2016 (8) TMI 404 - AT - Income Tax

Tribunal allows Assessee's appeals for AY 2007-08 & 2008-09, directs re-examination of interest expenses, dismisses Revenue's appeal.

Nirma Industries Pvt. Ltd. Versus Dy. CIT, Circle-5, Ahmedabad and Asst. CIT, Circle-5, Ahmedabad Versus Nirma Industries Ltd., Ahmedabad

The Tribunal allowed the Assessee's appeals for AY 2007-08 and 2008-09, directing re-examination of interest expenses and negating disallowance under ... Disallowance of expenses u/s.14A - Held that:- On perusing the copy of the Balance Sheet as at 31/03/2008 it seen that the total interest-free funds as at 31/3/2008 comprising of Share Capital and Reserves and Surplus is ₹ 25,39,21,834/- as against Investment of ₹ 15,84,13,764/-. Further the investments have reduced from ₹ 19,10,66,009/- as at 31/03/2007, meaning thereby that there are no new investments at the year end and the interest-free funds in the form of Share Capital & Reserves & Surplus are much in excess of the investments. We find that the Hon’ble Bombay High Court in the case of HDFC Bank Ltd. vs. Deputy Commissioner of Income-tax and Others reported at [2016 (3) TMI 755 - BOMBAY HIGH COURT ] and after referring to the decision of Bombay High Court in the case of CIT vs. Relince Utilities & Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT ) has held that where interest-free funds are available with the assessee which are more that the investments made in the tax free securities, then a presumption arises that the investments were made from its interest-free funds. Before us, Revenue has not placed any contrary binding decision in its support. In view of the aforesaid facts and relying on the decision of Hon’ble Bombay high Court referred to hereinabove, we are of the view that no disallowance of expenditure u/s.14A other than that offered by assessee is called for in the present case. - Decided in favour of assessee Issues Involved:1. Allowance of interest expenses for AY 2007-08.2. Disallowance of expenses under Section 14A for AY 2008-09.3. Charging of interest under Sections 234B and 234D, and withdrawal of interest under Section 244A for AY 2008-09.4. Adjustment of disallowance under Section 14A while computing MAT profit under Section 115JB for AY 2008-09.Detailed Analysis:1. Allowance of Interest Expenses for AY 2007-08:The Assessee, engaged in manufacturing and trading, declared a loss of Rs. 2,23,17,606 for AY 2007-08. The assessment was framed under Section 143(3) of the Income Tax Act, reducing the loss to Rs. 2,18,37,940. The Assessee contested the disallowance of Rs. 8,25,42,400 as interest expenses on Optionally Fully Convertible Premium Notes (OFCPN), which was provided in earlier years but paid during the current year. The CIT(A) dismissed the ground, noting that the AO had not disallowed the interest in the current year, and thus, the Assessee was not aggrieved on this issue. The Tribunal directed the AO to re-examine the claim after the finality of appeals in earlier years, allowing the ground for statistical purposes.2. Disallowance of Expenses under Section 14A for AY 2008-09:The Assessee declared a loss of Rs. 24,62,005 for AY 2008-09, later revised to the same amount. The AO disallowed Rs. 42,97,474 under Section 14A, noting that the Assessee had earned exempt dividend income and had not proved that investments were made from interest-free funds. The CIT(A) upheld the AO’s decision, applying Section 14A(2), 14A(3), and Rule 8D. The Tribunal, however, found that the Assessee had sufficient interest-free funds exceeding the investments and relied on the Bombay High Court’s decision in HDFC Bank Ltd., presuming investments were made from interest-free funds. Thus, the Tribunal allowed the Assessee’s ground, negating further disallowance under Section 14A.3. Charging of Interest under Sections 234B and 234D, and Withdrawal of Interest under Section 244A for AY 2008-09:The Assessee contested the charging of interest under Sections 234B and 234D and the withdrawal of interest under Section 244A, which were consequential to the primary disallowance under Section 14A. Given the Tribunal’s decision in favor of the Assessee on the Section 14A disallowance, these grounds were rendered moot.4. Adjustment of Disallowance under Section 14A while Computing MAT Profit under Section 115JB for AY 2008-09:The Revenue appealed against the CIT(A)’s direction to the AO not to adjust the disallowance under Section 14A while computing MAT profit under Section 115JB. The Tribunal, having decided the primary disallowance under Section 14A in favor of the Assessee, deemed the Revenue’s appeal infructuous and dismissed it.Conclusion:The Tribunal allowed the Assessee’s appeals for AY 2007-08 and 2008-09, directing re-examination of interest expenses and negating disallowance under Section 14A, respectively. The Revenue’s appeal for AY 2008-09 was dismissed as infructuous.