M/s. Laxmi India Finleasecap Pvt. Ltd., , Kolkata V. Principal CIT - 1, Kolkata , Kolkata

ITA 940/KOL/2018

• Counselvise Citation: [2021] 109 COUNSELVISE.COM (IT) 7296 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 8 month(s) 14 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-01-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 11-01-2021
• Assessment Year: 2013-2014
• Appeal Filed On: 08-05-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: MRS DEVI SHARON SINGH
• Assessee Lawyers: MIRAJ D. SHAH
• Keywords: Earning of tax free income; Notional interest; Set aside
• Section: 14A; 263

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL KOLKATA BENCH C KOLKATA BEFORE SHRI J.SUDHAKAR REDDY, ACCOUNTANT MEMBER AND SHRI SANJAY GARG, JUDICIAL MEMBER ITA NO.940/KOL/2018 ASSESSMENT YEAR: 2013-14 M/S LAXMI INDIA FINLEASECAP PVT. LTD., KOLKATA PAN NO. AAACL 2151 N / V/S . PRINCIPAL COMMISSIONER OF INCOME TAX-1, KOLKATA /APPELLANT .. /RESPONDENT HEARING THROUGH VIDEO CONFERENCING /BY APPELLANT SHRI MIRAJ D SHAH, ADVOCATE /BY RESPONDENT MRS. DEVI SHARON SINGH, CIT-DR /DATE OF HEARING 11-01-2021 /DATE OF PRONOUNCEMENT 22-01-2021 /O R D E R PER SANJAY GARG, JUDICIAL MEMBER:- THE PRESENT APPEAL HAS BEEN PREFERRED BY THE ASSES SEE AGAINST THE ORDER DATED 22.03.2018 OF THE PRINCIPAL COMMISSIONER OF INCOME TAX-1, KOLKATAS [HEREINAFTER REFERRED TO AS PCIT]. THE ASSESSEE IN THIS APPEAL HAS AGITATED THE ACTION OF THE LD. PCIT IN INVOKING THE REVISION JURISDICTION U/S 263 OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT). 2. THE FACTS OF THE CASE ARE THAT THE ASSESSING OFF ICER DURING THE ASSESSMENT PROCEEDINGS NOTED THAT FOR THE YEAR UNDER CONSIDERA TION, THE ASSESSEE HAD PAID AN AMOUNT OF 5,38,35,964 AS INTEREST ON UNSECURED LOAN WHICH WAS CLAIMED AS INTEREST ITA NO.940/KOL/2018 ASSESSMENT YEAR 2 013-14 M/S LAXMI INDIA FINLEASECAP PVT. LTD. VS PCIT -1 KOL. PAGE 2 EXPENDITURE FOR BUSINESS PURPOSES. HOWEVER, THE ASS ESSING OFFICER FOUND THAT THE ASSESSEE DURING THE YEAR HAD MADE INTEREST FREE CAP ITAL ADVANCES OF 2,53,82,976/- ALSO. THE ASSESSING OFFICER NOTICED THAT THE AFORES AID INTEREST FREE ADVANCES WERE MADE OUT OF THE OWN FUNDS AS WELL AS INTEREST BEARI NG BORROWED FUNDS. THE ASSESSING OFFICER, INVOKING THE PROVISION OF SEC.36(1)(III) O F THE ACT, CALCULATED THE PROPORTIONAL NOTIONAL INTEREST IN RELATION TO THE INTEREST FREE ADVANCES AND DISALLOWED THE SAME OUT OF THE INTEREST EXPENDITURE CLAIMED BY THE ASSESSEE . HE FOR THE PURPOSES OF CALCULATION THE PROPORTIONATE DISALLOWANCE IN THIS RESPECT APPL IED THE FORMULA AS UNDER:- INTEREST X CAPITAL ADVANCE / AVERAGE ASSETS AND ACCORDINGLY CALCULATED THE DISALLOWA NCE AT RS.2099497/- HOWEVER, THE LD. PCIT NOTED THAT THE ASSESSING OFFI CER HAD NOT PROPERLY CALCULATED THE DISALLOWANCE AND THAT THE SAME SHOULD HAVE BEEN CALCULATED IN THE FOLLOWING MANNER:- INTEREST X CAPITAL ADVANCE AVERAGE LONG- TERM BORROWING THE LD. PCIT ACCORDINGLY CALCULATED THE DISALLOWANC E AT 24,62,692/-. HE, THEREFORE HELD THAT THE ORDER OF THE ASSESSING OFFICER IN THI S RESPECT WAS ERRONEOUS AND PREJUDICIAL TO THE INTEREST OF THE REVENUE BECAUSE OF THE SHORT DISALLOWANCE OF 3,63,195/-. THE LD. PCIT FURTHER FOUND THAT THE ASS ESSEE-COMPANY DURING THE YEAR HAD MADE INVESTMENT IN SHARES, THE DIVIDEND INCOME FROM WHICH WOULD HAVE BEEN EXEMPT FROM TAXATION. HE NOTED THAT THE ASSESSING O FFICER, HOWEVER, HAD NOT MADE ANY DISALLOWANCE U/S 14A OF THE ACT IN RESPECT OF E XPENDITURE INCURRED FOR EARNING OF SUCH TAX EXEMPT INCOME. THE LD. PCIT, THEREFORE IN EXERCISE OF HIS REVISION JURISDICTION U/S 263 OF THE ACT, SET ASIDE THE ORDE R OF THE ASSESSING OFFICER AND RESTORE THE MATTER TO THE FILE OF THE ASSESSING OFFICER WIT H A DIRECTION TO PASS A FRESH ASSESSMENT ORDER IN THE LIGHT OF OBSERVATION MADE B Y HIM. 3. BEING AGGRIEVED BY THE SAID IMPUGNED ORDER OF TH E LD. PCIT THE ASSESSEE PREFERRED BEFORE US. ITA NO.940/KOL/2018 ASSESSMENT YEAR 2 013-14 M/S LAXMI INDIA FINLEASECAP PVT. LTD. VS PCIT -1 KOL. PAGE 3 4. WE HAVE HEARD THE RIVAL CONTENTIONS AND ALSO GON E THROUGH THE RECORD. LD. COUNSEL FOR THE ASSESSEE HAS SUBMITTED THAT THE ADV ANCES WERE MADE FROM THE COMMON POOL. THAT THE INTEREST FREE FUNDS AVAILABLE WITH T HE ASSESSEE FOR THE YEAR UNDER CONSIDERATION IN THE FORM OF CAPITAL AND RESERVES W ERE AT 14.56 CRORES WHEREAS THE ASSESSEE HAD MADE INTEREST FREE CAPITAL ADVANCE OF 2.05 CRORES ONLY, WHICH WERE MUCH BELOW THAN THE INTEREST FREE / OWN FUNDS AVAIL ABLE WITH THE ASSESSEE. LD. COUNSEL FOR THE ASSESSEE WHILE PLACING RELIANCE ON THE DECI SION OF THE HON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES (P) LTD. VS. COMMISSIONER OF INCOME TAX 379 ITR 347 (SC) HAS SUBMITTED THAT IT HAS BEEN HELD BY THE HON'BLE APEX COURT OF THE COUNTRY THAT WHERE THE INVESTMENTS HAVE BEEN MADE FROM THE COMMON POOL OF FUNDS AND IN CASE THE ASSESSEE HAS SUFFICIENT OWN / INTEREST FREE FUNDS A VAILING WITH HIM TO MEET THE INVESTMENT MADE, THEN IN THAT EVENT, PRESUMPTION WO ULD BE THAT THE INVESTMENT HAS BEEN MADE OUT OF OWN / INTEREST FREE FUNDS AVAILABL E WITH THE ASSESSEE. THAT IN THAT EVENT NO DISALLOWANCE U/S 36(1)(III) WOULD BE WARRA NTED. LD. COUNSEL FOR THE ASSESSEE IN THIS RESPECT HAS ALSO PLACED RELIANCE ON VARIOUS CASE LAWS. WE FIND THAT THE ISSUE IN THIS RESPECT HAS BEEN SET TLED BY THE HON'BLE SUPREME COURT IN THE CASE OF CIT (LTU) VS. RELIANCE INDUSTRIES LTD. (2019) 410 ITR 466 (SC) HOLDING THAT IF THE ASSESSEE IS POSSESSED OF SUFFICIENT OWN FUNDS/INTEREST FREE FUNDS TO MEET THE INVESTMENTS MADE, THEN UNDER THE CIRCUMSTANCES, THE PRESUMPTION WOULD BE THAT SUCH INVESTMENTS HAVE BEEN MADE BY THE ASSESSEE OUT OF O WN/INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. MOREOVER, IN THIS CASE THE ASSES SING OFFICER HAS ALREADY CALCULATED THE PROPORTIONATE DISALLOWANCE. LD. PCIT WHILE CALC ULATING THE DISALLOWANCE HAS TAKEN INTO CONSIDERATION THE ENTIRE INTEREST EXPENDITURE INCURRED AS WELL AS ENTIRE LOAN AMOUNT, WHEREAS THE FACTS OF THE CASE AS NOTED BY T HE ASSESSING OFFICER ALSO IS THAT THE ASSESSEE HAS ALSO USED THE OWN/ INTEREST FREE FUNDS FOR THE PURPOSE MAKING INTEREST FREE ADVANCES. THEREFORE, WE DO NOT FIND ANY JUSTIFICATI ON ON THE PART OF LD. PCIT IN SETTING ASIDE THE ORDER OF THE ASSESSING OFFICER ON THIS IS SUE BY INVOKING REVISION JURISDICTION U/S 263 OF THE ACT. SO FAR AS ISSUE OF DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT IS CONCERNED, THE ISSUE ADMITTEDLY IS COVERED BY THE VARIOUS DECISION S OF THE HON'BLE HIGH COURTS OF THE COUNTRY WHEREIN IT HAS BEEN HELD THAT IF NO EXEMPT INCOME HAS BEEN EARNED BY THE ITA NO.940/KOL/2018 ASSESSMENT YEAR 2 013-14 M/S LAXMI INDIA FINLEASECAP PVT. LTD. VS PCIT -1 KOL. PAGE 4 ASSESSEE ON THE INVESTMENTS MADE, NO DISALLOWANCE I S TO BE MADE U/S 14A. RELIANCE IN THIS RESPECT CAN BE PLACE ON THE FOLLOWING CASE LAW S: 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 TAXMANN.COM 116 (GUJARAT HIGH COURT) CIT VS M/S SHIVAM MOTORS (P) LTD (2014) 272 CTR (ALL) 277 IN ALL THE ABOVE R EFERRED TO CASE LAWS, THE HON'BLE HIGH COURTS HAVE BEEN UNANIMOUS TO HOLD THAT NO DI SALLOWANCE IS ATTRACTED U/S 14A OF THE ACT IN CASE THE ASSESSEE HAS NOT EARNED ANY INC OME NOT FORMING PART OF THE TOTAL INCOME. THE ASSESSING OFFICER, THEREFORE, HAS NOT C OMMITTED ANY ERROR IN NOT MAKING THE DISALLOWANCE U/S 14A OF THE ACT AS THE ASSESSEE DURING THE YEAR DID NOT EARN ANY TAX EXEMPT INCOME. THEREFORE, LD. PCIT WRONGLY AND LEGALLY EXERCISED HIS REVISION JURISDICTION U/S 263 OF THE ACT. THE IMPUGNED ORDER U/S 263 OF THE ACT PASSED BY LD. PCIT IS THEREFORE QUASHED. IN THE RESULT, THE APPEAL OF THE ASSESSEE STANDS AL LOWED . ORDER PRONOUNCED IN OPEN COURT ON 22/01/2021 SD/- SD/- ( ') () ') (J.SUDHAKAR REDDY) (SANJAY GARG) ACCOUNTANT MEMBER JUDICIAL MEMBER *DKP-SR.PS * - 22/01/2021 / KOLKATA / COPY OF ORDER FORWARDED TO:- 1. /APPELLANT-M/S LAXMI INDIA FINLEASECAP PVT. 9 TH FLOOR, R.NO.908A, 33 CHITTA RANJAN AVENUE, KOLKATA-700 012 2. /RESPONDENT-PRINCIPAL COMMISSIONER OF INCOME-TAX-1 P-7, CHOWRINGHEE SQUARE, R.NO. 4, 7 TH FLOOR, KOLKATA-69 3. - . / CONCERNED CIT 4. . - / CIT (A) 5. / ))- , - /DR, ITAT, KOLKATA 6. 3 / GUARD FILE. BY ORD ER/ , -,