2017 (5) TMI 1213 - AT - Income Tax

Disallowance of prior period expenses - CIT-A allowed claim - Held that - We find no reasons to interfere with the decision of the CIT(A) which is based on the decision of our Co-ordinate Bench in the case of Deccan Chronicle Holdings Ltd. (2014 (9) TMI 1072 - ITAT HYDERABAD). In so far as the objection of the Assessing Officer that it was a prior period expenditure in our view the same has been correctly negated by the CIT(A). Ostensibly the impugned expenditure may pertain to an activity of an earlier year so however the CIT(A) has recorded a categorical finding that the liability for the same has crystallized during the instant year as requisite bills were received during the previous year relevant to the assessment year under consideration. For the said reasons we find no infirmity in the ultimate decision of the CIT(A) in deleting the addition - Decided against revenue. Addition u/s 14A - assessee has made investments in shares and securities which is capable of generating exempt income - Held that - Factually speaking there is no dispute to the fact that during the year under consideration assessee has not received any exempt income and therefore on this count alone no disallowance under section 14A is merited following the ratio in the case of Cheminvest Ltd. (2015 (9) TMI 238 - DELHI HIGH COURT ). The other finding of the CIT(A) with regard to the availability of sufficient interest free funds is also quite justified and is borne out of record as there is no material led by the Revenue to controvert the same. For the said reason also the disallowance of interest expenditure under section 14A of the Act is quite unjustified. We therefore deem it fit and proper to affirm the action of the CIT(A) in deleting the disallowance - Decided against revenue

Summary

Issues:
1. Disallowance of prior period expenses and capital expenditure
2. Disallowance under section 14A of the Income Tax Act

Issue 1: Disallowance of prior period expenses and capital expenditure:
The appeal pertains to the assessment year 2011-12 against an order by the CIT(A) and the Assessing Officer under section 143(3) of the Income Tax Act, 1961. The Revenue challenged the deletion of a disallowance of ?15,19,000 as prior period expenses, arguing that they are not allowable under the mercantile system. The expenditure in question was related to professional fees for buy-back of shares. The CIT(A) disagreed with the Assessing Officer, stating that since the bills were received in the current year, the liability crystallized during that year. The CIT(A) also held that the expenditure related to the buy-back of shares was deductible as a revenue expenditure. The Tribunal upheld the CIT(A)'s decision, citing a similar case precedent and rejecting the Revenue's arguments.

Issue 2: Disallowance under section 14A of the Income Tax Act:
The second issue involved a disallowance of ?47,74,689 made by the Assessing Officer under section 14A of the Act due to investments in shares and securities capable of generating exempt income. The CIT(A) deleted the disallowance, emphasizing the need for a specific reason for dissatisfaction with the appellant's contention and the absence of exempt income during the relevant year. The Departmental Representative argued that the disallowance was justified as the assessee failed to show that no interest-bearing funds were used for the investments. However, the Tribunal upheld the CIT(A)'s decision, noting the absence of exempt income during the year and the availability of sufficient interest-free funds to cover the investments. The Tribunal relied on relevant case laws and judgments to support its decision, ultimately dismissing the Revenue's appeal.

In conclusion, the Tribunal affirmed the CIT(A)'s decisions on both issues, ruling in favor of the assessee and dismissing the Revenue's appeal.