2018 (6) TMI 1379 - AT - Income Tax

Assessee wins appeal on interest and entertainment expenses, Revenue's disallowance under section 14A rejected.

The Tribunal allowed the assessee's appeal on various grounds, including interest disallowance and entertainment expenses, while dismissing the Revenue's ... Disallowance u/s 14A - Held that:- The learned Departmental Representative could not controvert the submission of the assessee that it has not received any exempt income. In view of this, respectfully following the decision of Hon’ble Delhi High Court in Cheminvest Ltd. Vs. CIT [2015 (9) TMI 238 - DELHI HIGH COURT] as held that in absence of any exempt income no disallowance under section 14A can be made. - Decided in favour of assessee. Disallowance of interest expenditure - Held that:- As assessee has shown that assessee has made investment in the companies which are 100% subsidiary of the assessee company and therein the same line of business. It was also not shown before us that investment is made only for the purpose of earning dividend. In view of the decision in CIT Vs. Phil Creation [2011 (6) TMI 912 - BOMBAY HIGH COURT]. According to us, the issue is squarely covered in favour of the assessee. Disallowance of entertainment expenditure sustained @ 10% out of the total expenditure at 50% of Directors traveling expenses - non busniss purposes - Held that:- We have noted that this issue is squarely covered in favour of the assessee by the decision of the Co-ordinate Bench in assessee’s own case for assessment year 2007-08 [2010 (8) TMI 1108 - ITAT DELHI] wherein it has been held that when there is no specific expenses as pointed out by the Assessing Officer for non-business purposes, no disallowance can be made. - Decided in favour of assessee Issues Involved:1. Disallowance of interest paid for business purposes2. Disallowance under section 14A for alleged tax-free dividend income3. Disallowance of entertainment and traveling expenses4. Initiation of penalty proceedings under section 271(1)(c)5. Disallowance of interest expenditure on VAT and Service TaxAnalysis:Issue 1: Disallowance of Interest Paid for Business Purposes- The assessee borrowed funds for purchasing shares but was held to have used it for investment, leading to disallowance of interest paid.- The contention was that the investment was for business and commercial expediency.- The Tribunal found that the investment was in wholly-owned subsidiaries in the same business line, allowing the deduction of interest as it was for business purposes.Issue 2: Disallowance under Section 14A for Alleged Tax-Free Dividend Income- The Revenue made disallowances under section 14A due to investments in shares, mutual funds, etc.- The CIT (Appeals) partially upheld the disallowance despite no exempt income being earned.- Relying on a High Court decision, the Tribunal directed the Assessing Officer to delete the disallowance as no exempt income was received.Issue 3: Disallowance of Entertainment and Traveling Expenses- The Tribunal allowed the appeal against disallowance of entertainment expenses, citing lack of specific non-business expenditure.- The decision was based on a previous ruling in the assessee's favor for a different assessment year.Issue 4: Initiation of Penalty Proceedings under Section 271(1)(c)- The appeal against the initiation of penalty proceedings was dismissed as premature.Issue 5: Disallowance of Interest Expenditure on VAT and Service Tax- The Tribunal found no such addition by the Assessing Officer and dismissed the appeal, noting the direction to examine the claim by the CIT (Appeals).Overall Decision:- The Tribunal allowed the assessee's appeal on various grounds, including interest disallowance and entertainment expenses, while dismissing the Revenue's appeal on disallowance under section 14A.- The judgment was pronounced on 25th June 2018, disposing of all four appeals.