2020 (8) TMI 142 - AT - Income Tax

Disallowance of interest u/s. 36(1)(iii) - Method of accounting followed by assessee - HELD THAT - As decided in own case if the revenue expenditure has been incurred in a particular year and assessee claims that expenditure in that year the revenue cannot deny the expenditure and it has to be allowed; Secondly the loans are not project specific and it is undisputedly a revenue expenditure and same has to be allowed in the year it has been incurred irrespective of the fact that whether the assessee is following project completion method . Otherwise also this issue stands allowed in favour of the assessee by the Tribunal in assessee s own case right from the AYs 1993-94 to AY 2002-03. Thus respectfully following the earlier years precedence and the decision of Hon ble Supreme Court in Taparia Tools 2015 (3) TMI 853 - SUPREME COURT we direct the AO to allow the interest claimed by assessee during the year. - Decided against revenue. Disallowance u/s. 14A r.w. Rule 8D - HELD THAT - Since the assessee was having more surplus funds than the closing value of investments we do not find any infirmity in the order passed by the Ld.CIT(A) in deleting the disallowance under Rule 8D(2)(ii) of I.T. Rules the same is sustained. Disallowance under Rule 8D(2)(iii) of I.T. Rules - CIT(A) restricted the disallowance to the exempt income earned by the assessee during the year - assessee before us pleaded that in view of the decision of the Special Bench of Delhi Tribunal in the case of ACIT v. Vireet Investments Private Limited 2017 (6) TMI 1124 - ITAT DELHI only those investments which yielded dividend income should be considered for the purpose of computing the disallowance - HELD THAT - We direct the Assessing Officer to apply the ratio of the decision of the Special Bench of the Delhi Tribunal in the case of ACIT v. Vireet Investments Private Limited (supra) and compute the disallowance accordingly. Order being pronounced after ninety (90) days of hearing - COVID-19 pandemic and lockdown - HELD THAT - Taking note of the extraordinary situation in the light of the COVID-19 pandemic and lockdown the period of lockdown days need to be excluded. See case of DCIT vs. JSW Limited 2020 (5) TMI 359 - ITAT MUMBAI

Summary

Issues:
1. Deletion of disallowance made u/s. 36(1)(iii) of the Act for A.Ys. 2013-14 and 2014-15.
2. Disallowance made u/s. 14A r.w. Rule 8D of I.T. Rules for A.Ys. 2013-14 and 2014-15.

Analysis:
1. Deletion of disallowance u/s. 36(1)(iii) of the Act:
- The issue was decided in favor of the assessee by the Tribunal in an earlier case.
- The Tribunal held that interest expenses claimed by the assessee should be allowed in the year incurred.
- The Tribunal followed the completed contract method, directing the AO to allow interest claimed by the assessee.
- The decision was supported by the Hon'ble Supreme Court's judgment in Taparia Tools case.
- The Tribunal upheld the Ld.CIT(A)'s order, rejecting the grounds raised by the Revenue.

2. Disallowance made u/s. 14A r.w. Rule 8D of I.T. Rules:
- The Assessing Officer computed disallowance under Rule 8D for A.Ys. 2013-14 and 2014-15.
- The Ld.CIT(A) deleted interest disallowance under Rule 8D(2)(ii) and restricted disallowance under Rule 8D(2)(iii) to exempt income earned.
- The Ld.CIT(A) followed the decision of the Hon'ble Bombay High Court and directed deletion of interest disallowance.
- The Tribunal sustained the deletion of interest disallowance due to the surplus funds held by the assessee.
- Regarding disallowance under Rule 8D(2)(iii), the Tribunal directed the AO to consider only investments yielding exempt income for computing the disallowance.
- The Tribunal dismissed the Revenue's appeals and partially allowed the cross objections filed by the assessee.

In conclusion, the appellate tribunal upheld the decisions of the Ld.CIT(A) in both issues, ruling in favor of the assessee. The judgment provided detailed reasoning based on legal precedents and applicable rules, ensuring a fair and just outcome in line with established principles of tax law.