2019 (3) TMI 1836 - AT - Income Tax

Addition u/s. 14A - Sufficiency of own interest free funds - HELD THAT - As decided in own case 2019 (2) TMI 1889 - ITAT AHMEDABAD CIT(A) granted relief to the assessee from such disallowance on the ground that the interest free funds at the disposal of the assessee is in excess of the corresponding investments yielding tax free income. On such facts, we do not see any reason to interfere with the aforesaid findings in view of the decision of the Hon ble Gujarat High Court in CIT vs Suzlon Energy Ltd. 2013 (7) TMI 697 - GUJARAT HIGH COURT and CIT vs GIDC 2013 (1) TMI 809 - GUJARAT HIGH COURT and other judicial precedents. Addition made u/s. 36(1)(iii) - interest of advance given for purchase of immovable property - HELD THAT - The perusal of the order of the CIT(A) shows that the assessee had demonstrated before the first appellate authority that the advances given for purchases of immovable property is far in excess of the interest free funds. In view of the facts narrated by the CIT(A) towards availability of interest free funds in excess of interest bearing loans for towards advances immovable property, we do not see any reason to interfere with the order of the CIT(A) which is sync with the judicial precedence prevailing in this regard. - Appeal of the revenue is dismissed.

Summary

Issues:
1. Disallowance under section 14A of the Income Tax Act.
2. Disallowance of interest on advance given for purchase of immovable property.

Analysis:
1. The first issue pertains to the disallowance under section 14A of the Income Tax Act. The assessing officer had made an addition of ?25,81,192 under this section as the assessee had invested an amount that could yield tax-free income. The assessee contended that section 14A was not applicable since the investments were in a partnership firm and interest income was offered for taxation. However, the assessing officer disagreed and computed the disallowance as per the provisions of section 14A. The CIT(A) allowed this ground of appeal in favor of the assessee.

2. The second issue involves the disallowance of interest on advance given for the purchase of immovable property. The assessing officer disallowed ?68,06,226 out of total interest expenses, stating that the assessee's cost of running the business depended on the ratio of interest-free and interest-bearing funds. The CIT(A) allowed this ground of appeal as well, noting that sufficient interest-free funds were available for the investments, as per judicial precedents. The appellate tribunal upheld the CIT(A) decision, citing similar cases and judicial precedents, and dismissed the revenue's appeal.

In conclusion, both grounds of appeal by the revenue were dismissed by the Appellate Tribunal, following the decisions of the CIT(A) and judicial precedents.