2023 (1) TMI 63 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - CIT-A deleted the addition - HELD THAT - Firstly, no satisfaction has been recorded by the Ld. Assessing Officer. Secondly, merely because expenditure was debited to profit and loss account does not entitle for disallowance u/s 14A. Thirdly, no disallowance u/s 14A of the Act should have been made if no exempt income was earned. CIT(A) held that since disallowance u/s 14A was deleted in respect of regular provisions and therefore, no adjustment was to be made u/s 115JB for computation of book profit. Respectfully following the finding of the Tribunal in the case of the assessee as well as finding of the Hon ble Delhi High Court in the case of Era Infrastructure (India) Ltd. 2022 (7) TMI 1093 - DELHI HIGH COURT we do not find any error in the order of the Ld. CIT(A) on the issue-in-dispute and accordingly, we uphold the same. The ground No. 1 and 2 of the appeal in respect of all three appeals are dismissed. Addition of income u/s 5 of the Act under regular provisions as well as under provisions of section 115JB - advances made by assessee to its subsidiaries - assessee company being a holding company advanced certain sum to its subsidiary specifying rate of interest @ 12.5 per cent per annum - CIT(A) deleted the entire addition - HELD THAT - As in the present case that the assessee advances to its subsidiary for business requirements, which may have impact on the objectives of the assessee for earning future revenue to the assessee. When it made in relation to advances. Though, it is another fact that the business of such nature did not materialized in positive outcome and the subsidiary had to close such business operation. The Hon'ble Supreme Court in S.A. Builders 2006 (12) TMI 82 - SUPREME COURT held that whether expenditure may not have been incurred under any legal obligation, yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency. The case of the assessee is that the assessee has made advances to its subsidiary for business expediency. Therefore, considering the decision of Hon'ble Supreme Court in SA Builder (supra), we do not find any infirmity in the order passed by Id. CIT(A) - Appeals of the Revenue are dismissed.

Issues Involved:
1. Condonation of delay in filing the appeal.
2. Disallowance under Section 14A of the Income Tax Act.
3. Addition of income under Section 5 of the Income Tax Act.
4. Adjustment of disallowance under Section 14A in the computation of book profit under Section 115JB.
5. Non-charging of interest on advances to a subsidiary and its impact on taxable income.

Detailed Analysis:

1. Condonation of Delay in Filing the Appeal:
The Revenue's appeals were filed with a delay of 122 days. The Ld. Departmental Representative (DR) cited the Supreme Court decision in Miscellaneous Application No. 665 of 2021, which excluded the period from 15.03.2020 to 28.02.2022 for limitation purposes. The Ld. AR did not object seriously. The Tribunal, considering the Supreme Court decision, admitted the appeals for adjudication.

2. Disallowance under Section 14A of the Income Tax Act:
The Revenue challenged the Ld. CIT(A)'s decision to restrict disallowance under Section 14A to the extent of exempt income received by the assessee. The Ld. CIT(A) deleted the disallowance, noting that the assessee had not earned any tax-exempt income during the year. This decision was supported by judicial precedents, including the Hon'ble Madras High Court in Chettinad Logistics P Ltd and the Bombay High Court in Nirved Traders. The Tribunal upheld the Ld. CIT(A)'s decision, referencing its own previous rulings and the Hon'ble Delhi High Court's decision in Era Infrastructure (India) Ltd., which held that the amendment to Section 14A by the Finance Act, 2022, is prospective.

3. Addition of Income under Section 5 of the Income Tax Act:
The Revenue contested the Ld. CIT(A)'s deletion of the addition of Rs. 2,86,37,549 as income under Section 5. The assessee had advanced sums to its subsidiary, which went into losses and stopped paying interest. The Ld. AO added the interest income on the grounds that the subsidiary's resolution for non-payment of interest was unilateral and not based on commercial expediency. The Ld. CIT(A) deleted the addition, citing the Tribunal's earlier decisions that advances to subsidiaries for business requirements fall under commercial expediency. The Tribunal upheld this decision, referencing the Supreme Court's ruling in S.A. Builders, which allows such expenditures if incurred on grounds of commercial expediency.

4. Adjustment of Disallowance under Section 14A in the Computation of Book Profit under Section 115JB:
The Revenue argued that the Ld. CIT(A) erred in deleting the adjustment of disallowance under Section 14A in the computation of book profit under Section 115JB. The Ld. CIT(A) held that since the disallowance under Section 14A was deleted, no adjustment was required under Section 115JB. The Tribunal upheld this decision, noting that the issue was covered by its previous rulings in favor of the assessee.

5. Non-charging of Interest on Advances to a Subsidiary:
The Revenue contended that the Ld. CIT(A) erred in deleting the addition based on the assessee's resolution for non-charging of interest. The Ld. AO argued that the subsidiary's resolution for non-payment of interest was unilateral and lacked commercial expediency. The Ld. CIT(A) deleted the addition, following the Tribunal's earlier decisions that such advances fall under business expediency. The Tribunal upheld this decision, referencing the Supreme Court's ruling in S.A. Builders and its own previous rulings.

Conclusion:
The Tribunal dismissed all three appeals of the Revenue, upholding the Ld. CIT(A)'s decisions on all issues. The Tribunal found no error in the Ld. CIT(A)'s orders, which were consistent with judicial precedents and the Tribunal's own previous rulings. The appeals were pronounced dismissed in the open Court on 28/09/2022.

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