2011 (6) TMI 814 - AT - Income Tax

Disallowance of Proportionate Interest on Investment u/s. 36(1)(iii) - Investment made for Advancement of Business Purposes - Assessee failed to substantiate its claim that the investment was made for advancement of business purposes - CIT(A) disallowed the proportionate interest on investment made - HELD THAT - We are in opinion that similar issue was considered in assessee s own case of 2008 where the matter was restored back to AO to verify the nexus between the borrowed funds and investments made and thereafter decide the issue in accordance with law after giving reasonable opportunity of being heard. In view of the above we direct the AO to examine whether the assessee had borrowed certain funds on which liability to pay tax is being incurred and on other hand certain amounts had been advanced/invested in sister concern/others without any business purposes that is also without interest and in such circumstances the interest to the extent the advance/investment had been made without carrying any interest cannot be allowed u/s. 36(1)(iii) - Matter Restored Back. Disallowance of Credit for TDS claimed - TDS certificates were issued in the name of JV. As TDS certificates were not standing in the name of the assessee company CIT(A) upeld the disallowance of credit for TDS claimed - HELD THAT - Identical issue was addressed by Tribunal in INCOME TAX OFFICER OTHERS VERSUS LIMAK-SOMA JV. M/S. CSCHK-SOMA (JV) M/S. SOMA-PATEL ASI (JV) 2010 (9) TMI 695 - ITAT HYDERABAD where it was held that unless the assessee offers the income for taxation the TDS cannot be given credit. Respectfully following the order of the Tribunal we set aside the issue to the file of the Assessing Officer to examine whether the assessee offered the income for taxation and if the assessee offered the inacome for taxation for the assessment year under consideration credit to the TDS is to be given accordingly to the assessee.

Summary

Issues involved:
1. Disallowance of proportionate interest on investments for business purpose.
2. Disallowance of credit for TDS claimed by the assessee.

Issue 1: Disallowance of proportionate interest on investments for business purpose:
The appeals by the Revenue and the Cross Objection by the assessee were directed against separate orders of the CIT(A)-IV, Hyderabad for assessment years 2006-07 and 2007-08. The first ground raised in Revenue appeal No. 1116/Hyd/2010 was regarding the disallowance of proportionate interest on investments made in concerns for business advancement. The CO raised a ground for deleting the disallowance of interest on investments made in specific companies. The Tribunal referred to earlier cases and directed the Assessing Officer to verify the nexus between borrowed funds and investments made by the assessee. It was emphasized that interest cannot be allowed under section 36(1)(iii) if investments were made without any business purpose or interest. The entire issue was set aside for fresh consideration by the Assessing Officer.

Issue 2: Disallowance of credit for TDS claimed by the assessee:
The next ground raised by the Revenue was related to disallowance of credit for TDS claimed by the assessee based on TDS certificates issued in the name of a Joint Venture. The Tribunal referred to a previous case and analyzed the provisions of section 199 of the Act. It was noted that credit for TDS should be given in the year in which the income in respect of which tax was deducted is assessable. The Tribunal emphasized that unless the assessee offers the income for taxation, credit for TDS cannot be given. The decision highlighted that the method of accounting followed by the assessee does not impact the allowance of TDS credit. The Tribunal set aside the issue for the Assessing Officer to verify if the income was offered for taxation and instructed to grant TDS credit accordingly. Ultimately, both appeals of the Revenue and the CO of the assessee were allowed for statistical purposes only.

In conclusion, the judgment addressed the issues of disallowance of proportionate interest on investments and disallowance of credit for TDS claimed by the assessee. The Tribunal provided detailed analysis and directions for fresh consideration by the Assessing Officer, emphasizing the importance of verifying the nexus between funds, investments, and income offered for taxation.