2018 (9) TMI 604 - HC - Income Tax

Addition on account of interest u/s.36(i)(iii) - Held that - While deleting addition Tribunal relied on the judgment of the Supreme Court in the case of S. A. Builders 2006 (12) TMI 82 - SUPREME COURT . The Tribunal noted that undisputedly the loans and advances were given by the assessee to the subsidiary companies for the purpose of their business and there was no dispute that such advances were utilized by the subsidiaries for their businesses. No question of law in this regard therefore arises. Claim of depreciation on the leased asset - AO was of the opinion that the transaction itself was not genuine - Tribunal allowed such depreciation on the ground that the transaction was genuine - Held that - The assessee had demonstrated ownership of the assets, genuineness of the lease transaction, user of leased asset for the purpose of the business of earing lease rental. Such lease rental was accepted by the Assessing Officer and taxed the same. Quite apart from such finding of the Tribunal regarding genuineness of the transaction being a finding of fact what emerges further is that the Assessing Officer had accepted lease rental as income of the assessee and taxed the same. It was on this ground that the Tribunal was of the opinion that the depreciation of leased asset cannot be denied. This question therefore also does not require consideration. Disallowance u/s 14(A) - Held that - Tribunal had noted that the assessee had sufficient interest free funds for making investment in assets earning tax free income. It was in this background that the Tribunal deleted the disallownace but apportioned ₹ 2 lacs for administrative expenses. Here also no question of law arises therefore, tax appeal is dismissed.

Summary

Issues:
1. Challenge to the judgment of the Income tax Appellate Tribunal.
2. Addition of interest under Section 36(1)(iii) of the Income Tax Act.
3. Disallowance of depreciation on leased assets.
4. Disallowance under Section 14(A) of the Act.

Analysis:

1. The appeal challenged the Income Tax Appellate Tribunal's judgment. The first issue concerned the addition under Section 36(1)(iii) of the Income Tax Act. The Tribunal, relying on the Supreme Court judgment in S. A. Builders, held that loans given by the assessee to subsidiary companies for their business purposes did not warrant the addition. The Tribunal found no dispute regarding the utilization of these advances by the subsidiaries for their businesses, leading to the deletion of the addition.

2. The second issue revolved around the disallowance of depreciation on leased assets. The Assessing Officer doubted the genuineness of the transaction, questioning the sustainability of the depreciation claim. However, the Tribunal allowed the depreciation, emphasizing the genuine nature of the transaction. The Tribunal noted the ownership of assets, authenticity of the lease transaction, and the use of leased assets for earning lease rental, which was accepted and taxed by the Assessing Officer. The Tribunal's findings on the transaction's genuineness and the acceptance of lease rental as income supported the allowance of depreciation.

3. The third and fourth questions overlapped, focusing on restricting the disallowance under Section 14(A) of the Act to ?2 lakhs instead of the larger amount determined by the Assessing Officer. The Tribunal observed that the assessee possessed adequate interest-free funds for investments generating tax-free income. Consequently, the Tribunal deleted the disallowance but allocated ?2 lakhs for administrative expenses. The Tribunal's decision was based on the assessee's financial position and the nature of investments, leading to the dismissal of the tax appeal.

In conclusion, the High Court upheld the Tribunal's decisions on all issues raised, emphasizing the factual findings and legal principles applied in each case. The judgment provided detailed reasoning for dismissing the appeal and affirmed the Tribunal's conclusions on the matters under consideration.