2014 (7) TMI 1062 - AT - Income Tax

Interest expenses u/s 14A Held that - As decided in assessee s own case for the earlier assessment year, it has been held that the Assessee was having sufficient interest free funds and therefore there was no justification for presuming that any part of interest bearing loan has been utilized for the purpose of making investments - major investments made in earlier years were out of interest free unsecured loans thus, the order of the CIT(A) is upheld Decided against Revenue. Depreciation on motor car Held that - As decided in assessee s own case for the earlier assessment year, it has been held that revenue has not brought any material on record to demonstrate that the purchase of vehicle was not out of the funds of the Assessee and further the vehicle was not used for the purpose of business of the Assessee assessee contended that no depreciation has been claimed by the Directors in their individual return The order of CIT(A) is upheld Decided against Revenue.

Summary

Issues:
1. Disallowance of interest under Section 14A
2. Disallowance of depreciation on motor-car
3. Under-valuation of closing stock of raw material

Issue 1: Disallowance of interest under Section 14A:
The appeal involved the disallowance of interest under Section 14A of the Income Tax Act. The Assessing Officer (AO) made a proportionate disallowance of interest based on the formula involving investments in shares and the rate of interest. The Commissioner of Income Tax (Appeals) (CIT(A)) deleted the disallowance, citing a previous order and stating that no fresh investments were made. The Tribunal upheld the CIT(A)'s decision, emphasizing that the Assessee had sufficient interest-free funds, and there was no evidence of borrowed funds being used for investments. The Tribunal dismissed the Revenue's appeal based on the precedent set in the Assessee's previous case.

Issue 2: Disallowance of depreciation on motor-car:
The AO disallowed depreciation claimed on motor-cars registered in the name of Directors, stating they were not used for business purposes. However, the CIT(A) ruled in favor of the Assessee, referring to previous decisions in the Assessee's favor. The Tribunal, following the precedent, dismissed the Revenue's appeal, noting the lack of evidence that the cars were not purchased with the Assessee's funds or used for business purposes.

Issue 3: Under-valuation of closing stock of raw material:
The AO added overhead expenses to the valuation of the closing stock of raw material, which the Assessee contested. The CIT(A) upheld the addition based on a previous decision for the Assessee in a different year. The Tribunal, consistent with the earlier ruling, dismissed the Assessee's Cross Objection, stating that the increased value in closing stock should be considered part of the opening stock value for the subsequent year. Consequently, both the Revenue's appeal and the Assessee's Cross Objection were dismissed.

In conclusion, the Tribunal upheld the CIT(A)'s decisions in all three issues, emphasizing consistency with previous rulings and lack of evidence to support the Revenue's claims.