INCOME TAX ACT, 1961

Section 14A

Disallowance under section 14A - Total investments for rule 8D - Assessee's own interest free funds was much higher than average investment held -

Assessee was engaged in the business of 'Business Support Services'. During the course of assessment proceedings, disallowance of expenditure was made by AO by invoking provisions of section 14A read with rule 8D of the Income-tax Rules, 1962 and added to income of assessee chargeable to tax. CIT(A) held that investments that had yielded the exempted income alone was to be considered for the purpose of calculating the disallowance under rule 8D(iii). Held: Assessee had sold/redeemed its entire investment portfolio during the year under consideration. It was the contention of assessee even before authorities that interest bearing borrowings were utilized for business purposes and not for making investments. Authorities have not given any finding to contradict/rebut this plea of assessee. In any case, assessee's own interest free funds which were deployed by assessee in business which was much higher than average investment held by assessee. Thus, additions made by AO which was later sustained by CIT(A) by disallowing interest expenditure by invoking provisions of section 14A read with rule 8D(2)(ii) of the 1962 Rules was not sustainable in the eyes of law.

Followed: CIT (LARGE TAX PAYER UNIT) v. Reliance Industries Ltd (2019) 102 Taxmann.com 52(SC) : 2019 TaxPub(DT) 659 (SC), HDFC Bank Ltd. v. Dy. CIT & Ors. (2016) 383 ITR 529(Bom) : 2016 TaxPub(DT) 1316 (Bom-HC), CIT v. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom.) : 2009 TaxPub(DT) 1275 (Bom-HC) and Pr. CIT v. Sintex Industries Limited (2018) 93 Taxmann.com 24 (SC) : 2018 TaxPub(DT) 1574 (SC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2011-12

SUBSCRIBE FOR FULL CONTENT