The Income Tax Appellate Tribunal (ITAT), Delhi Bench ‘H’, adjudicated on the appeal filed by the Deputy Commissioner of Income Tax (DCIT), Circle-19(1), New Delhi against the order passed by the Commissioner of Income Tax (Appeals) Delhi-7. The appeal, registered as ITA No. 363/DEL/2021, pertains to the assessment year 2017-18.
Priapus Developers Pvt. Ltd., located at 5th Floor, Tower B, Worldmark-I, Aerocity, New Delhi, filed its return of income for the assessment year 2017-18. The DCIT, Circle-19(1), New Delhi, challenged the orders of the CIT(A) allowing the exemption under Section 11 of the Income Tax Act, 1961, to the Assessee Education Society.
The Revenue raised the following grounds of appeal:
The case was heard on 15.02.2023, and the order was pronounced on 11.04.2023. The Tribunal, comprising Shri G.S. Pannu, President, and Shri Challa Nagendra Prasad, Judicial Member, reviewed the submissions and the relevant facts of the case.
The main issues in this appeal were whether the disallowance under Sections 14A and 36(1)(iii) of the Act were justified.
The CIT(A) deleted the disallowance under Section 14A by following the orders of the Tribunal for the earlier assessment years (2015-16 and 2016-17). The Tribunal observed that during the year under consideration, the Assessee had suomoto disallowed an amount of Rs. 1,10,49,579 towards cost for earning exempt income. The AO had increased this disallowance by an additional Rs. 3,85,44,550. The Assessee contended that the investments which resulted in dividend income were made in earlier years through amalgamation and that no fresh investments were made during the year.
The Tribunal noted that similar disallowances for earlier assessment years were deleted by the ITAT and CIT(A) based on the fact that the majority of the exempt income was from investments acquired through amalgamation. Therefore, it was concluded that no indirect expenses were incurred for earning the exempt income.
The CIT(A) also deleted the disallowance of Rs. 19,19,86,964 under Section 36(1)(iii) and allowed the claim of expenditure of Rs. 39,52,63,012 under Section 57. The AO had based the disallowance on the assumption that the entire borrowings of Rs. 494.87 crore were interest-bearing and used for non-current investments. However, the Tribunal found that a portion of the borrowings (Rs. 154.87 crore) was in the form of Compulsorily Convertible Debentures, which did not bear any interest. The remaining interest-bearing borrowings (Rs. 340 crore) were less than the loans and advances given (Rs. 444.38 crore), indicating that interest-bearing funds were not used for non-current investments.
The Tribunal upheld the CIT(A)’s order, dismissing the grounds raised by the Revenue. The disallowance under Sections 14A and 36(1)(iii) was thus deleted.
The appeal filed by DCIT, Circle-19(1), New Delhi was dismissed.
Order pronounced in the open court on 11.04.2023.
Signed by:
(G.S. Pannu) – President
(C.N. Prasad) – Judicial Member
Date: 11.04.2023
*Mehta*
Copy forwarded to:
Assistant Registrar, ITAT, Delhi Benches, Delhi
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