Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2017 (11) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (11) TMI 1818 - AT - Income TaxDisallowance of interest u/s 36(1)(iii) on advances - assessee utilized mixed funds for investment - HELD THAT - In the case of Bright Enterprises Pvt. Ltd. Vs. CIT 2015 (11) TMI 342 - PUNJAB HARYANA HIGH COURT it was held that if there are interest free funds available then it will be presumed that these have been made out of interest free funds. Similar view was held in the case of CIT Vs. Kapsons Associates Investment Pvt. Ltd. 2015 (8) TMI 1277 - PUNJAB AND HARYANA HIGH COURT wherein, held that interest on investment in other properties not for business purpose cannot be disallowed if the assessee is having sufficient interest free funds at its disposal. Similar view was taken in the case of Hero Cycles Pvt. Ltd. 2015 (11) TMI 1314 - SUPREME COURT once it is a established that there is a nexus between the expenditure and the purpose of the business no disallowance is called for. Thus the disallowance made on account of interest is hereby deleted. Addition under section 14A - disallowance based on the calculation made as per Rule 8D(2) taking the total interest expenditure, average value of investments, average value of assets and half percentage of average value of investments into consideration - HELD THAT - Delhi High Court in case of Joint Investments Pvt. Ltd. Vs. CIT 2015 (3) TMI 155 - DELHI HIGH COURT , AMAR PACKAGING PVT. LTD. 2016 (5) TMI 282 - ITAT DELHI and M/S DAGA GLOBAL CHEMICALS PVT. LTD. 2015 (1) TMI 1204 - ITAT MUMBAI has taken view that disallowance cannot exceed the exempt income. Hence keeping in view the abovementioned judgments it is hereby directed the disallowance under section 14A read with Rule 8D be restricted to the exempt income earned by the assessee. The appeal of the Revenue is allowed for statistical purposes.
Issues:
1. Disallowance of interest under section 36(1)(iii) on advances. 2. Deletion of the addition made under section 14A of the Income Tax Act. Issue 1: Disallowance of Interest under Section 36(1)(iii) on Advances: The Assessing Officer questioned the expenditure claim under section 36(1)(iii) of the Income Tax Act, 1961, as the assessee had significant investments. The CIT(A) upheld the addition, stating that the investments were not for business purposes. However, the assessee argued that the investments were made for commercial expediency and utilized own funds for the purpose. The AR highlighted the company's financial details to support the claim that own funds were used for investments, hence no disallowance of interest was warranted. Citing various judicial pronouncements, including cases like Bright Enterprises Pvt. Ltd. Vs. CIT and Hero Cycles Pvt. Ltd., it was concluded that if there are sufficient interest-free funds available, no disallowance should be made. Consequently, the disallowance of interest was deleted. Issue 2: Deletion of the Addition under Section 14A of the Income Tax Act: The Assessing Officer disallowed an amount under section 14A of the Income Tax Act based on Rule 8D(2) calculations. The CIT(A) deleted the addition based on decisions from previous assessment years and directed the AO to consider the disallowance while calculating book profits under section 115JB. The Revenue contended that the assessee did not maintain separate accounts for investments and exempt income, and argued against the deletion of the addition. However, the AR emphasized that the disallowance under section 14A should not exceed the exempt income earned. Referring to judgments like Joint Investments Pvt. Ltd. Vs. CIT, it was established that the disallowance cannot exceed the exempt income. Consequently, the disallowance under section 14A read with Rule 8D was restricted to the exempt income earned by the assessee, and the appeal of the Revenue was allowed for statistical purposes. In conclusion, the appeal of the assessee was allowed regarding both issues, while the appeal of the Revenue was allowed for statistical purposes.
|