2017 (3) TMI 266 - AT - Income Tax

Tribunal grants relief on disallowance under section 14A and borrowed funds interest

M/s Shapoorji Pallonji and Co. Ltd. Versus DCIT, Circle-3 (3), Mumbai

The Tribunal partly allowed the appeal of the assessee, providing relief on the disallowance under section 14A and the interest on borrowed funds. The ... Disallowance u/s 14A - as per assessee as in preceding years, accepted the suo-moto disallowance therefore, in the present Assessment Year also, the same has to be followed - Held that:- We find that the Tribunal for Assessment Year 2009-10, followed the decision of the Tribunal in the case of assessee itself for Assessment Year 2008-09 with respect to disallowance made by the Assessing Officer under rule-8D(2)(ii) and 8D(2)(iii) of the Rules along with the disallowance of the administrative expenses. In that case, the Ld. Commissioner of Income Tax (Appeal) restricted the disallowance to ₹ 10 lakh against the suomoto disallowance made to the tune of ₹ 1 lakh. The disallowance to the tune of ₹ 10 lakh was upheld by the Tribunal against the claim of ₹ 1 lakh by the assessee. So far as, the contention of the ld. counsel for the assessee that the disallowance may be restricted to ₹ 1 lakh only, is concerned, we are not satisfied with such reasoning because the rule of consistency applies to both sides and since, the Tribunal for Assessment Year 2008-09, 2009-10, being on identical facts, directed the Assessing Officer to restrict the disallowance as contained in the order of the Tribunal dated 27/03/2015 (for Assessment Year 2009-10), for the present Assessment Year also, the disallowance is directed to be restricted to ₹ 10 lakh under section 14A of the Act r.w.r. 8D(2)(iii), against the claim of the assessee at ₹ 1 lakh, consequently, the Ld. Assessing Officer is directed to follow the ratio laid down in order dated 27/03/2015 (Assessment Year 2009-10). Disallowance of interest on the alleged basis that borrowed funds were utilized for non-business purposes - Held that:- As mentioned earlier, the Department in earlier and subsequent Assessment Year, accepted the stand of the assessee, therefore, no U-turn is permissible at this stage, when the facts are identical. Even otherwise, the issue of consistency has already been discussed by us in preceding paras of this order. Thus, the Ld. Assessing Officer is directed to follow the ratio laid down in theorder of the Tribunal in assessee's own case and hold that the funds were utilized for business purposes as the same were advanced by the assessee for the business exigencies of the assessee. Issues Involved:1. Opportunity of being heard and enhancement of disallowance u/s 14A of the Income Tax Act, 1961.2. Computation of disallowance u/s 14A r.w.r 8D(2)(ii) and 8D(2)(iii).3. Disallowance of interest on borrowed funds for non-business purposes.4. Disallowance of expenses as bogus purchases.5. Adjustment of book profit u/s 115JB.Issue-wise Analysis:1. Opportunity of being heard and enhancement of disallowance u/s 14A:The assessee contended that sufficient opportunity was not provided, leading to enhancement of disallowance u/s 14A r.w.r 8D. However, the Tribunal found that the assessment order was framed u/s 143(3) of the Act, and the assessee's counsel was heard and arguments considered. Thus, the Tribunal dismissed this ground, confirming that proper opportunity was provided.2. Computation of disallowance u/s 14A r.w.r 8D(2)(ii) and 8D(2)(iii):The assessee argued that its own funds covered the investments and that the method of calculation used by the assessee should be accepted based on the rule of consistency. The Tribunal noted that the issue had been previously decided in favor of the assessee for earlier years (2008-09 to 2011-12) and upheld the assessee's method of calculation. The Tribunal directed the disallowance to be restricted to Rs. 10 lakh under section 14A r.w.r 8D(2)(iii) against the assessee's claim of Rs. 1 lakh, following the principle of consistency.3. Disallowance of interest on borrowed funds for non-business purposes:The assessee challenged the disallowance of Rs. 19.74 crores on the basis that borrowed funds were used for non-business purposes. The Tribunal referred to the previous decisions for AY 2008-09 and 2009-10, where it was held that the advances given to Mr. Thakur were for business purposes. The Tribunal found that the assessee had sufficient own funds and that the advances were business transactions. The Tribunal upheld the assessee's claim, confirming that the funds were utilized for business purposes.4. Disallowance of expenses as bogus purchases:The assessee did not advance serious arguments against the disallowance of Rs. 1,14,192/- as bogus purchases. Consequently, the Tribunal dismissed this ground as not pressed.5. Adjustment of book profit u/s 115JB:This issue was deemed consequential. The Tribunal directed the Assessing Officer to adjust the book profit of the assessee in line with the Tribunal's decision on the disallowance u/s 14A r.w.r 8D(2).Conclusion:The Tribunal partly allowed the appeal of the assessee, providing relief on the disallowance u/s 14A and the interest on borrowed funds while dismissing the ground on bogus purchases and directing consequential adjustments for book profit u/s 115JB.