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2020 (2) TMI 825 - AT - Income TaxDisallowance of interest expenditure on the loan raised and utilized for the purpose of purchasing stock in trade - addition u/s 37 - HELD THAT - With regard to disallowance of interest expenditure, it is not in dispute that the business operation of the assessee for construction of NH5 was not commenced and it is only in a preparatory stage. For the assessment years 2010-11, 2011-12 and 2012-13, an identical issue came before this Tribunal as found that since the business has not commenced, the assessee cannot claim the expenditure U/s.37 of the Act. Since, the facts are similar to that of the assessment years 2010-11, 2011-12 and 2012-13, this Tribunal is of the considered opinion that the claim of expenditure towards interest cannot be allowed as revenue expenditure. Therefore the order of both the authorities below is confirmed. Disallowance u/s.14A - Admittedly the assessee had not earned any exempt income in the year under consideration. The Madras High Court in the case of M/s. Redington (India) Ltd. 2017 (1) TMI 318 - MADRAS HIGH COURT found that unless there was an exempted income, there cannot be any disallowance U/s.14A of the Act. In view of the judgment of the Madras High Court in M/s. Redington (India) Ltd., this Tribunal is of the considered opinion that there cannot be any disallowance. The judgment referred by the CIT(A) is not relevant to the facts of the present case. The judgment of Madras High Court is binding on all authorities in the State of Tamil Nadu and Pondicherry including this Tribunal. Therefore this disallowance made by the Assessing Officer U/s.14A of the Act is deleted.
Issues: Disallowance of interest expenditure on loan raised for purchasing stock in trade, Disallowance made under Section 14A of the Income Tax Act, 1961
Issue 1: Disallowance of interest expenditure on the loan raised for purchasing stock in trade The appellant claimed interest expenditure on a loan utilized for purchasing land, arguing that the project had not commenced operations. The Tribunal referred to a previous decision regarding a similar issue for assessment years 2010-11 and 2012-13, where it was found that the expenditure cannot be claimed if the business has not commenced. The Tribunal upheld this view, stating that the claim of expenditure towards interest cannot be allowed as revenue expenditure since the business operation was still in a preparatory stage. The order of both authorities below was confirmed in this regard. Issue 2: Disallowance made under Section 14A of the Income Tax Act, 1961 The Assessing Officer disallowed expenses under Section 14A of the Act, but the appellant had not earned any exempt income during the relevant year. The Tribunal cited a judgment of the Madras High Court in a specific case, stating that unless there is exempted income, no disallowance can be made under Section 14A. The Tribunal held that the disallowance made by the Assessing Officer under Section 14A was not applicable in this case, as there was no exempt income earned. The Tribunal emphasized that the Madras High Court's judgment is binding on all authorities in the state, including the Tribunal. Consequently, the disallowance made under Section 14A of the Act was deleted, and both appeals filed by the assessee were partly allowed. This judgment by the Appellate Tribunal ITAT Chennai addressed the issues of disallowance of interest expenditure on a loan raised for purchasing stock in trade and the disallowance made under Section 14A of the Income Tax Act, 1961. The Tribunal emphasized the importance of business commencement for claiming expenditure and highlighted the necessity of exempt income for disallowance under Section 14A. The decision provided clarity on these issues based on previous rulings and relevant legal interpretations, ultimately partially allowing the appeals filed by the assessee.
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