Case Number: ITA 5938/DEL/2019
Appellant: DCIT Central Circle-31, New Delhi
Respondent: Bhilwara Energy Ltd., New Delhi
Assessment Year: 2017-18
Order Type: Final Tribunal Order
Date of Order: 2022-08-02
Pronounced On: 2022-08-02
Case Filed On: 2019-07-08
The case pertains to the appeal filed by the Deputy Commissioner of Income Tax (DCIT), Central Circle-31, New Delhi against Bhilwara Energy Ltd., New Delhi. This appeal was considered along with several other appeals, including ITA Nos. 5935, 5936, 5937, and 5938 for assessment years 2014-15, 2015-16, 2016-17, and 2017-18 respectively. The core issue revolves around disallowances made under Section 14A of the Income Tax Act, 1961.
The appeals were filed against the consolidated order dated 30.04.2019 by the Commissioner of Income Tax (Appeals) (CIT(A)), New Delhi. The assessment orders were passed under Section 153A/143(3) of the Income Tax Act, concerning the assessment years 2014-15 to 2017-18.
Specifically, the disallowances made under Section 14A of the Act were contested. The disallowances for the assessment year 2017-18 amounted to Rs. 8,51,38,444, which was disallowed based on the total exempt income. For previous years, the disallowed amounts were as follows:
The CIT(A) had disposed of all issues in favor of the assessee. The CIT(A) relied on the nature of transactions involving investments in subsidiary companies. It was observed that investments made in these subsidiaries were for the purpose of achieving the objectives of the holding company and to enhance its business through diversification. The CIT(A) referenced the decision in CIT Vs. Holcim India P. Ltd., ITA No. 486/2014, stating that such investments do not constitute earning of tax-free income.
The CIT(A) further evaluated whether interest paid on borrowed funds was for commercial expediency. The assessee’s main business was power generation and related activities. The borrowed funds were utilized for business purposes, and thus, the interest incurred was deemed allowable business expenditure under Section 36(1)(iii) of the Act, provided certain conditions were met.
Before the Income Tax Appellate Tribunal, Delhi Bench “A”, the case was heard by Shri Challa Nagendra Prasad, Judicial Member, and Shri Pradip Kumar Kedia, Accountant Member. After considering the arguments from both sides, the tribunal upheld the CIT(A) order. The tribunal agreed that the disallowances made under Section 14A were properly addressed by the CIT(A), and the interest expenditure claimed by the assessee was in line with the business objectives and was rightly allowed under the provisions of the Act.
The tribunal’s final decision was pronounced on 02.08.2022, confirming the CIT(A)’s order and dismissing the appeal filed by the DCIT. The consolidated order of CIT(A) was thus upheld for all the assessment years concerned.
The Income Tax Appellate Tribunal’s decision in ITA 5938/DEL/2019 reinforces the approach to evaluating disallowances under Section 14A and the criteria for allowing business expenditure on borrowed funds. The case serves as a significant precedent for similar cases involving investment in subsidiaries and the treatment of interest expenses in the context of commercial expediency.
ITA 5938/DEL/2019 – DCIT Central Circle-31 vs Bhilwara Energy Ltd. (Assessment Year 2017-18)
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