2019 (8) TMI 344 - AT - Income Tax

Disallowance of interest u/s 36(1)(iii) - disallowance of interest on the capital work in progress, on the interest free advances given for capital purpose and interest on investments - HELD THAT - From the details, it can be found that the interest bearing funds have been utilized for the business purpose only as per the terms of the loan. Nothing contra has been brought on record to prove the fact that the interest bearing funds shown above have been utilized for non business purpose by the Revenue. Since the assessee has been found to be having sufficient own funds and the loan funds have been utilized for the business purpose, keeping in view the established legal position as narrated we decline to interfere in the order of the Ld. CIT(A) on the issue of disallowance u/s 36(1)(iii). Disallowance u/s 14A r.w.r. 8D - HELD THAT - we hold that in the peculiar facts and circumstances of the case, wherein the assessee has received no exempt income, no disallowance can be made u/s 14A, in view of the position of law as considered by the various Courts. Hence, we find no reason to interfere in the order of the Ld. CIT(A) which is rightly based on the judicial pronouncements. - Decided against revenue

Summary

Issues:
1. Disallowance of interest on capital work in progress, interest-free advances, and investments.
2. Disallowance under section 14A of the Income Tax Act, 1961.

Issue 1: Disallowance of Interest:
The Appellate Tribunal considered appeals filed by the Revenue against separate orders of Ld. CIT(A)-2 Ludhiana for A.Y 2011-12 and A.Y. 2013-14. The primary issue was whether the disallowance of interest on capital work in progress, interest-free advances, and investments aligned with established judicial precedence. The Assessing Officer disallowed interest amounts under section 36(1)(iii) based on the judgment of the jurisdictional High Court in the case of Abhishek Industries. The Tribunal outlined key legal propositions to determine disallowance under section 36(1)(iii), emphasizing the need for sufficient interest-free funds and the burden of proof on the department to show misutilization of interest-bearing funds for non-business purposes. The Tribunal analyzed the assessee's own funds and loans utilization to conclude that interest-bearing funds were used for business purposes. Relying on legal precedents, including judgments from various High Courts and ITAT benches, the Tribunal declined to interfere with the Ld. CIT(A)'s order on the disallowance issue.

Issue 2: Disallowance under Section 14A:
The third ground of appeal related to disallowance under section 14A of the Income Tax Act, 1961, concerning investments made by the assessee. The Assessing Officer disallowed an amount under section 14A despite the assessee not receiving any dividends from the investments. The Tribunal noted that the assessee had sufficient own funds and made strategic investments in subsidiary shares. Referring to multiple judicial decisions, the Tribunal highlighted that no disallowance under section 14A is warranted when the assessee has not received dividends and possesses own resources. After considering the submissions and legal positions from various Courts, the Tribunal upheld the Ld. CIT(A)'s order, stating that no disallowance could be made under section 14A in the absence of exempt income. Consequently, the Tribunal dismissed the Revenue's appeals based on the established legal principles and judicial pronouncements.

In conclusion, the Appellate Tribunal ITAT Chandigarh, comprising Smt. Diva Singh, JM, and Dr. B.R.R. Kumar, AM, addressed the issues of interest disallowance and section 14A disallowance in the context of separate appeals filed by the Revenue. Through a detailed analysis of the facts, legal propositions, and relevant case laws, the Tribunal concluded that the disallowances made by the Assessing Officer were not justified based on the utilization of funds for business purposes and the absence of exempt income. The Tribunal's decision to dismiss the appeals was grounded in the established legal principles and interpretations provided by various High Courts and ITAT benches.