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| The Tax Publishers2020 TaxPub(DT) 4070 (Bang-Trib) INCOME TAX ACT, 1961
Section 14A
Where interest-free funds available with the assessee was more than the value of investments, then the presumption was that assessee had used interest-free funds for making investments, since factual details relating to the issue require examination, in the interest of natural justice, assessee should be provided with an opportunity to present its case to AO with regard to the disallowance of administrative expenses made under rule 8(D)(iii).
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Disallowance under section 14A - Expenditure against exempt income - Interest-free funds available with the assessee was more than the value of investments -
Assessee was engaged in business of making investment in shares, providing guarantees to group companies and earned exempt income. Assessee did not make any disallowance under section 14A. When questioned, assessee submitted that the majority of its investments were made in earlier years and further loans taken during the year under consideration were used for general business purposes. AO did not agree with contentions of assessee and accordingly proceeded to make disallowance under section 14A read with rule 8D of IT Rules. Accordingly, he made disallowance under section 14A, which consisted of interest disallowance under rule 8D(2)(ii) and expenditure disallowance under rule 8D(2)(iii). Held: If interest free funds available with assessee was more than value of investments, then presumption was that assessee had used interest free funds for making investments. There should not be any dispute that, if assessee was able to demonstrate that interest free funds available with assessee was more than value of investments and further the loan funds have not been used to make the investments, then no disallowance out of interest expenditure is called for under rule 8D(2)(ii). Since factual details relating to issue require examination, in the interest of natural justice, assessee should be provided with an opportunity to present its case to AO With regard to the disallowance of administrative expenses made under rule 8(D)(iii), it was the submission of assessee that majority of expenses debited to Profit & Loss Account are not related to exempt income and further, expenses relatable to exempt income could be identified and the same was lower than the amount computed by AO under section 8D(2)(iii).
Followed:CIT (Large Tax Payer Unit) v. Reliance Industries Ltd (2019) 410 ITR 466 (SC) : 2019 TaxPub(DT) 0659 (SC) ACIT v. Vireet Investment (P.) Ltd. (2017) 165 ITD 27 (Del) : 2017 TaxPub(DT) 1760 (Del-Trib)Relied:Joint Investments Pvt. Ltd. v. CIT (2015) 372 ITR 694 (Del) : 2015 TaxPub(DT) 1375 (Del-HC)
REFERRED :
FAVOUR : Matter remanded
A.Y. : 2013-14 & 2015-16
IN THE ITAT, BANGALORE BENCH
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