SISTER CONCERNS. HENCE, THE DECISION ON THE ISSUE QUA ADDITION OF ITA N0.646/ASR/ 2017 (A. Y: 2014-15) ACIT VS. KHYBER INDUSTRIES PVT. LTD. SRINAGAR 3 RS.2,37,13,315/- ON ACCOUNT OF INTEREST U/S 36(1)(III) O F THE ACT DOES NOT REQUIRE ANY INTERFERENCE. 3.2 GROUND NO.2 RELATES TO DELETION OF ADDITION OF RS.11,02,182/- MADE BY THE ASSESSING OFFICER U/S 14A OF THE IT ACT, 1961 IN VIEW OF CIRCULAR NO.5/2014 DATED 11.02.2014. WE HAVE GIVEN O UR THOUGHTFUL CONSIDERATION TO THE DETERMINATION QUA INSTANT ISSUE BY THE LD. CIT(A) WHO WHILE CONSIDERING VARIOUS JUDGMENTS PASSED BY THE VA RIOUS HIGH COURTS SPECIFICALLY CHEMINVEST LTD. VS. CIT [2015] 378 ITR 33 (DELHI) WHEREIN IT HAS BEEN HELD THAT SEC.14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVANT P REVIOUS YEAR. THE LD. CIT(A) CAME TO CONCLUSION THAT ISSUE OF APPLICATION OF SEC.14A OF THE ACT HAS ALREADY BEEN DECIDED AND NOW JUDICIA L POSITION IS SETTLED. THUS, NO FURTHER ADJUDICATION IS REQUIRED AS THE CA SE OF THE APPELLANT IS WELL COVERED UNDER THESE DECISIONS. THE ADDITION MA DE BY THE AO THEREFORE, IS DELETED . THE LD. CIT(A) BEFORE COMING TO THE CONCLUSION ALSO CONSIDERED THE SUBMISSIONS OF THE ASSESSEE BY OBSERVING T HAT AS ON 31 ST MARCH, 2014, THE ASSESSEE COMPANY TO THE EFFECT HA D INTEREST FREE FUNDS AMOUNTING TO RS.58,77,69,077/- AGAINST WHICH THE COMPANY HAS INVESTED RS.18,58,86,785/- IN SHARES IN GROUP COMPA NIES AND THUS THE COMPANY HAS NOT INVESTED INTEREST BEARING FUNDS IN THESE GROUP COMPANIES AND SUCH NO DISALLOWANCE IS CALLED FOR U/ S 14A R.W. RULE 8D . RECENTLY THE HONBLE APEX COURT IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX VS. G.V. K PROTECT & TECHNICAL SERVICES LTD. [2019] 106 TAXMANN.COM 181 (SC) AFFIRMED THE VIEW OF THE HONBLE HIGH COURT TO THE EFFECT THAT IN THE ABSENCE OF ANY EXEMPT INCOME, DISALLOWANCE WAS IMPERMISSIBLE . HENCE, WE DO NOT HAVE ANY HESITATION TO UPHELD THE CONCLUSION DRAWN BY THE LD. CI T(A) BY DELETING THE ADDITION OF RS.11,50,615/- ON THE GROUN D THAT THE ITA N0.646/ASR/ 2017 (A. Y: 2014-15) ACIT VS. KHYBER INDUSTRIES PVT. LTD. SRINAGAR 4 ASSESSEE DID NOT EARN ANY EXEMPT INCOME, HENCE, NO DISALLO WANCE IS CALLED FOR. 4. IN THE RESULT, THE APPEAL FILED BY THE REVENUE DEPA RTMENT STANDS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 09/1 0/2019. SD/- SD/- (B.R.BASKARAN) (N.K.CHOUDHRY) ACCOUNTANT MEMBER JU DICIAL MEMBER DATED:09/10/2019. /PK/ PS. COPY FORWARDED TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THEN CIT(APPEALS) 5. SR DR, I.T.A.T. AMRITSAR 6. GUARD FILE TRUE COPY BY ORDER