Loading judgment…
No AI summary yet for this case.
Income Tax Appellate Tribunal, “B” BENCH KOLKATA
Before: SHRI SANJAY GARG & SHRI RAKESH MISHRA
Present for: Appellant by : Saurabh Bagaria, AR Ritesh Goel, AR Respondent by : P.P Barman, Addl. CIT, Sr. DR Date of Hearing : 11.09.2024 Date of Pronouncement : 23.09.2024 O R D E R
PER RAKESH MISHRA, ACCOUNTANT MEMBER:
This appeal filed by the assessee is against the order of the Ld. Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (hereinafter referred to as “the Ld. CIT(A)”) passed u/s. 250 of the Income Tax Act, 1961 (hereinafter referred to as “the Act”) for AY 2016-17, dated 15.04.2024, passed against the assessment order u/s. 143(3) read with section 263 of the Act, dated 31.03.2022.
The grounds of appeal raised by the assessee are reproduced as under:
“1 For That the order of the Commissioner of Income-tax (Appeals) (hereinafter referred to as CIT(A) is erroneous in facts and in law.
Safal Properties Private Limited AY: 2016-17 2. For That the disallowance under section-14A read with rule 8D amounting to Rs. 19,57,083/- is illegal, arbitrary and perverse and the Learned CIT(A) erroneously confirmed the said disallowance without considering the facts and legal position which is totally unjustified and the said disallowance is liable to deleted. 2.2. For That the Learned CIT(A) failed to appreciate that no disallowance under section-14A read with rule 8D could be made when investments were made out of own interest free funds and the appellant incurred no expense for the same and no exempt income was earned and these facts were not disputed by the Learned CIT(A). 2.3 For That the Learned CIT(A) erroneously interpreted the Explanation to Section 14A of the Act as amened by Finance Act 2022 in the facts and circumstances of the instant case. 2.4 For That the Learned CIT(A) erroneously relied upon the case of Williamson Financial Services Ltd. which is distinguishable both on facts and in law.
For That the disallowance of Rs. 1,01,74,603/- on account of interest expenses is illegal, arbitrary and perverse and the Learned CIT(A) erroneously confirmed the said disallowance without considering the facts and legality which is totally unjustified and it should be deleted. 3.2 For That the Learned CIT(A)'s findings in respect of reasonableness of interest expenditure is illegal, arbitrary and perverse and the Learned CIT(A) never disputed the appellant's said transaction. The said transaction was never found to be fraudulent and hence the CIT(A) could not have placed himself in the businessman's shoes and such action was erroneous and illegal.
For That the purported order passed by the Learned Assessing Officer and confirmed by the Learned CIT(A) is wholly illegal and invalid and without application of mind and is wholly perverse and arbitrary in nature and suffers from procedural irregularity and violation of principles of natural justice.
For That the appellant humbly craves leave to add, amend, alter, withdraw, delete or substitute all or any of the ground(s) of appeal at the time of hearing.”
Brief facts of the case are that the original assessment was completed u/s 143(3) of the Act on 16.10.2016 declaring loss of Rs. ‘Nil’ and Rs. 95,58,880/- as per the provisions of section 115JB of the Act. The assessment was completed u/s 143(3) of the Act on 14.05.2018 determining the total income of Rs. 49,31,600/- under the normal Safal Properties Private Limited AY: 2016-17 provisions and Rs. 95,58,880/- as per section 115JB of the Act. During the assessment proceeding, the Ld. AO disallowed the excess interest expenses of Rs. 1,01,74,603/-, made disallowance u/s 14A of the Act of Rs. 19,57,083/- and disallowance u/s 40(a)(ia) of the Act of Rs. 76,31,958/- and determined the total income of Rs. 76,65,590/- and u/s 115JB of the Act at Rs. 1,15,15,963/-.
Rival contentions were heard and the submissions made have been considered. Ground Nos. 2, 2.2, 2.3 and 2.4 relate to disallowance u/s 14A of the Act. The Ld. AO disallowed the claim by issuing notice to the assessee and as per the computation of the Ld. AO, the disallowance worked out to Rs. 46,81,907/-. No interest expenses were considered as the interest expenses claimed by the assessee as deduction u/s 57 of the Act were separately disallowed. The assessee submitted before the Ld. AO that the assessee had not earned any dividend income during the current year and the investment made was out of current accruals of the company. The assessee has relied upon the judgement of Hon'ble Bomaby High Court in CIT vs. Delite Enterprises (Tax Appeal No.110 of 2009 order dated 26 Feb. 2009), Hero Cycles Ltd. (320 ITR 518), M/s. Lakhani Marketing Incl (ITA No.970 of 2008) dated 2/4/2014 and CIT Vs. Winsome Textile Industries Ltd. (319 ITR 204) of the Hon'ble Punjab & Haryana High Court wherein it is held that where there is no claim for exemption of income, in such situation section 14A of the Act has no application. In the present assessment also, since the Assessee Company had not claimed any exempt income during the year, therefore, there was no question of disallowance of expenditure. Respectfully following the aforesaid decisions, the assessee urged that no disallowance was to be made u/s. 14A of the Act as the assessee had not claimed any exempt income during the year.
Safal Properties Private Limited AY: 2016-17 4.1 The reply was examined but was not accepted and the Ld. AO invoked Rule 8D read with section 14A of the Act. He also relied upon sub- section (2) of the Act which provides the procedure for determining the amount of expenditure incurred by the assessee in relation to such income. sub-section (2) provides the procedure for determining the “amount of expenditure incurred by the assessee in relation to such income which does not form part of the total income under this Act”, if the A.O. is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. The sub-section provides the meaning of the same expression that is "expenditure incurred” in relation to “such income which does not form part of the total income” to mean the amount as determined by the A.O. 'in accordance with such method as may be prescribed and he disallowed a sum of Rs. 46,81,907/- on the basis of the average value of investment shown at Rs. 4,36,00,000/- and the disallowance as per revised working was worked out at Rs. 19,57,083/- which were disallowed and added to the total income.
4.2 Before the Ld. CIT(A), the assessee filed an appeal and also filed submissions which have been reproduced in the order of the Ld. CIT(A). On the ground of disallowance u/s 14A of the Act, the Ld. CIT(A) relied upon the explanation to section 14A of the Act and the order of the Guwahati Bench of the Tribunal and elaborate discussion in the case of Williamson Financial Services Limited (ITA No. 154 to 156/Gau/2019, dated 06.07.2022) that the aforesaid amendment was clarificatory in nature and would apply retrospectively. Accordingly, the explanation was applicable to AY 2016-17 and dismissed this ground of appeal.
4.3 During the course of appeal before us, the Ld. AR submitted that the Hon’ble Delhi High Court in the case of PCIT (Central) Vs. Era Infrastructure (India) Ltd. (2022) 141 taxmann.com 289 (Delhi) have held that no disallowance can be made if there was no exempt income earned Safal Properties Private Limited AY: 2016-17 by the assessee during the year and have also held that the amendment made by the Finance Act, 2022 to section 14A by inserting a non-obstante clause and Explanation will take effect from 01.04.2022 and cannot be presumed to have retrospective effects. A copy of order of the Jurisdictional High Court in PCIT (Central) Vs. Avantha Realty Ltd. (2024) 164 taxmann.com 376 (Calcutta) was also filed in which reliance has been placed upon the order of the Hon’ble Delhi High Court in the case of PCIT (Central) Vs. Era Infrastructure (India) Ltd. (supra) and it has been held that the Tribunal took note of the decision of the High Court of Delhi in Pr. CIT (Central) v. Era Infrastructure (India) Ltd. [2022] 141 taxmann.com 289/288 Taxman 384/448 ITR 674, which had taken note of the decision in the case of Cheminvest Ltd. v. CIT-IV [2015] 61 taxmann.com 118/234, Taxman 761/378 ITR 33 (Delhi), wherein it was held that amendment by the Finance Act, 2022 of Section 14A by inserting a non-obstante clause and explanation would take effect from 01.04.22 and could not be presumed to have retrospective effect and, therefore, on facts the amendment could not be applied to the assessment year under consideration. There was found no error in such conclusion arrived at by the Tribunal. Hence, in view of the decision of the Hon’ble jurisdictional High Court in the case of PCIT (Central) Vs. Avantha Realty Ltd. (supra), this ground of appeal is allowed and the addition of Rs. 19,57,083/- is hereby deleted as the amendment by insertion of the non-obstante clause and the explanation is not applicable for the impugned assessment year.
5. Ground No. 3 is regarding the disallowance of a sum of Rs. 1,01,74,603/- on account of interest expenses. The Ld. AO has mentioned in the assessment order in this regard as under: “5. Further the assessee in view of the of the submission filed and details available on records the assessee vide show cause notice dated 26/03/2022 and 29/03/2022 was show cause as under: “i) Finance charge for FY 2014-15 is Rs. 94,44,635/- and for F.Y. 2015-16 is Rs. 2,54,33,859 Crores. The Property on rent was there in both the FY. Therefore, the excess interest of Rs. 1.59,89,224 is not for rental Therefore, Safal Properties Private Limited AY: 2016-17 the excess interest of Rs. 1,59,89,224 is not rental. No Interest payment Certificate as asked in Notice under section 142(1) dated 08/02/2022 has been submitted also, So the claim of Rs. 1,96,19,238 is restricted to Rs. 94,44,635 and Rs 1,01,74,603 is disallowed for House Property. Also explain the reasons for increase in interest debited with no change in asset base or liability" In response to which the assessee has submitted as under: “With respect to interest expense of Rs 2,54,33,859/-, we have already submitted a statement wherein party wise Opening Balance of Loan, Receipt, Payment, Interest accrued, TDS Deducted, closing balance and rate of interest is disclosed. Opening and closing balance along with Interest expense is tick and tallied with Balance and Profit and Loss account. Interest is paid @ 9% which in sync with the then market rate of interest on borrowings. Reason for lesser interest expense in the earlier is that the Company had requested the Loan creditors for waiver of interest expense in the earlier year (FY 2014-15). On our strong negotiations, the parties had agreed to waive the interest expense for the FY 2014-15. If your Honour looks at the Audited Accounts for the FY 2013-14, interest expense was in line with FY 2015-16 Total interest paid in FY 2013- 14 was Rs 3,53,62,342/-. The same can be verified from Audited Financials of Safal Properties Waiver of interest expense by Loan creditors in earlier year cannot be a reason for disallowance of interest expense in the current year. The Assessee has deducted and paid TDS, filed TDS Returns, interest rate was also in line with market rate, and thus the interest expense cannot be disallowed only as the interest expense was less in the earlier year. We would again like to reiterate that the Company had purchased a Property at Unit 301A, Boomerang, Main Chandivali Farm Road, Near Chandiwali Studio, Andheri (E), - 400 072, Mumbai, Maharashtra. Payment for the same were made during the FY 2010-11. Ledger of Corporation Bank and Vendor, M/s Centaur Mercantile, showing payment made has already been made available to you. We would again like to submit and it is evident from the ledgers that entire payment made to the vendor was made out of borrowed fund. One to one nexus of payment made for purchase of property out of borrowed fund is also evident in the attached statement. As the payment for purchase of property was made out of borrowed fund, interest expense has been incurred during the year and the same must be allowed" 5.2 The contention of the assessee is not acceptable as from the submission made by the assessee it is seen that there is larger interest credited in F.Y. 2013-14 against larger Interest debited so the submission of the assessee is not correct that similar amount of interest expense had been a regular
6. In the appeal before us, it was argued that the investment in shares was out of the own funds of the assessee and investment in real estate and rental income was also made. The interest has been disallowed for purchase of property on the ground of higher interest paid during the year which was explained as that in AY 2015-16 the interest paid was lower because there was waiver of interest while in AY 2013-14, the interest paid was actually higher. The Ld. CIT(A) has granted the interest for AY 2015- 16 while the facts were that earlier that in AY 2013-14 the interest was higher, which had been waived in AY 2014-15, and was again high in AY 2015-16. For the same amount disallowance u/s 40(a)(ia) of the Act which was also made, against which the assessee is not in appeal but the Ld. AO has again disallowed the same amount. The Ld. AR of the assessee was of the view that the disallowance of interest was from income from house property while the Ld. DR was of the view that the same was out of business income. However, the attention of the Ld. DR was drawn to the computation of income at page 6 of the assessment order, wherein at page 7 the interest of Rs. 1,01,74,603/- has been disallowed and income from house property has been computed at Rs. 56,45,933/-. In this respect, the provision of section 24(b) are reproduced as under: “24 (b)where the property has been acquired, constructed, repaired, renewed or reconstructed with borrowed capital, amount of any interest payable on such capital: Provided that in respect of property referred to in sub -section (2) of section 23, the amount of deduction [or, as the case may be, the aggregate of the amount of deduction] shall not exceed thirty thousand rupees: Provided further that where the property referred to in the first proviso is acquired or constructed with capital borrowed on or after the 1st day of April, 1999 and such acquisition or construction is completed ""[within [five] years from the end of the f inancial year in which capital was borrowed], the amount of deduction [or, as the case Safal Properties Private Limited AY: 2016-17 may be, the aggregate e aggregate of the amounts of deduction] under this clause shall not exceed [two lakh rupees]. Explanation- Where the property has been acquired or constructed with borrowed capital, the interest, if any, payable on such capital borrowed for the period prior to the previous year in which the property has been acquired or constructed, as reduced by any part thereof allowed as deduction under any other provision of this Act, shall be deducted under this clause in equal instalments for the said previous year and for each of the four immediately succeeding previous years:] Provided also that no deduction shall be made under the second proviso unless the assessee furnishes a certificate, from the person to whom any interest is payable on the capital borrowed, specifying the amount of interest payable by the assessee for the p urpose of such acquisition or construction of the property, or, conversion of the whole or any part of the capital borrowed which remains to be repaid as a new loan. Explanation- For the purposes of this proviso, the expression "new loan' means the whole or any part of a loan taken by the assessee subsequent to the capital borrowed, for the purpose of repayment of such capital:] Provided also that the aggregate of the amounts of deduction under the first and second provisos shall not exceed two lakh rupees.]”
7. Since, the property was let out and was not SOP, therefore, the entire interest paid was allowable and comparison with the past AY had no relevance. Moreover, since the disallowance has also been made u/s 40(a)(ia) of the Act for non-deduction of tax out of interest as the TDS of Rs. 25,43,956/- was not deposited in time and 30% of the amount of interest claimed has been disallowed against which the assessee has not filed appeal and has admitted the same, therefore, the same amounts to double disallowance which is not in accordance with the scheme of the Act and hence the addition of Rs. 1,01,74,603/- is hereby deleted and Ground Nos. 3 and 3.2 are allowed.
8. Ground Nos. 1,4 and 5 are general in nature and therefore, do not require separate adjudication.
In the result, the appeal filed by the assessee is allowed.
Order pronounced in the open court on 23rd September, 2024.
Sd/- Sd/- (Sanjay Garg) (Rakesh Mishra) Judicial Member Accountant Member
Dated: 23rd September, 2024 AK, P.S.