Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2017 (5) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2017 (5) TMI 524 - AT - Income TaxDisallowance of interest under section 36(1)(iii) - addition on proportionate basis, i.e., on account of diversion of borrowed funds (cash credit advances from two banks) for non-business purposes - Held that:- As in the case of borrowing against hypothecation of stocks, if the assessee has maintained adequate stocks, i.e., inclusive of margin, during the year, no diversion of the relevant borrowed capital, to any extent, can be imputed. The relevant facts being not on record, we restore the matter back to the file of the Assessing Officer (AO) to allow the assessee an opportunity to state it’s case. The AO shall decide on merits, issuing definite findings of fact. Needless to add, in the event of the assesseee not leading the facts, the AO shall draw all reasonable inferences on the basis of the material on record, and decide accordingly. We decide accordingly. Disallowance under section 14A - working the disallowance of interest expenditure - Held that:- As in the present case, it is on a long term basis, so that it would result in long-term capital gain (on the sale of shares) and dividend income (during the currency of the investment), both taxexempt, it matters little whether the investment is in shares of a ‘group’ or an ‘outside’ company. No business purpose of the impugned investment, as also noted in the context of disallowance u/s. 36(1)(iii), has been advanced by the assessee at any stage, claiming, rather, the investment to be ‘strategic’ (refer para 3 of this order). Why, where for a business purpose, the expenditure disallowed, which is on interest as well as indirect, administrative expenditure, would stand to be allowed u/s.36(1)(iii) or, as the case may be, sec.37(1) itself, so that the question of disallowance under section 14A does not arise. We find no merit in the assessee’s case and, accordingly, confirm the impugned disallowance. In working the disallowance of interest expenditure, however, only the expenditure net of that disallowed u/s. 36(1)(iii) would be taken into account, else it would amount to a double disallowance, also taking care to exclude – so as to maintain proper basis, the corresponding assets. That is, the entire interest considered for allowance or, as the case may be, disallowance u/s. 36(1)(iii), would stand excluded in reckoning the indirect interest disallowable u/s. 14A inasmuch as the application of borrowed capital, to that extent, stands resolved, and it is only the balance borrowed capital, entering the general pool of funds, which shall survive for being considered. Needless to add, corresponding adjustment for assets, both in the numerator and denominator, shall also be made Maintainability of deduction u/s. 80-IA of the Act on ‘Clean Development Mechanism’ (CDM) receipt by the assessee in respect of it’s two power generating units - Held that:- In the facts of the present case, the assessee itself regards it as business income, claiming deduction u/s. 80-IA thereon, and which is the bone of contention between the parties. Continuing further, true, the CERs, though intangible, are to be valued as inventories, but it is only on account of the protocol that they stand to be recognized separately and are valuable/realizable. Similar view, in fact, stands also expressed by the tribunal in Appollo Tyres Ltd. v. Asst. CIT [2015 (3) TMI 760 - ITAT COCHIN] holding the income arising on sale of CERs as business income u/s. 2(24)(vd) and, further, as not eligible for deduction u/s. 80-IA. Thus confirming the assessment of the impugned receipt as business income and disallowance of deduction u/s. 80-IA in its respect.
|