2020 (1) TMI 1638 - AT - Income Tax

Addition u/s 14A - Assessee has disallowed being 0.5% on an average investment - HELD THAT - When no funds are used in investment, then no disallowance of interest expenses under section 14A is applicable. The amount of net investment was same in the preceding assessment year as well as in assessment year under appeal. Assessee has specifically submitted before the CIT(A) that he made non-cash investment in subsidiary and associated companies as joint venture to revive certain closed mills. No funds are used to make investments. The net investment in assessment year under appeal is same as were in preceding A.Y. 2013-2014. These facts are same as have been considered in earlier year. In earlier year, the Ld. CIT(A) has deleted the addition, but, no appeal have been filed by the Department except in A.Y. 2009-2010 before the Tribunal and the Tribunal 2014 (11) TMI 1174 - ITAT DELHI for the A.Y. 2009-2010 dismissed the Departmental appeal on the same ground and on same facts. Therefore, this issue is also covered by the Order of ITAT (supra). Prior period expenditure disallowance - HELD THAT - As is admittedly covered by the Order of ITAT 2014 (11) TMI 1174 - ITAT DELHI Dated 19.11.2014 (supra). Following the same reasons for decision for the A.Y. 2009-2010 on identical facts, we do not find any merit in the Departmental appeal and the same is accordingly dismissed.

Summary

Issues:
1. Deletion of Rs.25,01,015 under section 14A of the I.T. Act, 1961.
2. Disallowance of prior period expenditure of Rs.5,19,24,746.

Analysis:
*Issue 1: Deletion of Rs.25,01,015 under section 14A of the I.T. Act, 1961*
The Revenue challenged the deletion of Rs.25,01,015 under section 14A of the I.T. Act. The Assessing Officer (A.O.) computed the disallowance based on the dividend income earned by the assessee and the disallowance made by the assessee itself. The assessee argued that since it had already disallowed a certain amount based on its average investment, no further disallowance should be made. The assessee also highlighted non-cash investments made in subsidiary companies, arguing that no disallowance of interest expenses should apply when no funds are used for investments. The Ld. CIT(A) allowed the claim of the assessee, citing similar relief granted in earlier years by the ITAT and the Department's acceptance of the Tribunal's order in a previous year.

*Issue 2: Disallowance of prior period expenditure of Rs.5,19,24,746*
The Revenue challenged the disallowance of prior period expenditure claimed by the assessee. The A.O. added back only a portion of the claimed expenditure in the computation of income, as the assessee was adding back only net prior period expenditure. The assessee argued that similar additions had been deleted in earlier years by the Ld. CIT(A) and the ITAT, emphasizing compliance with AS-5 of ICAI. The Ld. CIT(A) found the issue to be the same as in previous years and deleted the addition based on past decisions. The Tribunal dismissed the Departmental appeal, noting that the issue was covered by a previous order.

In conclusion, the Tribunal upheld the decisions of the Ld. CIT(A) on both issues, stating that the facts and circumstances were similar to previous cases where similar additions had been deleted. The Tribunal found no merit in the Departmental appeal and dismissed it accordingly.