2015 (11) TMI 1067 - AT - Income Tax

Tribunal decisions on appeals for multiple Assessment Years

The Tribunal allowed the appeal for Assessment Year (AY) 2009-10 and partly allowed the appeals for AY 2010-11 and 2011-12. The Tribunal directed the ... Disallowance of interest u/s 36(1)(iii) - Held that:- During the year under consideration the assessee has furnished the details of utilization of loans. A perusal of the same shows that the assessee has used major portion of the loans for purchasing shares and giving interest bearing advances. With regard to the interest free advances of ₹ 1.90 crores given by the assessee, we notice that the assessee is having funds as explained. In view of the availability of interest free funds, the disallowance of interest made by the tax authorities is liable to deleted in view of the decision of Hon’ble Bombay High Court in the case of Reliance Utilities & infrastructre Ltd (2009 (1) TMI 4 - HIGH COURT BOMBAY). Accordingly, we set aside the order of Ld CIT(A) on this issue and direct the AO to delete the disallowance made out interest expenditure. Disallowance made u/s 14A - Held that:- We notice that the Hon’ble Karnataka High Court has clearly held in the case of CCI Ltd (2012 (4) TMI 282 - KARNATAKA HIGH COURT) that the shares held as stock in trade should be excluded for the purpose of computing disallowance u/s 14A of the Act, since they can not be said to be the “investment” made for the purpose of earning dividend income. In the case of India Advantage Securities Ltd (2015 (6) TMI 140 - BOMBAY HIGH COURT), the Hon’ble Bombay High Court has noticed that the CIT(A) took into account the words of the Rule and found that the figures as derived by the Assessing officer cannot be taken into consideration. The Ld CIT(A) had observed that, one can at best disallow the expenses which are incurred for earning dividend income and for that purpose, the figures under the head “Investment” could be taken and some charges apportioned for the purpose of computing expenses. Thus the disallowance of interest in relation to dividend received from shares held as stock-in-trade cannot be made. Issues Involved:1. Disallowance of interest under section 36(1)(iii) of the Income Tax Act.2. Disallowance made under section 14A of the Income Tax Act.Issue-wise Detailed Analysis:1. Disallowance of Interest under Section 36(1)(iii):- Assessment Year 2009-10:The assessing officer (AO) noted that the assessee had given interest-free advances while availing interest-bearing loans. The assessee claimed that these advances were for purchasing shares, but since the advances were returned without purchasing shares, the AO disallowed Rs. 28.86 lakhs of interest expenditure. The CIT(A) upheld this disallowance, but the Tribunal found merit in the assessee's submission that interest-free funds were used for business purposes. The Tribunal noted that the interest-free funds available (Rs. 8.10 crores) were more than the interest-free advances (Rs. 5.75 crores). Thus, the decision in Reliance Utilities & Power Ltd (313 ITR 340) was applicable, and the Tribunal directed the AO to delete the disallowance.- Assessment Year 2010-11:The AO disallowed Rs. 40,04,575/- out of the interest expenditure of Rs. 48,92,738/- on the grounds that interest-free advances of Rs. 1.90 crores were given. The Tribunal found that the assessee had sufficient interest-free funds (Rs. 559.97 lakhs) to cover the advances. Citing the Reliance Utilities case, the Tribunal directed the AO to delete the disallowance.- Assessment Year 2011-12:The AO disallowed Rs. 5.80 lakhs of interest, considering interest-free advances transferred to M/s Essem Consultancy P Ltd. The Tribunal noted that the assessee had sufficient interest-free funds and that the advances were recovered by June 2010. The Tribunal found the AO's approach of considering only debit balances flawed and directed the deletion of the disallowance.2. Disallowance under Section 14A:- Assessment Year 2010-11:The AO disallowed Rs. 55,46,090/- under Rule 8D, which was reduced to Rs. 50,41,315/- by the CIT(A). The Tribunal held that shares held as stock-in-trade should be excluded for Rule 8D disallowance, following the CCI Ltd (250 CTR 291) and India Advantage Securities Ltd cases. The Tribunal directed the AO to restrict the disallowance to 5% of the dividend income, considering the negligible dividend compared to the sale value of shares.- Assessment Year 2011-12:The AO disallowed expenses related to dividend income of Rs. 12,85,175/-. The Tribunal reiterated that shares held as stock-in-trade should be excluded for Rule 8D disallowance. For investments of Rs. 59 lakhs, the Tribunal accepted the assessee's contention that sufficient interest-free funds were available, citing HDFC Bank Ltd (366 ITR 505). The Tribunal directed the AO to restrict the disallowance to 5% of the dividend income.Conclusion:The Tribunal allowed the appeal for AY 2009-10 and partly allowed the appeals for AY 2010-11 and 2011-12, directing the AO to delete or reduce disallowances based on the availability of interest-free funds and the nature of shareholdings as stock-in-trade.