2011 (1) TMI 1507 - AT - Income Tax

Summary

Issues involved: Disallowance of interest paid u/s 14A of the I. T. Act, 1961.

The appeal was filed against the order of the Ld. CIT(A) Kolkata for the assessment year 2005-06, concerning the disallowance of &8377; 1,66,658 out of interest paid u/s 14A of the I. T. Act, 1961. The Assessing Officer allocated a portion of interest paid by the assessee for earning exempt income from firms, disallowing it against taxable income. The Ld. CIT(A) upheld this decision, leading to the appeal before the ITAT Kolkata.

During the hearing, the Ld. Counsel for the assessee argued that the interest expenditure was for investments in firms where the assessee was a partner, generating both taxable and non-taxable income. It was contended that the share of profit from the firm, though exempt u/s 10(2A) of the Act, was not entirely tax-free, aiming to prevent double taxation. Citing relevant case law, the counsel argued against the disallowance of the expenditure.

On the contrary, the Ld. DR supported the lower authorities' orders and urged the bench to affirm the Ld. CIT(A)'s decision.

After considering the arguments and relevant precedents, the ITAT Kolkata referred to the decision of the Tribunal Mumbai Bench in a similar case. The Tribunal held that the share income of the firm, though exempt under certain sections, retains the character of business income. Consequently, it was deemed unnecessary to disallow the proportionate expenditure claimed by the assessee. Relying on established case law, the ITAT Kolkata set aside the lower authorities' orders and allowed the appeal of the assessee, deleting the disallowance of &8377; 1,66,658.

Therefore, the ITAT Kolkata allowed the appeal of the assessee, based on the interpretation of relevant provisions and precedents, overturning the disallowance of interest paid u/s 14A of the I. T. Act, 1961.