2022 (4) TMI 1123 - AT - Income Tax

Disallowance of interest expense u/s 36(1)(iii) - assesses had given interest free advance to various parties for acquiring immovable properties.- AO was of the opinion that the assessee has not been able to prove the nexus of amounts advanced to the sources of interest free funds i.e. share capital, reserve the interest free loans - CIT-A deleted the addition - HELD THAT - CIT-A came to a finding that the appellant had sufficient interest free funds as against the advances made during the year under consideration and therefore the assesses case is squarely covered by several case laws including that of Gujarat State Fertilisers and Chemicals Ltd 2013 (7) TMI 701 - GUJARAT HIGH COURT , CIT vs. Gujarat Narmada Valley Fertilisers Corporation Ltd 2014 (3) TMI 847 - GUJARAT HIGH COURT and CIT vs. Raghubir Synthetics Ltd,. 2013 (7) TMI 806 - GUJARAT HIGH COURT - Furthermore it was observed that the assessee s case is squarely covered in assessee s own case for Assessment Year 2011-12 2019 (2) TMI 1889 - ITAT AHMEDABAD , 2013-14 2019 (3) TMI 1836 - ITAT AHMEDABAD and 2014-15 2020 (12) TMI 558 - ITAT AHMEDABAD wherein on the same facts the disallowance made by the learned AO has been deleted and on that basis relying upon the same the learned CIT(A) deleted the addition made against the assessee. We have further considered the order passed by the Coordinate Bench in assessee s own case for Assessment Year 2013-14 and 2014-15 whereupon we find that the issue is identical and therefore, in our considered opinion the order passed by the Ld. CIT(A) in deleting the addition made by the Ld. Assessing Officer is just and proper so as to warrant interference. - Decided against revenue. Disallowance u/s 14A - assessee company had investment which yielded exempt income and the assessee has debited interest expense on borrowed funds.- HELD THAT - We find that the Ld. CIT(A) considered the order passed by his predecessor on the similar facts on the identical issue in the appeal preferred by the assessee itself for A.Y. 2011-12 2019 (2) TMI 1889 - ITAT AHMEDABAD - We have further considered the order passed by the Coordinate Bench in assessee s own case for A.Y. 2013-14 2019 (3) TMI 1836 - ITAT AHMEDABAD and 2014-15 2020 (12) TMI 558 - ITAT AHMEDABAD whereupon we find that the issue is identical and therefore, in our considered opinion the order passed by the Ld. CIT(A) in deleting the addition made by the Ld. AO is just and proper so as to warrant interference. Therefore, the ground of appeal preferred by Revenue is found to be devoid of any merit and hence dismissed. Disallowance u/s 14A of the Act while computing books profits u/s under section 115JB - HELD THAT - We have further considered the order passed by the Ld. CIT(A) while deleting the order passed by the Ld. AO. It appears that since the disallowance has already been deleted by the Ld. CIT(A) which has been confirmed by us the disallowance while computing income under Section 115JB has also been deleted as found to be justified and hence upheld. This ground of appeal, therefore, found to be devoid of any merit and hence dismissed.

Summary

Issues Involved:
1. Deletion of addition of ?50,47,871 on account of disallowance of interest expenses under Section 36(1)(iii) of the Income Tax Act.
2. Deletion of addition of ?2,28,23,930 on account of disallowance under Section 14A of the Income Tax Act.
3. Deletion of disallowance under Section 14A while computing book profits under Section 115JB of the Income Tax Act.

Issue-Wise Detailed Analysis:

1. Deletion of Addition of ?50,47,871 on Account of Disallowance of Interest Expenses under Section 36(1)(iii) of the Income Tax Act:

The Revenue challenged the deletion of ?50,47,871 made by the Assessing Officer (AO) on account of disallowance of interest expenses under Section 36(1)(iii) of the Act. The AO had disallowed the interest expenses as the assessee had given interest-free advances for acquiring immovable properties. The assessee argued that sufficient interest-free funds were available, and the advances were made from these funds. The AO, however, was not convinced and applied a proportionate interest rate of 4.12% on the advances, resulting in the disallowance.

Upon appeal, the CIT(A) deleted the disallowance, citing that the assessee had sufficient interest-free funds and referenced several case laws, including those from the Gujarat High Court. The Tribunal upheld the CIT(A)'s decision, noting that the issue was covered in favor of the assessee in previous assessment years (2011-12 to 2014-15) and by the Coordinate Bench's orders for AY 2013-14 and 2014-15. Therefore, the Tribunal found the Revenue's ground of appeal devoid of merit and dismissed it.

2. Deletion of Addition of ?2,28,23,930 on Account of Disallowance under Section 14A of the Income Tax Act:

The Revenue also contested the deletion of ?2,28,23,930 disallowed under Section 14A by the AO. The AO had disallowed this amount, arguing that the assessee could not prove that investments yielding tax-free income were made out of interest-free funds. The assessee countered by stating that investments were made from its own funds and that it had sufficient interest-free funds.

The CIT(A) deleted the disallowance, referencing previous favorable decisions for the assessee for AYs 2011-12 to 2014-15 and various case laws. The Tribunal agreed with the CIT(A), noting that the issue was identical to previous years where the assessee's appeals were allowed. The Tribunal found the Revenue's ground of appeal devoid of merit and dismissed it.

3. Deletion of Disallowance under Section 14A while Computing Book Profits under Section 115JB of the Income Tax Act:

The Revenue's third ground of appeal pertained to the deletion of disallowance under Section 14A while computing book profits under Section 115JB. The CIT(A) had directed the deletion of this disallowance, which was confirmed by the Tribunal.

The Tribunal noted that since the disallowance under Section 14A was already deleted by the CIT(A) and upheld by the Tribunal, the corresponding disallowance while computing book profits under Section 115JB was also justified. Therefore, the Tribunal found this ground of appeal devoid of merit and dismissed it.

Conclusion:

The Tribunal dismissed the Revenue's appeal on all grounds, upholding the CIT(A)'s deletions of the disallowances under Sections 36(1)(iii) and 14A of the Income Tax Act, as well as the disallowance under Section 14A while computing book profits under Section 115JB. The order was pronounced on 20th April 2022 at Ahmedabad.