2016 (12) TMI 1800 - AT - Income Tax

Disallowance u/s 14A read with Rule 8D - HELD THAT - When the income of the assessee was from the companies which situated outside India and the assessee claims that the money was invested in other companies, which are said to be subsidiary companies, why the expenditure incurred by the assessee should not be disallowed was not examined by this Tribunal for assessment year 2000-01. Therefore, this Tribunal is of the considered opinion that the matter needs to be reconsidered. Accordingly, the orders of both the authorities below are set aside and the issue is remitted back to the file of the Assessing Officer to re-examine the matter afresh and bring on record shareholding pattern of the companies in which the investment was made by the assessee and how the companies outside India are subsidiary companies of the assessee and thereafter decide the issue in accordance with law, after giving a reasonable opportunity to the assessee. Disallowance while computing profit u/s 115JB - HELD THAT - Explanation 1(c) to Section 115JB of the Act clearly says that other than ascertained liability, it has to be increased over and above the book profit. The assessee now claims that mere pendency of writ petition before the High Court cannot be said that the liability is not an unascertained liability. The fact remains that the liability to pay the electricity tax would depend upon the decision that may be taken by the Madras High Court in the writ petition said to be pending. As on today, even though there was a liability and demand raised by the concerned authority, the High Court stayed the recovery and the payment of electricity tax would depend upon the decision that may be taken by the High Court. Therefore, as on today, it is not an ascertained liability. Hence, it has to be increased as provided in Explanation 1 to Section 115JB of the Act. Therefore, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly the same is confirmed. Disallowance of proportionate interest expenses on the funds diverted to associate companies - HELD THAT - The assessee claims that interest free funds were diverted to the companies at Dubai and Jordon. The assessee also claims that they are sister concerns of the assessee. However, the shareholding pattern of so-called companies at Dubai and Jordon are not available on record. Therefore, it is not known how the assessee claims that the advances were made to sister concerns. Moreover, the balance sheet and other financial documents were not available on record. Therefore, it is not known whether the assessee has advanced funds out of interest free funds or borrowed funds. It is not in dispute that the assessee borrowed funds for business purpose and the same remain outstanding during the year under consideration. Therefore, we have to examine how much funds were borrowed and whether there was any nexus between borrowed funds and investment made in Dubai and Jordon. The shareholding pattern of those companies is also not known. Since these facts were not available on record and the same were also not examined by earlier Bench of this Tribunal during the assessment year 2000-01, this Tribunal is of the considered opinion that the matter needs to be reexamined.

Summary

Issues involved:
1. Disallowance of club expenses
2. Disallowance under Section 14A of the Income-tax Act
3. Disallowance of bad debts
4. Disallowance of depreciation
5. Disallowance while computing profit under Section 115JB of the Act
6. Disallowance of proportionate interest expenses on funds diverted to associate companies

Issue 1: Disallowance of Club Expenses
The assessee did not press this ground, leading to its dismissal as not pressed.

Issue 2: Disallowance under Section 14A of the Income-tax Act
The assessee claimed no investment was made during the year, but the Tribunal found insufficient evidence to verify this claim. The matter was remanded back to the Assessing Officer for re-examination.

Issue 3: Disallowance of Bad Debts
The assessee did not press this ground, resulting in its dismissal as not pressed.

Issue 4: Disallowance of Depreciation
The ground related to disallowance of depreciation was also not pressed by the assessee and was dismissed accordingly.

Issue 5: Disallowance while Computing Profit under Section 115JB of the Act
The dispute centered on the disallowance of electricity tax under both normal provisions and Section 115JB. The Tribunal upheld the disallowance as the liability was contingent pending a decision by the High Court.

Issue 6: Disallowance of Proportionate Interest Expenses on Funds Diverted to Associate Companies
The Tribunal found insufficient evidence regarding the diversion of funds to associate companies and remanded the matter back to the Assessing Officer for re-examination.
The judgment involved various issues, including disallowances of club expenses, bad debts, depreciation, and interest expenses, along with the application of Section 14A and Section 115JB of the Income-tax Act. The Tribunal dismissed certain grounds as not pressed by the assessee and remanded other issues back to the Assessing Officer for further examination due to insufficient evidence and lack of clarity regarding the nature of expenses and investments. The decision highlighted the importance of providing clear documentation and explanations to support claims and emphasized the need for a thorough re-examination of the matters in question.