2017 (5) TMI 1484 - HC - Income Tax

Appeal is Admitted to consider the following substantial question of law. 1.Whether on the facts and circumstances of th case, the Appellate Tribunal was justified in deleting the disallowance of deduction u/s 40(a)(ia) ? Addition u/s 14A - Held that - It does not seem to be in dispute that as assessee was already having a surplus reserved tax free fund out of which investment was made. Therefore, AO was not justified in making the disallowance of deduction under Section 14 A. Revenue is not disputing that the assessee was having surplus reserved interest free fund, out of which investment was made. Under the circumstances, the learned Tribunal has not committed any error in deleting disallowance of deduction under Section 14 A.

Summary

Issues:
1. Disallowance of deduction under section 40(a)(ia) of ?76,09,141
2. Disallowance of deduction under section 14 A of ?2,10,788

Analysis:
1. The appellant Revenue challenged the impugned judgment of the Income Tax Appellate Tribunal regarding the disallowance of deduction under section 40(a)(ia) of ?76,09,141 for the assessment year 2007-08. The High Court admitted the appeal for consideration of the substantial question of law related to the justification of deleting the said disallowance. The court heard arguments from both sides and decided to admit the appeal for further examination.

2. Regarding the proposed question of disallowance of deduction under section 14 A of ?2,10,788, the court noted that the assessee had a surplus reserved tax-free fund from which investments were made. The court observed that the Assessing Officer was not justified in making the disallowance under section 14 A in this scenario. The Revenue did not dispute the existence of the surplus reserved interest-free fund used for investments. Consequently, the court agreed with the Tribunal's decision to delete the disallowance under section 14 A. The court found no error in the Tribunal's reasoning and dismissed the appeal concerning this issue.

3. The High Court admitted the appeal specifically for the consideration of the substantial question of law related to the disallowance of deduction under section 40(a)(ia). The advocate for the respondent assessee waived the service of notice of admission, indicating readiness to proceed with the case. The court's decision was based on the arguments presented and the interpretation of relevant provisions of the Income Tax Act.

This detailed analysis covers the issues raised in the legal judgment, outlining the court's reasoning and decisions on each matter.