The Deputy Commissioner of Income Tax, Circle-1, Kakinada V. East Coast Imports & Exports, Kakinada

ITA 79/VIZ/2021

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5708 (ITAT-VISAKHAPATNAM)
• Duration Of Justice: 5 month(s) 11 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-09-2021
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Assessment Year: 2012-2013
• Appeal Filed On: 05-04-2021
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: V SRINIVASA RAO
• Keywords: Earning of tax free income; Rule 8D
• Section: 14A; 201; 13

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, VISAKHAPATNAM BENCH, VISAKHAPATNAM (THROUGH WEB - BASED VIDEO CONFERENCING PLATFORM) , . . , BEFORE SHRI N.K.CHOUDHRY, HONBLE JUDICIAL MEMBER & SHRI D.S. SUNDER SINGH, HONBLE ACCOUNTANT MEMBER ./ I.T. A.NO. 79 /VIZ/20 21 ( / A SSESSMENT Y EAR : 201 2 - 13 ) DY.COMMISSIONER OF INCOME TAX CIRCLE - 1 KAKINADA VS. M/S EAST COAST IMPORTS & EXPORTS D.NO.67 - 15 - 32, OFFICE NO.1 NAGAMALLITHOTA JUNCTION KAKINADA [PAN : AACFE2078A] ( / APPELLANT) ( / RESPONDENT) CROSS OBJECTION NO.49/VIZ/2021 (ARISING OUT OF I.T.A. NO.79/VIZ/2021) M/S EAST COAST IMPORTS & EXPORTS D.NO.67 - 15 - 32, OFFICE NO.1 NAGAMALLITHOTA JUNCTION KAKINADA [PAN : AACFE2078A] VS. DY.COMMISSIONER OF INCOME TAX CIRCLE - 1 KAKINADA ( / APPELLANT) ( / RESPONDENT) /REVENUE BY : SHRI V.SRINIVASA RAO, DR / ASSESSEE BY : SHRI G.V.N.HARI, AR / DATE OF HEARING : 08.09.2021 / DATE OF PRONOUNCEMENT : 17 .09.2021 / O R D E R P ER BENCH : THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) [CIT(A)] - 2, VISAKHAPATNAM IN ITA 2 ITA NO. 79/VIZ/2021 AND CO 49/VIZ/2021 , A.Y.20 1 2 - 13 M/S EAST COAST IMPORTS & EXPORTS, KAKINADA NO.10310/2015 - 16/ACIT,C - 1, KKD/VSP/2019 - 20 DATED 28.01.2020 FOR THE ASSESSMENT YEAR (A.Y.) 2012 - 13 AND THE CROSS OBJECTIONS ARE FILED BY THE ASSESSEE. 2. GROUND NO. (I), (VI) AND (VII) ARE GENERAL IN NATURE WHICH DOES NOT REQUIRE SPECIFIC ADJUDICATION. 3. GROUND NO. (II) AND (III) ARE RELATED TO THE DISALLOWANCE OF INTEREST FOR DIVERSION OF INTEREST BEARING FUNDS FOR NON - BUS INESS PURPOSES. DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING OFFICER(AO) FOUND THAT THE ASSESSEE HAS ADVANCED THE LOANS AND ADVANCES TO THE TUNE OF RS.7,16,46,145/ - UNDER THE HEAD LOANS & ADVANCES TO THE FOLLOWING PERSONS : . THE AO FURTHER OBSERVED THAT A SUM OF RS.3,95,00,000/ - WAS ADVANCED TO EMGEEK LOGISTICS PVT LTD. ON 18.04.2011 FROM COSMOS BANK A/C NO.0171001012698 (CURRENT ACCOUNT) WHICH IS INTEREST BEARING S.NO. DEBIT 1. AISWARYA INFRASTRUCTURE & SERVICES 8401630 2. ANDHRA PRABHA PUBLICATIONS 1001650 3. EAST COAST GASES 818620 4. EMGEEK LOGISTICS PVT. LTD. 28067360 5. EMMEL INFRA PROPERTIES PVT. LTD. 100000 6. EMMEL INFRASTRUCTURE & SERVICES 207865502 7. EMMEL INFRASTRUCTURE PVT. LTD. 3492000 8. HI LIFE TOWERS 680665 9. VIJAY ASSOCIATES 8353475 3 ITA NO. 79/VIZ/2021 AND CO 49/VIZ/2021 , A.Y.20 1 2 - 13 M/S EAST COAST IMPORTS & EXPORTS, KAKINADA ACCOUNT. THE AO ALSO FOUND THAT THE ASSESSEE HAS NOT OFFERED I NTEREST INCOME REPRESENTING THE LOANS AND ADVANCES GIVEN TO VARIOUS PERSONS/ ENTITIES MENTIONED ABOVE. THEREFORE, THE AO ISSUED SHOW CAUSE NOTICE CALLING FOR EXPLANATION OF THE ASSESSEE AS TO WHY THE INTEREST REPRESENTING THE FUNDS DIVERTED FOR NON - BUSINE SS PURPOSES SHOULD NOT BE DISALLOWED. IN RESPONSE TO THE NOTICE, THE ASSESSEE FILED EXPLANATION STATING THAT IT HAS CAPITAL TO THE EXTENT OF 4.80 CRORES AND MADE THE TURNOVER OF 25.87 CRORES OUT OF WHICH INTEREST BEARING HEADS WERE RS.4.81 CRORES AND TOTA L PAYMENTS WERE RS.23.67 CRORES. THUS, ARGUED THAT THERE IS NO CASE FOR DISALLOWANCE OF INTEREST, HENCE REQUESTED TO DROP THE PROPOSAL FOR DISALLOWANCE OF INTEREST. HOWEVER, NOT BEING SATISFIED WITH THE EXPLANATION OF THE ASSESSEE, THE AO HELD THAT THE E NTIRE INVESTMENT MADE AMOUNTING TO RS.7.16 CRORES UNDER LOANS AND ADVANCES TO RELATED PARTIES ON WHICH THE ASSESSEE DID NOT GET ANY INTEREST INCOME REQUIRED TO DISALLOWED AND ACCORDINGLY, ESTIMATED THE DISALLOWANCE @12.5% PER ANNUM ON OUTSTANDING BALANCES AND DISALLOWED THE INTEREST OF RS.1,46,28,960/ - AND ADDED TO THE TOTAL INCOME. 4. AGAINST WHICH THE ASSESSEE WENT ON APPEAL BEFORE THE CIT(A) AND THE LD.CIT(A) OBSERVED THAT OUT OF TOTAL INTEREST DEBITED TO PROFIT & LOSS ACCOUNT AMOUNTING TO RS.3,26,53, 868/ - , THE SUM OF RS.2,59,86,116/ - WAS INTEREST CLAIMED UNDER THE HEAD INCOME FROM HOUSE PROPERTY. ONLY THE 4 ITA NO. 79/VIZ/2021 AND CO 49/VIZ/2021 , A.Y.20 1 2 - 13 M/S EAST COAST IMPORTS & EXPORTS, KAKINADA BALANCE AMOUNT WAS CLAIMED UNDER THE HEAD INCOME FROM BUSINESS . OUT OF THE BALANCE INTEREST OF RS.66,67,752/ - , THE SUM OF RS.21,62,408/ - WAS P AID ON PARTNERS CAPITAL ACCOUNT AND A SUM OF RS.20,46,346/ - WAS THE INTEREST RELATING TO LOAN UTILISED FOR ACQUIRING WATER PLANT. THUS THE BALANCE AMOUNT OF RS.24,58,998/ - WAS HELD TO BE RELATABLE TO THE DIVERSION OF INTEREST BEARING FUNDS TO NON - BUSINES S PERSONS AND ACCORDINGLY, RESTRICTED THE DISALLOWANCE TO THE EXTENT OF RS.24,58,998/ - AND PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. 5. AGAINST WHICH THE DEPARTMENT IS IN APPEAL BEFORE THIS TRIBUNAL. DURING THE APPEAL HEARING, THE LD.DR SUPPORTED THE OR DER OF THE AO AND THE LD.AR RELIED ON THE ORDER OF THE LD.CIT(A). 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THE LD.CIT(A) HAS GIVEN THE DETAILS OF TOTAL INTEREST DEBITED TO THE PROFIT & LOSS ACCOUNT UNDER VARIOUS HEADS A S FOLLOWS : I ) INTEREST ON LOANS - RS.2,59,86,116 II ) INTEREST ON CC LOAN - RS.24,58,998 III ) INTEREST ON CAPITAL - RS.21,62,408 IV ) INTEREST ON WATER PLANT LOAN - RS.20,46,346 TOTAL - RS.3,01,94,870/ - 5 ITA NO. 79/VIZ/2021 AND CO 49/VIZ/2021 , A.Y.20 1 2 - 13 M/S EAST COAST IMPORTS & EXPORTS, KAKINADA THE AO DISALLOWED THE INTEREST BUT NOT IDENTIFIED EACH LOAN AND DATE OF ADVANCE WITH INTEREST BEARING FUNDS. T HE ASSESSEE IS HAVING CAPITAL ACCOUNT BALANCE TO THE EXTENT OF RS.4,80,00,000/ - AND SUNDRY CREDITORS TO THE EXTENT OF RS.2,27,00,000/ - WHICH ARE NON INTEREST BEARING AND THE ASSES SEE IS PERMITTED TO USE THE SUM FOR PURPOSE OF BUSINESS. THE ASSESSEE ALSO EXPLAINED THAT THE SUM OF RS.3.95 CRORES GIVEN TO EMGEEK LOGISTICS PVT.LTD CREDITED TO COSMOS BANK ACCOUNT FOR BUSINESS PURPOSES . FURTHER THE ASSESSEE CONTENDS THAT ALL THE LOANS AND ADVANCES UTILIZED FOR BUSINESS PURPOSES AND THE DEPARTMENT DID NOT CONTROVERT THE SUBMISSION OF THE ASSESSEE. THE CIT(A) HAS GIVEN A FINDING THAT DISALLOWANCE OF INTEREST IS ONLY TO THE EXTENT RS.24,58,998 / - ON FACTS WHICH WAS RELATABLE TO DIVERSION O F FUNDS . DURING THE APPEAL HEARING, NO OTHER MATERIAL WAS PLACED BY THE LD.DR TO CONTROVERT THE FINDING GIVEN BY THE LD.CIT(A). THEREFORE, TAKING INTO CONSIDERATION OF THE EXPLANATION OFFERED BY THE ASSESSEE AND THE CLEAR FINDING GIVEN BY THE LD.CIT(A), W E FIND NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A) AND THE SAME IS UPHELD. 7. GROUND NO.(IV)AND (V) ARE RELATED TO THE DISALLOWANCE MADE BY THE AO U/S 14A R.W.S. 8D OF THE IT RULES RELATING TO EXEMPT INCOME. THE AO FOUND THAT THE ASSESSEE MADE IN VESTMENTS IN VARIOUS COMPANIES TO THE EXTENT OF RS.4,83,42,600/ - WHICH YIELD DIVIDEND INCOME AND THE SAME IS 6 ITA NO. 79/VIZ/2021 AND CO 49/VIZ/2021 , A.Y.20 1 2 - 13 M/S EAST COAST IMPORTS & EXPORTS, KAKINADA EXEMPT FROM TAXATION UNDER SECTION 14A OF THE ACT. SINCE , THE ASSESSEE HAS NOT MADE ANY DISALLOWANCE RELATABLE TO EXEMPT INCOME, THE AO INVOKED RU LE 8D OF IT RULES AND MADE THE DISALLOWANCE OF RS.43,81,908/ - U/S 14A R.W.RULE 8D OF IT RULES. ON APPEAL, THE LD.CIT(A) OBSERVED THAT THE ASSESSEE DID NOT DERIVE ANY EXEMPT INCOME U/S 14A OF THE ACT. THEREFORE, FOLLOWING THE DECISION OF THIS TRIBUNAL IN THE CASE OF D.VEERABHADRA REDDY (HUF) IN I.T.A. 263/VIZ/2014 DATED 23.06.2017, HELD THAT IN THE ABSENCE OF EXEMPT INCOME, THERE IS NO CASE FOR MAKING THE DISALLOWANCE U/S 14A OF THE ACT AND A CCORDINGLY DELETED THE ADDITION AND ALLOWED THE APPEAL OF THE ASS ESSEE. 8. AGAINST WHICH THE DEPARTMENT IS IN APPEAL BEFORE THIS TRIBUNAL. 9. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL PLACED ON RECORD. THERE IS NO DISPUTE THAT THE ASSESSEE DID NOT EARN ANY EXEMPT INCOME DURING THE YEAR UNDER CONSIDERATION. THIS TRIBUNAL HAS TAKEN CONSISTENT VIEW THAT IN THE ABSENCE OF EXEMPT INCOME, THERE IS NO CASE FOR MAKING DISALLOWANCE U/S 14A OF THE ACT. TH IS TRIBUNAL HAS FOLLOWED THE DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF REDINGTON INDIA LTD. VS. ADDL.COMMISSIONER OF INCOME TAX 77 TAXMANN.COM 257 AND THE DECISION OF HONBLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS.CIT, 61 TAXMANN.COM 118 AND THE DECISION OF HONBLE GUJARAT HIGH COURT IN THE 7 ITA NO. 79/VIZ/2021 AND CO 49/VIZ/2021 , A.Y.20 1 2 - 13 M/S EAST COAST IMPORTS & EXPORTS, KAKINADA CASE OF PR.CIT VS. SINTEX INDUSTRIES LT D., 82 TAXMANN.COM 171. SINCE THE LD.CIT(A) HAS FOLLOWED THE ORDER OF THIS TRIBUNAL AND ALLOWED THE APPEAL OF THE ASSESSEE, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF THE LD.CIT(A) AND THE SAME IS UPHELD. T HE APPEAL OF THE REVENUE IS DISMISSED. 10 . THE ASSESSEE FILED CROSS OBJECTIONS AND DURING THE APPEAL HEARING, THE LD.AR WITHDRAWN THE CROSS OBJECTION, THEREFORE, THE CROSS OBJECTIONS FILED BY THE ASSESSEE IS DISMISSED AS WITHDRAWN. 11. IN THE RESULT, APPEAL OF THE REVENUE AS WELL AS THE CROSS OB JECTIONS OF THE ASSESSEE ARE DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON 17 TH SEPTEMBER, 2021. SD/ - SD/ - ( ) ( . . ) (N.K.CHOUDHRY) (D.S.SUNDER SINGH) / JUDICIAL MEMBER / ACCOUNTANT MEMBER DATED : 17 .0 9 .2021 L.RAMA, SPS 8 ITA NO. 79/VIZ/2021 AND CO 49/VIZ/2021 , A.Y.20 1 2 - 13 M/S EAST COAST IMPORTS & EXPORTS, KAKINADA / COPY OF THE ORDER FORWARDED TO : - 1 . / THE REVENUE DY.COMMISSIONER OF INCOME TAX , CIRCLE - 1 , KAKINADA 2 . / THE ASSESSEE - M/S EAST COAST IMPORTS & EXPORTS, D.NO.67 - 15 - 32, OFFICE NO.1, NAGAMALLITHOTA JUNCTION, KAKINADA 3. THE PR.COMMISSIONER OF INCOME TAX - 2, VISAKHAPATNAM 4. THE COMMISSIONER OF INCOME TAX (APPEALS) - 2, VISAKHAPATNAM 5 . , , / DR, ITAT, VISAKHAPATNAM 6 . / GUARD FILE / BY ORDER // TRUE COPY // SR. PRIVATE SECRETARY ITAT, VISAKHAPATNAM