Malerkotla Steel & Alloys (P) Ltd., Malerkotla v. ACIT, Ludhiana

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5. Briefly, the facts of the case are that Assessing 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 contributed this amount as partners capital. As the partnership deed it reveals that assessee had 75% of the profit share ratio. The Assessing officer asked the assessee to explain as to why disallowance u/s 14A read with Rule 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 said concern did not have any profit or loss as exempt income. The assessee further submitted that there was no specific loan raised by the assessee company for contributing this amount as capital in the said concern. The Assessing officer was not satisfied with the contention of the assessee and was 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 claimed 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 addition.

6. The assessee reiterated the submissions made before the Ld. CIT(A) and it was submitted that investment was made in the capital of the firm to meet its business exigency and to enhance its strategic interest, safeguard its own business interest and the maximize the profit. 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

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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 reiterated the submissions made before the authorities below and submitted that capital contribution was made for business purposes on which no capital have been borrowed and that assessee did not earn any exempt income. The contention of the Ld. Counsel for the assessee has not been rebutted through any evidence or material. It, therefore, stands proved on record that the assessee did not make any claim of exemption of income and that no borrowed funds have been used for the purpose of making capital contribution 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 received 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 light 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 14A 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 appeal of the assessee is allowed.

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8. In the result, the appeal of the assessee is partly allowed. Order pronounced in the Open Court.

Sd/-

(BHAVNESH SAINI)

JUDICIAL MEMBER

Dated :19 ^thJuly, 2016 Rkk

Copy to:

1. The Appellant

2. The Respondent

3. The CIT

4. The CIT(A)

5. The DR