2020 (1) TMI 688 - AT - Income Tax

Disallowance on account of interest u/s 36(1)(iii) - assessee-company has given interest free loans and advances to related party - HELD THAT - In A.Y. 2011-2012 the Ld. CIT(A) has allowed the claim of assessee and deleted the addition, copy of the Order is placed in the paper book. Though the Department has filed an appeal before the Tribunal, but, no ground have been raised on this issue. Copy of the grounds of appeal is also filed on record. These facts itself are sufficient to delete the addition. We may further note that assessee has own sufficient funds to give advance to M/s. Prateek Resorts Builders Pvt. Ltd., out of own funds. There was also an opening balance as contended by the Learned Counsel for the Assessee in preceding year, on which, addition has already been deleted. The assessee has also placed on record the correspondence between the parties to show that advance have been given for commercial expediency. It is well settled Law that when interest free funds are available to the assessee which were sufficient to made its investments, it would be presumed that the investments were made from the interest free funds available with the assessee. We rely upon case of Reliance Utility and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT and Reliance Industries Ltd. 2019 (1) TMI 757 - SUPREME COURT and Munjal Sales Corporation 2008 (2) TMI 19 - SUPREME COURT . Considering the totality of the facts and circumstances of the case, we do not find any justification to sustain the addition. Disallowance under section 14A read with Rule 8D - HELD THAT - In I.P. Support Services India Ltd. 2015 (10) TMI 752 - DELHI HIGH COURT held that no disallowance be made in the absence of satisfaction as to why voluntary disclosure made by assessee was unreasonable and unsatisfactory. - Thus in the absence of any satisfaction recorded by the A.O. for making disallowance under section 14A read with Rule 8D of the I.T. Act, no disallowance could be made in the case of the assessee. We, accordingly, set aside the Orders of the authorities below and delete the entire addition. - Decided in favour of assessee.

Summary

Issues Involved:
1. Disallowance of interest under section 36(1)(iii) of the I.T. Act, 1961.
2. Disallowance under section 14A read with Rule 8D of the I.T. Rules, 1962.

Issue-wise Detailed Analysis:

1. Disallowance of Interest under Section 36(1)(iii) of the I.T. Act, 1961:
- A.Y. 2012-2013: The assessee challenged the disallowance of ?1,51,65,269/- made on account of interest. The A.O. disallowed the interest expenses on loans/advances given to M/s. Prateek Resorts & Builders Pvt. Ltd., following the assessment order for the preceding A.Y. 2011-2012. The assessee argued that the addition was based on the previous year's order, which had been deleted by the Ld. CIT(A), and the Department did not appeal against that decision. The assessee also claimed that the advances were given for business purposes and were funded by sufficient own funds and interest-free borrowings. The Tribunal found that the A.O. did not give independent findings and relied on the previous year's order. The Tribunal noted that the assessee had sufficient own funds and the advances were given for commercial expediency. Citing judgments from the Hon'ble Supreme Court and Bombay High Court, the Tribunal deleted the addition and allowed the assessee's appeal.

- A.Y. 2013-2014: The assessee challenged the disallowance of ?39,89,019/-. The A.O. disallowed the interest based on the disallowance made in A.Y. 2011-2012. The Tribunal, following its decision for A.Y. 2012-2013, deleted the addition and allowed the assessee's appeal.

2. Disallowance under Section 14A read with Rule 8D of the I.T. Rules, 1962:
- A.Y. 2012-2013: The assessee challenged the disallowance of ?1,52,47,867/- under section 14A. The A.O. disallowed the amount as the assessee had received exempt dividend income but did not make any disallowance of expenditure. The assessee argued that the disallowance should be based only on the investments that yielded exempt income, which was minimal. The Tribunal found that the A.O. did not record any satisfaction before making the disallowance and that the disallowance should be based on the actual investments yielding exempt income. Citing judgments from the Hon'ble Delhi High Court, the Tribunal deleted the addition and allowed the assessee's appeal.

- A.Y. 2013-2014: The assessee challenged the disallowance of ?2,04,97,971/-. The A.O. made the disallowance despite the assessee not earning any exempt income during the year. The Tribunal, citing judgments from the Hon'ble Supreme Court and Delhi High Court, held that no disallowance could be made in the absence of exempt income and deleted the addition, allowing the assessee's appeal.

- A.Y. 2014-2015: The assessee challenged the disallowance of ?2,39,66,670/-. The A.O. disallowed the amount based on the investment shown in the balance sheet. The assessee argued that the disallowance should be based on the actual investments yielding exempt income, which was minimal. The Tribunal found that the A.O. did not record any satisfaction before making the disallowance and that the disallowance should be based on the actual investments yielding exempt income. Following its decision for A.Y. 2012-2013, the Tribunal deleted the addition and allowed the assessee's appeal.

Conclusion:
The Tribunal allowed all the appeals of the assessee, deleting the disallowances made under section 36(1)(iii) and section 14A read with Rule 8D of the I.T. Rules, 1962, for the assessment years 2012-2013, 2013-2014, and 2014-2015.