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2020 (10) TMI 528 - AT - Income TaxDisallowance u/s 14A - CIT-A deleted the disallowance on account of interest expenditure however sustained the disallowance of administrative expenditure - assessee has submitted that it has huge interest free funds available with it which far exceeds the amount of investment made in those securities which yielded tax free exempt income u/s 10 (34) - HELD THAT - Naturally the presumption would be available in favour of the assessee that, if the amount of investment made in such a tax free earning investments does not have any nexus with interest bearing borrowed funds, that the amount of investment made by the assessee in such exempt income-yielding instrument is out of interest free funds available with assessee. DR could not show that the amount of investment made by the assessee in those investments, which earned tax-free income, is higher than the amount of share capital and free reserve available with the assessee. In view of this, we do not find any infirmity in the order of the CIT A in deleting the disallowance u/s 14 A on account of interest expenditure following the decision of Reliance Utilities And Power Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT . Accordingly, we find no infirmity in the order so far as the disallowance on account of interest expenditure is deleted. Administrative expenditure disallowance applying the ratio of administrative expenditure with respect to the dividend income to the total receipt of the assessee and thereafter making a proportionate disallowance is unwarranted. As in absence of proper rule for computation of disallowance, which came into effect only for assessment year 2008 09, the above method cannot be upheld. Therefore looking to the past assessment records wherein for assessment year 2004 05 the disallowance was restricted to ₹ 2 lakhs and for assessment year 2006 07 the disallowances restricted to ₹ 10 lakhs, we further direct the learned assessing officer to restrict the disallowance of expenditure to ₹ 10 lakhs only for this year too. Addition on account of interest on bonds disallowed u/s 43B - interest on PP bonds payable to unit trust of India - CIT(A) had held that the Assessment cannot be expected to comply with the law and the return had been filed as per the law prevailing at that time and hence the deduction of interest was allowable - HELD THAT - Under clause (d) of Section 43B, shall be allowed, if such interest has been actually paid and any interest referred to in that clause which has been converted into a loan or borrowing shall not be deemed to have been actually paid. Therefore, the provision of the law amended retrospectively clearly provides that when such interest not actually paid but is converted into loan or borrowing it cannot be considered as actually paid for the purpose of its allowablity u/s 43B of the act. Even otherwise the issue is squarely covered against the assessee by the decision in case of Commissioner of income tax versus Gujarat Cypromet Ltd 2019 (2) TMI 1599 - SUPREME COURT which is rendered with respect to assessment year 2001 02. - Decided against assessee. Depreciation on lease assets - HELD THAT - As in assessee's own case 2020 (10) TMI 529 - ITAT DELHI wherein we have allowed the claim of the assessee holding that assessee is owner of the asset and is entitled to the depreciation on lease assets. Addition of provision for bad and doubtful that which is debited to the profit and loss account as reserve while calculating book profit u/s 115JB - HELD THAT - In view of the retrospective amendment by The Finance Number 2 Act, 2009, with retrospective effect from 1 April 2001, any amount or amount set aside as a provision for diminution in the value of any asset is required to be added back to the book profit as per explanation (1) of Section 115JB - The amount of provision for bad and doubtful debts is definitely a diminution in the value of the asset i.e. book debts, therefore, it is also required to be added back to the book profit. It may also be a reserve created by making a provision out of bad and doubtful debts for the future losses that may arise out of debts. We dismiss ground of the appeal of the assessee. Levy of interest u/s 234C - AO directed to charge the interest u/s 234C for short payment/deferment of the advance tax - HELD THAT - We find that the issue squarely covered in favour of the assessee by the decision of Smt. Premlata Jalani 2003 (7) TMI 62 - RAJASTHAN HIGH COURT as in this case also the capital gain arose after the last date of payment of the last installment of advance tax by the assessee for the impugned assessment year. Further provisions of Section 234C does not apply to any shortfall in the payment of the tax due on the returned income of such thoughtful is on account of under is to of the amount of capital gain. Disallowance u/s 14A - non recoding of satisfaction by AO - HELD THAT - Before applying the theory of apportionment, the Assessing Officer needs to record satisfaction that having regard to the kind of the assessee, suo motu disallowance under section 14A was not correct. It will be in those cases where the assessee in his return has himself apportioned but the Assessing Officer was not accepting the said apportionment. In that eventuality, it will have to record its satisfaction to this effect. Further, while recording such a satisfaction, nature of loan taken by the assessee for purchasing the shares/making the investment in shares is to be examined by the AO. In the present case, we do not find any such satisfaction recorded by the assessing officer with respect to the disallowance made by assessee on its own. In view of this, we hold that no disallowance u/s 14 A can be made in absence of proper satisfaction. Computing the book profit with respect to the disallowance made in the original computation of the income u/s 14 A - HELD THAT - This issue is squarely covered in favour of the assessee by the decision of Vireet investments private limited 2017 (6) TMI 1124 - ITAT DELHI wherein it has been held that holding that the computation under clause (f) of Explanation 1 to section 115JB(2). is to be made without resorting to the computation as contemplated u/s 14A read with Rule 8D of the Income-tax Rules, 1962.. Accordingly we restore this ground of appeal back to the file of the learned assessing officer to decide the issue without resorting to the rule 8D of the income tax rules for disallowing expenditure in relation to the exempt income by working out the book profit. Fringe benefit tax credit to the book profit u/s 115JB - No disallowance to be made. Short interest was paid u/s 244A - revised return was processed u/s 143 (1) wherein the refund was determined of the above sum and interest u/s 244A - claim of the assessee is that the amount of refund and its interest should have been granted at the rate of 0.5% for a month from first day of April of assessment year to the date of actual refund - HELD THAT - In the present case, the assessee filed original return in time without claiming any refund. Subsequently on 31st of March 2011, the assessee revised return after two years and claimed the substantial refund. In the revised return, the assessee submitted the details of the certificate as well as the claim were made. Therefore, it is apparent that the delay of claim of the refund is on account of the assessee and therefore the revenue is not obliged to grant interest to the assessee for this period. In view of this, we do not find any infirmity in the order of the learned CIT A in refusing to grant interest to the assessee as claimed by it. In the result, appeal of the assessee is dismissed.
Issues Involved:
1. Disallowance of depreciation on leased assets. 2. Disallowance under Section 14A of the Income Tax Act. 3. Disallowance of interest on bonds under Section 43B of the Income Tax Act. 4. Treatment of provisions for bad and doubtful debts under Section 115JB of the Income Tax Act. 5. Computation of book profits under Section 115JB. 6. Levy of interest under Section 234C of the Income Tax Act. 7. Calculation of interest on refund under Section 244A of the Income Tax Act. Issue-wise Detailed Analysis: 1. Disallowance of Depreciation on Leased Assets: The assessee claimed depreciation on leased assets, which the AO disallowed, treating the lease transactions as financing transactions. The CIT(A) and ITAT upheld the assessee's claim, confirming that the assessee is the owner of the leased assets and entitled to depreciation. This decision was consistent across multiple assessment years (1999-2000, 2000-2001, 2005-06, 2006-07, 2007-08, 2008-09, and 2009-10). 2. Disallowance under Section 14A of the Income Tax Act: The AO made disallowances under Section 14A for expenses related to earning exempt income. The CIT(A) and ITAT restricted these disallowances to a reasonable amount, often Rs. 10 lakhs, based on historical disallowances and the assessee's own disallowance. The ITAT emphasized the necessity of the AO recording satisfaction that the assessee's disallowance was incorrect before invoking Rule 8D, which was not done in this case, leading to the deletion of additional disallowances. 3. Disallowance of Interest on Bonds under Section 43B: The AO disallowed interest on bonds payable to UTI, invoking Section 43B, as the interest was not actually paid but adjusted. The CIT(A) initially allowed the deduction, but the ITAT reversed this, citing the retrospective amendment to Section 43B and the Supreme Court decision in CIT vs. Gujarat Cypromet Ltd, which clarified that interest converted into a loan is not considered paid. 4. Treatment of Provisions for Bad and Doubtful Debts under Section 115JB: The AO added back provisions for bad and doubtful debts to the book profits under Section 115JB, treating them as reserves. The CIT(A) upheld this, and the ITAT confirmed, referencing the retrospective amendment to Section 115JB which mandates adding back such provisions to book profits. 5. Computation of Book Profits under Section 115JB: The AO included disallowances under Section 14A in the computation of book profits. The CIT(A) and ITAT disagreed, following the Special Bench decision in Vireet Investments, which held that disallowances under Section 14A should not be added back to book profits under Section 115JB. 6. Levy of Interest under Section 234C: The AO levied interest under Section 234C for shortfall in advance tax payments. The CIT(A) deleted this interest, considering the assessee's argument that the income arose unexpectedly after the last date for advance tax payment. The ITAT upheld this deletion, referencing the Rajasthan High Court decision in CIT v. Smt. Premlata Jalani, which supports non-levy of interest under similar circumstances. 7. Calculation of Interest on Refund under Section 244A: The AO calculated interest on the refund from the date of the revised return, not the original return, attributing the delay to the assessee. The CIT(A) upheld this, and the ITAT confirmed, stating that the delay was on the part of the assessee for not claiming the refund in the original return. Conclusion: The ITAT's judgment comprehensively addressed multiple issues across different assessment years, providing clarity on the treatment of depreciation on leased assets, disallowances under Section 14A, interest on bonds under Section 43B, provisions for bad debts under Section 115JB, computation of book profits, levy of interest under Section 234C, and calculation of interest on refunds under Section 244A. The decisions were consistent with legal precedents and amendments to the Income Tax Act.
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