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2018 (7) TMI 1868 - AT - Income TaxDisallowance of interest expenditure u/s 14A - Held that - After going through the judgment in the case of Cheminvest Limited 2015 (9) TMI 238 - DELHI HIGH COURT section 14A will not apply if no exempt income is received or receivable during the relevant previous year. We, therefore hold that since during the year, under consideration, no exempt income has been earned by the assessee, no disallowance u/s 14A of the Act was called for. - Decided in favour of assessee Disallowance of interest on advances made to directors - Held that - Assessing Officer has not brought out sufficient details on record for alleged interest disallowance whereas the assessee has been successful in demonstrating that in view of having sufficient interest free capital and reserve, disallowance of interest expenditure was not called for. We accordingly delete the interest disallowance - Decided in favour of assessee Disallowance invoking provisions of section 14A read with Rule 8D on the purchase of agriculture land - Held that - No interest disallowance was called for. We, however, confirm the disallowance of ₹ 69,056/- being 0.5% of the investment in agricultural land as there are certain expenditure which gets inter-mingled with administrative expenditure incurred by the assessee during the year are for the purpose of earning agricultural income. This ground of the assessee is, therefore, partly allowed.
Issues:
1. Disallowance of interest expenditure under section 14A of the IT Act, 1961 for the assessment years 2011-12 & 2012-13. 2. Disallowance of interest on advances made to directors. 3. Confirmation of disallowance under section 14A read with Rule 8D on the purchase of agricultural land. Issue 1 - Disallowance of Interest Expenditure under Section 14A: The appellant contested the disallowance of interest expenditure amounting to ?3,66,259 under section 14A of the IT Act, 1961 related to the purchase of agricultural land. The Assessing Officer disallowed the amount assuming the appellant would earn exempt income from agriculture produce. However, the appellant argued citing a Delhi High Court case that no disallowance should occur if no exempt income is earned. The Tribunal agreed, referencing the Delhi High Court judgment, stating that since no exempt income was earned during the relevant year, disallowance under section 14A was unwarranted. Consequently, the Tribunal set aside the orders of the lower authorities and allowed the appellant's appeal. Issue 2 - Disallowance of Interest on Advances to Directors: The appellant challenged the disallowance of interest amounting to ?1,38,128 on advances made to directors. The Assessing Officer based the disallowance on the differing interest rates on loans taken and given to directors. However, the Tribunal observed that the Assessing Officer failed to provide specific details supporting the interest disallowance. The appellant demonstrated having sufficient interest-free capital and reserves, rendering the disallowance unnecessary. Citing a Bombay High Court case, the Tribunal ruled in favor of the appellant, deleting the interest disallowance. Issue 3 - Disallowance under Section 14A on Purchase of Agricultural Land: Regarding the disallowance of ?4,58,363 under section 14A read with Rule 8D on the purchase of agricultural land, the Assessing Officer computed the disallowance based on earned exempted income. The Tribunal noted that the appellant had substantial interest-free funds compared to the investment in agricultural land. Relying on various court cases, including Bombay High Court and Gujarat High Court judgments, the Tribunal concluded that no interest disallowance was justified. However, a partial disallowance of ?69,056 was confirmed for certain administrative expenditures related to agricultural income. Consequently, the Tribunal partly allowed the appellant's appeal in this regard. In conclusion, ITA No. 978/Ind/2016 was allowed, and ITA No. 976/Ind/2016 was partly allowed by the Tribunal, pronouncing the judgment on 18 July 2018.
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