2021 (6) TMI 814 - AT - Income Tax

Tribunal Upholds CIT(A)'s Rulings: No Extra Disallowance, NSEL Loss as Business Loss, Fixed Deposit Interest as Business Income.

The Tribunal dismissed all revenue appeals, affirming the CIT(A)'s decisions. It upheld the deletion of disallowance under Section 14A, confirming no ... Disallowance u/s 14A read with Rule 8D(2) - assessee had earned exempt income in the form of dividend and had made suo moto disallowance u/s 14A - CIT-A had deleted the disallowance of interest made under Rule 8D(2)(ii) of the Rules on the ground that the assessee company is having sufficient interest free funds in its kitty - HELD THAT:- It is a fact on record that the assessee is having sufficient interest free funds in the form of share capital and reserves to the tune as on 31.3.13 which is evident from the bare perusal of the financial statements for the respective period and that the same is much more than the investments made by the assessee. Hence by applying the ratio laid down by the Hon’ble Jurisdictional High Court in the case of HDFC Bank Ltd [2014 (8) TMI 119 - BOMBAY HIGH COURT] and in the case of Reliance Industries Ltd [2019 (1) TMI 757 - SUPREME COURT] we hold that no disallowance of interest need to be made under Rule 8D(2)(ii) of the Rules. Disallowance under Rule 8D(2)(iii) of the Rules, the ld AR argued that the disallowance already made by the assessee was much more than disallowance warranted under third limb of Rule 8D(2) of the Rules. We are inclined to agree with the same. Hence we direct the ld AO not to make any disallowance u/s 14A of the Act other than the suo moto disallowance already made by the assessee in the return of income, both under normal provisions of the Act as well as in the computation of book profits u/s 115JB of the Act. Accordingly, the Ground No. 1 raised by the revenue is dismissed. Disallowance of business loss on account of NSEL and also treating the said loss as speculative loss - whether the loss arising on the impugned transaction could be construed as speculative loss specifically? - HELD THAT:- We hold that the loss arising on account of payment made to NSEL through registered broker towards purchase of commodities (which were never delivered to assessee) , shall be allowable as regular business loss u/s 28 of the Act. We further hold that the said loss cannot be construed as speculative in nature. Accordingly, we do not find any infirmity in the order of the ld CITA in this regard. Interest income on fixed deposits - Addition under the head Income from other sources or assessee’s claim to be taxed under the head Income from Business - HELD THAT:- CIT-A had categorically given a finding that the investment in fixed deposit made with ICICI Bank has got an inextricable link with the business activity of the assessee and hence the interest income thereon is required to be taxed only as business income. CIT-A also recorded the fact that the ld AO himself had accepted this fact in Asst Year 2015-16 u/s 143(3) of the Act. With regard to resjudicata in income tax proceedings, we find that the ld CIT-A had stated though the principle of resjudicata does not apply to income tax proceedings, but the principle of consistency cannot be given a go by. Reliance in this regard was placed on the decision of Hon’ble Jurisdictional High Court in the case of CIT vs Gopal Purohit [2010 (1) TMI 7 - BOMBAY HIGH COURT] and case of Radhasoami Satsang vs CIT [1991 (11) TMI 2 - SUPREME COURT] Hence we do not find any infirmity in the said order of the ld CITA granting relief to the assessee. Accordingly, the Ground No.1 raised by the revenue is dismissed for the Asst Year 2016-17. Disallowance made u/s 14A of the Act read with Rule 8D(2) of the Rules - HELD THAT:- CIT-A had also recorded a categorical finding that the ld AO had not recorded any objective satisfaction having regard to the books of accounts of the assessee, as to why the claim made by the assessee that no expenditure has been incurred other than for the purpose of earning exempt income, is incorrect. This objective satisfaction with cogent reasons are required to be recorded in terms of section 14A(2) of the Act read with Rule 8D(1) of the Rules. This issue is no longer res integra by the decision of the Hon’ble Supreme Court in the case of Maxopp Investments [2018 (3) TMI 805 - SUPREME COURT] thereon. We find that the ld CITA had also granted relief on this count by placing reliance on the decision of Hon’ble Delhi High Court in the case of Eicher Motors Ltd vs CIT [2017 (9) TMI 1043 - DELHI HIGH COURT] on which, we find no infirmity. Hence the Ground No. 2 raised by the revenue is dismissed. Adjustment of brought forward business loss and unabsorbed depreciation of Asst Year 2014-15 against the business income of the assessee - HELD THAT:- We have already held in assessee’s own case for the Asst Year 2014-15 hereinabove that the business loss would be allowable as business loss u/s 28 of the Act. Hence the said loss would be eligible to be carried forward to subsequent years in terms of section 72 and 32 of the Act to be set off with the business income or other income, as the case may be. We find that the ld AO had primarily dismissed the claim of the assessee since he had already disallowed the business loss in Asst Year 2014-15 - But the said disallowance has already been deleted by us in Asst Year 2014-15. Hence this ground is effectively consequential in nature. The ld AO is hereby directed to allow the set off of losses from Asst Year 2014-15 after giving effect to our tribunal order for Asst year 2014-15 and whatever loss that is available to the assessee thereafter, should be allowed to be carried forward to subsequent years and allowed to be set off against future business income. Accordingly, the Ground No. 3 raised by the revenue is dismissed. Issues Involved:1. Deletion of disallowance under Section 14A of the Income Tax Act, 1961, read with Rule 8D(2) of the Income Tax Rules.2. Deletion of disallowance of business loss on account of NSEL and treating the said loss as speculative loss.3. Treatment of interest income on fixed deposits.4. Adjustment of brought forward business loss and unabsorbed depreciation against business income.Detailed Analysis:1. Deletion of Disallowance Under Section 14A:- Facts and Arguments: The assessee earned exempt income in the form of dividends and made a suo moto disallowance under Section 14A. The Assessing Officer (AO) recomputed the disallowance using Rule 8D(2), resulting in an additional disallowance.- Tribunal's Findings: The Tribunal upheld the deletion of the disallowance by the Commissioner of Income Tax (Appeals) (CIT(A)), noting that the assessee had sufficient interest-free funds, making further disallowance unwarranted. The Tribunal applied the principles from the cases of HDFC Bank Ltd and Reliance Industries Ltd, confirming no disallowance of interest under Rule 8D(2)(ii) was necessary.- Conclusion: The Tribunal directed the AO not to make any disallowance under Section 14A beyond the suo moto disallowance made by the assessee.2. Deletion of Disallowance of Business Loss on Account of NSEL:- Facts and Arguments: The assessee claimed a business loss due to non-receipt of goods from NSEL, which was treated as speculative by the AO. The CIT(A) deleted the disallowance, relying on a similar case involving Dolat Investments Ltd.- Tribunal's Findings: The Tribunal affirmed the CIT(A)’s decision, noting that the transactions were genuine business transactions, not speculative. The Tribunal referenced several points, including the SGS audit report confirming the non-availability of goods in NSEL warehouses, and the fact that the assessee had consistently shown trading transactions as business income in previous years.- Conclusion: The Tribunal held that the loss was a regular business loss under Section 28 and not speculative, dismissing the revenue's arguments.3. Treatment of Interest Income on Fixed Deposits:- Facts and Arguments: The AO treated interest income on fixed deposits as 'Income from Other Sources,' while the assessee claimed it as 'Business Income,' arguing that the deposits were linked to business overdraft facilities.- Tribunal's Findings: The Tribunal upheld the CIT(A)’s decision to treat the interest as business income, citing the inextricable link between the fixed deposits and business activities. The Tribunal noted the AO had accepted this treatment in a previous assessment year.- Conclusion: The Tribunal found no infirmity in the CIT(A)’s order and dismissed the revenue's appeal on this ground.4. Adjustment of Brought Forward Business Loss and Unabsorbed Depreciation:- Facts and Arguments: The AO disallowed the adjustment of brought forward business loss and unabsorbed depreciation, linked to the disallowed business loss of a previous year.- Tribunal's Findings: Given the Tribunal’s decision to allow the business loss for the previous year, it directed the AO to allow the set-off of the carried forward losses against future business income.- Conclusion: The Tribunal dismissed the revenue's appeal, directing the AO to adjust the losses as per the Tribunal’s earlier findings.Final Judgment:All appeals by the revenue were dismissed. The Tribunal upheld the CIT(A)’s decisions on all counts, confirming the treatment of disallowances, business losses, interest income, and adjustments of carried forward losses.