2018 (7) TMI 939 - AT - Income Tax

Disallowance of interest free loan advance - Held that - The same trade advances were given by the assessee in earlier years and the commercial expediency was examined by the learned CIT(A) and ITAT in earlier years and the order of the Assessing Officer passed in the earlier years were reversed by the learned CIT(A)/ITAT for the assessment years 2010-11 and 2011-12. 2018 (4) TMI 243 - ITAT DELHI Disallowance u/s 14A r/w rule 8D - Held that - The grievance of the Revenue in the present case is that the learned CIT(A), without considering the satisfaction recorded in the order of Assessing Officer, has wrongly come to the conclusion that the Assessing Officer has not given cogent reason or opinion about the correctness or otherwise of the assessee s claim. Therefore, relying upon the decision of the Hon ble Delhi High Court in the case of Maxopp Investment Ltd. Vs. CIT (2018 (3) TMI 805 - SUPREME COURT OF INDIA) it was concluded by the Ld. CIT(A) that the Assessing has not recorded the satisfaction as required in law. However, while going through the order of the Assessing Officer, as it was clearly brought on record by the able Departmental Representative, that the Assessing Officer has duly recorded the satisfaction as required in law. Therefore, in our opinion, the finding recorded by the learned CIT(A) is without any merit and perverse, therefore, the same is required to be reversed.

Summary

Issues:
1. Disallowance of interest-free loan advance
2. Disallowance made under section 14A r/w rule 8D of the Act

Issue 1: Disallowance of interest-free loan advance:
The Revenue appealed against the deletion of disallowance of an interest-free loan advance of ?1,18,42,528 given by the assessee. The Assessing Officer disallowed the proportionate interest as the assessee failed to justify the commercial expediency for advancing these loans. The CIT(A) allowed the appeal, citing commercial expediency examined in earlier years. The Tribunal referred to a previous order where it was held that business advances are not subject to notional income or disallowance of interest expenses. The Tribunal upheld the CIT(A)'s decision, emphasizing consistency in approach by the Revenue. The Revenue's appeal was dismissed based on the earlier Tribunal order.

Issue 2: Disallowance under section 14A r/w rule 8D of the Act:
The Revenue challenged the relief upheld by the CIT(A) regarding disallowance under section 14A. The Assessing Officer found that the assessee had exempt income and had not differentiated investments from common funds. The CIT(A) deleted the addition, but the Revenue contended that the satisfaction recorded by the Assessing Officer was ignored. The assessee argued that the investment did not result in exempt income and relied on various judgments. The Tribunal found that the CIT(A) wrongly concluded that the Assessing Officer did not record satisfaction as required by law. The matter was remanded back to the CIT(A) to decide on merit after considering relevant judgments. The appeal of the Revenue was allowed partly for statistical purposes.

This judgment addresses the disallowance of interest-free loan advances and the disallowance under section 14A of the Income-tax Act, providing detailed analysis and considerations for each issue.