2015 (8) TMI 1454 - AT - Income Tax

Disallowance u/s 14A - no exemption was claimed by the assessee under section 10(2A) - Held that - In the instant year no exemption has been claimed by the assessee under section 10(2A) of the Act as there was no tax free income and therefore the provisions of section 14A of the Act are not applicable. See CIT VERSUS M/S. DELITE ENTERPRISES 2009 (2) TMI 498 - BOMBAY HIGH COURT Direction of CIT(A) to verify and allow the assessee s claim for carry forward of the business loss pertaining to A.Y 2008-09 - Held that - On this aspect we find no merit in the grievance of the Revenue in as much as the CIT(A) has directed the Assessing Officer to verify the fact-situation and allow the claim as per law. Quite clearly the Assessing Officer had denied the claim for carry forward of the business loss without giving any cogent reasons. The order of the CIT(A) on this aspect is also affirmed.

Summary

Issues involved:
1. Disallowance of interest cost as revenue expenditure under section 143(3) of the Income Tax Act, 1961.
2. Disallowance of expenditure incurred in relation to exempt income under section 14A of the Act.
3. Claim for carry forward of business loss for A.Y 2008-09.

Analysis:
1. The appeal by the Revenue challenged the CIT(A)'s order regarding the treatment of interest cost as revenue expenditure and the allowance of business loss derived from interest paid on borrowed funds. The Revenue contended that the borrowed funds were used for investment in a partnership firm, resulting in exempt income. The Revenue argued for disallowance under section 14A of the Act. However, the CIT(A) deleted the disallowance, citing the absence of tax-free income claimed by the assessee under section 10(2A) of the Act. The Tribunal upheld the CIT(A)'s decision, emphasizing that section 14A does not apply when no exempt income is received during the year, as per relevant judgments.

2. The main dispute revolved around the disallowance of expenditure related to exempt income under section 14A of the Act. The Revenue contended that the assessee's investment in a partnership firm using borrowed funds led to exempt income, warranting disallowance. However, the CIT(A) ruled in favor of the assessee, relying on the absence of tax-free income claimed under section 10(2A) and relevant judicial precedents. The Tribunal concurred with the CIT(A)'s decision, emphasizing that section 14A does not apply when no exempt income is earned during the year, as supported by applicable case laws.

3. Another issue concerned the direction by the CIT(A) to verify and allow the assessee's claim for carrying forward business loss for the assessment year 2008-09. The Revenue disputed this direction, but the Tribunal found no merit in their grievance. The CIT(A) had instructed the Assessing Officer to assess the claim for carry forward of business loss based on the facts and legal provisions. As the Assessing Officer had denied the claim without substantial justification, the Tribunal upheld the CIT(A)'s decision on this matter.

In conclusion, the Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on the disallowance of interest cost and the allowance of the carry forward of business loss. The judgment highlighted the importance of relevant legal provisions and case laws in determining the applicability of disallowances under the Income Tax Act.