9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2022 (6) TMI 597 - AT - Income TaxAddition u/s 14A r.w.r.8D - CIT(A) was only restricted to disallowance of interest under Rule 8D(2)(ii) of the Rule and no relief has been given on the basis that the assessee did not earn any tax free income - HELD THAT - We are of the view that the assessee had enough surplus funds and borrowed funds were not used for the purpose of making investments that would yield tax free income. In this scenario, we find that in the light of the principles laid down in the case of CIT Vs. Micro Labs Ltds. 2016 (4) TMI 219 - KARNATAKA HIGH COURT wherein it was held that when investments are made out of common pool of funds and when the non-interest bearing funds or interest free funds that were available with the assessee were more than the investments that would yield exempt income, the presumption is that investments that would yield exempt income were made out of own funds that are interest free and hence there cannot be any disallowance of interest expenditure under section 14A of the Act r.w.r. 8D(2)(ii) of the Rules. We are of the view that the CIT(A) has rightly come to the conclusion that the disallowance under section 14A of the Act r.w.r. 8D(2)(ii) of the Rules deserves to be deleted. We find no infirmity in the order of the CIT(A) and accordingly dismiss ground No. 3 raised by the Revenue. Disallowance of interest and depreciation expenses confirmed Addition of aircraft maintenance expenses - As in the absence of details, disallowance was required to be made but that had to be based on bifurcation of fixed costs of running the aircraft, which cannot be disallowed because fixed costs have to be incurred irrespective of the usage of the aircraft. As far as variable cost is concerned, a proportion of usage of aircraft for non-business purpose can be disallowed. The disallowance of Rs. 45 lacs which is roughly about 10% of the aircraft expenses in our view was just and fair. We find no ground to interfere in the order of the CIT(A) and accordingly dismiss ground No. 4 preferred by the Revenue. Addition u/s 40A(2)(a) - HELD THAT - We are of the view that the AO gave no basis for disallowing the entire expense of Rs. 1.92 Crores claimed by the assessee as payment of management fee. As per the provisions of section 40A(2) of the Act, only payments which are excessive and unreasonable has to be disallowed. It is not disputed that services were rendered by the VHPL. In the circumstances, we are of the view that the approach adopted by the CIT(A) in allowing a sum of Rs. 60 lakhs as deduction on the ground that the services rendered by VHPL were one and the same even after the merger of the assessee with ATHPL is justified and calls for no interference. Accordingly, ground No. 5 raised by the Revenue is also dismissed. Disallowance u/s 14A of interest expenditure cannot be disallowed as interest paid on borrowings on the security on fixed deposit receipts were not used for the purpose of making investments that would yield tax free income because of availability of surplus interest free funds with the assessee. The aforesaid finding would equally apply to the disallowance under section 36(1)(iii) of the Act also and therefore on the same reasoning, the disallowance deserves to be deleted and was rightly deleted by the CIT(A). We find no ground to interfere in the order of the CIT(A). Accordingly, ground No. 6 raised by the Revenue is also dismissed. Reopening of assessment u/s 147 - HELD THAT - Hon'ble Karnataka High Court in the case of Dell India Pvt. Ltd 2021 (2) TMI 37 - KARNATAKA HIGH COURT reiterated the law laid down by the Hon'ble Supreme Court in the case of Kelvinator India Ltd. 2010 (1) TMI 11 - SUPREME COURT - The law is thus very clear that an assessment completed under section 143(3) of the Act can be reopened only on the basis of existence of tangible material coming into income possession of the AO after conclusion of such assessment proceedings. On the basis of the very same material available at the time of conclusion of the proceedings under section 143(3) of the Act, the AO cannot be allowed to review his own order. We are of the view that there is no merit in grounds 2 to 4 raised by the Revenue in the appeal. Consequently, the said grounds are dismissed. In view of the conclusion, the reassessment proceedings were not validly initiated and the consequent quashing of the order under section 147 of the Act, we are of the view that the other issues raised by the assessee as well as Revenue in various grounds of appeal does not require any adjudication. In this regard, we find that the CIT(A), as a matter of abundant caution, has besides quashing the assessment under section 147 of the Act, has proceeded to decide the issue on merits also. As we have already stated, we do not wish to adopt such a course in view of our conclusion that the order of reassessment deserves to be quashed and annulled. Accordingly, appeal of the Revenue as well as the assessee are dismissed.
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D. 2. Disallowance of aircraft-related expenses. 3. Disallowance under Section 40A(2) for legal and professional fees. 4. Disallowance under Section 36(1)(iii) for interest on share application money. 5. Validity of reassessment proceedings under Section 147. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The Revenue challenged the CIT(A)'s decision to delete the disallowance under Section 14A read with Rule 8D. The AO had disallowed interest expenses on loans used for fixed deposits, assuming they were used for investments yielding exempt income. The CIT(A) deleted this disallowance, noting the assessee had sufficient interest-free funds. The Tribunal upheld the CIT(A)'s decision, citing the Karnataka High Court's ruling in CIT Vs. Micro Labs Ltd., which presumes investments yielding exempt income are made from interest-free funds if such funds exceed the investments. 2. Disallowance of aircraft-related expenses: The AO disallowed a substantial portion of aircraft-related expenses, including depreciation and interest, due to insufficient revenue from aircraft hiring. The CIT(A) allowed depreciation and interest expenses but upheld an ad hoc disallowance of Rs. 45 lakhs for aircraft operating expenses due to incomplete details. The Tribunal upheld the CIT(A)'s decision, noting that a similar issue in the assessee's case for AY 2010-11 was decided similarly, and the ad hoc disallowance was fair given the lack of detailed expense records. 3. Disallowance under Section 40A(2) for legal and professional fees: The AO disallowed the entire legal and professional fees paid to a related party, VHPL, under Section 40A(2), questioning the necessity and reasonableness of the payment. The CIT(A) reduced the disallowance, allowing Rs. 60 lakhs as reasonable payment, given the services rendered by VHPL. The Tribunal upheld the CIT(A)'s decision, finding no basis for the AO's complete disallowance and agreeing with the CIT(A)'s assessment of reasonable payment. 4. Disallowance under Section 36(1)(iii) for interest on share application money: The AO disallowed interest expenses under Section 36(1)(iii), assuming borrowed funds were used for share application money. The CIT(A) deleted this disallowance, noting the AO failed to establish a clear nexus between borrowed funds and share application money, and the assessee had sufficient interest-free funds. The Tribunal upheld the CIT(A)'s decision, applying the same reasoning used for the Section 14A disallowance, affirming the availability of surplus interest-free funds. 5. Validity of reassessment proceedings under Section 147: The AO initiated reassessment proceedings under Section 147, alleging the assessee failed to disclose material facts about share premium transactions, resulting in escaped income. The CIT(A) invalidated the reassessment, noting the AO relied on facts already on record, lacking fresh tangible material. The Tribunal upheld the CIT(A)'s decision, citing the Supreme Court's ruling in CIT vs. Kelvinator India Ltd., which requires fresh tangible material for reassessment. The Tribunal dismissed the Revenue's appeal, affirming the reassessment was invalid. Conclusion: The Tribunal dismissed the Revenue's appeals for both AY 2011-12 and AY 2007-08, upholding the CIT(A)'s decisions on all issues, including disallowances under Sections 14A, 40A(2), and 36(1)(iii), and the invalidity of reassessment proceedings under Section 147.
|
