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2022 (4) TMI 620 - AT - Income TaxAddition u/s 36(1)(iii) - Interest on business advances - whether assessee has given utilisation of loan for business purpose and also has shown interest free loan and advances to related entities? - HELD THAT - These advances were business advances and is covered under commercial expediency; and secondly, if the assessee had huge interest free funds which far exceeds the advances given, therefore, no deduction u/s 36(1)(iii) can be made. Here, in this case, on both the count, we hold that no disallowance can be made as these loans and advances were purely business advances which are not being rebutted by the AO except for making the disallowance on conjectures and hypothesis and what the businessman do first; and secondly, if assessee had surplus interest free funds then it can be presumed that the borrowed funds which have been utilized for some other business purpose, proportionate disallowance could be made. Accordingly, this ground raised by the Revenue is dismissed. Disallowance u/s 14A is concerned it is an admitted fact that in AY 2014-15, no exempt income has been accrued to the assessee, therefore, no disallowance u/s 14A can be made. It is an admitted fact that here, the assessee has received exempt dividend income of ₹ 6,31,308/-, out of which the assessee had made suo moto disallowance of ₹ 5,45,245/-. Ld. CIT (A) restricted the disallowance to the extent of exempt income, therefore, we do not find any reason to interfere in such a finding in the light of the judgment of Hon ble Delhi High Court in the case of Joint Investments Pvt. Ltd. 2015 (3) TMI 155 - DELHI HIGH COURT and Cheminvest Ltd. 2015 (9) TMI 238 - DELHI HIGH COURT therefore, this ground is dismissed.
Issues Involved:
1. Disallowance of interest expenditure under Section 36(1)(iii) of the Income-tax Act, 1961. 2. Disallowance under Section 14A read with Rule 8D of the Income-tax Act, 1961. Issue-wise Detailed Analysis: 1. Disallowance of Interest Expenditure under Section 36(1)(iii): The Revenue challenged the disallowance of interest expenditure amounting to ?6,53,18,819/- and ?14,31,97,207/- for the assessment years (AYs) 2014-15 and 2015-16, respectively. The assessee had taken secured and unsecured loans aggregating to ?1847.20 crores on which interest of ?195.10 crores was paid. The assessee provided a detailed explanation that these loans were utilized for business purposes and included interest-free loans and advances to related entities, specifically M/s. DLF Ltd., citing commercial expediency. The Assessing Officer (AO) argued that the assessee should have adjusted the advances given to M/s. DLF Ltd. with the loan taken from the same entity, leading to a proportionate disallowance of interest. However, the assessee contended that similar disallowances had been previously decided in its favor by the CIT(A) and the Tribunal for AYs 2009-10 to 2013-14, and the Hon’ble High Court had upheld these decisions. The CIT(A) found that the assessee had sufficient interest-free funds amounting to ?246.34 crores, far exceeding the interest-free advances of ?66.54 crores. The CIT(A) concluded that no disallowance under Section 36(1)(iii) could be made as the advances were given for business purposes and commercial expediency. The Tribunal upheld the CIT(A)’s decision, noting that the AO had not rebutted the business purpose of the advances and that the assessee had sufficient interest-free funds. The Tribunal also referenced previous decisions in favor of the assessee, confirming that the advances were for business purposes and that commercial expediency was established. 2. Disallowance under Section 14A read with Rule 8D: The Revenue also challenged the disallowance made under Section 14A read with Rule 8D amounting to ?37,91,688/- and ?39,35,258/- for AYs 2014-15 and 2015-16, respectively. The AO noted that the assessee had made various investments that earned income exempt under Section 10(34). Despite the assessee not earning any dividend income during the year, the AO proceeded to make the disallowance. The CIT(A) deleted the disallowance, referencing the decisions of the Hon’ble Delhi High Court in Joint Investments Pvt. Ltd. and Chem Invest Ltd. vs. CIT, which held that no disallowance under Section 14A could be made if no exempt income was earned during the year. For AY 2015-16, the assessee received exempt dividend income of ?6,31,308/-, out of which it made a suo moto disallowance of ?5,45,245/-. The CIT(A) restricted the disallowance to the extent of the exempt income, aligning with the judgments of the Hon’ble Delhi High Court. Conclusion: The Tribunal dismissed both appeals filed by the Revenue, affirming that: 1. No disallowance under Section 36(1)(iii) could be made as the advances were for business purposes and the assessee had sufficient interest-free funds. 2. No disallowance under Section 14A could be made if no exempt income was earned, and any disallowance should be restricted to the extent of the exempt income received. Order Pronounced: The order was pronounced on the 11th day of April, 2022.
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