2016 (6) TMI 21 - AT - Income Tax

Addition u/s 14A - Held that - in respect of disallowance u/s 14A, the assessee submitted complete details of the capital and reserves of assessee and also submitted the profits earned during the year. The learned CIT(A) has made a finding of fact that assessee had made an investment of ₹ 2.75 crores in the F.Y. 2008-09 as against free funds of ₹ 12.38 crores. The learned CIT(A) has also made a finding of fact that assessee had earned net profit of ₹ 17.33 crores during the year which is far in excess of the investment made in the capital of subsidiary company. The learned CIT(A) further held that in earlier years on similar facts and circumstances the addition u/s 14A was not made and keeping in view the rule of consistency the addition was not sustainable in the present years. While recording detailed findings the learned CIT(A) has also relied upon a number of case laws. The learned DR was not able to controvert any of the findings of learned CIT(A), and, therefore, we do not find any infirmity in the order of learned CIT(A) - Decided against revenue Disallowance u/s 36(1)(iii) - Held that - Coming to other grievance of Revenue, we find that learned CIT(A) has made a findings of fact that that assessee was having free reserves far more than advances to two firms. The learned CIT(A) has also categorically held that the assessee had given advances to two firms under normal business operations and, therefore, he had rightly held that disallowance u/s 36(1)(iii) was not warranted. The learned DR was not able to controvert any of the findings of learned CIT(A), and, therefore, we do not find any infirmity in the order of learned CIT(A)- Decided against revenue

Issues Involved:
1. Deletion of addition under section 14A of the Income Tax Act, 1961.
2. Deletion of addition under section 36(1)(iii) of the Income Tax Act, 1961.
3. Consideration of facts by CIT(A) while deleting the additions.
4. Request for setting aside the order of CIT(A) and restoring the order of the Assessing Officer.

Issue-wise Detailed Analysis:

1. Deletion of Addition under Section 14A:
The Revenue challenged the deletion of ?30,24,084/- made by the Assessing Officer under section 14A of the Income Tax Act, 1961. The Assessing Officer had disallowed this amount, arguing that the assessee had made investments in the share capital of a sister company and advanced interest-free loans to sister concerns. The Assessing Officer believed that the interest expenses attributable to such investments should be disallowed. However, the CIT(A) observed that the assessee had substantial own capital and free reserves, which were used for the investments, and no borrowed funds were utilized. It was also noted that in previous years, no disallowances under section 14A were made under similar circumstances. The CIT(A) relied on various judicial pronouncements, including the principles of commercial expediency and the rule of consistency, to conclude that the disallowance was not justified. The Tribunal upheld the CIT(A)'s order, finding no infirmity in the deletion of the addition under section 14A.

2. Deletion of Addition under Section 36(1)(iii):
The Revenue also contested the deletion of ?7,20,000/- made by the Assessing Officer on account of interest expenses under section 36(1)(iii) of the Income Tax Act, 1961. The Assessing Officer had disallowed this amount, arguing that the advances to certain parties were not for business purposes. The CIT(A) found that the advances were made for business purposes and were directly related to the assessee's business operations. It was also noted that the assessee had substantial own funds and reserves, and no borrowed funds were used for these advances. The CIT(A) relied on judicial pronouncements, including the principle that interest on borrowed funds used for business purposes is allowable, to conclude that the disallowance was not justified. The Tribunal upheld the CIT(A)'s order, finding no infirmity in the deletion of the addition under section 36(1)(iii).

3. Consideration of Facts by CIT(A):
The Revenue argued that the CIT(A) failed to consider the facts of the case as brought out by the Assessing Officer while framing the assessment. However, the Tribunal found that the CIT(A) had thoroughly examined the facts, financial statements, and judicial pronouncements before arriving at the decision to delete the additions. The Tribunal noted that the CIT(A) had made detailed findings of fact, including the availability of substantial own funds and reserves, and the business purposes of the advances, which were not controverted by the Revenue.

4. Request for Setting Aside the Order of CIT(A):
The Revenue prayed for setting aside the order of the CIT(A) and restoring the order of the Assessing Officer. However, the Tribunal found no merit in this request, as the CIT(A)'s order was well-reasoned and based on a thorough examination of the facts and applicable legal principles. The Tribunal upheld the CIT(A)'s order, dismissing the Revenue's appeal.

Conclusion:
In conclusion, the Tribunal dismissed the appeal filed by the Revenue, upholding the CIT(A)'s order in deleting the additions made under sections 14A and 36(1)(iii) of the Income Tax Act, 1961. The Tribunal found no infirmity in the CIT(A)'s order, which was based on a thorough examination of the facts, financial statements, and judicial pronouncements. The Tribunal emphasized the principles of commercial expediency, the rule of consistency, and the availability of substantial own funds and reserves in arriving at its decision.

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