Lally Automobiles Pvt. Ltd., New Delhi V. ITO, New Delhi

ITA 6705/DEL/2014

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5542 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-04-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: D
• Assessment Year: 2010-2011
• Appeal Filed On: 09-12-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D NEW DELHI BEFORE SHRI J. S. REDDY, ACCOUNTANT MEMBER & SHRI AMIT SHUKLA, JUDICIAL MEMBER I.T.AS. NO.6705/DEL/2014 & 290/DEL/2016 ASSESSMENT YEARS: 2010-11 & 2011-12 LALLY AUTOMOBILES PVT. LTD., D-196, OKHLA INDUSTRIAL AREA, PHASE-I, NEW DELHI VS. ITO, WARD-4(3), C.R. BUILDING, NEW DELHI. TAN/PAN: AABCL 1446K (APPELLANT) (RESPONDENT) APPELLANT BY: SHRI SOMIL AGGARWAL, ADV. RESPONDENT BY: SHRI AMIT JAIN, SR.D.R. DATE OF HEARING: 02 04 2018 DATE OF PRONOUNCEMENT: 02 04 2018 O R D E R PER AMIT SHUKLA, J.M.: THE AFORESAID APPEALS HAVE BEEN FILED BY THE ASSESS EE AGAINST SEPARATE IMPUGNED ORDER DATED 16.09.2014, P ASSED BY LD. CIT(A)-VIII, NEW DELHI AND ORDER DATED 14.12 .2015 PASSED BY LD. CIT(A)-XVII, NEW DELHI FOR THE QUANTU M OF ASSESSMENT PASSED U/S.143(3) FOR THE ASSESSMENT YEA RS 2010-11 AND 2011-12. 2. IN BOTH THE YEARS, THE ASSESSEE HAS CHALLENGED T HE DISALLOWANCE MADE U/S.14A BY THE ASSESSING OFFICER. IN THE ASSESSMENT YEAR 2010-11, ASSESSEE IS AGGRIEVED BY DISALLOWANCE OF RS.1,29,36,823/- AND FOR ASSESSMENT YEAR I.T.AS. NO.6705/DEL/2014 & 290/DEL/2016 2 2011-12, DISALLOWANCE OF RS.1,69,46,734/- HAS BEEN CONTESTED. 3. AT THE OUTSET, LD. COUNSEL FOR THE ASSESSEE, MR. SOMIL AGGARWAL, ADVOCATE SUBMITTED THAT IN BOTH THE YEARS , ASSESSEE DID NOT EARN ANY DIVIDEND INCOME, AND THER EFORE, IN VIEW OF THE DECISION OF THE HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT, REPORTED IN 378 ITR 33 , NO DISALLOWANCE U/S.14A CAN BE MADE. 4. ON THE OTHER HAND, LEARNED DR SUBMITTED THAT ASS ESSEE HAS MADE INVESTMENTS IN SUBSIDIARY COMPANIES WHICH WERE CAPABLE OF EARNING DIVIDEND INCOME AND EXPENDITURE HAVE BEEN DEBITED IN THE PROFIT & LOSS ACCOUNT, THEREFOR E, DISALLOWANCE U/S.14A HAS TO BE MADE. THUS, HE STRON GLY RELIED UPON THE ORDER OF THE LD. CIT (A). 5. AFTER CONSIDERING THE AFORESAID SUBMISSIONS AND THE FACTS OF THE CASE, WE FIND THAT ASSESSEE-COMPANY IS ENGAGED IN THE BUSINESS OF TRADING AND SERVICING OF AUTOMOBILE . THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT ASSESSEE HAD MADE INVESTMENT IN SHARES, AND THEREFORE, DISALLOWANCE U/S.14A SHOULD HAVE BEEN MADE BY THE ASSESSING OFFICER. IN RESPONSE TO THE SHOW CAUSE NOTICE, ASSESSEE HAD SUBMITTED THAT, FIRSTLY , NO EXPENDITURE HAS BEEN INCURRED FOR MAKING THE INVEST MENT AND NO EXEMPT INCOME HAS BEEN EARNED BY THE ASSESSEE DU RING THE RELEVANT YEARS; SECONDLY , NO FRESH INVESTMENT WAS MADE BY THE ASSESSEE-COMPANY IN ANY OF THE SHARES DURING THESE YEARS; AND LASTLY , ASSESSEE HAS TAKEN TERM LOANS AND CC I.T.AS. NO.6705/DEL/2014 & 290/DEL/2016 3 LOANS AGAINST ASSETS WHICH HAS BEEN UTILIZED PURELY FOR THE PURPOSE OF INTEREST, AND THEREFORE, NO INTEREST SHO ULD BE DISALLOWED. HOWEVER, THE LEARNED ASSESSING OFFICER AFTER APPLYING RULE 8D DISALLOWED SUM OF RS.1,32,06,917/- IN THE ASSESSMENT YEAR 2010-11 AND RS.1,69,46,734/- IN TH E ASSESSMENT YEAR 2011-12. LD. CIT (A) DESPITE NOTIN G THE FACT THAT THERE WAS NO EXEMPT INCOME, UPHELD THE SAID DISALLOWANCE AND OBSERVED THAT ASSESSEE HAS INVESTE D RS.11,38,58,260/- IN THE SUBSIDIARY COMPANY M/S. AM TRAC AUTOMOTIVES INDIA PVT. LTD. AND AT THE SAME TIME IT HAS PAID INTEREST ON UNSECURED LOANS, AND THEREFORE, ONCE IN VESTMENT IS REFLECTED IN THE BALANCE SHEET IT CANNOT BE RULE D OUT THAT IT HAS ALSO MADE OUT OF UNSECURED LOANS. HE FURTHER RE DUCED THE DISALLOWANCE TO RS.1,29,36,823/- IN THE ASSESSMENT YEAR 2010-11 AND ENTIRE DISALLOWANCE FOR THE ASSESSMENT YEAR 2011-12. DESPITE THE FACT THAT BOTH THE AUTHORITIES HAVE NOTED THAT NO EXEMPT INCOME HAS BEEN EARNED BY THE ASSESS EE DURING THE RELEVANT ASSESSMENT YEARS, HAVE PROCEEDE D TO MAKE THE DISALLOWANCE WHICH NOW IN VIEW OF THE JUDG MENT OF HON'BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CH EMINVEST LTD. (SUPRA) CANNOT BE MADE. THE HON'BLE HIGH COURT OBSERVED THAT THERE HAS TO BE ACTUAL RECEIPT OF INC OME WHICH IS NOT INCLUDED IN THE TOTAL INCOME DURING THE RELE VANT PREVIOUS YEAR FOR TRIGGERING THE DISALLOWANCE OF AN Y EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME I.E., SECTION 14A WOULD NOT APPLY IF NO EXEMPT INCOME WAS RECEIVED OR RECEIVABLE DURING THE RELEVANT PREVIOUS YEAR. THUS, RESPECTFULLY FOLLOWING THE RATIO AND PRINCIPLE LAID DOWN BY THE HON'BLE HIGH COURT, WE HOLD THAT NO DISALLOWANCE U/ S.14A I.T.AS. NO.6705/DEL/2014 & 290/DEL/2016 4 CAN BE MADE IN ABSENCE OF ANY EXEMPT INCOME RECEIVE D OR RECEIVABLE TO THE ASSESSEE DURING THE RELEVANT PREV IOUS YEARS. HENCE, THE SAME IS DIRECTED TO BE DELETED. 6. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALL OWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND APRIL, 2018. SD/- SD/- [J.S. REDDY] [AMIT SHUKLA] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED: 2 ND APRIL, 2018 PKK: COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT(A) 4. CIT 5. DR ASSISTANT REGISTRAR