Bank Charges & Bank Guarantee Charges Wrongly Included As Interest: ITAT
The Delhi Bench of Income Tax Appellate Tribunal (ITAT) has held that bank charges and bank guarantee charges do not partake in the character of interest and had been wrongly included as interest while making disallowance under section 14A of the Income Tax Act.
The bench of G.S.Pannu (Vice President) and Kul Bharat (Judicial Member) has observed that the assessee had disallowed the expenditure related to administrative expenses. However, in respect of the disallowance for the interest, it was stated that the assessee was having sufficient interest free funds and also it was stated that the AO has wrongly computed the disallowance by including the bank charges and bank guarantee charges.
the appellant/assessee company filed its return of income at Rs.7,86,28,030 on 30.11.2013. The case was selected for scrutiny assessment and the assessment was framed . The Assessing Officer while framing the assessment, noticed that the assessee made investment in a partnership firm. The income derived therefrom was not includible in the taxable income of the assessee.
Therefore, the Assessing Officer issued a show-cause notice as to why provisions of section 14A r.w. Rule 8D of the Income Tax Rules, 1962 should not be invoked and disallowances are made accordingly.
The assessee filed contended that it has already disallowed a sum equal to 0.5% of average investments considering the expenses attributable to investments. It had sufficient interest free funds for investments hence, in respect of interest, no disallowance is called for. The status of the non-interest bearing funds. However, the Assessing Officer did not accept the contentions of the assessee and proceeded to make disallowance under section 14A of the Income Tax Act. The AO made an addition of Rs.9,06,947.
The assessee preferred appeal before CIT(A) who sustained both the addition.
The assessee contended that firstly, it had sufficient interest free funds for making the investments therefore, no disallowance should have been made. The Assessing Officer had wrongly computed the disallowance as he included the bank charges and bank guarantee charges as interest. However, the submissions of the assessee were not found acceptable to the CIT(A) and held that bank charges and bank guarantee charges are part and parcel of interest. Thus, he sustained the addition made by the assessing authority.
The tribunal held that CIT(A) as well the assessing authority has not brought any material suggesting that the interest free funds were diverted for earning of tax free income. The disallowance made in respect of interest expenditure is not justified.
Counsel For Appellant: Baldev Raj
Counsel For Respondent: Alka Gautam
Case Title: Advance Valves Pvt.Ltd. Versus ACIT
Case No.: ITA No.5555/Del/2017