2019 (6) TMI 697 - AT - Income Tax

Disallowance of interest made u/s 14A r.w.s. 36 - HELD THAT - Regarding the advances received from the sale of agricultural land amounting to ₹ 15.50 crores and advances received against sale of godown amounting to ₹ 5 crores, the same was rejected by the AO in the absence of specific written agreement. AO did not make any addition treating the advances as bogus. AO did not suspect or disbelieve the genuineness of the receipt of the money to the extent of ₹ 20.50 crores and the AO did not give any finding to hold that the sum of ₹ 20.50 crores claimed by the assessee bears the interest. Therefore, there is no reason to disbelieve the availability of own funds. Accordingly, there is no case of disallowance of interest u/s 36(1)(iii) for diversion of funds towards business purposes. The second line of argument of the assessee was that there was no exempt income received by the assessee in the impugned assessment year, hence, there is no case for disallowance of expenditure relatable to section 14A. Now this issue is settled and this Tribunal in the case of ACN Infotech(India) Pvt. Ltd., Visakhapatnam 2018 (12) TMI 58 - ITAT VISAKHAPATNAM has held that in the absence of exempt income, there is no case for disallowance u/s 14A In the instant case, the assessee did not earn any dividend income and this fact was not disputed by the assessee. Tribunal in the case law cited supra has held that in the absence of dividend income, there is no case for disallowance of interest u/s 14A and the department did not bring any other decision of Hon ble jurisdictional High Court or Hon ble Apex Court to support the case of Revenue. Therefore, respectfully following the view taken by this Tribunal, we hold that there is no case for disallowance u/s 14A. Accordingly, we set aside the orders of the lower authorities and allow the appeal of the assessee.

Summary

Issues:
Disallowance of interest under section 14A r.w.s. 36 of the Income Tax Act, 1961 for Assessment Year 2012-13.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of interest under section 14A r.w.s. 36 of the Income Tax Act, 1961. The Assessing Officer found that the assessee had made investments in shares of sister concerns and other business concerns, borrowing funds and paying interest. The assessee claimed the investments were made from own funds and thus no interest should be disallowed. The AO, however, disallowed interest relating to investments at a certain amount. The CIT(A) upheld the AO's order, leading to an appeal before the Tribunal.

The assessee argued that investments were made from own funds, hence no disallowance was warranted. Additionally, since no dividend income was received during the year, disallowance under section 14A was not applicable. The Tribunal considered the arguments and the material on record. It noted that the AO accepted the opening balance of own funds but rejected advances received without a written agreement. However, as the AO did not suspect the genuineness of the funds, there was no basis for disallowance under section 36(1)(iii) for diversion of funds.

Regarding section 14A, the Tribunal referred to a previous case where it was held that in the absence of exempt income, no disallowance was warranted. Since the assessee did not earn any dividend income, the Tribunal found no grounds for disallowance under section 14A. The Tribunal cited precedent cases to support its decision. Consequently, the Tribunal allowed the appeal of the assessee, setting aside the orders of the lower authorities and confirming that no disallowance was required under section 14A due to the absence of exempt income.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that in the absence of exempt income, no disallowance was justified under section 14A of the Income Tax Act, 1961. The order was pronounced on 29th May 2019.