TaxTMI 
TaxTMI 
2026 (5) TMI 173
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....notices u/s 142(1) dated 25.10.2021, 18.12.2022 and 22.07.2022 and show cause notices dated 24.08.2022 and 30.08.2022 were issued. The assessee filed submissions electronically through ITBA Portal. 2.1. On completion of proceedings Ld. AO vide order dated 27.09.2022 made additions of Rs.1,32,72,045/- for disallowing expenditure and Rs.38,92,928/- by adding gratuity. 3. Against order dated 27.09.2022 of Ld. AO, the assessee filed appeal before Ld. CIT(A) which was partly allowed for statistical purposes. 4. Being aggrieved, appellant-assessee preferred present appeal on following grounds:- 1. That on the facts and circumstances of the case, assessment order passed under Section 143(3) read with Section 144B of the Act as sustained by the Ld. CIT(A) is bad in law, illegal and void ab initio; 2. That on the facts and circumstances of the case, notice issued under Section 143(2) of the Act, is bad in law, illegal and void ab initio; 3. That on the facts and circumstances of the case and in law, the Ld. CIT(A) and Ld. AO grossly erred in working out a disallowance of Rs.1,87,46,045/- under section 14A as against the disallowance of Rs. 54,74,000/- mad....
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....pe available for the revenue, either suo motu or at the instance of the assessee to make a regular assessment under sub-section (2) of section 143. The converse is not available; a regular assessment proceeding having been commenced under section 143(2), there is no need for a summary proceeding under section 143(1)(a). 6. Ld. Departmental Representative submitted that, Ld. CIT(A) in order dated 21.07.2025 held that:- "In view of the above, the appeal is partly allowed for statistical purposes. Grounds relating to disallowance under section 14A, addition under section 43B, and initiation of penalty proceedings are dismissed. Grounds concerning the denial of DDT credit and levy of consequential interest under section 115P, as well as the computational discrepancy in the assessed income, are allowed solely for the purpose of verification and correction by the Assessing Officer. Grounds of a general nature do not require adjudication. The Assessing Officer is directed to take necessary action in accordance with the directions contained in this order." 7. From examination of record, in light of aforesaid rival contention, it is crystal clear that, Ld. CIT(A) upheld addit....
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....iture by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely = A x B/C Where A amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; B the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; C the average of total assets as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year; (iii) an amount equal to one-half per cent of the average of the value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of the assessee, on the first day and the last day of the previous year. * The appellant submitted that the loans taken by the appellant by issuance of bonds etc. are for its business of lending for tourism and infrastructure projects and therefore, no interest beari....
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.... funds, * Direct nexus, investment made out of borrowed funds. * In the present case, it is on record that the assessee has sufficient interest free funds for the Investments, however, the assessee has also borrowed funds for capital expenses, working capital, etc. It may be worth mentioning that the assessee has failed to showcase the exact date wise details of sourcing of fund for investment out of non-interest bearing funds from its books of accounts. However, it remains an admitted fact that sufficient interest free funds were available with the assessee company. * The exact details of source of funds are very critical to establish the direct linkage of investment with the interest bearing funds. However, it is a settled position that if own funds of the appellant exceed the borrowed funds and further, the non-interest bearing funds exceed the amount of investment yielding exempt income, in such a situation, the disallowance under second limb is not justified. * It may be relevant to take note of the decision of Income Tax Appellate Tribunal Delhi in the case of T & T Motors Ltd., DLF and Oriental Bank of Commerce Ltd. which followed the rati....
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....f the Ld.CIT(A) 8. In view of above material facts of availability of non-interest bearing funds exceeding amount of investment yielding exempt income and by following the judicial precedent the action of Ld. AO in working out disallowance of Rs.1,32,72,045/- u/s 14A being unsustainable, is set aside. 9. Ground of appeal No.3 is accepted. 10. Regarding addition of Rs.38,92,928/- towards gratuity, Ld. CIT(A) had directed AO to verify and re-compute of the interest amount. The assessee had made a provision of Rs. 48,00,718/- towards Gratuity for the year ended 31.03.2020. Out of this, it paid Rs. 9,07,790/- on 21.11.2020 leaving a balance of Rs. 38,92,928/-. 10.1. The assessee had a prepaid balance of Rs. 33,14,121/- from the Financial Year 2018-19 (Assessment Year 2019-20) as per the actuarial valuation and balance sheet. This has also been treated as discharge of liability for the year under consideration i.e. Assessment Year 2020-21 and adjusted there against. 10.2. Thus only a balance of Rs. 5,78,807/- remained unpaid which could be disallowed. 10.3 In Para 5.4 of the order, the learned Assessing Officer refers to amendment in Section 43 to not allow the pre-pai....