2019 (6) TMI 1635 - AT - Income Tax

Disallowance u/s 14A r.w.r 8D - sufficiency of own funds - HELD THAT - In this year the assessee earned dividend income much higher than the earlier year which is why taking into consideration the entire gamut of the matter, AO applied the provision of Section 14A r.w.r. 8D of the Act. However, we find from records that the interest to the tune needs to be deleted in view of the particular fact that the own fund of the assessee exceeds investment. Therefore, a presumption can be drawn that such investment was made out of the own fund of the assessee. Disallowance of administrative expenditure - Under the specific circumstances when the AO has failed to establish the nexus that investment was made out on interest bearing funds disallowance towards administrative expenditure is not permissible. We find the fact of the case before us and that of the judgment cited upon is similarly situated and in the absence of any changed facts of the case, we do not find any reason to deviate from the same in confirming the estimated disallowance to the tune of ₹ 1,50,000/- as made by the Learned CIT(A) which is not permissible and therefore, bad in law. Thus the same is liable to be quashed. Hence, we delete such addition made by the Learned CIT(A). The assessee s appeal is thus allowed. Disallowance of interest @12% - Interest free advances to three parties on which no interest was charged - HELD THAT - As relying on assessee's own 2018 (12) TMI 1679 - ITAT AHMEDABAD case we find no infirmity in the order impugned passed by the first appellate authority so far as to warrant interference. The question is accordingly answered in the affirmative, i.e. in favour of the assessee and against the revenue. Consequently, the appeals fails and accordingly dismissed. We find no infirmity in the order impugned passed by the first appellate authority so far as to warrant interference. The question is accordingly answered in the affirmative, i.e. in favour of the assessee and against the revenue. Consequently, the appeals fails and accordingly dismissed. Deduction u/s 80IA on a much higher amount than to earlier years - right of amalgamating company to claim deduction - HELD THAT - As decided in own case 2018 (12) TMI 1679 - ITAT AHMEDABAD relevant legal provision has already been elaborated by the Ld. CIT(A) in his findings that as per the provisions of section 80IA(12) when any undertaking of an Indian Company which is entitled to deduction under this section is transferred before the expiry of the period specified in this section to another Indian Company then as per clause (b) the provision of this section shall apply to the amalgamated Company as they would have applied to the amalgamating Company if the amalgamation had not taken place and the provisions of subsection (12) would only apply if the amalgamating Company was eligible for claiming deduction u/s 80IA. It is demonstrated from the above facts and circumstances that the assessing officer has disallowed the claim of the assessee on presumption basis that addition was old plant and machinery without bringing on record evidence to substantiate that specified machinery was purchased by Shanti processor Ltd and the assessing officer has also failed to disproved the material fact that similar claim was allowed to the assessee in the assessment year 2009-10 on fulfilling of all the conditions. - Decided against revenue.

Summary

Issues Involved:

1. Disallowance under Section 14A of the Income Tax Act.
2. Disallowance of interest under Section 36(1)(iii) of the Income Tax Act.
3. Disallowance under Section 80IA of the Income Tax Act.

Detailed Analysis:

1. Disallowance under Section 14A of the Income Tax Act:

During the assessment proceedings, it was found that the assessee had made significant investments in shares, earning dividend income exempt from tax. The Assessing Officer (AO) disallowed expenses related to these investments, amounting to ?44,78,261, under Section 14A read with Rule 8D. The AO argued that the assessee must have incurred expenses for managing these investments, despite the assessee's claim of using only its own funds for the investments.

The Commissioner of Income Tax (Appeals) [CIT(A)] reduced this disallowance to ?1,50,000 for administrative expenses, citing that the assessee had ample interest-free funds. The CIT(A) followed precedents from the jurisdictional High Court and previous tribunal decisions, which held that no disallowance is warranted if investments are made from interest-free funds.

The Appellate Tribunal upheld the CIT(A)'s decision, emphasizing that the assessee's own funds exceeded the investments, and hence, no interest disallowance was justified. For administrative expenses, the Tribunal found no basis for the AO's calculation and upheld the CIT(A)'s lump sum disallowance of ?1,50,000.

2. Disallowance of interest under Section 36(1)(iii) of the Income Tax Act:

The AO disallowed ?5,02,548 out of the interest expense, arguing that the assessee had given interest-free advances to certain parties. The assessee contended that these advances were made in the ordinary course of business and were not loans, and that it had sufficient interest-free funds to cover these advances.

The CIT(A) deleted the disallowance, relying on the assessee's own case for previous years where similar disallowances were overturned. The Tribunal upheld the CIT(A)'s decision, noting that the assessee had substantial interest-free funds far exceeding the interest-free advances, and hence, no disallowance under Section 36(1)(iii) was warranted.

3. Disallowance under Section 80IA of the Income Tax Act:

The AO disallowed the assessee's claim of ?6,15,58,478 under Section 80IA, related to power generation activities, arguing that the claim was higher than in previous years. The CIT(A) deleted the disallowance, relying on the assessee's case for earlier years where similar claims were allowed.

The Tribunal upheld the CIT(A)'s decision, noting that the assessee had fulfilled all conditions for the deduction under Section 80IA. The Tribunal referenced previous assessments where the AO had allowed similar claims, and found no basis for the current disallowance.

Conclusion:

The Tribunal partly allowed the revenue's appeal, upholding the CIT(A)'s decisions on all grounds. The disallowances under Sections 14A, 36(1)(iii), and 80IA were either reduced or deleted based on the assessee's substantial interest-free funds, business practices, and compliance with statutory conditions for deductions.