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2021 (9) TMI 641 - AT - Income TaxDisallowance u/s. 40(a)(ia) - assessee has paid interest to various Non Banking Financial Companies without deducting tax at source - HELD THAT - The above said payments have been made to various NBFCs like L T Finance Ltd., Bajaj Finance Ltd., Reliance Capital Ltd., India Bulls Ltd., Daimler Finance Ltd., Kotak Mahindra Bank Ltd., LIC India Ltd. and Tata Capital Ltd. However, the assessee has obtained certificate only from one company named M/s. Tata Capital Ltd., which has claimed to have received interest income - The assessee has not furnished any certificate from any of other payees for the remaining amount. We confirm the disallowance of interest expenditure paid to NBFCs other than M/s. Tata Capital Ltd. With regard to the payment made to M/s. Tata Capital Ltd., we restore the same to the file of the AO for examining the same afresh in the light of additional evidence furnished by the assessee. Accordingly, the order passed by Ld. CIT(A) on this issue would stand modified. Disallowance of wages expenditure - AO examined the vouchers relating to wage payments and noticed that most of them are self made thus made ad hoc disallowance of 10% of wage expenditure - HELD THAT - As decided in own case 2019 (12) TMI 1537 - ITAT BANGALORE identical disallowance was deleted as that the books of accounts were not rejected and that expenses were allowed consistently in the past in scrutiny assessments. The tribunal has also noticed that the Ld. CIT(A) has observed that the AO has not pointed any specific defects in any of the vouchers. In the instant year also, the Ld. CIT(A) has observed that the AO has given vague reasons for making the disallowance. Further the AO has not rejected the books of accounts. Accordingly, following the decisions rendered by the co-ordinate benches, we confirm the orders passed by LD CIT(A) on this issue. Disallowance made u/s. 14A r.w.r. 8D - HELD THAT - Identical disallowance was made by the AO u/s. 14A of the Act in AY 2013-14 2019 (12) TMI 1537 - ITAT BANGALORE also and the Tribunal, in its order referred supra, has confirmed the order passed by LD CIT(A) in restricting the disallowance to the amount of exempt dividend income. We notice that the Hon'ble High Court of Delhi in the case of Joint Investment Private Limited 2015 (3) TMI 155 - DELHI HIGH COURT has held that the disallowance u/s. 14A should not exceed exempt income - No infirmity in the decision of Ld. CIT(A) in restricting the disallowance u/s. 14A to the amount of exempt income. Disallowance of interest expenditure relatable to advance given for acquisition of land - HELD THAT - It is the duty of the assessee to prove that the loan funds were not used for giving advance for purchase of land. Further it is necessary for the assessee to address on applicability or otherwise of proviso to sec. 36(1)(iii) to the facts of the present case and it is for the Ld. CIT(A) to take a decision on it. Accordingly, we are of the view that this issue requires fresh examination at the end of Ld. CIT(A). As noticed that the AO has estimated the interest expenditure to be disallowed for the whole year. In our view, if it is decided that the interest expenditure attributable to advance given for land purchase, then the disallowance should be restricted to the period of actual usage of loan funds - we set aside the order passed by LD CIT(A) on this issue and restore the same to his file with the direction to examine the applicability of proviso to sec. 36(1)(iii) to the facts of the present case and its effect on the interest expenditure claimed by the assessee. CIT(A) may take decision in accordance with law, after affording adequate opportunity to the assessee.
Issues:
1. Disallowance of interest paid to NBFC u/s. 40(a)(ia) 2. Disallowance of wages expenditure 3. Disallowance made u/s. 14A of the Act 4. Disallowance of interest expenditure related to advance given for land acquisition Analysis: Issue 1: Disallowance of interest paid to NBFC u/s. 40(a)(ia) - The AO disallowed interest payments to NBFCs under section 40(a)(ia) due to non-deduction of tax at source. - The CIT(A) upheld the disallowance, except for a payment to Tata Capital Ltd. - The assessee submitted a certificate for the payment to Tata Capital Ltd., requesting a review. - ITAT confirmed disallowance for payments to other NBFCs, but sent the Tata Capital Ltd. payment back to the AO for reevaluation. Issue 2: Disallowance of wages expenditure - The AO made an ad hoc disallowance of 10% of wage expenditure due to self-made vouchers. - The CIT(A) deleted the disallowance based on past consistency and lack of specific defects in vouchers. - ITAT upheld the CIT(A)'s decision, citing precedents and lack of rejection of books of accounts. Issue 3: Disallowance made u/s. 14A of the Act - The AO disallowed expenses under section 14A based on exempt dividend income. - The CIT(A) restricted the disallowance to the amount of exempt income. - ITAT supported the CIT(A)'s decision, citing legal precedents and the principle that disallowance should not exceed exempt income. Issue 4: Disallowance of interest expenditure related to advance given for land acquisition - The AO disallowed interest expenditure related to an advance for land purchase. - The CIT(A) deleted the disallowance, considering the available own funds. - ITAT found the CIT(A) did not address the nexus between own funds and the advance, sending the issue back for further examination. In conclusion, the ITAT partially allowed the assessee's appeal and partly allowed the revenue's appeal, directing further examination on specific issues for proper evaluation and decision.
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