| The Tax Publishers2019 TaxPub(DT) 5317 (Guj-HC) : (2019) 416 ITR 0013 INCOME TAX ACT, 1961
Section 14A read with Rule 8D
Once it was demonstrated that assessee had availed of mixed funds and utilized them for making investments into securities earning tax-free income, section 14A read with rule 8D would not be attracted automatically. Further, where the spare interest free funds were much more than the investments made for earning tax-free income, no disallowance could be made under section 14A.
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Disallowance under section 14A - Expenditure against exempt income - Interest expenditure -
AO disallowed interest expenditure under section 14A read with rule 8D alleging that assessee was maintaining mixed funds and failed to establish that it had its own surplus funds for the purpose of investment in dividends. He contended that once there exists mixed funds, section 14A read with rule 8D would be attracted mandatorily. Held: The condition precedent of recording the requisite satisfaction which is a safeguard provided in section 14A should not be overlooked before going to rule 8D. Therefore, the Court was not impressed by the submission canvassed by the revenue that once it was demonstrated that assessee had availed of mixed funds and utilized them for making investments into securities earning tax free income, section 14A read with rule 8D would be attracted automatically. Moreover, as the spare interest free funds in the form of share capital, reserve and surplus were much more than the investments made for earning tax free income, no disallowance could be made under section 14A.
Relied:Maxopp Investment Ltd. & Ors. v. CIT (2018) 402 ITR 640 (SC) : 2018 TaxPub(DT) 1403 (SC), ,Principal CIT v. Shreno Ltd. (2018) 409 ITR 401 (Gujarat) : 2018 TaxPub(DT) 8013 (Guj-HC)
REFERRED : SA Builders Ltd. v. CIT (2007) 288 ITR 1 (SC) : 2007 TaxPub(DT) 0834 (SC),Principal CIT v. Gujarat State Financial Services Ltd. [Tax Appeals Nos. 1252, 1253 and 1255 of 2018, dt. 15-10-2018] : 2018 TaxPub(DT) 6927 (Guj-HC),Principal CIT v. Gujarat State Fertilizers and Chemicals Ltd. (2018) 409 ITR 378 (Guj) : 2018 TaxPub(DT) 5197 (Guj-HC),Asstt. CIT v. Gujarat State Fertilizer & Chemicals Ltd. [ITA No. 1403, 1413/Ahd/2014 & CO No. 243/Ahd/2014 Assessment Year 2010-11, dt. 1-8-2018], and Principal Commissioner Of Income Tax, Vadodara I Versus Gujarat State Fertilizers And Chemical Ltd. [Special Leave Petition (Civil) Diary No(s). 2752/2019, dt. 1-7-2019]
FAVOUR : In assessee's favour
A.Y. : 2010-11
IN THE GUJARAT HIGH COURT
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