INCOME TAX ACT, 1961

Section 14A Rule 8D

Disallowance under section 14A - Expenditure against exempt income - Assessee made huge investments during the year - Assessee failed to establish investments being made out of own reserves and interest free funds

Assessee-company was engaged in business of manufacturing of motor vehicle parts and electricity generation through windmills. It made huge investments during the year as against share capital and reserves shown in balance sheet. Since the assessee failed to establish that such investments were made out of its own reserves and interest free funds, thus, AO made disallowance under section 14A read with rule 8D.Held: In spite of opportunities being given, the assessee failed to establish through evidences and relevant documents that investments were made out of its own reserves and interest free funds. Revenue, therefore, was unable to have an opportunity to examine the interest free funds available with the assessee vis-à-vis the investments made during the year. Further, the investments were directly made from OD account where both own funds and interest bearing funds were intermixed. Therefore, it was necessary to factually verify whether the entire investments were made only from interest free funds. Accordingly, the matter was remanded to the AO for verification of the investments made vis-à-vis interest free funds available with the assessee during the year.

Followed:Prima Private Limited v. Asstt. CIT 2021 TaxPub(DT) 2760 (Pune-Trib).

REFERRED :

FAVOUR : Matter remanded.

A.Y. :

INCOME TAX ACT, 1961

Section 37(1) Section 40(a)(ii)

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