TaxTMI 
TaxTMI 
2020 (8) TMI 366
X X X X Extracts X X X X
X X X X Extracts X X X X
....ture should be allowed by allowing a fresh plea not raised before AO, thereby, violating Rule 46A. 3. Whether on facts and in law, the CIT(A) was right in deleting the disallowance u/s.14A even in the back ground that AO had followed due procedure as per law. ITA No.1083/Bang/2019 1. Whether in facts and in law, the CIT(A) was justified in holding that interest expenditure should be allowed even in the back ground that assessee had not offered any income from the project. 2. Whether on facts and in law, the CIT(A) was justified in holding that *. interest expenditure should be allowed by allowing a fresh plea not raised before AO, thereby, violating Rule 46A. 3. Whether on facts and in law, the CIT(A) was right in deleting the disallowance u/s.14A even in the back ground that AO had followed due procedure as per law. 3. Regarding the deletion of the interest by CIT (A), learned DR of the revenue supported the assessment order and in this regard, she also submitted that in Para 4..7 of his order, learned CIT (A) has noted about two judgments of Hon'ble apex court rendered in the case of India Cements Ltd. vs. CIT as reported in 60 ITR 52 and....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er of the borrowed funds for which the entire interest expenditure Rs. 16,39,35,373/- was incurred. He submitted that as per this tribunal order, this entire interest expenditure Rs. 16,39,35,373/- is allowable but the assessee has claimed only a part of it i.e. only Rs. 6,81,01,384/- which was disallowed by the AO and learned CIT (A) has only deleted the disallowance made by the AO and as per this tribunal order and various judgments followed by CIT (A), the order of CIT (A) has no infirmity and it should be confirmed. Regarding the second issue i.e. deletion of the disallowance made by the AO u/s 14A, he supported the order of CIT (A). He pointed out that in Para 5.12 of his order, learned CIT (A) has noted that it is logical that unless there is exempt income, section 14A should not trigger and he noted about the decision of the special bench of the tribunal rendered in the case of Chemiinvest Ltd. Vs. ITO, 121 ITD 318 as per which, the issue was decided against the assessee but he followed various judgments of various High Courts noted by him in the same para and deleted the disallowance by following those judgments of various High Courts. He submitted that the order of the spe....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ady reference. This para reads as under:- "49. We have carefully considered the rival contentions. It appears that the AO has made this addition mainly because of note mentioned by assesse in its accounting policies with respect to borrowing costs according to Accounting Standard 16 issues by ICAI. We have perused notes attached to financial statements and we are of opinion that these notes have arisen in the financial statement of the assesse because of the issue of applicability of Accounting Standard 16 issued by the ICAI. According to Accounting Standard 1 i.e. disclosure of accounting policies, each and every company is required to disclose the accounting policy with respect to various significant income, expenditure and assets and liabilities etc. applicable to it. Borrowing cost is also one of them. ICAI has issued Accounting Standard 16 Accounting for Borrowing Cost wherein it is provided that in case of interest expenditure incurred by the company, it is required to be capitalized if the borrowing is related to the qualifying assets. In this case the inventory is a qualifying assets as it is held for more than 12 months and therefore interest attributable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....siness of construction of buildings. The profits from both the activities were assessed under section 28 of the Income-tax Act. In this case, we are concerned with the second activity (hereinafter referred to, for the sake of brevity, as "Kandivali Project"). According to the Commissioner, loan was raised for securing land/development rights from the Mandal. That, the loan was utilised for purchasing the development rights, which, according to the Commissioner, constituted a capital asset. According to the Commissioner, since the loan was raised for securing capital asset, the interest incurred thereon constituted part of capital expenditure. This finding of the Commissioner was erroneous. In the case of India Cements Ltd. v. CIT [1966] 60 ITR 52, it was held by the Supreme Court that in cases where the act of borrowing was incidental to carrying on of business, the loan obtained was not an asset. That, for the purposes of. deciding the claim of deduction under section 10(2) (iii) of the Income-tax Act, 1922 [section 36(1)(iii) of the present Income-tax Act], it was irrelevant to consider the purpose for which the loan was obtained. In the present case, the assessee was a builder. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on'ble Bombay High Court and as well as various coordinate Benches, cited above, we do not concur with the view of CIT (A) on disallowance of interest of Rs. 24.75 crores u/s 36(1) (iii) of the Act. The alternative argument of the assesse regarding adoption of 'any artificial formula for the purpose of computing interest disallowance. Ld. CIT (A) has presumed proportion of utilisation of funds in absence of the nexus holding that assesse has used mixed funds. Honourable Bombay High court in case of CIT V Reliance Utilities & Power limited 313 ITR 340 has held that "The principle therefore would be that if there are funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments." Therefore we are of the view that presumption is to be assumed in favour of the assesse and not against assesse. Hence, we reject the formulae adopted by CIT (A) of working out proportionate disallowance by adopting artificial formulae. Therefore respectfully following decisi....