2021 (11) TMI 412 - AT - Income Tax

Disallowance of expenses holding that the same were incurred for non-business purposes - HELD THAT - CIT(A) separately discussed about each head of all expenses and held that the said expenditure was relating to the business activity and business purpose of the assessee. The assessee had duly explained that the assessee had undertaken a new project at Hinjawadi, Maharashtra jointly with MIDC Maharashtra Industrial Development Corporation, a Govt. of Maharashtra undertaking . As submitted that for better management of the J.V(joint venture) business, the assessee took a land for its offices at Mumbai/Bangalore and several expenditure were incurred for upkeeping and maintenance of office located at Mumbai Bangalore. The assessee had claimed this expenditure as business expenditure. The Ld. CIT(A) has also disallowed certain expenditure observing the same of capital nature and of enduring benefit of the assessee. The Ld. DR could not point out infirmity or defect in the above findings of the Ld. CIT(A) warranting our interference. Disallowance on account of interest on delayed payment and TDS written off - HELD THAT - The assessee duly explained to the Ld. CIT(A) that the TDS deducted by other parties was shown receivable by the assessee. However, due to non-supply of the requisite documents- TDS certificates etc by the concerned deductor, the assessee could not claim the TDS refund. Therefore, said amount was written off in the books of assessee. The Ld. CIT(A) observed that since the assessee company could not recover the TDS refund, hence, the same was rightly written off in the books of accounts. He accordingly deleted the disallowance so made by the Ld. AO, The Ld. DR could not point out any infirmity in the Ld. CIT(A)'s findings on this issue, warranting our interference. Therefore, this issue is decided in favour of the assessee. Ground no. 2 of this revenue's appeal is dismissed. Disallowance of interest expenditure invoking the provisions of section 36(1)(iii) - interest on loans and advances given to its subsidiaries - HELD THAT - As explained that in the F.Y relevant to A.Y 2004-05 i.e. year under consideration, the assessee had acquired 25,000 shares of said company out of commercial exigency as the said company was also in the line of real estate projects and the said company had entered into J.V(Joint Venture) with its subsidiary for the development of a commercial center namely ' World Trade Center'. Since the said company had made investments in the said project and considering huge potential for the development of the said company, the assessee company invested in the said company and the assessee ultimately acquired the said company in F.Y 2007-08. It was explained that the said advances were made/invested for business purpose of the assessee. Moreover, the assessee has used loans for income on investments. The assessee had shown an interest income of ₹ 2.68 crores. CIT(A) considering the overall facts and circumstances of the case deleted the disallowance so made by the Ld. AO. No reason to interfere in the above well-reasoned order of the Ld. CIT(A) on this issue. Allowable business expenses - addition of Expenditure incurred in setting up and maintenance of Mumbai Bangalore office - HELD THAT - CIT(A) has categorically discussed that the above said expenditure was incurred by the assessee for up keeping and running of office of assessee at Mumbai/Bangalore, which was for business purpose. The Ld. CIT(A) has also disallowed certain expenditure, which was found to be capital in nature. We do not find any infirmity in the order of the Ld. CIT(A) on these issues. Undisclosed income added by the ld. AO on the basis of data base (AIR) information available in Form 26AS - assessee explained that the concerned deductor of TDS has wrongly mentioned the name of assessee whereas such income was never received by the assessee - HELD THAT - CIT(A) considering the submissions of the assessee deleted the disallowance so made by the Ld. AO. Since the assessee has duly explained that the assessee has not received such commission and necessary evidences in this respect was also submitted such as the name of the party with whom said transactions were made by the concerned deductor. In view of this, we do not find any infirmity in the order of the Ld. CIT(A) on this issue and the finding of the Ld. CIT(A) on this issue is hereby upheld. Disallowance u/s. 14A on account of expenditure incurred for earning of tax exempt income - CIT(A) while decided this issue has observed that own funds of the assessee were much more than the investments made, therefore, the presumption would be that the assessee used its own funds for making this investments - HELD THAT - CIT(A) has rightly deleted the disallowance made by the AO on this issue applying settled proposition of law. In view of above, we do not find any merit in ground no. 3 of this revenue's appeal

Issues Involved:
1. Disallowance of various business expenses.
2. Disallowance of interest on delayed deposit of TDS and TDS written off.
3. Disallowance of interest expenses under Section 36(1)(iii).
4. Disallowance of expenses incurred for setting up and maintenance of offices.
5. Addition based on AIR database information.
6. Depreciation claims.
7. Disallowance under Section 14A.
8. Addition under Section 2(22)(e) for deemed dividend.

Issue-Wise Detailed Analysis:

1. Disallowance of Various Business Expenses:
The department contested the deletion of various disallowances of expenses aggregating ?3,47,75,467/- made by the Assessing Officer (AO). The AO had disallowed expenses on the grounds that they were incurred for non-business purposes or were capital in nature. The CIT(A) found that the expenses were legitimate business expenses incurred for setting up and maintaining the Mumbai office and were not capital in nature. The CIT(A) relied on various judicial precedents, including the Delhi High Court's decision in the case of Samsung India Electronics Ltd., which held that running expenses incurred between setting up and commencement of business are allowable as business expenditure.

2. Disallowance of Interest on Delayed Deposit of TDS and TDS Written Off:
The AO disallowed interest on delayed deposit of TDS and TDS written off, treating them as penal in nature. The CIT(A) allowed these expenses, citing the Supreme Court's decision in Mahalakshmi Sugar Mills Co. vs. CIT, which held that interest for delayed payment of statutory dues is an allowable deduction under Section 37(1). The CIT(A) also referred to the ITAT Kolkata's decision in the case of Narayani Ispat Pvt. Ltd., which allowed interest on delayed payment of service tax and TDS as compensatory in nature.

3. Disallowance of Interest Expenses under Section 36(1)(iii):
The AO disallowed interest expenses on the grounds that the assessee had given interest-free loans to its subsidiaries. The CIT(A) deleted the disallowance, finding that the loans were given for business purposes and were commercially expedient. The CIT(A) relied on the Supreme Court's decision in S.A. Builders Ltd. v. CIT, which held that interest on borrowed funds used for business purposes is allowable, even if the funds are advanced to subsidiaries.

4. Disallowance of Expenses Incurred for Setting Up and Maintenance of Offices:
The AO disallowed expenses incurred for setting up and maintaining offices in Mumbai and Bangalore, treating them as capital in nature. The CIT(A) allowed these expenses, finding that they were incurred for business purposes. The CIT(A) noted that the assessee had undertaken a new project at Hinjawadi, Maharashtra, and the expenses were necessary for the project. The CIT(A) also disallowed certain expenses that were found to be capital in nature.

5. Addition Based on AIR Database Information:
The AO made an addition based on information available in the AIR database, which the assessee contended was incorrect. The CIT(A) deleted the addition, finding that the assessee had not received the income in question and the necessary evidence was provided to substantiate this claim.

6. Depreciation Claims:
The AO disallowed depreciation claimed on certain assets, treating them as capital in nature. The CIT(A) allowed the depreciation, finding that the assets were used for business purposes and the expenses were legitimate business expenses.

7. Disallowance under Section 14A:
The AO disallowed expenses under Section 14A, which relates to expenditure incurred for earning tax-exempt income. The CIT(A) deleted the disallowance, finding that the assessee had substantial interest-free funds and the investments were made from these funds. The CIT(A) relied on judicial precedents that support the view that if interest-free funds are available, the presumption is that investments are made from these funds.

8. Addition under Section 2(22)(e) for Deemed Dividend:
The AO made an addition under Section 2(22)(e) for deemed dividend. The CIT(A) found that the facts were not clear and the addition was based on an ad hoc estimate. The matter was restored to the AO for a fresh decision, with instructions to properly appreciate the evidence and explanations provided by the assessee.

Conclusion:
The appeals of the department for the assessment years 2004-05 to 2007-08 and 2009-10 were dismissed, and the appeal of the assessee for the assessment year 2007-08 was allowed for statistical purposes. The CIT(A)'s decisions were largely upheld, with specific directions for fresh consideration on certain issues.

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