2020 (10) TMI 1168 - HC - Income Tax

Disallowance u/s 14A r.w.r. 8D - Non recording of satisfaction by AO - HELD THAT - Assessing Officer has not rendered any finding with regard to incorrectness of the claim of the assessee either with regard to its accounts or with regard to the fact that he is not satisfied with the claim of the assessee in respect of such expenditure in relation to exempt income as is required in accordance with Section 14A(2) of the Act for making a disallowance under Rule 8D. Thus, from perusal of the relevant extract of the order passed by the Assessing Officer, the tribunal has rightly concluded that the Assessing Officer has not recorded the satisfaction with regard to the claim of the assessee for disallowance under Section 14A read with Rule 8D(2) - Decided in favour of assessee. Disallowance under Rule 8D(2)(II) while making the disallowance under Section 14A - whether interest expenses incurred cannot be directly attributed to any particular income or receipt, provision of rule 8D(2)(ii) automatically becomes applicable? - HELD THAT - In The 'CIT VS. RELIANCE UTILITIES AND POWER LTD.', 2009 (1) TMI 4 - BOMBAY HIGH COURT has held that where interest free funds exceed the value of investments, it can safely be inferred that investments have been made out of interest free funds and no disallowance under Section 14A towards any interest expenditure can be made. Similar view was taken in CIT VS. HDFC BANK LTD., 2014 (8) TMI 119 - BOMBAY HIGH COURT On perusal of the balance sheet the finding has been recorded that assessee has received an amount of ₹ 146.52 Crores as advances from customers, which are interest free and the reserves and surpluses are to the tune of ₹ 882,67 Crores. Thus, it has been held that all the aforesaid amounts are interest free funds and are sufficient to make tax free investments and therefore, the finding of the Assessing Officer that overdraft facility was directly used for making tax exempt investments have been reversed. The tribunal has affirmed the aforesaid finding. Thus, concurrent findings of fact have been recorded on the aforesaid issue, which could not be demonstrated to be perverse. Therefore, no interference is called with the aforesaid concurrent findings of fact in this appeal under Section 260A - Decided in favour of assessee. Disallowance u/s 36(1)(iii) - tribunal deleted addition holding that the advances to its subsidiaries were in the normal course of business, for business purposes - whether the funds from the overdraft account were utilized to make interest - free advances for acquiring lands, property advances? - HELD THAT - The assessee had to pay advances to the land owner for the purposes of entering into Joint Development Agreement for development of real estate projects, therefore, the advances are business advances and cannot be treated as non business or capital advances. The tribunal has held that reserves and surplus earned by assessee company is approximately to the extent of ₹ 994.92 Crores as against total advances and deposits of ₹ 248.24 Crores. Thus, the tribunal has found that the assessee's own fund are far in excess of advances and deposits made during the year and has held that CIT (Appeals) has rightly deleted the disallowance of interest. The aforesaid concurrent findings of fact are based on meticulous appreciation of evidence on record and by no stretch of imagination can be said to be perverse. - Decided in favour of assessee.

Issues Involved:
1. Disallowance under Rule 8D(2)(ii) while making disallowance under Section 14A of the Income Tax Act.
2. Disallowance under Section 36(1)(iii) regarding advances to subsidiaries.
3. Eligibility for deduction under Section 10B.
4. Proportionate deduction under Section 80IB(10) for individual units.
5. Assessing Officer's satisfaction in invoking provisions of Section 14A.

Detailed Analysis:

Issue 1: Disallowance under Rule 8D(2)(ii) while making disallowance under Section 14A
The tribunal deleted the disallowance of ?15,27,310/- under Rule 8D(2)(ii) while making disallowance under Section 14A. It was held that there was no material on record to substantiate that the overdraft account was utilized for making tax-free investments. The tribunal concluded that the investment proceeds were from the public issue of shares, not from the overdraft account. The tribunal's decision was upheld, noting that the Assessing Officer did not record satisfaction regarding the incorrectness of the assessee's claim that tax-free investments were not made out of borrowed funds. The tribunal rightly concluded that the Assessing Officer failed to establish the nexus of interest-bearing funds with tax-free investments.

Issue 2: Disallowance under Section 36(1)(iii) regarding advances to subsidiaries
The tribunal upheld the deletion of disallowance under Section 36(1)(iii) amounting to ?76,66,638/-. It was found that the advances to subsidiaries were in the normal course of business for business purposes. The tribunal noted that the assessee had sufficient interest-free funds, including reserves and surpluses, which were far in excess of the advances and deposits made during the year. The tribunal's findings were based on a meticulous appreciation of evidence and were deemed not perverse.

Issue 3: Eligibility for deduction under Section 10B
The substantial question of law regarding the eligibility for deduction under Section 10B was answered against the revenue and in favor of the assessee, based on a previous judgment by the court in Commissioner of Income Tax vs. Brigade Enterprises Ltd.

Issue 4: Proportionate deduction under Section 80IB(10) for individual units
Similarly, the substantial question of law regarding proportionate deduction under Section 80IB(10) for individual units measuring 1500 sq.ft. or less was also answered against the revenue and in favor of the assessee, following the precedent set in Commissioner of Income Tax vs. Brigade Enterprises Ltd.

Issue 5: Assessing Officer's satisfaction in invoking provisions of Section 14A
The tribunal found that the Assessing Officer failed to record satisfaction regarding the incorrectness of the assessee's claim that no expenditure was incurred to earn exempt income. The tribunal noted that the Assessing Officer did not render any finding with regard to the incorrectness of the assessee's accounts or its claim of no expenditure in relation to exempt income, as required under Section 14A(2). The tribunal's conclusion that the Assessing Officer did not record the necessary satisfaction was upheld.

Conclusion:
The appeal was dismissed, with all substantial questions of law answered in favor of the assessee and against the revenue. The tribunal's findings were based on a meticulous appreciation of evidence and were not deemed perverse. The tribunal's decisions on the disallowance under Section 14A, Section 36(1)(iii), and the eligibility for deductions under Sections 10B and 80IB(10) were upheld.

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