2017 (1) TMI 769 - AT - Income Tax

Disallowance of interest expenditure on account of capital work-in-progress - Held that - We noticed that the assessee itself has admitted that loan funds have been used for giving share application money to its subsidiary. We also noticed that the own funds available with the assessee is in far excess of the capital work-in-progress. Hence, we are of the view that there is no requirement to make any disallowance out of interest expenditure on account of capital work-in-progress. Accordingly, we set aside the order passed by the learned CIT(A) on this issue and direct the Assessing Officer to delete the disallowance - Decided in favour of assessee Disallowance of Repairs and Maintenance - Held that - The ledger account copy of M/s Repairs & Maintenance account show that the assessee has credited the sum of ₹ 62.00 lakhs to the above said account on 31.3.2006, i.e., the assessee has not shown the amount of ₹ 62.00 lakhs as a separate item of credit in the Profit and Loss account and instead reduced the Repairs and maintenance account with the above said figure. The net effect is that the assessee has already offered the sum of ₹ 62.00 lakhs as its income. Thus, we notice that the AO has assessed the above said amount of ₹ 62.00 lakhs without properly appreciating the facts, whereas the Ld CIT(A) has deleted the same by correctly appreciating the facts.- Decided in favour of assessee Disallowance made u/s 14A - Held that - CIT(A) had restricted the disallowance to 10% of the dividend income in the succeeding year and the same has been accepted by the assessee. Accordingly, considering the factual matrix available during the year under consideration, we are of the view that the disallowance u/s 14A of the Act may be restricted to the same level of 10% of dividend income and the same, in our considered view, would work out to a reasonable figure for making disallowance. Accordingly we set aside the order passed by Ld CIT(A) on this issue and direct the AO to restrict the disallowance to 10% of the exempt dividend income earned by the assessee during the year under consideration. Addition on the basis of AIR information - According to Ld A.R, the assessee has reconciled the TDS amount vis- -vis the rental income declared by the assessee and hence the error, if any, has occurred at the end of M/s Kamat Hotels (P) Ltd - Held that - We notice that the difference noticed by the AO requires to be reconciled. According to the assessee, it has duly declared the receipts and the same has been reconciled with TDS amount also. Accordingly it was contended that the mistake, if any, should have occurred at the end of M/s Kamat Hotels P Ltd. Since it is a matter requiring reconciliation, we are of the view that this issue needs to be examined afresh at the end of the AO. Disallowance of depreciation at higher rate - Held that - In the computation of total income made in the assessment order, we notice that the AO has also disallowed the above said amount of book depreciation and allowed depreciation for income tax purposes at ₹ 2,41,65,640/-. If the above said figure of ₹ 2.41 crores does not include the depreciation amount of ₹ 97,118/-, then there is no requirement of disallowing the same again. Accordingly we set aside this to the file of the AO for the limited purpose of verifying as to whether the depreciation of ₹ 2.41 crores allowed by the AO includes the amount of ₹ 97,118/- or not. If it is not included, then the AO should delete the addition of ₹ 97,118/-, otherwise the addition shall be sustained. The order of Ld CIT(A) passed on this issue stands set aside accordingly. Disallowance of bidding expenses - Held that - These expenses have been incurred by the assessee in the course of carrying on its business and hence the same has to be allowed as deduction, since it has been incurred in furtherance of the business activities of the assessee as the expenditure incurred on bidding, even if it is unsuccessful, should be allowed as deduction

Issues Involved:
1. Disallowance of interest expenses.
2. Disallowance of expenditure on repairs and maintenance.
3. Disallowance under Section 14A of the Income Tax Act.
4. Addition based on AIR information.
5. Disallowance of depreciation claim.
6. Disallowance of bidding expenses.
7. Disallowance of interest expenditure for AY 2007-08.
8. Disallowance under Section 14A for AY 2007-08.

Detailed Analysis:

1. Disallowance of Interest Expenses:
The first issue pertains to the disallowance made by the Assessing Officer (AO) out of interest expenses claimed by the assessee for A.Y. 2006-07. The AO disallowed Rs. 1,48,10,695/- out of interest expenditure and Rs. 13,62,536/- related to capital work-in-progress. The CIT(A) confirmed the disallowance of Rs. 13,62,536/- but deleted Rs. 1.48 crores, reasoning that the share application money given to M/s. Pan India Infrastructure Pvt. Ltd. was for business purposes. The Tribunal found merit in the assessee's contentions that the capital work-in-progress was funded by internal accruals and own funds, and directed the AO to delete the disallowance of Rs. 13,62,536/-. The CIT(A) also correctly allowed the interest expenditure related to share application money, as it was for business purposes.

2. Disallowance of Expenditure on Repairs and Maintenance:
The AO noticed an increase in repairs and maintenance expenses due to a fire incident and assessed an insurance claim of Rs. 62 lakhs as income. The CIT(A) found that the assessee had credited the Repairs and Maintenance A/c with Rs. 62 lakhs and correctly deleted the assessment of this amount. The Tribunal upheld the CIT(A)'s decision, noting that the AO had not properly appreciated the facts.

3. Disallowance under Section 14A of the Income Tax Act:
The AO worked out the disallowance as per Rule 8D, disallowing Rs. 39,58,536/- for administrative expenses. The CIT(A) upheld this disallowance. The Tribunal noted that Rule 8D was not applicable for AY 2006-07 and restricted the disallowance to 10% of the dividend income, considering the limited transactions and factual matrix.

4. Addition Based on AIR Information:
The AO added Rs. 1,45,749/- based on AIR information due to a discrepancy in income from M/s Kamat Hotels (P) Ltd. The CIT(A) confirmed this addition. The Tribunal remanded the issue back to the AO for reconciliation, directing the AO to collect details from M/s Kamat Hotels P Ltd. and seek explanations from the assessee.

5. Disallowance of Depreciation Claim:
The AO disallowed a claim of 100% depreciation on machineries costing less than Rs. 5000/- each, amounting to Rs. 97,118/-. The CIT(A) confirmed this disallowance. The Tribunal noted that the assessee claimed 100% depreciation only for book purposes and had disallowed the entire amount of book depreciation while computing total income. The issue was remanded back to the AO for verification.

6. Disallowance of Bidding Expenses:
The AO treated Rs. 2,76,76,530/- incurred for filing bids for airport modernization as capital expenditure. The CIT(A) upheld this view, considering it as pre-commencement expenses. The Tribunal found that these expenses were incurred in the course of business and should be allowed as revenue expenses. The Tribunal directed the AO to delete the disallowance, noting that the expenses were in furtherance of the business activities.

7. Disallowance of Interest Expenditure for AY 2007-08:
The AO disallowed interest expenditure for AY 2007-08, considering the share application money as diversion of interest-bearing funds. The CIT(A) allowed the claim, finding it for business purposes. The Tribunal upheld the CIT(A)'s decision, consistent with its view for AY 2006-07.

8. Disallowance under Section 14A for AY 2007-08:
The AO computed the disallowance under Rule 8D, but the CIT(A) restricted it to 10% of the dividend income. The Tribunal upheld the CIT(A)'s decision, noting that Rule 8D was not applicable for AY 2007-08 and considering the limited activities in the investment portfolio.

Conclusion:
The Tribunal dismissed the revenue's appeals and allowed the assessee's appeal for AY 2006-07, directing appropriate adjustments and deletions in disallowances as per the detailed analysis. The order was pronounced on 11.1.2017.

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