DCIT, C-I, Ludhiana V. M/s Rico Auto Industries Limited, Ludhiana

ITA 801/CHANDI/2018

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 9206 (ITAT-CHANDIGARH)
• Duration Of Justice: 6 month(s) 18 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 18-12-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2016-2017
• Appeal Filed On: 31-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: RENU AMITABH
• Assessee Lawyers: VIPIN GUPTA
• Keywords: Earning of tax free income; Rule 8D; Set aside
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, CHANDIGARH BE NCH B, CHANDIGARH , ! . .., # $, %& BEFORE: SH. SANJAY GARG, JM & DR. B.R.R. KUMAR, AM ITA NO. 801/CHD/2018 ASSESSMENT YEAR : 2016-17 THE DCIT CIRCLE-1, LUDHIANA M/S RICO AUTO INDUSTRIES LTD. B-26, FOCAL POINT, LUDHIANA PAN NO: AAACR8724R APPELLANT RESPONDENT !' ASSESSEE BY : SHRI. VIPIN GUPTA #!' REVENUE BY : SMT. RENU AMITABH $ %! & DATE OF HEARING : 23/10/2018 '()*! & DATE OF PRONOUNCEMENT : 18/12/2018 %'/ ORDER PER DR. B.R.R. KUMAR, A.M: THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AG AINST THE ORDER OF THE LD. CIT(A)-1, LUDHIANA DT. 23/03/2018. 2. IN THE PRESENT APPEAL REVENUE HAS RAISED THE FOL LOWING GROUNDS: 1. WHETHER UPON FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. CIT(A) WAS JUSTIFIED IN LAW AND ON FACTS IN DELETING THE ADDIT ION MADE ON ACCOUNT OF DISALLOWANCE UNDER SECTION 14A OF THE INCOME TAX AC T, 1961 ? 2. WHETHER UPON FACTS AND CIRCUMSTANCES OF THE CASE, T HE LD. CIT(A) WAS JUSTIFIED IN LAW AND ON FACTS IN DELETING THE ADDIT ION MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) O F THE INCOME TAX ACT, 1961 ON CAPITAL ADVANCES ? 3. THAT THE ORDER OF THE LD. CIT(A) BE SET ASIDE AND T HAT OF THE ASSESSING OFFICER BE RESTORED. 3. BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A RESIDENT COMPANY ENGAGED IN THE MANUFACTURING AND SALE OF AUTO COMPO NENTS AND ENGINE PARTS. FOR THE YEAR UNDER CONSIDERATION I.E. A.Y.2017-18, THE ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME. HOWEVER THE ASSESSING OF FICER HAVING OBSERVED 2 THAT THE ASSESSEE HAD MADE INVESTMENTS TO THE TUNE OF RS. 136,87,41,450/- IN THE EQUITY OF DOMESTIC GROUP COMPANIES AND THAT NO SEPA RATE ACCOUNT WAS BEING MAINTAINED BY THE ASSESSEE INVOKED THE PROVISIONS O F SECTION 14A READ WITH RULE 8D, THE AO COMPUTED THE DISALLOWANCE AT RS. 1,11,87 ,413/- AND ADDED BACK THE SAME TO THE RETURNED INCOME. 4. THE LD. CIT(A) DELETED THE ADDITION BY HOLDING A S UNDER: IT IS AN ADMITTED FACT THAT NO EXEMPT INCOME WAS RE CEIVED/EARNED BY THE COMPANY DURING THE YEAR UNDER CONSIDERATION. THOUGH THE CBDT'S CIRCULAR DATED 11TH OF FEBRUARY, 2014 [NO. 5/2014; F NO. 225/182/2 013-ITA.II ] HAS CLARIFIED THAT RULE 8D READ WITH SECTION 14 A SHALL BE APPLICABLE FOR DISALLOWANCE OF THE EXPENDITURE EVEN WHERE TAX PAYER IN A PARTICULAR YE AR HAS NOT EARNED ANY EXEMPT INCOME, THERE ARE MANY DECISIONS OF VARIOUS HIGH COURTS HOLDING CONTRARY VIEW. THE JURISDICTIONAL HIGH COURT OF PUNJAB AND H ARYANA IN THE CASE OF CIT, FARIDABAD VS. LAKHANI MARKETING LNC[2014] 49 TAXMAN N.COM 257, VIDE ORDER DATED 2 ND OF APRIL, 2014 HAS CATEGORICALLY HELD THAT UNLESS AND UNTIL THERE IS A RECEIPT OF EXEMPTED INCOME FOR THE CONCERNED ASSESS MENT YEARS, SECTION 14A CANNOT BE INVOKED. IN DOING SO, THE HON'BLE HIGH CO URT MADE A REFERENCE TO TWO EARLIER DECISIONS OF THE SAME HIGH COURT: CIT VS. H ERO CYCLES LTD[2010] 323 ITR 518 AND CIT VS. WINSOME INDUSTRIES LTD.[2009] 319 ITR 2 04, TO HOLD THAT SECTION 14 A CANNOT BE INVOKED WHEN NO EXEMPT INCOME WAS EARNED. SUBSEQUENTLY, ON 5 TH OF SEPTEMBER, 2014, THE HON'BLE DELHI HIGH COURT FOLLO WED THE AFORESAID DECISION OF THE PUNJAB AND HARYANA HIGH COURT IN THE CASE OF CI T VS. HOLCIM INDIA (P.) LTD.[2015] 57 TAXMANN.COM 28. 5. SINCE THE DECISION OF THE LD. CIT(A) IS BASED ON THE DECISIONS OF THE HONBLE JURISDICTIONAL HIGH COURT WHICH IS SQUARELY APPLICABLE TO THE FACTS OF THE INSTANT CASE, WE HEREBY CONFIRM THE DECISION ACCORD ED BY THE LD. CIT(A). 6. REGARDING THE GROUND NO. 2 OF THE ADDITION MADE ON ACCOUNT OF DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III), THE FACTS ON RECORD REVEAL THAT THE ASSESSEE HAS ADVANCED FOR PURCHASE OF LAND ETC. AN AMOUNT OF RS. 11.77 CRORES AGAINST THE AVAILABILITY OF RS. 470 CRORES O F INTEREST FREE OWN FUNDS. KEEPING IN VIEW THE JUDGMENTS OF JURISDICTIONAL HIG H COURT IN THE CASE OF BRIGHT ENTERPRISES PVT. LTD. IN ITA NO. 224/2013 DT. 24/07 /2015, CIT VS. KAPSONS ASSOCIATES 3 INVESTMENTS PVT. LTD. 381 ITR 204 (P&H) AND THE OR DER PASSED BY THIS TRIBUNAL IN THE ASSESSEES OWN CASE FOR THE A.Y. 2010-11 IN ITA NO. 1093/CHD/2014, IT IS HEREBY HELD THAT NO DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) IS CALLED FOR IN THE CASE OF THE ASSESSEE. THE ORDER OF THE LD. C IT(A) IS HEREBY CONFIRMED. 7. AS A RESULT, APPEAL OF THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- SD/- . .., # $, (SANJAY GARG ) ( DR. B.R.R. KUMAR) / JUDICIAL MEMBER %& / ACCOUNTANT MEMBER AG DATE: 18/12/2018 (+! ,-.- COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. $ / CIT 4. $ / 01 THE CIT(A) 5. -2 45&456789 DR, ITAT, CHANDIGARH 6. 8:% GUARD FILE