2015 (2) TMI 326 - HC - Income Tax

Tribunal Upholds Lower Authorities' Decisions on Revenue's Appeal

Commissioner of Income Tax-I Versus Akar Laminators Ltd.

The tribunal upheld the decisions of the lower authorities in all three issues presented. It dismissed the Revenue's appeal regarding the disallowance of ... Disallowance of interest - for earning exempted income the interest paid cannot be allowed - Held that:- As such the dividends was earned on the shares which were purchased in earlier year. But apart from that whether the interest bearing funds have been used to make investment or not is a question of fact for which the tribunal is the ultimate fact finding authority thus holding that the Assessing Officer could not prove that the relevant investments were made out of interest bearing funds. We do not find any substantial question of law arise for consideration as sought to be canvassed. - Decided against revenue. Deferred revenue expenditure - expenditure of the term loan interest - ITAT deleted the addition - Held that:- CIT (Appeals) as well as the Tribunal for holding in favour of assessee has followed the decision of this Court in case of Core Healthcare Limited [2001 (4) TMI 46 - GUJARAT High Court] to be treated as revenue expenditure - Decided against revenue. Disallowance on account of interest on loans given to staff - CIT(A) deleted the addition - Held that:- Before dis-allowance of the interest or part thereof, it should be established that the material borrowed is utilized for non-business purpose. As no finding was recorded by AO, tribunal concurred with a view of CIT (Appeals) and did not find any case for interference.As such whether borrowed money for business is utilized for non-business purpose is an aspect relating to finding a fact for which the Tribunal is the ultimate fact finding authority. - Decided against revenue. Issues:1. Whether the Assessing Officer erred in disallowing expenses related to investments made with interest-bearing fundsRs.2. Whether the deletion of deferred revenue expenditure claimed by the assessee was justifiedRs.3. Whether the disallowance of interest on loans given to staff was correctly deletedRs.Analysis:1. The first issue revolves around the disallowance of expenses by the Assessing Officer (AO) concerning investments made with interest-bearing funds. The CIT (Appeals) found that the AO failed to prove that the investments were made from interest-bearing funds. The tribunal upheld this decision, emphasizing that the assessee had interest-free funds exceeding the investments, and the AO could not establish the use of interest-bearing funds for investments. The court concluded that determining the source of funds for investments is a factual matter within the tribunal's jurisdiction, dismissing the Revenue's appeal.2. The second issue pertains to the deletion of deferred revenue expenditure claimed by the assessee. The AO disallowed the expenditure, but the CIT (Appeals) and the tribunal ruled in favor of the assessee, citing precedents and treating the expenditure as revenue expenditure. The tribunal upheld the decision based on previous rulings and found no substantial legal question, aligning with the decision of the lower authorities and dismissing the Revenue's appeal.3. The final issue concerns the disallowance of interest on loans given to staff by the AO. The CIT (Appeals) required a clear finding that borrowed funds were used for non-business purposes, which the AO failed to establish. The tribunal concurred with the CIT (Appeals), emphasizing the necessity of proving non-business use before disallowing interest. As the AO did not provide such evidence, the tribunal upheld the deletion of the disallowance, emphasizing the factual nature of determining fund utilization. Consequently, the court found no substantial legal question and dismissed the Revenue's appeal, considering it meritless based on the factual findings and legal precedents.