The Tax Publishers2019 TaxPub(DT) 5481 (Ahd-Trib)

INCOME TAX ACT, 1961

Section 14A

Where assessee-company had sufficient owned fund at its disposal to cover the cost of investments yielding exempt income, disallowance under section 14A of proportionate interest expenditure was unjustified because revenue was unable to prove that assessee had made the investments by utilizing borrowed funds.

Disallowance under section 14A - Expenditure against exempt income - Assessee having sufficient owned fund to cover cost of investments -

Assessee-company had earned dividend income, which was exempt under section 10(34). It offered disallowance under section 14A of expenditure incurred in relation to earning such dividend income. AO did not accept the disallowance offered by assessee and enhanced the same by making addition of proportionate interest expenditure invoking rule 8D(2)(ii). Assessee contended that it did not utilize borrowed fund to make the investments, therefore, addition of interest expenditure to the disallowance under section 14A was unjustified. Held: Apparently the amount of owned funds was much higher than the amount of the investments. It implied that the assessee had at its disposals sufficient funds to make the investment, which yielded exempt income. Since AO could not bring anything on record, which proved that the investments were made out of the borrowed funds, therefore, disallowance under section 14A was not justified.

Followed:CIT-2 v. HDFC Bank Ltd. (2014) 366 ITR 505 (Bom.) : 2014 TaxPub(DT) 3351 (Bom-HC) CIT v. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom.) : 2009 TaxPub(DT) 1275 (Bom-HC)

REFERRED :

FAVOUR : In assessee's favour

A.Y. :


INCOME TAX ACT, 1961

Section 36(1)(va)

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