The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that the interest expenditure which had not been claimed in the profit and loss account could not be treated as revenue expense for disallowance under Section 14A of the Income Tax Act 1961.
In this case the Assessing Officer noted that assessee, Mission Holding Pvt. Ltd had shown receipts from dividend income and as against this, the assessee had shown finance cost and other expenses and finally profit was shown as dividend income claimed as exempt.
The Assessing Officer noted that assessee had made long term investment in shares of various companies by taking borrowed funds of which interest was paid. However, the assessee instead of claiming it as revenue expenditure had capitalised the cost of interest, it had not been claimed in the profit and loss account.
The Assessing Officer held that the assessee was not justified in capitalising the interest to the cost of investments in shares and such interest paid is purely revenue expenditure. He accordingly treated the entire interest expenses and he computed the disallowance under Section 14A of the Income Tax Act.
Maninder Kaur, on behalf of their venue contended that if the dividend income of a particular sum mentioned in the case, then same should have been restricted to dividend income.
The two-member Bench of G.S. Pannu (President) and Amit Shukla, (Judicial Member) dismissed appeal filed by the revenue holding that the assessee had not claimed any interest expenditure in the profit and loss account and once no expenditure had been claimed in the profit and loss account the same could not have been disallowed under section 14A of Income Tax Act.
The Bench further observed that the Assessing Officer had not given any finding or recorded any satisfaction as to why suo moto disallowance made by the assessee for earning of exempt income was not correct having regard to the nature of expenses debited or incurred. The CIT (A) had simply restricted the disallowance to the exempt income without any even commenting on the suo moto disallowance of the assessee.
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