2017 (12) TMI 1696 - AT - Income Tax

Disallowance of Bank Charges - as per AO assessee company had paid the bank charges for processing of working capital loan which in his opinion was a capital expenditure and hence not allowable under section 37(1) - HELD THAT - DR had not brought to our notice any distinguishing facts in the present case as compared to the facts in the preceding years wherein identical expenditure had been held to be revenue in nature and allowed in appeal both by the CIT(Appeals) and the I.T.A.T. For the aforesaid reason, since the issue stands decided in favor of the assessee in preceding years and in the absence of any distinguishing facts having been brought to our notice, we uphold the order the of the Ld. CIT(Appeals) deleting the disallowance of bank charges Addition u/s 14A r.w.r. 8D - A.O. made the impugned disallowance on account of the fact that the assessee company had made investments in shares/mutual funds, the income from which was exempt from tax - CIT(Appeals), restricted part addition as disallowance made on account of interest as per rule 8D(2(ii) of the Income Tax Rules,1962, for the reason that the assessee had sufficient interest free funds of its own for making the investments. The disallowance on account of administrative expenses as per rule 8D(2)(iii) was however upheld - HELD THAT - No infirmity in the order of the Ld. CIT(Appeals) deleting the disallowance. The assessee had repeatedly contented both before the A.O. and the CIT(Appeals), that it had utilized its own interest free funds for the purpose of making the impugned investments which were made in earlier years. As submitted by the assessee that the said investments were made in financial years 2005-06 2006-07 when the cash accruals from the business of the company were to the tune of ₹ 37.08 Crores and ₹ 51.71 Crores which were sufficient for making the impugned investments of ₹ 34.65 Crores. Copies of financial statements of the said years were also filed. Based on the above facts the CIT(Appeals), we find, deleted the disallowance made following the decision of the jurisdictional High Court in the case of Hero Cycles Ltd. 2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT

Summary

Issues involved:
1. Disallowance of bank charges in assessment years 2011-12 and 2012-13
2. Disallowance of expenses under section 14A of the Income Tax Act, 1961

Analysis:

Issue 1: Disallowance of bank charges in assessment year 2011-12

The Revenue challenged the deletion of disallowance of bank charges of ?25,24,786, arguing that the payment for processing a working capital loan was a capital expenditure not allowable under section 37(1) of the Act. The Ld. CIT(Appeals) deleted the disallowance, citing previous decisions in favor of the assessee. The ITAT upheld the CIT(Appeals) order, noting no distinguishing facts from preceding years. Therefore, the disallowance of bank charges was deleted, and the Revenue's appeal was dismissed.

Issue 2: Disallowance of expenses under section 14A of the Income Tax Act, 1961

The A.O. disallowed expenses under section 14A due to the assessee's investments in tax-exempt shares/mutual funds. The Ld. CIT(Appeals) deleted the disallowance of interest expenses but upheld administrative expenses disallowance. The ITAT upheld the CIT(Appeals) decision based on the assessee's use of interest-free funds for investments, supported by financial statements. The order aligned with High Court precedents, and no contradictory facts were presented. Consequently, the disallowance under section 14A was deleted, and the Revenue's appeal was dismissed for both assessment years.

In conclusion, the ITAT upheld the CIT(Appeals) orders in both appeals, dismissing the Revenue's challenges regarding the disallowance of bank charges and expenses under section 14A for the respective assessment years.