2014 (10) TMI 1018 - AT - Income Tax

Exemption u/s 10(23G) - AO s reasons for denying the claim that the assessee has not classified the loans as investments and further those companies have not invited funds by open offer from the public - HELD THAT - As decided in RABO INDIA FINANCES LTD. 2012 (4) TMI 772 - BOMBAY HIGH COURT allowed the claim of the assessee on noticing that the deduction u/s 10(23G) is being allowed consistently from the assessment year 2002-03 onwards. AO s reasons for denying the claim that the assessee has not classified the loans as investments and further those companies have not invited funds by open offer from the public are not material as classification of amounts in the books of accounts are not a criteria, for considering the long term finance given by the assessee and further there is no stipulation that there should be an open offer in inviting long term finance under the rules. The conditions considered by the AO are not supported by the provisions of the Act and therefore the AO s action in denying the claim on infructuous reasons cannot be upheld. Interest u/s 234D - Whether interest would not arise, if both the additions made by the AO are deleted? - HELD THAT - In the earlier paragraphs, we have directed the AO to allow the exemption u/s 10(23G) of the Act and further disallowance of interest has since been rectified by the AO in the order passed u/s 144 of the Act. Hence, as agreed by both the parties, the question of charging interest u/s 234D would not arise. Accordingly, we reject the ground urged by the revenue.

Summary

Issues:
1. Validity of re-opening of assessment u/s 147 of the Income Tax Act, 1961
2. Rejection of claim of exemption u/s 10(23G) of the Act
3. Rejection of claim of deduction of interest of Rs. 48,08,110/- relating to Foreign Currency Non-Residential (FCNR) loans under section 43B of the Act
4. Deletion of interest charged u/s 234D of the Act

Validity of Re-opening of Assessment:
The appeal involved the issue of the validity of re-opening the assessment under section 147 of the Income Tax Act, 1961. The assessee argued that if all additions made by the Assessing Officer were deleted, the issue of the validity of re-opening the assessment would become academic. As the AO was directed to allow the exemption u/s 10(23G) of the Act and the disallowance of interest was rectified, the issue of the validity of re-opening the assessment was considered academic and not necessary to adjudicate.

Rejection of Claim of Exemption u/s 10(23G) of the Act:
The appeal also addressed the rejection of the claim of exemption under section 10(23G) of the Act. The Tribunal referred to a previous order where it was held that the assessee satisfied the conditions for claiming exemption under section 10(23G) as it involved long-term financing and the entities were notified under the provisions of section 10(23G). The Tribunal noted that the AO's reasons for denying the claim were not supported by the provisions of the Act. The Tribunal upheld the claim of exemption u/s 10(23G) based on consistent allowance from previous assessment years and the decision of the Hon'ble Bombay High Court confirming the Tribunal's order.

Rejection of Claim of Deduction of Interest on FCNR Loans:
Another issue raised in the appeal was the rejection of the claim of deduction of interest amounting to Rs. 48,08,110 relating to Foreign Currency Non-Residential (FCNR) loans under section 43B of the Act. The AO had initially disallowed this interest, but the assessee submitted that the disallowance was deleted in a subsequent order passed under section 154 of the Act. As the assessee was not pressing this ground, it was dismissed as not pressed.

Deletion of Interest Charged u/s 234D of the Act:
The solitary ground in the appeal filed by the revenue related to the deletion of interest charged under section 234D of the Act. Both parties agreed that this issue would not arise if the additions made by the AO were deleted. As the AO was directed to allow the exemption u/s 10(23G) of the Act and the disallowance of interest was rectified, the question of charging interest u/s 234D did not arise. Therefore, the ground urged by the revenue was rejected.

In conclusion, the appeal filed by the assessee was treated as allowed, and the appeal of the revenue was dismissed based on the detailed analysis and decisions made regarding the issues of re-opening of assessment, exemption u/s 10(23G), deduction of interest on FCNR loans, and deletion of interest charged u/s 234D of the Income Tax Act, 1961.