2019 (4) TMI 860 - HC - Income Tax

Addition u/s 36(1)(iii) - advance share application money given by the assessee to its sister concerns - HELD THAT - CIT (Appeals) and the Tribunal held that the Assessing Officer had made a wrong reference to a similar treatment given by him for the earlier assessment year 200708. It was found that in the said assessment year 200708 there was no scrutiny assessment. Thus the entire basis of the order of the Assessing Officer was knocked down. Quite apart it was found that the assessee had made investment which would yield income in form of dividend and therefore investment was made for the purpose of earning income. Accordingly CIT (Appeals) and the Tribunal were of the opinion that the expenditure incurred for earning such income had to be allowed under Section 36(1)(iii) of the Act. We do not find any error in such view. No question of law arises. Disallowance of expenditure u/s 37(1) - HELD THAT - Tribunal while upholding the decision of CIT (Appeals) held that while making advances to the sister concerns the assessee was acting in the normal course of business and that the interest expenditure was therefore allowable as per Section 36(1)(iii) of the Act. It was recorded that the Assessing Officer had not brought anything to prove that the expenditure incurred towards interest was not wholly and exclusively for carrying out the business of the assessee. The Tribunal therefore confirmed the order of the CIT (Appeals). When CIT(Appeals) and the Tribunal have concurrently held that the expenditure was incurred for the purpose of the business of the assessee we find no reason to interfere. No question of law therefore arises. Disallowance u/s 14(A) r/w Rule 8D - sufficiency of own interest funds - HELD THAT - We propose to dismiss this ground only on one issue the finding of the CIT (Appeals) and the Tribunal that the assessee had sufficient interest free fund in excess of interest bearing fund to make investment which would result in exempt income. The Tribunal in this respect relied upon decision of this Court in case of HDFC bank Limited Vs. Deputy Commissioner of Income tax and ors. 2016 (3) TMI 755 - BOMBAY HIGH COURT . Such being the facts and settled law no question of law arises.

Summary

Issues:
1. Addition of ?50 lakhs under Section 36(1)(iii) for advance share application money.
2. Disallowance of ?3,05,50,685 under Section 37(1) for interest-free advances.
3. Disallowance of ?2,33,36,058 under Section 14A read with Rule 8D.

Issue 1: Addition of ?50 lakhs under Section 36(1)(iii) for advance share application money:
The case involved the Assessing Officer's decision to add ?50 lakhs under Section 36(1)(iii) for advance share application money provided by the assessee to its sister concern. The CIT (Appeals) and the Tribunal found the Assessing Officer's reference to an earlier assessment year to be incorrect as there was no scrutiny assessment in that year. It was established that the investment made by the assessee was for earning income in the form of dividends, making the expenditure allowable under Section 36(1)(iii) of the Act. The court upheld the decisions of the lower authorities, stating that no error was found in allowing the expenditure for earning income, and no question of law arose.

Issue 2: Disallowance of ?3,05,50,685 under Section 37(1) for interest-free advances:
The second issue pertained to the Assessing Officer's disallowance of ?3.05 crores under Section 37(1) for interest-free advances made by the assessee to sister concerns. The Tribunal upheld the decision of the CIT (Appeals), stating that the expenditure was incurred in the normal course of business and was wholly and exclusively for carrying out the business of the assessee. Both lower authorities concluded that the expenditure was for the purpose of the assessee's business, and as such, no reason was found to interfere, and no question of law arose.

Issue 3: Disallowance of ?2,33,36,058 under Section 14A read with Rule 8D:
The final issue concerned the disallowance of ?2.33 crores under Section 14(A) read with Rule 8D of the Income Tax Rules. The revenue's contentions were rejected by the Tribunal, which was upheld by the court. The disallowance was based on the finding that the assessee had sufficient interest-free funds exceeding interest-bearing funds to make investments generating exempt income. Relying on the decision in HDFC Bank Limited Vs. Deputy Commissioner of Income-tax, the court concluded that no question of law arose. The court dismissed the appeal, stating that the revenue's other grievances related to the Tribunal's judgment on this issue were not addressed as the main issue was resolved.

In conclusion, the High Court of Bombay dismissed the revenue's appeal against the judgment of the Income Tax Appellate Tribunal on all three issues, upholding the decisions of the lower authorities and finding no error or question of law in the assessments made.