IN THE INCOME TAX APPELLATE TRIBUNAL
DELHI BENCHES "A": DELHI
BEFORE SHRI BHAVNESH SAINI, JUDICIAL MEMBER
AND
SHRI N.K. BILLAIYA, ACCOUNTANT MEMBER
ITA.No.3080/Del./2017
ITA.No.5408 & 5601/Del./2018
Assessment Years 2012-2013, 2013-2014 & 2014-2015
M/s. ATS Infrastructure The ACIT,
Ltd., 711/92, Deepali,
Nehru Place, New Delhi. vs., Central Circle,
PIN 110 019.
Noida.
PAN AADCA0609B
(Appellant) (Respondent)
Shri Ved Jain, Advocate And
For Assessee : Ms. Surbhi Goyal, C.A.
For Revenue : Shri Ved Prakash Mishra, Sr. DR
Date of Hearing : 08.01.2020
Date of Pronouncement : 15.01.2020
ORDER
PER BHAVNESH SAINI, J.M.
All the appeals by the Assessee are directed
against the different Orders of the Ld. CIT(A)-4, Kanpur,
Dated 31.03.2017, for the A.Y. 2012-2013 and 25.07.2018
for the A.Ys. 2013-2014 and 2014-2015.
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2. We have heard the Learned Representatives of
both the parties and perused the material on record. Since
issues are common , therefore, all the appeals were heard
together and we dispose of the same by this consolidated
order. The appeals are decided year-wise as under :
A.Y. 2012-2013 :
3. On Ground Nos. 1 and 2, assessee challenged the
disallowance of Rs.1,51,65,269/- made on account of
interest under section 36(1)(iii) of the I.T. Act, 1961. The
A.O. noted that assessee-company has given interest free
loans and advances to related party. The disallowance of
interest expenses against these loans have been discussed
in the assessment order passed for preceding A.Y. 2011-
2012. In the same manner, interest on loans/advances
given to M/s. Prateek Resorts & Builders Pvt. Ltd., has been
disallowed. The A.O, therefore, disallowed Rs.1,51,65,269/-
under section 36(1)(iii) of the I.T. Act, 1961. The assessee
made detailed written submissions before the Ld. CIT(A).
However, the Ld. CIT(A) dismissed the appeal of assessee.
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3.1. Learned Counsel for the Assessee submitted that
addition has been made by the A.O. simply by relying on the
Order passed in preceding A.Y. 2011-2012 in the case of the
assessee. However, the said addition has been deleted by
the Ld. CIT(A) and Department did not move any appeal
against the said decision. Copy of the grounds of appeal for
the A.Y. 2011-2012 is filed on record in support of this
contention. The Order of the Ld. CIT(A) for the A.Y. 2011-
2012 is filed at Pages 186 and 187 of the paper book. In
addition to the above submissions, the Learned Counsel for
the Assessee further submitted that detailed break-up of
advances given to M/s. Prateek Resorts & Builders Pvt. Ltd.,
relating to assessment year under appeal as on 31.03.2012
was Rs.12,13,22,153/-. The opening balance as on
01.04.2011 was Rs.5,70,72,153/- relevant to A.Y. 2011-
2012 which have been decided in favour of the assessee.
Learned Counsel for the Assessee further submitted that
advances were given for business purposes. The evidence for
the same are filed at Pages 94, 95 and 98 of PB which is
correspondence between the parties. He has, therefore,
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M/s. ATS Infrastructure Ltd., New Delhi
submitted that since the amount in question have been
given for commercial expediency, therefore, no addition
could be made. He has relied upon Judgment of Hon'ble
Supreme Court in the case of S.A. Builders 288 ITR 1 (SC).
Learned Counsel for the Assessee further submitted that
during the year under consideration, the assessee-company
has sufficient own funds as well as interest free borrowing
funds which have been used to make these advances and
these advances have been shown in the balance-sheet, copy
of which is filed at page-10 of the PB to show that assessee
has total own surplus funds of Rs.35,57,47,999/-. It was,
therefore, submitted that no disallowance of interest should
be made out of the same. He has relied upon Judgment of
Hon'ble Supreme Court in the case of Commissioner of
Income Tax vs., Reliance Industries Ltd., 410 ITR 466 (SC)
in which the Hon'ble Supreme Court has noted findings of
Tribunal that "the findings of the Tribunal that interest free
funds available to the assessee were sufficient to him for its
investment. Hence, it can be presumed that investments were
made from the interest free funds available with the assessee".
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4. On the other hand, Ld. D.R. relied upon the
Orders of the authorities below.
5. We have considered the rival submissions and
perused the material on record. The A.O. on this issue made
the addition by following his Order for the A.Y. 2011-2012
without giving any independent findings. In A.Y. 2011-2012
the Ld. CIT(A) has allowed the claim of assessee and deleted
the addition, copy of the Order is placed in the paper book.
Though the Department has filed an appeal before the
Tribunal, but, no ground have been raised on this issue.
Copy of the grounds of appeal is also filed on record. These
facts itself are sufficient to delete the addition. We may
further note that assessee has own sufficient funds to give
advance to M/s. Prateek Resorts & Builders Pvt. Ltd., out of
own funds. There was also an opening balance as contended
by the Learned Counsel for the Assessee in preceding year,
on which, addition has already been deleted. The assessee
has also placed on record the correspondence between the
parties to show that advance have been given for
commercial expediency. It is well settled Law that when
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interest free funds are available to the assessee which were
sufficient to made its investments, it would be presumed
that the investments were made from the interest free funds
available with the assessee. We rely upon the Judgment of
the Hon'ble Bombay High Court in the case of Reliance
Utility and Power Ltd., 313 ITR 340 (Bom.) (HC) and
Judgment of Hon'ble Supreme Court in the case of Reliance
Industries Ltd., 410 ITR 466 (SC) and Judgment of Hon'ble
Supreme Court in the case of Munjal Sales Corporation 298
ITR 298 (SC). Considering the totality of the facts and
circumstances of the case, we do not find any justification
to sustain the addition. We, accordingly, set aside the
Orders of the authorities below and delete the addition of
Rs.1,51,65,269/-. Ground Nos. 1 and 2 of the appeal of
assessee are allowed.
6. On Ground Nos.3 and 4, assessee challenged the
disallowance of Rs.1,52,47,867/- under section 14A of the
I.T. Act read with Rule 8D of the I.T. Rules, 1962.
6.1. The A.O. noted that assessee has received
dividend income of Rs.64,59,304/- and has claimed the
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same to be exempted. Since the assessee has not made
disallowance of expenditure against the exempted income,
therefore, the A.O. disallowed Rs.1,52,47,867/- under
section 14A read with Rule 8D of the I.T. Rules. The Ld.
CIT(A) confirmed the addition.
6.2. Learned Counsel for the Assessee submitted that
the dividend earned by the assessee-company during the
assessment year under appeal can be bifurcated that
investment in M/s. ATS Town Ship Pvt. Ltd., yielded
dividend of Rs.56,25,000/- and from the Reliance Mutual
Funds dividend was earned of Rs.8,34,304/-. He has
further submitted that value of investments from where
dividend has been earned in the case of M/s. ATS Town
Ship Pvt. Ltd., as on 31.03.2012 was Rs.9,000/-, which is
supported by PB-17 which is the details of Note-12 Non-
current investments and PB-60 which is balance-sheet of
M/s. ATS Town Ship Pvt. Ltd. In the case of Reliance
Mutual Fund, the investment was NIL in assessment year
under appeal since purchase and sales were within the
year. He has submitted that the average value of
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investments comes to Rs.9,500/- only. He has submitted
that provisions of Section 14A read with Rule 8D provide for
disallowance of expenses which are incurred only in relation
to the exempt income earned. It is well settled Law that
while computing the disallowance under Rule 8D (iii), rate of
0.5% has to be applied to only those investments which
actually have resulted in exempted dividend income rather
than 0.5% of the average of total investments. Thus, in
assessee's case also for the purpose of making disallowance
under the above provision, only average value of investment
as calculated at Rs.9,500/- shall be considered which would
make disallowance of Rs.47.50 only. He has submitted that
the issue is covered by the Judgment of Hon'ble Delhi High
Court in the case of ACB India Ltd., vs., ACIT
ITA.No.615/2014 Dated 24.03.2015 in which it was held
that "the A.O. instead of adopting the average value of
investment of which income is not part of total income i.e., the
value of tax exempt investment, chose to factor in the total
investment itself. Even though the Ld. CIT(A) noticed the exact
value of the investment which yielded taxable income, he did
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not correct the error to chose to apply his own equity. Given
the record that it be done so to substitute the figure of
Rs.38,61,09,287/- with the figure of Rs.3,53,26,800/- and
thereafter, arrive at the exact details of .05%. In view of the
above reasoning, the findings of the ITAT and lower
authorities are hereby set aside. The appeal is allowed and
the matter is remitted to work-out the tax effect to the A.O.
who shall do so after giving due notice to the party." Learned
Counsel for the Assessee on the same proposition also relied
upon other decision of the Hon'ble Delhi High Court.
Learned Counsel for the Assessee further submitted that the
A.O. has merely made the impugned addition by stating that
since the assessee has earned exempt income, therefore,
provisions of Section 14A are applicable. It is evident that in
the assessment order there is no satisfaction recorded by
the A.O. before making any disallowance, therefore, no
addition could be made. He has relied upon Judgment of
Hon'ble Delhi High Court in the case of Max Opp
Investment Ltd., vs., Commissioner of Income Tax 347 ITR
272 (Del.) (HC), which is confirmed by the Hon'ble Supreme
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Court. He has also relied upon Judgments of Hon'ble Delhi
High Court on the same proposition in the case of
Commissioner of Income Tax vs., Taikisha Engineering India
Ltd., 370 ITR 338 (Del.) (HC).
7. On the other hand, Ld. D.R. relied upon the
Orders of the authorities below.
8. We have considered the rival submissions and
perused the material on record. The investments made by
assessee as on 31.03.2012 as argued by the Learned
Counsel for the Assessee is not in dispute that in case of
M/s.ATS Township Pvt. Ltd., assessee made investment of
Rs.9000/- only and in the case of Reliance Mutual Fund it
was NIL because sales and purchases were within the year.
Thus while computing the disallowance under the above
provision, the rate of 0.5% has to be applied to only those
investments which actually have resulted in exempt
dividend income rather than .05% of the average of the total
investments. The A.O. shall have to take average value of
such investment. Further A.O. did not record any
satisfaction before making the disallowance and merely
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made the addition because assessee has earned dividend
income. Thus, these are not sufficient to make any addition
against the assessee. The Hon'ble Delhi High Court in the
case of I.P. Support Services India Ltd., 378 ITR 240 9Del.)
(HC) held that "no disallowance be made in the absence of
satisfaction as to why voluntary disclosure made by
assessee was unreasonable and unsatisfactory." Similar
view have been taken by the Hon'ble Delhi High Court in the
case of Commissioner of Income Tax vs., Taikisha
Engineering India Ltd., 370 ITR 338 (Del.) (HC). The Hon'ble
Punjab & Haryana High Court in the case of Abhishek
Industries Ltd., 380 ITR 652 (P & H) (HC) held that "onus is
on A.O. to record satisfaction that interest bearing funds used
for investment to earn tax free income." Considering the
facts and circumstances of the case in the light of
submissions of the Learned Counsel for the Assessee and in
the absence of any satisfaction recorded by the A.O. for
making disallowance under section 14A read with Rule 8D
of the I.T. Act, no disallowance could be made in the case of
the assessee. We, accordingly, set aside the Orders of the
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authorities below and delete the entire addition. In the
result, Ground Nos.3 and 4 of the appeal of the Assessee are
allowed.
9. In the result, ITA.No.3080/Del./2017 for the A.Y.
2012-2013 of the Assessee is allowed.
A.Y. 2013-2014 :
10. On Ground Nos.1 to 4, the assessee challenged
the disallowance of Rs.2,04,97,971/- under section 14A
read with Rule 8D of the I.T. Rules, 1962.
11. The A.O. noted that in the balance-sheet filed
along with the return of income, an investment of Rs.414.96
crores have been shown as non-current investment. In view
of this, disallowance is to be made as per Section 14A read
with Rule 8D. The assessee was asked to submit as to why
disallowance under section 14A should not be made. The
assessee submitted that during the year under
consideration the assessee has not earned any income by
way of dividend and that no expenditure is incurred in
relation to any exempted income. The A.O. however, did not
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accept the contention of assessee and made the
disallowance of Rs.2,04,97,971/- under section 14A read
with Rule 8D of I.T. Rules, 1962. On appeal, the Ld. CIT(A)
dismissed the appeal of assessee.
12. Learned Counsel for the Assessee submitted that
in assessment year under appeal assessee has not earned
any exempt income. He has referred to PB-29 which is
balance-sheet of the assessee to show that as on
31.03.2013 assessee has not earned any dividend income.
He has submitted that the Hon'ble Supreme Court in the
case of CIT vs., Chettinad Logistics (P.) Ltd., [2018] 95
taxmann.com 250 (SC) dismissed the SLP of the Revenue by
confirming the Order of the Hon'ble Madras High Court
holding that "Section 14A of the Act cannot be invoked where
no exempt income is earned by the assessee". He has relied
upon Judgment of Hon'ble Delhi High Court in the case of
Cheminvest Ltd., vs., CIT 378 ITR 33 (Del.) in which the
Hon'ble High Court similarly held that "if assessee has not
earned exempt income, no disallowance could be made." He
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has, therefore, submitted that no disallowance could be
made by the authorities below.
13. The Ld. D.R. relied upon the Orders of the
authorities below.
14. We have considered the rival submissions. It is
well settled Law that in the absence of any exempt income
no addition can be made by the A.O. The above decisions
squarely apply to the facts of the case. It is not in dispute
that during the assessment year under appeal assessee has
not earned any exempt income, therefore, no disallowance
under section 14A read with Rule 8D could be made.
Further no satisfaction as required under section 14A have
been recorded by the A.O. in the assessment order.
Therefore, the issue would also be squarely covered by
reasoning given in A.Y. 2012-2013 (supra). In view of the
above, we set aside the Orders of the authorities below and
delete the addition. Ground Nos. 1 to 4 of the appeal of the
Assessee are allowed.
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15. On Ground Nos.5 and 6, assessee challenged
disallowance of Rs.39,89,019/- made by A.O. on account of
interest under section 36(1)(iii) of the I.T. Act, 1961.
16. The A.O. noted that in A.Y. 2011-2012 he has
made disallowance of interest on loan and advances given to
M/s. Prateek Resorts & Builders Pvt. Ltd., The A.O,
therefore, disallowed the impugned amount.
17. After considering the rival submissions, we are of
the view that the issue is same as have been considered in
A.Y. 2012-2013 (supra). Both the parties have submitted
that the Order in A.Y. 2012-2013 may be followed in this
year. In this view of the matter, we set aside the Orders of
the authorities below and delete the addition. In the result,
Ground Nos.5 and 6 of the appeal of the Assessee are
allowed.
18. In the result, ITA.No.5408/Del./2018 for the A.Y.
2013-2014 of the Assessee is allowed.
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A.Y. 2014-2015 :
19. On Ground Nos. 1 to 6, the assessee challenged
the disallowance of Rs.2,39,66,670/- made by A.O. invoking
the provisions of section 14A read with Rule 8D of the I.T.
Rules, 1962.
20. The A.O. noted that in assessment year under
appeal assessee has shown investment of Rs.543.71 crores
as non-current investment. The A.O. noted that
disallowance have to be made under section 14A of the I.T.
Act. The assessee submitted that in assessment year under
appeal, assessee has earned dividend of Rs.1,97,449/- only
for which no expenditure was incurred in relation to exempt
income. The A.O. however under the above provisions
disallowed the impugned amount. The Ld. CIT(A) confirmed
the addition.
21. Learned Counsel for the Assessee reiterated the
submissions made before the authorities below. He has
submitted that the assessee has received this dividend out
of investment made in Reliance Mutual Funds whose
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opening and closing balance during the year were NIL (PB-
26). Thus, the average value of investment will be calculated
as NIL as is evident from audited financial year statement of
the assessee. Complete copies are placed at pages 7 to 43 of
the PB. He has submitted that provisions of Section 14A
read with Rule 8D provide for disallowance of expenses
which are incurred only in relation to exempt income
earned. He has relied upon the Judgment of Hon'ble Delhi
High Court in the case of ACB India Ltd., (supra) and other
decisions and submitted that the issue is same as has been
considered in A.Y. 2012-2013. He has further submitted
that no satisfaction have been recorded by A.O. in the
assessment order before making any disallowance as
required under section 14A of the I.T. act. In the alternate
contention, he has submitted that since assessee earned
only Rs.1,97,449/- as dividend income, therefore, impugned
addition is unjustified and disallowance should restricted to
the dividend income of Rs.1,97,499/- and relied upon
Judgment of Hon'ble Delhi High Court in the case of Joint
Investment Pvt. Ltd., [2015] 372 ITR 694 (Del.) (HC).
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22. On the other hand, Ld. D.R. relied upon the
Orders of the authorities below.
23. Considering the rival submissions, we are of the
view that the issue is same as have been considered in A.Y.
2012-2013. Following the reasons for decision for the same
and in the absence of any satisfaction recorded by the A.O.
in the assessment order, we are of the view that no addition
could be made in the matter. We, accordingly, set aside the
Orders of the authorities below and delete the entire
addition. In the result, Ground Nos.1 to 6 of the appeal of
the Assessee are allowed.
24. In the result, ITA.No.5601/Del./2018 for the A.Y.
2014-2015 of the Assessee is allowed.
25. To sum-up, all the appeals of the Assessee are
allowed.
Order pronounced in the open Court.
Sd/- Sd/-
(N.K. BILLAIYA) (BHAVNESH SAINI)
ACCOUNTANT MEMBER JUDICIAL MEMBER
Delhi, Dated 15th January, 2020
VBP/-
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M/s. ATS Infrastructure Ltd., New Delhi
Copy to
1. The appellant
2. The respondent
3. CIT(A) concerned
4. CIT concerned
5. D.R. ITAT "A" Bench
6. Guard File
// BY Order //
Asst. Registrar : ITAT Delhi Benches :
Delhi.
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