2019 (11) TMI 1548 - AT - Income Tax

Disallowance u/s 36 - interest on loans which were utilised to acquire the said assets in the earlier years and not put to use, was required to be capitalize to the closing CWIP - HELD THAT - As clear cut findings have been recorded by the ld.CIT(A) and came to a conclusion that no interest disallowance can be made as the funds used for work in progress has been paid out of own sources . Ld.CIT(A) while deleting the addition relied on the decisions of Reliance utilities Power Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT and HDFC Bank Ltd 2014 (8) TMI 119 - BOMBAY HIGH COURT and Munjal Sales Corporation Vs. Another 2008 (2) TMI 19 - SUPREME COURT and other various ITAT decisions. We find that the ld.CIT(A) has passed a speaking and reasonable order while relying on the various decisions. Disallowance u/s.14A r.w.r. 8D - CIT-A deleted the addition - HELD THAT - CIT(A) has given a clear cut finding as to how no disallowance is required to be made u/s.14A of the Act in respect of investments in shares of The Saraswat Co-op. Bank Ltd and shares of foreign companies. Ld.CIT(A) has rightly observed that income from these shares is not exempt and accordingly no disallowance is called for. Similarly, in respect of investment in shares of Wardha Power Company, ld.CIT(A) noted that assessee is not entitled to any dividend and as such has not received any dividend. Considering the facts on record and the order of the ld.CIT(A), we are of the view that no interference is called for in the appellate order passed by ld CIT(A). Revenue appeal dismissed.

Summary

Issues:
1. Disallowance made under section 36(1)(iii) and section 14A of the Income Tax Act.

Analysis:

Issue 1: Disallowance under Section 36(1)(iii)
The Revenue filed an appeal against the order of the Ld. CIT(A)-13, Mumbai, deleting the disallowances made under section 36(1)(iii) and section 14A of the Act for the assessment year 2014-15. The AO disallowed a sum of ?1.77 crores under section 36(1)(iii) due to interest on loans utilized to acquire assets in earlier years. However, the ld.CIT(A) allowed the appeal after considering the standalone accounts of the merged entities. The ld.CIT(A) found that the entities had sufficient interest-free funds to cover the capital work in progress. Relying on various legal precedents, the ld.CIT(A) concluded that no interest disallowance was warranted. The ITAT upheld the decision of the ld.CIT(A) based on the findings and legal reasoning provided in the order.

Issue 2: Disallowance under Section 14A
The second issue raised by the Revenue was against the disallowance made under section 14A of the Act. The AO calculated a disallowance of ?1168.40 lakhs under Rule 8D(2)(ii) and Rule 8D(2)(iii) for the investments held by the assessee. The ld.CIT(A) allowed the appeal of the assessee by holding that no disallowance under section 14A was necessary for certain investments as they did not yield exempt income. The ld.CIT(A) provided detailed reasons for each category of investment and cited legal precedents to support the decision. The ITAT, after reviewing the facts and the order of the ld.CIT(A), concurred with the decision and dismissed the grounds raised by the Revenue.

In conclusion, the ITAT upheld the orders of the ld.CIT(A) in both issues, thereby dismissing the appeal filed by the Revenue. The judgments were based on a thorough analysis of the facts, legal provisions, and relevant case laws, ensuring a fair and reasoned decision in each aspect of the appeal.