2018 (12) TMI 1258 - AT - Income Tax

Disallowance u/s 14A - Held that - In views of case of Corrtech Energy Pvt Ltd 2014 (3) TMI 856 - GUJARAT HIGH COURT and in view of the undisputed factual position that there was no exempt income in the hands of the assessee in the relevant previous year, we uphold the plea of the assessee and delete the impugned disallowance u/s. 14A. The assessee gets the relief accordingly. Disallowance of interest expenditure as capital expenditure on part of loan which was utilised for the purpose of the running business of the company - Held that - The factual position about interest free funds being far from excess of the funds deployed in the new projects and absence of any factual findings about the diversion of funds is not even disputed by the learned Departmental Representative. The disallowance of interest on the borrowings from the Citi Bank, which is solely based on the assumption that the borrowings from the Citi Bank have been used in the new projects something which is not burnout from the material on record, is devoid of legally sustainable basis. Learned CIT(A) s conclusions are based on surmises and conjectures. In the light of these discussions, and bearing in mind entirety of the case, we direct the Assessing Officer to delete the impugned disallowance - Decided in favour of assessee

Summary

Issues:
1. Disallowance under Section 14A of the Income-tax Act, 1961.
2. Disallowance of interest expenditure as capital expenditure.

Issue 1: Disallowance under Section 14A:
The appeal by the assessee challenged the disallowance under Section 14A made by the assessing officer. The assessee argued that as there was no exempt income in the relevant assessment year, no disallowance under Section 14A should apply. The Tribunal upheld the assessee's plea based on the judgment of the jurisdictional High Court and deleted the disallowance of ?20,62,097 under Section 14A. The decision was in line with the factual position that no exempt income was earned by the assessee during the relevant period.

Issue 2: Disallowance of Interest Expenditure as Capital Expenditure:
The second issue revolved around the disallowance of interest expenditure of ?63,52,554 as capital expenditure by the assessing officer. The Tribunal noted that the borrowing was specifically for existing projects and there was no diversion from the end use of the borrowings. Referring to precedents, the Tribunal held that in the absence of specific details indicating diversion, the presumption was that the investment in new projects was from interest-bearing funds. The Tribunal directed the Assessing Officer to delete the disallowance of interest expenditure, as the basis for disallowance was deemed legally unsustainable. Consequently, the assessee's appeal was allowed in this regard.

Conclusion:
The Tribunal allowed the appeal of the assessee concerning both issues. The disallowance under Section 14A was deleted due to the absence of exempt income, and the disallowance of interest expenditure as capital expenditure was overturned based on the specific circumstances and legal precedents. The appeal filed by the Assessing Officer was dismissed as the disallowance under Section 14A had already been deleted in the assessee's case, rendering the issue academic and infructuous. The Tribunal pronounced the judgment on 16th November 2018, upholding the relief granted to the assessee and declining to interfere in the matter concerning the Assessing Officer's appeal.