INCOME TAX ACT, 1961

Section 14A

Disallowance under section 14A - Expenditure against exempt income - Interest on borrowing - Assessee having sufficient own funds

Assessee filed appeal against disallowance made under section 14A of interest on borrowing on the ground that the investments in sister concerns were made by it out of interest free funds and, therefore, no part of interest on borrowings can be disallowed. Held: In case of CIT v. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom) : 2009 TaxPub(DT) 1275 (Bom-HC), it was held that where an assessee possessed sufficient interest free funds of its own which were generated in the course of relevant financial year, apart from substantial shareholders' funds, presumption gets established that the investments in sister concerns were made by the assessee out of interest free funds and, therefore, no part of interest on borrowings can be disallowed on the basis that the investments were made out of interest bearing funds. Similar view had been taken in CIT v. Tin Box Company (2003) 260 ITR 637 (Del) : 2003 TaxPub(DT) 0685 (Del-HC) holding that when the capital and interest free unsecured loan with the assessee far exceeded the interest free loan advanced to the sister concern, disallowance of part of interest out of total interest paid by the assessee to the bank was not justified. Further, when the amount of investments as against the availability of Share Capital and Reserves was examined, it becomes evident that the amount of such Investments was much less than the amount of shareholder's fund. Therefore, disallowance of interest on borrowing made was deleted.

Followed:CIT v. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom) : 2009 TaxPub(DT) 1275 (Bom-HC) and CIT v. Tin Box Company (2003) 260 ITR 637 (Del) : 2003 TaxPub(DT) 0685 (Del-HC)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2014-15

INCOME TAX ACT, 1961

Section 14A read with Rule 8D(2)(iii)

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