2022 (9) TMI 497 - AT - Income Tax

Disallowance u/s 36(1)(iii) - Working of interest cost on investments - assessee had not shown any figure of interest pertaining to investments or capital work-in-progress - as per AO assessee has not established or pointed to the nexus of interest free funds being used for investments, he was of the view that fair and reasonable method was debt equity ratio for the purpose of reallocating the interest under various heads of income - HELD THAT - We find that CIT(A) while deciding the issue in favour of the assessee has followed the decision of Tribunal in assessee s own case for A.Y. 2010-11 2016 (11) TMI 1360 - ITAT DELHI We further find that thereafter, Co-ordinate Bench of Tribunal in assessee s own case for A.Y. 2012-13 2022 (3) TMI 1419 - ITAT DELHI has decided the identical issue in assessee s favour as held assessee had sufficient interest free funds to meet the capital expenditure and to make investments, no disallowance u/s 36(1)(iii). Before us, no distinguishing feature in the facts of the case and that of earlier years which have been decided by ITAT in assessee s favour has been pointed out by Revenue. In such a situation, we find no reason to interfere with the order of CIT(A) and thus the ground of Revenue is dismissed.

Summary

Issues involved:
Appeals by Revenue against order of Commissioner of Income Tax (Appeals) for Assessment Years 2013-14 & 2014-15; Application of debt-equity ratio for interest calculation on investments and capital work-in-progress; Disallowance under section 36(1)(iii) of the Act; Consistency in decisions across assessment years.

Analysis:
The appeals filed by the Revenue were directed against the order of the Commissioner of Income Tax (Appeals) for Assessment Years 2013-14 & 2014-15. The issue revolved around the application of the debt-equity ratio for calculating interest on investments and capital work-in-progress. The Assessing Officer (AO) had disallowed deductions under section 36(1)(iii) of the Act based on this calculation. The AO determined that a significant portion of investments and capital work-in-progress were made using borrowed funds, leading to the disallowance of certain deductions.

During the assessment proceedings, the AO observed discrepancies in the utilization of borrowed funds for investments and capital work-in-progress. The AO applied a debt-equity ratio to reallocate interest under different heads of income. The AO calculated the interest costs on investments made from borrowed funds and disallowed deductions accordingly. A similar calculation was done for capital work-in-progress, resulting in additional disallowances. The AO's decision was based on the lack of evidence establishing the utilization of interest-free funds for investments.

The Commissioner of Income Tax (Appeals) reviewed the case and noted that a similar issue had been addressed in the assessee's previous cases. The Commissioner followed the Tribunal's decision in the assessee's favor for previous assessment years, emphasizing the sufficiency of interest-free funds for capital expenditures and investments. The Commissioner, in line with previous decisions, deleted the additions made by the AO. The Commissioner also cited relevant court decisions to support the ruling.

The Income Tax Appellate Tribunal (ITAT) upheld the decision of the Commissioner of Income Tax (Appeals) based on consistency in previous rulings and the absence of distinguishing features in the current case. The ITAT found no grounds to interfere with the order of the Commissioner and dismissed the Revenue's appeals for both Assessment Years 2013-14 and 2014-15. The ITAT emphasized the importance of maintaining consistency in decisions across assessment years. The appeals of the Revenue were ultimately dismissed.

In conclusion, the ITAT affirmed the decisions of the lower authorities, highlighting the importance of consistent application of legal principles across different assessment years. The judgment emphasized the necessity of establishing a clear nexus between funds utilized for investments and capital work-in-progress to determine the eligibility of deductions under section 36(1)(iii) of the Act.