2015 (1) TMI 1118 - AT - Income Tax

Tribunal dismisses Revenue's appeal, partly allows assessee's appeal, upholds CIT(A)'s findings. Section 14A disallowance remanded.

The Revenue's appeal was dismissed, and the assessee's appeal was partly allowed. The Tribunal upheld the CIT(A)'s findings on the disallowance of ... Disallowance on interest made u/s 36(1)(iii) in respect of interest free loans/advances given to its sister concerns - CIT(A) deleted part addition - Held that:- The revenue was not justified in agitating the reduction in the disallowance of interest in the year under consideration on the same facts, which was accepted by them in the immediately preceding year. - Decided in favour of assessee. Disallowance u/s 14A - Held that:- There is no finding by the lower authorities whether during the year under consideration, there was any exempt income or not,. In view of above, we deem it proper to set aside the order of the authorities below on this point and restore the matter back to the file of AO. We direct the AO to verify whether during the year under consideration, assessee received any exempt income and if no exempt income is earned then following the above decision of Hon'ble Jurisdictional High Court in CIT Vs. Holcim India Ltd.[2014 (9) TMI 434 - DELHI HIGH COURT], no disallowance u/s 14A would be made. - Decided in favour of assessee. Issues Involved:1. Disallowance of interest under Section 36(1)(iii) of the Income Tax Act, 1961.2. Disallowance of depreciation on building and plant & machinery.3. Disallowance under Section 14A of the Income Tax Act, 1961.Issue-wise Detailed Analysis:1. Disallowance of Interest under Section 36(1)(iii):The Revenue's appeal contended that the CIT(A) erred in restricting the disallowance of interest from Rs. 26,78,282/- to Rs. 1,36,234/- for interest-free loans/advances given to sister concerns. The assessee's appeal argued against sustaining the disallowance of Rs. 1,36,234/-. During the assessment proceedings, the AO noticed interest-free advances of Rs. 1,17,38,186/- and interest paid of Rs. 33,61,815/-. The AO made a proportionate disallowance of interest amounting to Rs. 26,78,282/-. The CIT(A) restricted this disallowance to Rs. 1,36,234/- for advances given to M/s Hivac Wares Pvt. Ltd., based on the proportionate working of total funds as per books being Rs. 6,17,61,000/-. The CIT(A) found that the advance to Hivac was from the assessee's own funds, a finding accepted by the Revenue in the previous year. The Tribunal upheld that no new advance was given to Hivac during the year under consideration and thus, the CIT(A) was not justified in upholding the disallowance of interest for advances to Hivac. For other advances, the CIT(A) found them to be for business purposes, similar to the previous year, and the Tribunal found no infirmity in this finding. Citing the Supreme Court's decision in CIT Vs. M/s Excel Industries Ltd., the Tribunal held that the Revenue was not justified in agitating the same issue accepted in the previous year. Thus, the Revenue's ground was rejected, and the assessee's ground was allowed.2. Disallowance of Depreciation on Building and Plant & Machinery:The assessee's ground contended that the CIT(A) erred in upholding the AO's finding that the new unit commenced production in December 2008 instead of September 2008, resulting in a 50% disallowance of depreciation. However, this ground was not pressed by the assessee's counsel during the hearing and was thus rejected.3. Disallowance under Section 14A:The assessee contended that no disallowance under Section 14A was warranted as no dividend (exempt income) was received during the year. The assessee relied on decisions from various High Courts, including CIT Vs. Holcim India Ltd., CIT Vs. Hero Cycles Ltd., CIT Vs. Corrtech Energy (P) Ltd., and CIT Vs. M/s Shivam Motors (P) Ltd., which held that no disallowance under Section 14A can be made if no exempt income is earned. The Revenue argued that the AO did not have the benefit of these decisions when passing the order and suggested either sustaining the order or remanding the matter to the AO. The Tribunal, referencing the Jurisdictional High Court's decision in Holcim India Ltd., noted that if no exempt income is earned, no disallowance under Section 14A can be made. However, since there was no finding on whether any exempt income was earned during the year, the Tribunal set aside the orders of the authorities below and remanded the matter back to the AO for verification. The AO was directed to verify if any exempt income was received and, if not, to follow the High Court's decision and not make any disallowance under Section 14A.Conclusion:The Revenue's appeal was dismissed, and the assessee's appeal was partly allowed. The Tribunal directed the AO to verify the receipt of exempt income for disallowance under Section 14A and upheld the CIT(A)'s findings on the disallowance of interest and depreciation. The order was pronounced in open court on 19.12.2014.