2019 (1) TMI 208 - AT - Income Tax

Disallowance of interest u/s 244A - maintainability of appeal - Held that - As the issue has already been adjudicated by the co-ordinate Bench in the case of Sandvik Asia Limited 2015 (11) TMI 752 - ITAT PUNE and held that non granting of interest under section 244A of the Act is appealable. Hence, we direct the AO to compute the interest applicable to assessee under section 244A of the Act as per the Provisions of the Act. We direct the AO accordingly. Disallowance of interest expenditure on advances - advances were made in contravention of RBI directions - Held that - As decided in assessee s own case nothing has been brought on record to indicate that the assessee has incurred an expenditure of ₹ 57.79 crores in contravention of RBI guidelines which comes within the ambit of Proviso to section 37(1) - AO has not brought any materials against the assessee to prove that the RBI has passed any orders imposing fine or penalty - the assessee has filed enough evidence before the AO to prove that the guidelines issued by the RBI is only advisory in nature and any contravention of such guidelines can be cured by making an application before RBI for condonation of such violations using its powers. Therefore, we are of the considered view that disallowing notional interest on borrowings for the simple reason that the assessee has violated directives issued by RBI without any contrary materials to prove that the assessee has incurred such expenditure for contravention of the provisions of the Act is incorrect. - decided in favour of assessee Disallowance of club fee - assessee had failed to prove the nexus of these expenses to the business - Held that - As the issue is squarely covered in favour of assessee in assessee s own case for the AY 1996-97 respectfully following the same, we confirmed the order of CIT(A) deleting the addition. Disallowance u/s 14A - Held that - As assessee has its own funds available in the shape of share capital plus reserves at ₹ 35897.69 lakhs as against the investment in equity shares at ₹ 3501.05 lakhs, which is much below the own funds. Once this is the position, respectfully following the Hon ble Bombay High court decision in the case of HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT , we delete the addition made by AO of interest expenses but sustained the disallowance at the rate of 2% of dividend income estimated by AO at ₹ 2,90,440/-. We allow this issue of assessee s appeal partly.

Summary

Issues Involved:
1. Disallowance of securitization expenses.
2. Allowance of interest under section 244A of the Income Tax Act.
3. Disallowance of interest expenditure on advances.
4. Allowance of securitization expenses.
5. Disallowance of expenses related to exempt income under section 14A.
6. Addition on account of club fee.

Detailed Analysis:

1. Disallowance of Securitization Expenses:
The appellant withdrew the issue of disallowance of securitization expenses for AY 2003-04, 2004-05, and 2005-06. Consequently, the Tribunal dismissed this issue as withdrawn.

2. Allowance of Interest under Section 244A:
The appellant contested the CIT(A)'s dismissal of the ground relating to interest under section 244A as non-appealable. The Tribunal referred to the decision in Sandvik Asia Limited vs. CIT, where it was held that the allowance of interest under section 244A is an appealable order. The Tribunal directed the AO to compute the interest under section 244A as per the provisions of the Act for all three years.

3. Disallowance of Interest Expenditure on Advances:
The AO disallowed interest expenditure on advances made in contravention of RBI directions. The CIT(A) deleted the disallowance, noting that the payment of interest was not in contravention of any legal provision and RBI directions are not law. The Tribunal upheld the CIT(A)'s order, referencing a similar decision in the assessee’s case for AY 2001-02, confirming that the disallowance of interest expenditure was not warranted.

4. Allowance of Securitization Expenses:
The CIT(A) had not allowed securitization expenses, and the Tribunal noted that this ground was misconceived by the Revenue. The Tribunal dismissed this ground, finding no need for adjudication.

5. Disallowance of Expenses Related to Exempt Income under Section 14A:
For AY 2004-05, the CIT(A) had set aside the issue to the AO, who reframed the assessment and restricted the disallowance to ?5,59,180. The Tribunal dismissed this ground as infructuous. For AY 2005-06, the AO disallowed expenses under section 14A, including interest expenses and administrative expenses. The Tribunal noted that the assessee had sufficient own funds to cover the investments, thus deleting the interest expenses disallowance but sustaining the administrative expenses disallowance at 2% of the dividend income.

6. Addition on Account of Club Fee:
The AO disallowed club fees, but the CIT(A) allowed the expenditure, considering it a business expense. The Tribunal upheld the CIT(A)'s order, citing a consistent decision in the assessee’s case for AY 1996-97 and other years, recognizing club fees as allowable business expenditure.

Conclusion:
The Tribunal partly allowed the appeals of the assessee and dismissed the appeals of the Revenue. The Tribunal's decisions were based on precedents and consistent judicial interpretations, ensuring that the disallowances and allowances were in accordance with the provisions of the Income Tax Act and relevant judicial decisions.