2013 (6) TMI 843 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of interest expenditure u/s 14A and 36(1)(iii) of the Income Tax Act, 1961.
2. Claim of deduction u/s 80-IA(4) of the Income Tax Act, 1961.

Summary:

Issue 1: Disallowance of Interest Expenditure u/s 14A and 36(1)(iii)
The assessee, engaged in the construction and development business, filed a return for the assessment year 2005-06. During assessment, the Assessing Officer (AO) disallowed interest expenditure of Rs. 54,92,463/- on the grounds that interest-free advances were made to sister concerns, invoking Sections 14A and 36(1)(iii) of the Act. The CIT(A) restored the matter to the AO for re-examination following directions from earlier years. Both the assessee and the Revenue appealed against this decision.

The Tribunal noted the assessee's claim of having sufficient interest-free funds to cover the advances and directed the Department to verify this claim. The Tribunal concluded that the disallowance under Section 14A was incorrect as the advances were not related to exempt income. Instead, the matter was considered under Section 36(1)(iii). The Tribunal found that the assessee had sufficient interest-free funds to cover the advances and that the advances were not made out of borrowed funds. Therefore, the disallowance of interest expenditure by the AO was deemed untenable, and the addition of Rs. 54,92,463/- was directed to be deleted.

Issue 2: Claim of Deduction u/s 80-IA(4)
The assessee's claim for deduction u/s 80-IA(4) amounting to Rs. 1,43,62,694/- for profits from a windmill was denied by the AO, citing the withdrawal of a similar claim in the previous year and non-compliance with Section 80-IA(5). The CIT(A) upheld this decision. The assessee argued that the initial assessment year for the deduction should be 2004-05 when the claim was first made, and that past losses should not be carried forward for set-off against current profits.

The Tribunal referred to precedents, including decisions from the Pune Bench and the Hon'ble Madras High Court, supporting the assessee's interpretation. The Tribunal set aside the CIT(A)'s order and directed the AO to re-examine the claim in light of these precedents, allowing the assessee a reasonable opportunity to present its case.

Conclusion:
The appeal of the assessee was partly allowed, directing the deletion of the disallowed interest expenditure and remanding the deduction claim u/s 80-IA for re-examination. The appeals of the Revenue were dismissed.