2020 (3) TMI 935 - AT - Income Tax

Appeals partially allowed, issues remanded for fresh assessment. Tribunal stresses commercial expediency and legal provisions.

M/s Paliwal Infrastructure Pvt. Ltd. Versus Additional Commissioner of Income Tax, Range-14, New Delhi., Deputy Commissioner of Income Tax, Circle- 14 (1), New Delhi.

The appeals were partly allowed, with the issues remanded to the Assessing Officer for fresh consideration in light of relevant precedents and facts. The ... Disallowance u/s 14A r.w.r. 8D - whether no tax- free income has been earned by the assessee, and also, there are no fresh advances - HELD THAT:- As both sides have agreed at the time of hearing before us, that all the relevant facts required for adjudicating the issues in dispute are presently not available on record and also; both as sides have submitted that the issues in dispute in both the appeals should be remanded to the file of the Assessing Officer for fresh order in accordance with law, having regard to the relevant facts and circumstance; after taking into consideration the aforesaid precedents. In view of the foregoing, and as both sides have agreed at the time of hearing before us, we set aside the impugned appellate orders dated 01.04.2014 and 20.01.2015 of the Ld. CIT(A) and restore the issues in both the appeals to the file of the Assessing Officer for passing fresh order as per law after considering the aforesaid precedents namely order dated 08.02.2016 of Co-ordinate Bench of ITAT, Delhi in assessee’s own case for Assessment Years 2007-08 & 2008-09 [2016 (3) TMI 365 - ITAT DELHI], Principal Commissioner Vs. DLF Home Developers Ltd. [2019 (1) TMI 1536 - DELHI HIGH COURT] , Principal Commissioner Vs. IL & FS Energy Development Company Ltd. [2017 (8) TMI 732 - DELHI HIGH COURT] and Maxopp Investment Ltd. vs. Commissioner of Income Tax [2018 (3) TMI 805 - SUPREME COURT] - Appeal allowed for statistical purposes. Issues Involved:1. Validity of ex-parte order passed by the Commissioner of Income Tax (Appeals) without proper notice.2. Disallowance under Section 14A of the Income Tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962.3. Disallowance under Section 36(1)(iii) of the Income Tax Act, 1961 for interest expenses related to investment in a partnership firm.Detailed Analysis:1. Validity of Ex-Parte Order:The appellant contended that the order passed by the Commissioner of Income Tax (Appeals) was ex-parte and without valid service of notice or any report from the Assessing Officer (A.O.), making it arbitrary, illegal, and void. The Tribunal noted that the appeals were consolidated for convenience and disposed of through a consolidated order.2. Disallowance under Section 14A:The core issue in ITA No. 3572/Del/2014 for Assessment Year 2009-10 was the disallowance of Rs. 5,64,50,224/- under Section 14A of the Income Tax Act, read with Rule 8D of the Income Tax Rules. The Assessing Officer had made this disallowance, which included Rs. 5,41,45,279/- on account of interest not directly attributable to any particular income or receipt. The Commissioner of Income Tax (Appeals) dismissed the assessee's appeal and confirmed the entire disallowance. The Tribunal referred to its own previous order for Assessment Years 2007-08 and 2008-09, where it was held that the provisions of Section 14A were not applicable as the profit earned was taxed in the hands of the partnership firm, and not directly in the hands of the assessee. Thus, the Tribunal found that the disallowance under Section 14A was not justified.3. Disallowance under Section 36(1)(iii):In ITA No. 1292/Del/2015 for Assessment Year 2010-11, the issue was the disallowance of Rs. 4,28,65,241/- under Section 36(1)(iii) for interest expenses related to investment in a partnership firm. The Assessing Officer disallowed the interest expenses, and the Commissioner of Income Tax (Appeals) confirmed this disallowance. The Tribunal noted that the investment was made for commercial expediency and not to earn interest. The Tribunal referred to the Hon'ble Supreme Court's judgment in the case of Hero Cycles (P) Ltd. vs. CIT, which held that if the borrowed funds were used for business purposes, the interest should be allowed. The Tribunal also noted that the assessee had sufficient internal accruals and surplus funds, indicating that not all investment was out of borrowed funds. Therefore, the disallowance under Section 36(1)(iii) was not justified.Remand to Assessing Officer:Both parties agreed that all relevant facts were not available on record for applying the precedents, including the Hon'ble Supreme Court's decision in Maxopp Investment Ltd. vs. Commissioner of Income Tax. Consequently, the Tribunal set aside the orders of the Commissioner of Income Tax (Appeals) and remanded the issues back to the Assessing Officer for a fresh order, taking into consideration the relevant precedents.Conclusion:The appeals were partly allowed for statistical purposes, with the issues remanded to the Assessing Officer for fresh consideration in light of the relevant precedents and facts. The Tribunal emphasized the importance of commercial expediency and the proper application of legal provisions, including Sections 14A and 36(1)(iii) of the Income Tax Act.