INCOME TAX ACT, 1961

Section 14A

Disallowance under section 14A - Expenditure against exempt income - Interest expenses - Investments in securities were made out of common funds --- Assessee had available, non-interest bearing funds larger than the investments made in tax-free securities

Assessees earned substantial tax-free income by way of interest from tax free bonds and dividend income which also was tax free. Since actual expenditure figures were not available for making disallowance under section 14A, AO worked out proportionate disallowance by referring to the average cost of deposit for the relevant year. In absence of separate accounts for investment which earned tax free income, AO made proportionate disallowance of interest attributable to the funds invested to earn tax free income. Assessee contended that as assessee had mixed fund (made up partly of interest-free funds and partly of interest bearing funds) and payment was made out of that mixed fund, therefore, investment was to be considered to have been made out of the interest free fund. Held: As investments in securities were made out of common funds and assessee had available, non-interest bearing funds larger than the investments made in tax-free securities, therefore, no proportionate disallowance under section 14A could be made on account of interest expenses.

Relied:Pr. CIT v. Bombay Dyeing and Mfg. Co. Ltd. (I.T.A. No. 1225 of 2015) : 2018 TaxPub(DT) 0211 (Bom-HC), CIT (Large Tax Payer Unit) v. Reliance Industries Ltd. (2019) 410 ITR 466 (SC) : (2019) 20 SCC 478 : 2019 TaxPub(DT) 0659 (SC), HDFC Bank Ltd. v. Dy. CIT (2016) 383 ITR 529 (Bom) : 2016 SCC Online Bom 1109 : 2016 TaxPub(DT) 1316 (Bom-HC)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

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