2017 (12) TMI 1893 - AT - Income Tax

Taxpayer Wins: Income Tax Tribunal Rejects Revenue's Challenge to Interest-Free Fund Investments and Expense Disallowances

ITAT Chandigarh dismissed Revenue's appeal challenging disallowances under sections 14A and 36(1)(iii). The tribunal upheld CIT(A)'s order, finding no ... Disallowance u/s 14A - addition made u/s 36(i)(iii) - disallowed proportionate interest for the amount spent on the purchase of fixed assets and capital work in progress - CIT(A) has deleted the aforesaid disallowances while observing that assessee company had sufficient interest free funds available to cover the investments under consideration. HELD THAT:- So far as the disallowance of interest either u/s 14A read with Rule 8D(2)(ii) or section 36(1)(iii) is concerned, the issue is squarely covered by the referred to decisions in favour of the assessee. See M/s Bright Enterprises Pvt Ltd [2015 (11) TMI 342 - PUNJAB & HARYANA HIGH COURT and Reliance Utilities & Power Ltd [2009 (1) TMI 4 - BOMBAY HIGH COURT] Disallowance u/s 14A read with Rule 8D(2)(iii) on account of administrative expenses is concerned, the Ld. AR of the assessee has submitted that as per the formula prescribed under Rule 8D(2)((iii), for calculating disallowance @ 0.5% of the average value of investment, the Assessing officer is required to arrive at the opening balance and closing balance of investments. He has further submitted that only investments made by the assessee during the year, the income from which was exempt, was mutual funds, which were made during the year and were also redeemed during the same financial year. He, therefore, has submitted that since there was no opening and closing balance of investments, the income from which was exempt, the computation under Rule 8D(2)(iii) of the Income Tax Rules would result in ‘nil’. The assessee, however, has sue moto disallowed an amount of Rs. 10,000/- as disallowance u/s 14A of the Act. We find that no further disallowance is called for. We therefore, do not find any infirmity in the order of the CIT(A) while deleting the aforesaid disallowance. Appeal of the Revenue is hereby dismissed. The Appellate Tribunal (ITAT Chandigarh) dismissed the Revenue's appeal against the CIT(A)'s order deleting disallowances under sections 14A and 36(1)(iii) of the Income-tax Act, 1961. The Revenue challenged the deletion of: (1) disallowance under section 14A amounting to Rs. 21,66,759/-, and (2) disallowance under section 36(1)(iii) of Rs. 40,07,108/- relating to interest on borrowed funds used for fixed assets and capital work in progress.The CIT(A) had held that the assessee had sufficient interest-free funds to cover the investments, relying on precedent decisions including *M/s Bright Enterprises Pvt Ltd vs. CIT* (2015) 234 Taxman 509 and *CIT vs. Reliance Utilities & Power Ltd* (2009) 313 ITR 340, which the Tribunal found dispositive in favor of the assessee.Regarding administrative expenses disallowance under Rule 8D(2)(iii), the assessee demonstrated that since the exempt income-generating investments (mutual funds) were made and redeemed within the same year, there was no opening or closing balance, resulting in a nil disallowance calculation. The assessee had voluntarily disallowed Rs. 10,000/- under section 14A.The Tribunal concluded that no further disallowance was warranted and affirmed the CIT(A)'s order, dismissing the Revenue's appeal.