The Tax Publishers2020 TaxPub(DT) 3104 (Ahd-Trib)

INCOME TAX ACT, 1961

Section 14A Rule 98D(2)(ii)

Since assessee failed to furnish any day-to-day fund flow analysis to prove that investments were made out of interest free fund and there was no diversion of interest bearing funds for non-business purposes, disallowance under section14A read with rule 8D(2)(ii) was called for, however, same was to be restricted to the extent of exempt income earned by assessee.

Disallowance under section 14A - Expenditure against exempt income - Interest expenses - Assessee pleading to have made investment out of sufficient own funds--Failure to furnish day-to-day fund flow analysis

Assessee earned tax free dividend income of Rs. 2 lakhs on investments in shares but claimed no disallowance of interest expenses under section 14A. AO invoked rule 8D(2)(ii) and worked out disallowance at Rs. 5 lakhs. Assessee's case was that investments were made out of sufficient non-interest bearing own funds available with assesse. Held: Assessee failed to furnish any day-to-day fund flow analysis to prove that investments were made out of interest free fund and there was no diversion of interest bearing funds for non-business purposes. As evident from copy of balance shet furnished by assessee fiirm as on 31-3-2010 total capital of partners was only Rs. 3,70,849 whereas assessee has obtained sarafi deposit to the amount for Rs. 3,89,48,473 and other secured loan and unsecured loan to the amount of Rs. 38,17,183 and total investment made was reflected at Rs. 61,34,107. In balance sheet of assessee as on 31-3-2009 total capital of partners was in the negative as on 31-3-2009 at Rs. -81,05,598 whereas sarafi deposit shown at Rs. 3,78,52,532 and secured loan and unsecured loan was to the amount of Rs. 77,29,181 and total investments was reflected at Rs. 1,12,44,492. No other information, i.e., break-up of investment or schedules of balance sheet were submitted to substantiate that no expenses were incurred towards earning exempt income. Therefore, disallowance was called for. However, same was restricted to the extent of exempt income earned by assessee.

Relied:Jivraj Tea Ltd. v. Dy. CIT ITA No. 886/Ahd/2012, dated 28-8-2014 and the decision of ITAT Delhi in the case of Sahara India Finance Corporation Ltd. 1481 ITD 336.

REFERRED :

FAVOUR : Partly in assessee's favour.

A.Y. : 2010-11

INCOME TAX ACT, 1961

Section 38(2)

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