ITAT upholds CIT(A) decisions on disallowance under sec 14A & addition u/s 36(1)(iii)

The ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decisions to delete the disallowance under section 14A r.w.s. Rule 8D and the addition made u/s.36(1)(iii) of the I.T. Act, 1961. The judgments and legal principles applied in each issue supported the final decision pronounced on March 31, 2017.

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Issues:
- Disallowance under section 14A r.w.s. Rule 8D
- Addition made u/s.36(I)(iii) of the I.T. Act, 1961

Disallowance under section 14A r.w.s. Rule 8D:
The Revenue appealed against the order of CIT(A) deleting the disallowance of &8377; 8,58,32,156 under section 14A r.w.s. Rule 8D. The CIT(A) based the deletion on the argument that no dividend was received on the investments, which were made in a subsidiary company for business purposes. The CIT(A) relied on the decision in the case of Garware Wall Ropes Ltd. where it was held that investments made with a subsidiary company for business purposes do not fall under section 14A. The Revenue contended that the disallowance should stand, but the ITAT upheld the CIT(A)'s decision, citing that no exempt income was earned, aligning with judicial pronouncements supporting such decisions.

Addition made u/s.36(I)(iii) of the I.T. Act, 1961:
The AO disallowed &8377; 3,69,80,822 under section 36(1)(iii) of the Act as expenditure in respect of investments. The CIT(A) deleted this disallowance after considering that the borrowed funds were used for setting up a Special Economic Zone (SEZ) and intermediary services were engaged for business purposes. The AO disallowed part of the interest expenditure based on compensation received, but the CIT(A) found that the interest was wholly and exclusively for business purposes. The ITAT upheld the CIT(A)'s decision, emphasizing that the expenditure was for the purpose of business and that all conditions for allowing the deduction under section 36(1)(iii) were satisfied, as per legal precedents and judgments.

In conclusion, the ITAT dismissed the Revenue's appeal, upholding the CIT(A)'s decisions to delete the disallowance under section 14A r.w.s. Rule 8D and the addition made u/s.36(I)(iii) of the I.T. Act, 1961. The judgments and legal principles applied in each issue were thoroughly analyzed and supported the final decision pronounced on March 31, 2017.

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