The Tax Publishers2020 TaxPub(DT) 4512 (Karn-HC) : (2020) 429 ITR 0615 : (2021) 278 TAXMAN 0081

INCOME TAX ACT, 1961

Section 14A Rule 8D(2)(ii)

Where interest-free funds were sufficient to make tax-free investments, finding of AO that overdraft facility was directly used for making tax exempt investments was correctly reversed by ITAT.

Disallowance under section 14A - Expenditure against exempt income - Applicability of rule 8D(2)(ii) - Tax free investments made out of sufficient own funds

AO challenged order of Tribunal deleting disallowance under rule 8D(2)(ii) read with section 14A. As per AO, Tribunal deleted disallowance without appreciating that, when interest expenses could not be directly attributed to any particular income or receipt, provision of rule 8D(2)(ii) automatically became applicable.Held: There was no material on record to show that overdraft amount has directly been used for tax exempt investments. Also, in fact, tax free investments have come down to Rs. 34,78,31,000 as on 31-3-2009 from Rs. 4,05,21,54,000 as on 31-3-2008. On perusal of balance sheet the finding had been recorded that assessee had received an amount of Rs. 146.52 crores as advances from customers, which were interest free and reserves and surpluses were to the tune of Rs. 882.67 crores. Thus, interest free funds were sufficient to make tax free investments and accordingly, finding of AO that overdraft facility was directly used for making tax exempt investments was correctly reversed by ITAT.

Relied:Syeda Rahimunnisa v. Malan Bi, By L.Rs. & Ors. (2016)10 SCC 315 and Pr. CIT, Bangalore & Ors. v. Softbrands India (P) Ltd., (2018) 406 ITR 513 (Karn-HC) : 2018 TaxPub(DT) 3520 (Karn-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2009-10


INCOME TAX ACT, 1961

Section 36(1)(iii)

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