2012 (9) TMI 962 - AT - Income Tax

Summary

Issues Involved:
The appeal concerns the disallowance of interest u/s. 14A by the ld. CIT (A)-III, Ahmedabad for the Assessment Year 2004-05.

Details of Judgment:

Issue 1: Disallowance of Interest u/s. 14A
- The assessee, an Individual engaged in the business as Jewellery valuer, also traded in shares, securities, and mutual funds, with income from share business.
- The Assessing Officer (A.O.) disallowed interest expenses of Rs. 6,50,456 paid to Kotak Mahindra Investments Pvt. Ltd., as the investments made were with a motive to earn exempt dividend income u/s. 10(33).
- The CIT (A) upheld the disallowance, stating that the interest expenditure was directly attributable to earning exempted income and thus covered by section 14A.
- The assessee contended that the interest paid on borrowed capital for business purposes should be allowed u/s. 36(1)(iii) as it was for acquisition of units integral to the business.
- The Tribunal found that the assessee was engaged in the business of trading shares, securities, and mutual funds, and the interest expenses were for business purposes, following precedents like Yatish Trading Co. (P.) Ltd. and Laxmi Agents (P.) Ltd.
- Relying on the decision of the Hon'ble High Court, the Tribunal allowed the appeal, directing the deletion of the disallowance made by the A.O.

Conclusion:
The Tribunal allowed the appeal of the assessee, overturning the disallowance of interest u/s. 14A, considering the business nature of the activities and the purpose of the borrowed funds.