2019 (12) TMI 1034 - AT - Income Tax

Tribunal decision: Assessee's appeal partly allowed, additional evidence admitted, disallowance under Section 14A upheld

The Tribunal partly allowed the assessee's appeal, directing the AO to recalculate interest expenditure related to advances given in earlier years and ... Deduction of interest incurred on zero coupon bonds u/s 36(1)(iii) OR u/s 57(iii) as claimed by the appellant - HELD THAT:- After perusing the order of the CIT(A), especially interest pertaining to advance made in earlier years we observe that the assessment for A.Y. 2011-12 has also been framed and the said claim of the assessee under Section 57(iii) of the Act has been allowed by the AO as is apparent from the copy of the assessment order filed at page Nos. 24 & 25 of the Paper Book. We further note that Revenue has not taken any step for reopening the assessment for A.Y. 2011-12. Further assessee’s own fund in the form of share capital is only ₹ 24.50 lakhs and thus there is merit in the contentions of the assessee that the entire amount of interest expenditure is to be allowed to the assessee considering the fact that the amounts advanced were out of loaned money Besides , once interest expenditure has been allowed in a particular year, the same cannot be disallowed in the subsequent year unless there is change in the facts. Similarly, the case of the assessee is also supported by several cases, namely CIT vs. Sridev Enterprises [1991 (1) TMI 52 - KARNATAKA HIGH COURT] Escorts Ltd. vs. ACIT [2006 (1) TMI 186 - ITAT DELHI-G] , Malwa Cotton Spg. Mills vs. ACIT [2003 (12) TMI 274 - ITAT CHANDIGARH-A], ITO vs. J.M.P. Enterprises [2005 (12) TMI 209 - ITAT AMRITSAR] and other decisions referred to above wherein the common ratio is that once an expense is allowed in the earlier year some cannot be disallowed in the subsequent year unless there is a change of facts during the year vis-a-vis earlier years. Therefore after considering the facts of the case in the light of the decisions relied upon by the learned A.R., we are of the considered opinion that interest expenditure in respect of opening balance of amount advanced is to be allowed. Accordingly we set aside the order of the CIT(A) on this issue and direct the AO to allow interest relating to advance made in earlier years. Interest relating to advances made during the year - Since the assessee’s own funds were only to the tune of ₹ 24.50 lakhs, which means that money advanced by the assessee has been out of the borrowings only and therefore where there is no direct nexus available, we are convinced with the arguments of the AR that interest should be allowed on proportionate basis. We also find merit in the contentions of the assessee that interest expenditure corresponding to interest income other than interest received from Essar Oil Ltd. is to be allowed. We note that the total interest income during the year was ₹ 125.58 crores out of which interest received from Essar Oil Ltd. is ₹ 102.02 crores as observed by the learned CIT(A) on page No. 46, para 78 of the appellate order and therefore in our opinion assessee has to be allowed interest expenditure in respect of interest income other than interest received from Essar Oil Ltd. Needless to say that computation of corresponding interest expenditure has to be on proportionate basis, as observed earlier, wherever no direct nexus is available. Considering the facts in the light of the discussions given hereinabove we are restoring the issue of calculation of interest expenditure to the file of AO with the direction as contained hereinabove i.e (i) to calculate correct amount of interest in respect of advances given in earlier years,(ii) calculate the correct amount of interest pertaining to advances made during the year and (iii) to calculate interest expenditure corresponding to interest income other than interest received from Essar Oil Ltd. and allow the same. The issue is restored for the limited purpose of calculation. Ground is allowed for statistical purposes. Disallowance u/s 14A under the normal provisions of the Act as well u/s 115JB - HELD THAT:- CIT(A) recorded clear cut finding that the assessee has not claimed any expenditure in computation of income. Similarly, while discussing the computation of book profit under Section 115JB of the Act the learned CIT(A) at page No. 95 onwards has given a finding that the assessee has already disallowed expenditure under Section 14A of the Act on which the learned AO has failed to give any contrary findings. Under these facts and circumstances, we are not inclined to interfere in the order of the CIT(A) and accordingly the grounds raised by the Revenue are dismissed. Issues Involved:1. Deduction of interest incurred on Zero Coupon Bonds under Section 36(1)(iii) or Section 57(iii) of the Income Tax Act.2. Validity of additional evidence admitted by CIT(A) under Rule 46A of the Income Tax Rules.3. Disallowance under Section 14A of the Income Tax Act.4. Upward adjustment in Book Profit under Section 115JB of the Income Tax Act.5. Admission and adjudication of additional grounds raised by the assessee.Issue-wise Detailed Analysis:1. Deduction of Interest Incurred on Zero Coupon Bonds:- The assessee declared interest income of Rs. 124.58 crores under Section 56 against which interest expenditure of Rs. 143.30 crores was claimed under Section 57.- The AO disallowed the entire interest expenditure due to lack of complete particulars.- CIT(A) allowed interest expenditure of Rs. 58.59 crores out of Rs. 143.30 crores, based on the direct nexus between borrowed funds and funds invested as ICDs.- The assessee argued that the calculation by CIT(A) had legal and factual errors, including ignoring repayments and not considering the entire interest expenditure allowed in the previous year.- The Tribunal noted that the assessee's claim under Section 57(iii) was allowed in the previous year and there was no change in facts. Therefore, interest expenditure related to advances made in earlier years should be allowed.- For advances made during the year, the Tribunal found factual errors in CIT(A)’s calculations and directed proportionate interest expenditure allowance where direct nexus was not available.- The Tribunal restored the issue to the AO for recalculating interest expenditure in respect of advances given in earlier years, advances made during the year, and interest income other than from Essar Oil Ltd.2. Validity of Additional Evidence Admitted by CIT(A):- The Revenue argued that CIT(A) admitted additional evidence (bank statements) in violation of Rule 46A without providing the AO an opportunity to examine.- The Tribunal observed that CIT(A) had called for remand reports from the AO and discussed them in detail. The bank statements were authentic documents issued by third parties.- The Tribunal found no prejudice caused to the Revenue and dismissed the ground.3. Disallowance under Section 14A of the Income Tax Act:- The Revenue contested CIT(A)’s decision to restrict the disallowance under Section 14A to the extent of exempt income.- The Tribunal noted that the assessee had not claimed any expenditure in the computation of income and had already disallowed expenditure under Section 14A.- The Tribunal upheld CIT(A)’s decision and dismissed the grounds raised by the Revenue.4. Upward Adjustment in Book Profit under Section 115JB:- The Revenue challenged the restriction of upward adjustment in Book Profit under Section 115JB to the extent of exempt income.- The Tribunal upheld CIT(A)’s decision, noting that the assessee had already disallowed expenditure under Section 14A and the AO failed to provide contrary findings.- The Tribunal dismissed the grounds raised by the Revenue.5. Admission and Adjudication of Additional Grounds Raised by the Assessee:- The assessee raised additional grounds regarding the allowance of interest expenditure, TDS credit, and deduction under Section 80G.- The Tribunal admitted the additional grounds, noting that they emanated from assessment records and did not require further verification of facts.- The Tribunal restored the issues to the AO for verification and adjudication.Conclusion:- The Tribunal partly allowed the assessee’s appeal for statistical purposes, directing the AO to recalculate interest expenditure and verify additional grounds.- The Revenue’s appeal was dismissed in its entirety.