Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2021 (2) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (2) TMI 581 - AT - Income TaxDisallowance u/s 36(1)(iii) - funds borrowed have been utilized for giving interest free advances to related parties for purchase of property and these properties are in the nature of capital assets - as argued assessee is having capital and reserves and other interest free funds - HELD THAT:- Interest paid on capital borrowed for acquisition of an asset for any period beginning from the date on which the capital was borrowed for acquisition of the asset till date on which such an asset was put to use shall not be allowed as deduction only from AY 2016-17. For the period prior to AY 2016-17, the disallowance can be made only if the interest paid is in respect of capital borrowed for acquisition of an asset for extension of existing business or profession. Admittedly, the acquisition of capital asset is not for extension of existing business of the Assessee. Hence, the disallowance of interest cannot be sustained as otherwise the interest paid is regarded even by the AO as for the purpose of business of the Assessee. Therefore the disallowance made by the AO and the action of the CIT(A) in sustaining part out of the disallowance made by the AO, cannot be sustained and the same is directed to be deleted. Computation of deduction u/s 36(1)((iii) - HELD THAT:- Contention of AR is that the assessee is having interest free funds to give advances to Related Parties and no disallowance u/s. 36(1)(iii) of the Act to be made, however, the assessee has not placed necessary details of availability of interest free funds in the form of reserves and surplus so as to make interest free advance to Related Parties. The assessee has to prove that it is having own funds to make advances to Related Parties for which the assessee has to furnish the fund/cash flow statements as on date of making such advance to Related Parties. The Assessing Officer on examining these statements has to decide whether the assessee is having enough interest free funds so as to make advance to Related Parties. The assessee shall prove its case of having interest free funds for making advance to Related Parties. Accordingly, this issue is remitted to the file of Assessing Officer for fresh consideration, as per law. Disallowance u/s. 14A - Assessee disallowance u/s. 14A submitted that the assessee has not earned any exempt income and disallowance u/s. 14A is not attracted - HELD THAT:- As it prevails today and flowing from the judgments of various High Courts set out above that in the absence of exempt income having been earned by the Assessee there can be no disallowance of expenses u/s.14A of the Act. Consequently, we delete the disallowance. Validity of the order of assessment passed by the AO - no notice u/s.143(2) issued - HELD THAT:- Since in the present case no valid notice u/s 143(2) was issued by the AO who held jurisdiction over the case of the Assessee the consequent order passed u/s 143(3) dated 7.12.2017 was legally unsustainable and therefore is null in the eyes of law and therefore quashed. The assessee accordingly succeeds on the preliminary legal issue raised before us - Decided in favour of assessee.
|