The Tax Publishers2019 TaxPub(DT) 8361 (Mum-Trib)

INCOME TAX ACT, 1961

Section 14A

Computation mechanism provided in rule 8D could not be made applicable for the year under consideration as same was applicable only from assessment year 2008-09 onwards. Since only the own funds had been utilized for making investments that had yielded exempt income and hence, there could not be any disallowance of interest on borrowed funds under section 14A. Disallowance worked out by assessee under section 14A considering certain operation and administrative expenses had become final and deserved to be upheld.

Disallowance under section 14A - Expenditure against exempt income - Interest and administrative expenses - Assessee having sufficient own funds--Applicability of rule 8D

Assessee earned tax free dividend income of Rs. 5 crores on shares AO invoked rule 8D and worked out disallowance of interest and administrative expenses.Held: Computation mechanism provided in rule 8D could not be made applicable for the year under consideration as same was applicable only from assessment year 2008-09 onwards. As evident from perusal of assessee's balance sheet that, it was having own funds / interest free funds to the tune of Rs. 5555 crores whereas investment that had yielded exempt income were only Rs. 843 crores. Hence, it could be safely presumed that only the own funds had been utilized for making investments that had yielded exempt income and hence, there could not be any disallowance of interest on borrowed funds under section 14A. Disallowance worked out by assessee under section 14A considering certain operation and administrative expenses had become final and deserved to be upheld.

Relied:Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom) : 2009 TaxPub(DT) 1275 (Bom-HC).

REFERRED :

FAVOUR : In assessee's favour.

A.Y. : 2006-07 & 2007-08


INCOME TAX ACT, 1961

Section 80-IA

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