INCOME TAX ACT, 1961

Section 14A

Disallowance under section 14A - Expenditure incurred on exempted income - Disallowance offered by assessee suo-motu - Maintainability of such disallowance

Assessee made investments to the tune of Rs. 15.18 crores and disallowed on its own of Rs. 18,67,577 under rule 8D(2)(ii) of Rs. 12,20,304 and being 0.5% of average investments of Rs. 6,47,273 but however, the AO made further enhancement of disallowance under rule 8D(2)(ii) to an extent of Rs. 3,31,763 and made total disallowance of Rs. 21,99,340 under section 14A of the Act. The assessee argued to delete entire disallowance offered by it suo moto stating that the investments made during the year under consideration were less than assessee's own funds, no disallowance was required. Held: It is a settled proposition that if the own funds are more than the investments made should be presumed that the assessee made investments from its own funds. As discussed above, the assessee made investments to the tune of Rs. 15.18 crores in the year under consideration, to which the Balance Sheet as on 31-3-2012 clearly showed as non-current investments, and also showed own funds at Rs. 32,38,52,976 which was more than the investments made. Therefore, the interest expenses disallowed under rule 8D(2)(ii) was not maintainable. The disallowance relating to 0.5% of investments to the tune of Rs. 6,47,273 is confirmed. Thus, suo moto disallowance made by the assessee under rule 8D(2)(ii) of Rs. 12,20,303 and the enhanced disallowance made by the AO of Rs. 3,31,763 totaling to Rs. 15,52,067 requires to be deleted for the reasons indicated above and the disallowance under rule 8D(2)(iii) is confirmed.

REFERRED :

FAVOUR : Partly in assessee's favour.

A.Y. : 2012-13

INCOME TAX ACT, 1961

Section 37(1)

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