9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2014 (2) TMI 893 - AT - Income TaxRestriction u/s 14A of the Act Held that - Where the assessee had own interest free funds many times over the investment made in Indian subsidiaries and further there was no direct nexus between interest bearing borrowed funds and such investment, no disallowance of interest expenditure could be made u/s 14A of the Act - where the Revenue failed to establish that the assessee had incurred any expenses for earning dividend income from amount borrowed, no addition could be made by invoking the provisions of Section 14A of the Act - The assessee had substantial interest free fund in the form of share capital and reserves - the AO has brought no material on record to show that any interest bearing borrowed funds were utilized by the assessee for making investment in shares in any of the years under consideration The decision in CIT Vs. Suzlon Energy Limited 2013 (7) TMI 697 - GUJARAT HIGH COURT followed - the assessee has substantial interest free fund to meet his tax free investments yielding exempt income, it can be presumed that such investments were made from interest free funds and not loan funds - the order of the CIT(A) confirmed Decided against Revenue. Deletion of interest expenditure made u/s 36 of the Act Held that - The decision in The Commissioner of Income Tax Versus Reliance Utilities & Power Ltd 2009 (1) TMI 4 - HIGH COURT BOMBAY followed - a global position of the availability of funds has to be examined and after sufficiency of non-interest bearing funds is established then only claim can be allowed and directed the AO to take this decision also in consideration - none of the lower authorities have found that on global examination of availability of interest free funds with the assessee was not sufficient for advancing interest free advance to the subsidiaries - the disallowance of interest again was not warranted thus, the disallowance of interest expenditure of both the years is set aside Decided against Revenue.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Disallowance of interest expenditure under Section 36 of the Income Tax Act. Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: The Revenue's grievance was that the CIT(A) erred in restricting the addition under Section 14A to Rs. 9,416/- out of Rs. 1,54,953/- for AY 2004-05 and Rs. 8,438/- out of Rs. 5,13,215/- for AY 2005-06. The assessee objected to the confirmation of Rs. 9,416/- and Rs. 8,438/- for the respective years. The Assessing Officer (AO) observed that the assessee had significant own funds and loan funds, and made proportionate disallowance of interest and administrative expenses. For AY 2004-05, the AO disallowed Rs. 1,45,457/- for interest and Rs. 9,416/- for administrative expenses. For AY 2005-06, the disallowance was Rs. 5,04,777/- for interest and Rs. 8,438/- for administrative expenses. On appeal, CIT(A) restricted disallowance of administrative expenses but deleted the disallowance of interest expenditure, citing lack of nexus between interest-bearing funds and investments. The CIT(A) relied on decisions of the Tribunal and High Courts, including Maruti Udyog Limited and Eicher Limited. The Revenue cited various judgments, including Dhanuka & Sons and Godrej & Boyce, arguing that the onus was on the assessee to show the nexus between investments and own funds. The assessee relied on Gujarat High Court decisions, including Suzlon Energy Limited and UTI Bank Limited, asserting that sufficient interest-free funds negated the need for disallowance. The Tribunal found that the AO did not provide evidence of interest-bearing funds being used for investments. Citing the Gujarat High Court, the Tribunal confirmed the CIT(A)'s order, dismissing the Revenue's appeal. The assessee's Cross Objection regarding nominal amounts for administrative expenses was dismissed as not pressed. 2. Disallowance of interest expenditure under Section 36 of the Income Tax Act: The AO disallowed interest expenditure due to interest-free advances to subsidiaries. For AY 2004-05, Rs. 38,87,881/- was disallowed, and for AY 2005-06, Rs. 13,98,459/- was disallowed. On appeal, CIT(A) restricted disallowance based on the period of loans and directed partial deletion. The assessee argued that sufficient interest-free funds were available, and the AO exceeded jurisdiction by making disallowances. The Tribunal noted that the AO had not established a lack of sufficient interest-free funds. The Tribunal directed the AO to verify the nexus with business activities and availability of interest-free funds, following the Tribunal's earlier order and decisions of the Supreme Court and Bombay High Court. The Tribunal found that the lower authorities did not comply with the Tribunal's directions and deleted the disallowance of interest expenditure for both years. Conclusion: The Tribunal dismissed the Revenue's appeals and partly allowed the assessee's Cross-Objections, confirming the CIT(A)'s order and deleting the disallowance of interest expenditure. The Tribunal emphasized adherence to judicial precedents and proper verification of facts.
|
