2012 (9) TMI 1029 - AT - Income Tax

Summary

Issues involved: Appeals against two different orders dated 16.08.2011 passed by the ld. CIT(A)-II, Agra for the A.Ys. 2006-07 & 2007-08.

Addition of &8377; 15,37,500/- disallowance out of interest payment:
The assessee, engaged in real estate development, borrowed money, paid interest, and gave interest-free advances to sister concerns. The A.O. disallowed &8377; 15,37,500/- of interest payment claimed under section 36(1)(iii) of the Act. The CIT(A) upheld the disallowance as the assessee failed to prove the advances were for business purposes. However, the I.T.A.T. found that the assessee had sufficient own capital and reserves to cover the interest-free advances, following precedents. The additions were deleted for both A.Ys. 2006-07 & 2007-08.

Addition of &8377; 24,69,235/- under section 14A of the Act:
The A.O. disallowed &8377; 24,69,235/- under section 14A of the Act for investments in shares, citing Rule 8D. The CIT(A) confirmed the disallowance, noting the increase in share investments without apportioning any expenses. However, the I.T.A.T. held that no disallowance was warranted as the assessee had sufficient interest-free funds to cover the investments, as per various judicial pronouncements. The additions were deleted for both A.Ys. 2006-07 & 2007-08.

Separate Judgement:
The I.T.A.T. allowed both appeals, deleting the additions made by the A.O. for disallowance of interest and under section 14A of the Act for both A.Ys. 2006-07 & 2007-08, based on the assessee's sufficient own capital and reserves to cover the transactions.