2021 (5) TMI 519 - AT - Income Tax

Appeal allowed for AY 2014-15, Assessing Officer to reassess disallowances under Section 14A, Rule 8D, Section 36(1)(iii)

Nahar Spinning Mills Ltd. Versus Asstt. Commissioner Income Tax, Circle-7, Ludhiana.

The appeal for the Assessment Year 2014-15 was allowed for statistical purposes, with directions for the Assessing Officer to reassess the disallowances ... Disallowance u/s 14 A computed applying Rule 8D - HELD THAT:- Tribunal has dealt with the identical issue in case of Oswal Woolen Mills Ltd. Vs. ACIT [2019 (7) TMI 1601 - ITAT CHANDIGARH] and directed the AO to restrict the disallowance u/s 14A of the Act, to proportionate amount computed by the assessee. Contention of the assessee in respect of disallowance under Rule 8D(iii) was that it had not incurred any administrative expenses for earning exempt income. Since the AO had not recorded any dissatisfaction taking into consideration the accounts of the assessee, the coordinate Bench directed the AO to restrict the disallowance to the proportionate amount computed by the assessee after including the personal expenditure and certain other expenses. In the present case also, the contention of the Ld. Counsel is that there is no change in the facts of the present case and the assessee has submitted the working in this case in accordance with the order passed by the Tribunal in the case discussed above. DR did not controvert the contention of the Ld. Counsel that there is no material change in the facts of the present case. However, during the course of arguments, submitted that even if the disallowance is to be computed as per the order of the Tribunal rendered in the case of Oswal Woolen Mills (supra), the working submitted by the assessee cannot be accepted as correct without verifying the same by the AO. Accordingly, the Ld. DR submitted that the issue may be sent back to the AO for determining the disallowance considering the plea of the assessee that the issue involved is covered by the order of the Tribunal. The assessee has placed on record the working of proportionate disallowance after including the personal expenditure. Thus no reason to take a different view in this assessment year. Hence, respectfully following the decision of the coordinate Bench rendered in assessee’s own case for the assessment year 2010-11, we send this issue back to the AO for determining the disallowance on proportionate basis in accordance with the direction given by the coordinate Bench in the case of Oswal Woolen Mills Ltd. Vs. ACIT (supra) or to restrict the disallowance to the amount computed in working furnished by the assessee if found in accordance with the order of the Tribunal. Disallowance of interest of CC account for purchase of fixed assets - contention of the assessee is that it had sufficient funds in the shape of capital reserve and surplus, therefore the findings of the Ld. CIT(A) are contrary to the settled principles of law - HELD THAT:- We notice that the authorities below have not rebutted the contention of the assessee that it had sufficient funds for acquiring assets in question - The judgment of various Courts in the case of Hero Cycles(P) Ltd. [2015 (11) TMI 1314 - SUPREME COURT], Bright Enterprises Pvt Ltd.[2015 (11) TMI 342 - PUNJAB & HARYANA HIGH COURT] held that no disallowance of interest is called for where the assessee has got sufficient own funds. The Assessing Officer is directed to go through the fund position namely capital and interest free advances, reserves and surplus to determine whether any borrowed funds have been utilized more than available own funds and take a decision keeping in view the decisions rendered above. Thus we set aside the findings of the ld. CIT(A) and send this issue back to the AO for deciding the issue afresh. Issues Involved:1. Disallowance under Section 14A read with Rule 8D.2. Disallowance of interest under Section 36(1)(iii).Detailed Analysis:1. Disallowance under Section 14A read with Rule 8D:The assessee, engaged in manufacturing and trading of cotton/blended yarn, cloth, and garments, filed its return of income declaring a total income of Rs. 137,51,95,480/-. The Assessing Officer (AO) made an addition of Rs. 22,44,117/- on account of disallowance under Section 14A read with Rule 8D of the Income Tax Rules, 1962. The Commissioner of Income Tax (Appeals) [CIT(A)] restricted this addition to the amount claimed as exempt under Section 10(34) of the Income Tax Act, 1961.The assessee appealed, arguing that the disallowance should be computed on a proportionate basis, as held in its own case for the Assessment Year (AY) 2010-11 by the ITAT Chandigarh Bench in Oswal Woolen Mills Vs ACIT. The Tribunal had directed the AO to restrict the disallowance to the working given by the assessee on a proportionate basis. The assessee also contended that the disallowance should be computed by taking the average investment on which dividend income accrued, excluding interest paid on term loans, working capital loans, and other borrowing costs directly attributable to business receipts subjected to tax.The Departmental Representative (DR) supported the CIT(A)'s order but admitted that the jurisdictional Tribunal had set aside a similar order in Oswal Woolen Mills Ltd. Vs. ACIT, directing the AO to restrict the disallowance to the amount computed by the assessee on a proportionate basis.The Tribunal, after reviewing the material on record and the cases cited, noted that the AO had not recorded any dissatisfaction with the assessee's claim. Following the decision in Oswal Woolen Mills Ltd. Vs. ACIT, the Tribunal sent the issue back to the AO to determine the disallowance on a proportionate basis or restrict it to the amount computed by the assessee if found in accordance with the Tribunal's order.2. Disallowance of interest under Section 36(1)(iii):The AO disallowed Rs. 57,26,985/- being interest on a cash credit (CC) account used for the purchase of fixed assets, claiming the assessee had sufficient own funds in the form of capital and reserves. The CIT(A) confirmed this addition.The assessee argued that it had sufficient funds in the shape of capital, reserves, and internal accruals, relying on judgments from the Supreme Court and High Courts, including CIT vs. Reliance Ind. Ltd., Godrej & Boyce Manufacturing Co. Ltd vs. DCIT, and Bright Enterprise (P) Ltd. vs. CIT. The assessee's contention was that the authorities had not rebutted its claim of sufficient funds for acquiring the assets in question.The Tribunal referred to the coordinate Bench's decision in Monte Carlo Fashions vs. AICT, which held that no disallowance of interest is warranted if the assessee has sufficient own funds. The Tribunal set aside the CIT(A)'s findings and sent the issue back to the AO to verify the fund position and determine whether borrowed funds were utilized more than available own funds, in line with the decisions rendered above.Conclusion:The appeal filed by the assessee for the AY 2014-15 was allowed for statistical purposes, with directions to the AO to re-evaluate the disallowances under Section 14A read with Rule 8D and Section 36(1)(iii) based on the proportionate basis and fund position, respectively, after giving a reasonable opportunity of being heard to the assessee.