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2017 (7) TMI 256 - AT - Income TaxDeduction of eligible profits under the provisions of section 80IB - Held that - Identical addition relating to scaling down of deduction claimed under section 80IB of the Act by the Assessing Officer passed in block assessment and survey conducted on assessee s premises was considered. The Tribunal, we find upheld the order of the CIT (Appeals) whereby the action of the Assessing Officer was set aside, relying upon the order of the Tribunal in the appeal relating to block assessment proceedings for the period 1.4.1996 to 5.2.2003. Thus we uphold the order of the CIT (Appeals) in deleting the addition made on account of restricting the deduction claimed under section 80IB to 75% as against 100% claimed by the assessee. As a result ground raised by the Revenue is dismissed. Disallowance of interest on non business interest free advances u/s 36(1)(iii) - Held that - Section 36(1)(iii) have laid down the proposition that where there are sufficient interest free funds available, the presumption in such cases would be that the advances have been made out of the same and hence there can be no occasion for making disallowance of any interest on account of the interest free advances made. We are in complete agreement with the Ld.Counsel of the assessee in this regard. Moreover we find that the LD CIT(A)has given a factual finding in this regard stating that the amount advanced interest free is far less than the share capital and free reserves of the assessee company. No infirmity in the order of the Ld.CIT(A) deleting the disallowance made on account of interest u/s 36(1)(iii) - Decided against revenue Disallowance u/s 14A - non recording of satisfaction - Held that - Assessing Officer made disallowance by stating that, had the advance not been adjusted against share capital, the same would have been returned to banks reducing liability to interest of the company. Thus, we find that there was no satisfaction of the AO that the assessee had incurred any interest expenditure while making the impugned investments and least of all based on any credible evidence in this regard. The AO, we find, did not establish any nexus between interest bearing funds and the investments made. In the absence of satisfaction of the Assessing Officer with respect to incurrence of expenses for earning exempt income which is a sine qua non for invoking section 14A of the Act no disallowance under section 14A of the Act could be made - Decided against revenue
Issues Involved:
1. Deduction under Section 80IB of the Income Tax Act, 1961. 2. Disallowance of interest on non-business interest-free advances. 3. Disallowance under Section 14A of the Income Tax Act, 1961. Issue-wise Detailed Analysis: 1. Deduction under Section 80IB of the Income Tax Act, 1961: The primary issue was whether the assessee was entitled to a 100% deduction of eligible profits under Section 80IB of the Income Tax Act, 1961, as claimed, or whether it should be restricted to 75% as determined by the Assessing Officer (AO). The AO referred to a survey conducted under Section 133A and previous assessments where the production capacity was estimated at 50% of the actual production. The AO applied the same yardstick for the assessment year 2006-07, restricting the deduction to 75% of eligible profits. The Commissioner of Income Tax (Appeals) [CIT(A)] allowed the assessee’s claim, following the order in the preceding year. The Tribunal upheld the CIT(A)’s decision, citing that the issue was covered by the Tribunal’s decision in the assessee’s own case for the assessment year 2005-06, where similar additions were deleted. The Tribunal found no change in facts and circumstances and dismissed the Revenue’s appeal. 2. Disallowance of Interest on Non-Business Interest-Free Advances: The AO disallowed ?59,01,329/- on account of interest on non-business interest-free advances, citing the assessee’s failure to prove the commercial expediency of such advances. The AO relied on the decision in CIT Vs. Abhishek Industries Ltd. The CIT(A) deleted the disallowance, noting that the interest-bearing term loans were used for business purposes and the advances were covered by the assessee’s own interest-free funds. The CIT(A) also noted that similar advances in previous years had not led to disallowances. The Tribunal upheld the CIT(A)’s decision, agreeing with the assessee’s argument that sufficient own funds were available, and no disallowance was warranted. The Tribunal cited jurisdictional High Court decisions supporting the view that when sufficient interest-free funds are available, the presumption is that advances are made from such funds. 3. Disallowance under Section 14A of the Income Tax Act, 1961: The AO made a disallowance of ?2,67,11,842/- under Section 14A for financial expenses related to investments yielding exempt income. The CIT(A) deleted the disallowance, stating that the investments were old, no disallowance was made in previous years, and no nexus between interest-bearing funds and investments was established. The CIT(A) noted that investments were covered by the assessee’s own funds. The Tribunal upheld the CIT(A)’s decision, emphasizing the absence of the AO’s satisfaction that the assessee’s claim of no expenses incurred for earning exempt income was incorrect. The Tribunal cited the jurisdictional High Court’s decisions that stress the necessity of the AO recording satisfaction based on credible evidence before making a disallowance under Section 14A. Consolidated Findings for Subsequent Appeals: - ITA No.76/Chd/2012 (Assessment Year 2007-08): The Tribunal applied the findings from ITA No.880/Chd/2009 to similar grounds in this appeal. - ITA No.106/Chd/2012 (Assessment Year 2008-09): The Tribunal applied the findings from ITA No.880/Chd/2009 to similar grounds in this appeal. - ITA No.1250/Chd/2012 (Assessment Year 2009-10): The Tribunal applied the findings from ITA No.880/Chd/2009 to the sole ground in this appeal. - ITA No.1117/Chd/2012 (Assessment Year 2009-10): The Tribunal applied the findings from ITA No.880/Chd/2009 to the sole ground in this appeal. Result: - The appeals of the Revenue in ITA No.880/Chd/2009, ITA No.76/Chd/2012, ITA No.106/Chd/2012, and ITA No.1250/Chd/2012 were dismissed. - The appeal of the assessee in ITA No.1117/Chd/2012 was allowed.
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