M/s Malerkotla Steel & Alloys (P) Ltd., Malerkotla V. ACIT, Ludhiana

ITA 99/CHANDI/2016

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 9790 (ITAT-CHANDIGARH)
• Duration Of Justice: 4 month(s) 28 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-07-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: Not Allotted
• Next Hearing Date: 15-06-2016
• Assessment Year: 2011-2012
• Appeal Filed On: 15-02-2016
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MANJIT SINGH
• Keywords: Earning of tax free income
• Section: 14A

Judgement Text

1 IN THE INCOME TAX APPELLATE TRIBUNAL CHANDIGARH BENCHES, SMC, CHANDIGARH BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER ITA NO. 99/CHD/2016 ASSESSMENT YEAR: 2011-12 M/S MALERKOTLA STEEL & ALLOYS (P) LTD., VS. THE AC IT, CIRCLE -4, MALERKOTLA LUDHIANA PAN NO. AABCM4690G (APPELLANT) (RESPONDENT) APPELLANT BY : SH. ASHWANI KUMAR RESPONDENT BY : SH. MANJIT SINGH DATE OF HEARING : 13.07.2016 DATE OF PRONOUNCEMENT : 19.07.2016 ORDER THIS APPEAL BY THE ASSESSEE HAS BEEN DIRECTED AGAI NST THE ORDER OF LD. CIT(A)-2, LUDHIANA DATED 14.12.2015 FOR ASSESSMENT YEAR 2011-12. 2. I HAVE HEARD LD. REPRESENTATIVES OF BOTH THE PAR TIES AND PERUSED THE FINDINGS OF THE AUTHORITIES BELOW. 3. THE LD. COUNSEL FOR THE ASSESSEE DID NOT PRESS G ROUND NO.1 OF THE APPEAL OF THE ASSESSEE AND THE SAME IS DISMISSED AS WITHDRAWN. 4. ON GROUND NO.2, THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE U/S 14A AMOUNTING TO RS. 9,85,664/-. 2 5. BRIEFLY, THE FACTS OF THE CASE ARE THAT ASSESSIN G OFFICER NOTED THAT ASSESSEE HAD SHOWN INVESTMENT OF RS. 2.45 CRORES IN M/S DURGA INDUSTRIES ON 31.3.2011. THE ASSESSEE SUBMITTED THAT ASSESSEE COMPANY BECOME A PARTNER OF THE FIRM OF M/S DURGA INDUSTRIES AND CON TRIBUTED THIS AMOUNT AS PARTNERS CAPITAL. AS THE PARTNERSHIP DEED IT REVEAL S THAT ASSESSEE HAD 75% OF THE PROFIT SHARE RATIO. THE ASSESSING OFFICER A SKED THE ASSESSEE TO EXPLAIN AS TO WHY DISALLOWANCE U/S 14A READ WITH RU LE 8D SHOULD NOT BE MADE. THE ASSESSEE SUBMITTED THAT IT CONTRIBUTED IN THE SAID CONCERN FOR THE PURPOSE OF EARNING PROFIT BUT DURING THE YEAR THE S AID CONCERN DID NOT HAVE ANY PROFIT OR LOSS AS EXEMPT INCOME. THE ASSESSEE F URTHER SUBMITTED THAT THERE WAS NO SPECIFIC LOAN RAISED BY THE ASSESSEE C OMPANY FOR CONTRIBUTING THIS AMOUNT AS CAPITAL IN THE SAID CONCERN. THE ASS ESSING OFFICER WAS NOT SATISFIED WITH THE CONTENTION OF THE ASSESSEE AND W AS OF VIEW THAT ASSESSEE HAS RAISED SECURED AND UNSECURED LOANS ON WHICH IT HAD PAID INTEREST OF RS. 39,83,806/- AND RS. 52,51,259/-RESPECTIVELY AND CLA IMED THESE EXPENSES ON INTEREST DURING THE YEAR AND ON THE OTHER SIDE THE ASSESSEE HAD INVESTED RS. 2.45 CRORES, INCOME FROM WHICH DOES NOT FORM PART OF THE TOTAL INCOME. ACCORDINGLY, THE ASSESSING OFFICER MADE THE ABOVE A DDITION. 6. THE ASSESSEE REITERATED THE SUBMISSIONS MADE BE FORE THE LD. CIT(A) AND IT WAS SUBMITTED THAT INVESTMENT WAS MADE IN T HE CAPITAL OF THE FIRM TO MEET ITS BUSINESS EXIGENCY AND TO ENHANCE ITS STRAT EGIC INTEREST, SAFEGUARD ITS OWN BUSINESS INTEREST AND THE MAXIMIZE THE PROF IT. IN THE YEAR IN QUESTION, THE FACT IS THAT ASSESSEE COMPANY HAS NOT EARNED ANY PROFIT WHICH IS EXEMPT FROM TAX, THEREFORE, NO DISALLOWANCE U/S 14A COULD BE MADE. THE 3 LD. CIT(A), HOWEVER, DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND DISMISSED THE APPEAL OF THE ASSESSEE. 7. AFTER CONSIDERING THE RIVAL SUBMISSIONS, I AM OF THE VIEW THAT THE ADDITION IS WHOLLY UNJUSTIFIED. THE LD. COUNSEL REI TERATED THE SUBMISSIONS MADE BEFORE THE AUTHORITIES BELOW AND SUBMITTED THA T CAPITAL CONTRIBUTION WAS MADE FOR BUSINESS PURPOSES ON WHICH NO CAPITAL HAVE BEEN BORROWED AND THAT ASSESSEE DID NOT EARN ANY EXEMPT INCOME. T HE CONTENTION OF THE LD. COUNSEL FOR THE ASSESSEE HAS NOT BEEN REBUTTED THROUGH ANY EVIDENCE OR MATERIAL. IT, THEREFORE, STANDS PROVED ON RECORD TH AT THE ASSESSEE DID NOT MAKE ANY CLAIM OF EXEMPTION OF INCOME AND THAT NO B ORROWED FUNDS HAVE BEEN USED FOR THE PURPOSE OF MAKING CAPITAL CONTRIB UTION IN THE FIRM. THE HON'BLE PUNJAB & HARYANA HIGH COURT IN THE CASE OF CIT VS. WINSOME TEXTILE INDUSTRIES LTD IN [2009] 319 ITR 204 (P&H) HELD THAT IF ASSESSEE DID NOT MAKE CLAIM OF EXEMPTION, SECTION 14A DO NOT APPLY. THE HON'BLE DELHI HIGH COURT IN THE CASE OF CHEMINVEST LTD. VS. CIT (2015) 378 ITR 33 (DELHI) HELD THAT WHEN NO EXEMPTED INCOME IS REC EIVED OR RECEIVABLE, NO DISALLOWANCE U/S 14A CAN BE MADE. SAME VIEW IS TAKEN IN THE CASE OF CIT VS. LAKHANI MARKETING IND. 111 DTR 149 IN WHICH IT WAS HELD THAT WHEN NO EXEMPT INCOME IS EARNED, NO DISALLOWANCE U/ S 14A COULD BE MADE. CONSIDERING THE ENTIRE FACTS OF THE CASE IN THE LIG HT OF ABOVE DECISIONS, I AM OF THE VIEW THAT SINCE NO EXEMPT INCOME CLAIMED TO HAVE BEEN RECEIVED BY THE ASSESSEE, THEREFORE, NO DISALLOWANCE U/S 14 A COULD BE MADE. I THEREFORE, SET ASIDE THE ORDERS OF THE AUTHORITIES BELOW AND DELETE THE ADDITION OF RS. 9,85,664/-. GROUND NO.2 OF THE APPE AL OF THE ASSESSEE IS ALLOWED. 4 8. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PAR TLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT. SD/- (BHAVNESH SAINI) JUDICIAL MEMBER DATED :19 TH JULY, 2016 RKK COPY TO: 1. THE APPELLANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR