CIT Vs Future Corporate Resources Ltd. (Bombay High Court)
In the case CIT vs. Future Corporate Resources Ltd., the Bombay High Court dismissed an appeal filed by the Revenue challenging an ITAT decision that had set aside an order under Section 263 of the Income Tax Act. The dispute arose from the PCIT’s revision of an assessment order for AY 2011–12, where the PCIT claimed that the Assessing Officer (AO) failed to properly examine interest expenses related to borrowings used for investment in subsidiaries and associate companies. The PCIT argued that since a portion of income from such investments (i.e., dividends) is exempt under Section 10(34), interest disallowance should have been computed under Section 14A read with Rule 8D.
However, during the assessment proceedings, the assessee had clarified that the investments were made as part of a long-term business strategy and not primarily to earn dividend income. It was also noted that a significant percentage of the investments (over 93%) were in subsidiaries and associates from which the assessee earned over half its total revenue. The AO accepted this rationale, concluding that the interest expense was a business expenditure under Section 36(1)(iii) and did not warrant disallowance under Section 14A. The ITAT upheld the AO’s view, holding that when two views are possible and the AO adopts one based on inquiry, the PCIT cannot revise the order simply for preferring an alternate approach.
