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Issues involved: Cross appeals relating to assessment year 2005-06, involving disallowance under section 14A and interest disallowance under section 36(1)(iii) and section 115JB.
Disallowance under section 14A and interest disallowance under section 36(1)(iii): The dispute arose regarding the disallowance made under section 14A read with Rule 8D of the Income Tax Rules, and the disallowance of interest under section 14A while computing the book profit for section 115JB. The Assessing Officer disallowed interest paid by the assessee, stating that the interest expenses were mainly towards investments generating exempt income. The Tribunal found that the loans were utilized for taxable income purposes, such as wind energy business and hotel projects, not for earning exempt income. The matter was restored to the Assessing Officer for a fresh decision on the allowability of interest, considering the facts presented. The Tribunal also directed the Assessing Officer to adhere to guidelines provided by the Bombay High Court before invoking section 14A. The assessee's appeal was allowed for statistical purposes. Treatment of interest on non-convertible debentures and unsecured loans: The CIT(A) erred in treating the interest on non-convertible debentures and unsecured loans as business income. The Tribunal directed the Assessing Officer to assess the interest under the head "Business" based on a previous decision favoring the assessee. The issue was resolved in favor of the assessee. Deletion of interest on loans given to a major shareholder: The CIT(A) deleted the interest on loans given by the assessee to a major shareholder. The Tribunal confirmed this decision based on findings that the debt became irrecoverable due to the financial condition of the shareholder, and the decision to wipe the interest was taken on grounds of business expediency. The Tribunal upheld the deletion of interest. Conclusion: The assessee's appeal was allowed for statistical purposes, and the department's appeal was dismissed. No costs were awarded in the case.
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