2017 (7) TMI 1075 - AT - Income Tax

Disallowance u/s 14A - sufficiency of own funds - Held that - We find that the assessee had sufficient own funds during the year under consideration for making the investments. The assessee had own fund of ₹ 47 crores(app.),whereas investments, resulting in exempt income, were of ₹ 4 crores(app.). The honorable jurisdictional High Court in the case of HDFC Bank Ltd (2016 (3) TMI 755 - BOMBAY HIGH COURT) has held that if an assessee possessed sufficient own fund the presumption was that investment was made from own fund and not from borrowed funds. Similar view was taken by the Hon ble Court in the case of Reliance Utilities & Power Ltd.(2009 (1) TMI 4 - BOMBAY HIGH COURT ). Besides, the assessee had disallowed ₹ 3.43 lakhs on its own under the head administrative expenses and the AO had not given any reason for rejecting the stand taken by the assessee. So, in our opinion, there was no need to make any further disallowance. - Decided in favour of assessee.

Summary

Issues: Disallowance under section 14A of the Income Tax Act

Analysis:
1. The assessee challenged the order of the CIT (A)-2, Mumbai, regarding the disallowance made under section 14A of the Income Tax Act, amounting to ?14.18 lakhs. The Assessing Officer (AO) determined the income of the assessee at ?6.81 crores, which included the disallowance.

2. The AO found that the assessee earned dividend income of ?34.08 lakhs and made a disallowance of ?3.43 lakhs on its own. The AO observed that there was no clear nexus between the own funds and investments, and interest expenditure was not attributable to any particular income. Therefore, the disallowance was made as per the provisions of section 14A read with rule 8D of the Income Tax Rules, 1962.

3. The First Appellate Authority (FAA) confirmed the AO's order, leading the assessee to appeal further. The Authorized Representative argued that the assessee had sufficient own funds for investments, and no disallowance should have been made under rule 8D(ii). The AR also highlighted that the major interest expenses were not for making investments, which the AO and FAA had not considered.

4. The ITAT Mumbai analyzed the submissions and balance sheet, noting that the assessee had own funds of ?47 crores, whereas investments were only ?4 crores. Referring to legal precedents, the ITAT held that if an assessee had sufficient own funds, the presumption was that investments were made from own funds. Additionally, since the assessee had already made a voluntary disallowance of ?3.43 lakhs, the ITAT found no justification for further disallowance. As a result, the ITAT allowed the appeal, reversing the order of the FAA.

5. In conclusion, the ITAT Mumbai ruled in favor of the assessee, stating that there was no need for additional disallowance under section 14A of the Income Tax Act, given the sufficient own funds available for investments and the voluntary disallowance already made by the assessee.