Appellant: Deputy Commissioner of Income Tax, Central Circle-31, New Delhi
Respondent: Bhilwara Energy Ltd., New Delhi
Assessment Year: 2016-17
Case Filed On: 2019-07-08
Order Type: Final Tribunal Order
Date of Order: 2022-08-02
Pronounced On: 2022-08-02
The appeals under consideration were filed by the Deputy Commissioner of Income Tax, Central Circle-31, New Delhi (the Appellant) against the consolidated order of the Commissioner of Income Tax (Appeals)-XXX, New Delhi (CIT(A)), dated 30.04.2019. The appeals relate to the common assessment order dated 29.12.2008 passed by the Assessing Officer under Section 153A/143(3) of the Income Tax Act, 1961 for the Assessment Years 2014-15, 2015-16, 2016-17, and 2017-18.
The core issue in the case is the disallowance of expenses under Section 14A of the Income Tax Act, 1961. The details of disallowances made in the Assessment Year 2016-17 are as follows:
The CIT(A) had disposed of the issues in favor of the assessee, Bhilwara Energy Ltd. The appellant challenged the disallowance of expenses under Section 14A, arguing that the investment was in subsidiary companies and not made with the intention of earning tax-free income. This argument was supported by referencing a similar case decided by the Hon’ble Jurisdictional High Court in CIT vs. Holcim India P. Ltd.
Furthermore, the CIT(A) examined whether the interest paid on borrowed funds was for the purpose of business and deemed the expenditure as incurred for business purposes. The company’s main business involves power generation and related activities, which is evident from the company’s main objectives and ancillary objects.
Notably, the company had invested in several subsidiary companies involved in power generation, and the funds borrowed were used for these investments. Under Section 36(1)(iii) of the Act, interest incurred by an assessee is considered allowable business expenditure if the borrowed money is used for business purposes.
The Income Tax Appellate Tribunal, Delhi Bench “A”, consisting of Shri Challa Nagendra Prasad (Judicial Member) and Shri Pradip Kumar Kedia (Accountant Member), upheld the findings of the CIT(A). The tribunal concluded that the disallowance under Section 14A was not justified, and the interest expense was a legitimate business expenditure under Section 36(1)(iii). The consolidated order of the CIT(A) was thus affirmed in favor of Bhilwara Energy Ltd.
Final Judgment: The appeals filed by the Deputy Commissioner of Income Tax, Central Circle-31, New Delhi were dismissed, and the decision of the CIT(A) was upheld. The tribunal’s judgment reinforces the applicability of Section 36(1)(iii) regarding interest expenses and the appropriateness of the CIT(A)’s findings concerning the disallowance under Section 14A.
ITA 5937/DEL/2019: DCIT vs. Bhilwara Energy Ltd. (Assessment Year 2016-17)
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