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TMI Blog2020 (1) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... e was some increase in the production/sales etc, we are not inclined to treat the interest expense on the acquisition of such machinery out of the borrowed fund as extension of the existing business. Accordingly we hold that as there was no extension of the existing business, therefore the amount of interest expenses incurred by the assessee on the borrowed money utilized for the acquisition of the machineries is eligible for deduction as revenue expense. Hence the ground of Appeal of the assessee is allowed. Disallowance u/s 14A - HELD THAT:- It is presumed that the investment has been made by the assessee out of its own fund without utilizing the borrowed money. Accordingly there cannot be any disallowance on account of interest expense. In holding so we find support and guidance from the judgment of CIT Vs.UTI Bank ltd. [ 2013 (8) TMI 238 - GUJARAT HIGH COURT] wherein it was held no disallowance of interest expenses is warranted if the own fund of the assessee exceeds the amount of investment. Regarding the addition of administrative expenses, the Ld. AR did not advance any argument at the time of hearing considering the smallness amount involved therein. Accordin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er For the Appellant : Shri Tushar P.Hemani, Shri P.B. Parmar, ARs For the Respondent : Shri L.P. Jain, Sr.DR ORDER PER WASEEM AHMED, ACCOUNTANT MEMBER: The captioned appeal has been filed at the instance of the Assessee against the order of the Commissioner of Income Tax (Appeals) 2, Ahmedabad [CIT(A) in short] vide appeal no.CIT(A)-VII/36/DC (OSD)-1. Cir.4/2014-15 dated 11/04/2014 arising in the assessment order passed under s.143(3) of the Income Tax Act, 1961(hereinafter referred to as the Act ) dated 28/02/2014 relevant to Assessment Year (AY) 2011-12. 2. The assessee has raised the following grounds of appeal:- 1. The ld. CIT(A) has erred in law and on the facts of the case in confirming the action of ld.AO in disallowing interest of ₹ 1,41,235/- u/s.36(1)(iii) of the Act. 2. The ld.CIT(A) has erred in law and on the facts of the case in confirming the disallowance of ₹ 50,554/- out of ₹ 76,311/- made by ld.AO u/s14A r.w.r 8D of the Income-Tax Rules, 1962. 3. Alternatively and without prejud ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of the impugned machinery. 3.1. However, the AO was of the view that the amount of interest expenses on the money borrowed which was utilized for the purchase of the machinery cannot be allowed as deduction under the provisions of section 36(1)(iii) of the Act until and unless the interest relates to the post put to use period. Accordingly he disallowed the same and added to the total income of the assessee. Aggrieved assessee preferred an appeal to the Ld. CIT (A). 4. The assessee before the Ld.CIT(A) submitted that there was no extension of the existing business. Therefore, the condition specified under the proviso to section 36(1)(iii) of the Act does not apply. 5. However, the Ld. CIT (A) disregarded the contention of the assessee and confirmed the order of the AO by observing that the machine purchased by the assessee out of the borrowed fund was not put to use in the year under consideration. Accordingly he was of the view that the amount of interest on the borrowed fund utilized for the purchase of the machinery is not eligible for deduction in pursuance to the provision of section 36(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of the machine acquired by the assessee during the year is negligible to the total value of the plant and machineries shown by the assessee in its balance-sheet as on 31 March 2011. Such, small addition in the plant and machinery cannot amount to the extension of the existing business. As there is no detail available before us suggesting that there was some increase in the production/sales etc, we are not inclined to treat the interest expense on the acquisition of such machinery out of the borrowed fund as extension of the existing business. Accordingly we hold that as there was no extension of the existing business, therefore the amount of interest expenses incurred by the assessee on the borrowed money utilized for the acquisition of the machineries is eligible for deduction as revenue expense. Hence the ground of Appeal of the assessee is allowed. 9. The next issue raised by the assessee is that the Ld. CIT(A) erred in confirming the disallowance for ₹ 50,554.00 under the provisions of section 14A read with Rule 8D of the Income Tax Rules, 1962. 9.1. The assessee in the year under consideration has received the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2009-10 ₹ 19,75,066/- ₹ 3,79,43,716/- 2010-11 Rs.Nil ₹ 3,93,45,805/- 2011-12 Rs.Nil ₹ 4,53,51,365/- 12.1. Thus, it is presumed that the investment has been made by the assessee out of its own fund without utilizing the borrowed money. Accordingly there cannot be any disallowance on account of interest expense. In holding so we find support and guidance from the judgment of Hon ble Gujarat High Court in the case of CIT Vs.UTI Bank ltd. reported in 32 taxmann.com 370 wherein it was held no disallowance of interest expenses is warranted if the own fund of the assessee exceeds the amount of investment. The relevant extract of the head note is reproduced as under: Section 14A of the Income-tax Act, 1961 - Expenditure incurred in relation to income not chargeable to tax [Dividends] - Assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der section 14A r.w.r. 8D of Income Tax Rule for ₹ 50,554/- in pursuance to the clause (f) of explanation 1 to section 115JB of the Act. 14.1. However, we note that in the recent judgment of Special Bench of Hon ble Delhi Tribunal in the case of ACIT vs. Vireet Investment Pvt. Ltd. reported in 82 Taxmann.com 415 has held that the disallowances made u/s 14A r.w.r. 8D cannot be the subject matter of disallowances while determining the book profit u/s 115JB of the Act. The relevant portion of the said order is reproduced below: In view of above discussion, the computation under clause (f) of Explanation 1 to section 115JB(2), is to be made without resorting to the computation as contemplated under section 14A, read with rule 8D of the Income-tax Rules, 1962. 14.2. The ratio laid down by the Hon ble Tribunal is squarely applicable to the facts of the case on hand. Thus it can be concluded that the disallowance made under section 14A r.w.r. 8D cannot be resorted while determining the expenses as mentioned under clause (f) of explanation 1 to section 115JB of the Act. 14.3. However, it is also clear that the di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation-1 of Sec. 115JB of the Act independently. But now we note that there is no mechanism provided under the clause (f) to Explanation-1 of Sec. 115JB of the Act to make the disallowance independently. Therefore our action for restoring back the issue to the file of AO would unnecessarily cause further litigation. Thus we limit the disallowance on an ad-hoc basis @ 1 % of the exempted income under the clause (f) to Explanation-1 of Sec. 115JB of the Act subject to the condition that the disallowance shall not exceed the amount of disallowance determined by the authorities below under the provisions of section 14A r.w.r. 8D of Income Tax Rules. Hence, the ground of appeal of the assessee is partly allowed. 15. The last issue raised by the assessee is that the Ld. CIT-A erred in confirming the addition of ₹ 1,70,127.00 on account of interest on the income tax refund. 15.1. The AO during the assessment proceedings found that the assessee has received interest income on the income tax refund for ₹ 1,70,127.00 as evident from the form 26AS. But the assessee has not offered the same to tax. Accordingly the AO made the addition of such ..... X X X X Extracts X X X X X X X X Extracts X X X X
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