2011 (7) TMI 1316 - AT - Income Tax

Summary

Issues Involved:
1. Disallowance of finance charges paid on borrowed funds.
2. Disallowance u/s 14A of the Act.
3. Deletion of addition out of total foreign traveling expenses incurred.

Summary:

1. Disallowance of Finance Charges Paid on Borrowed Funds:
The Assessee appealed against the disallowance of Rs. 52,48,328/- as finance charges on borrowed funds. The AO observed that the Assessee had invested Rs. 52,13,26,800/- in subsidiaries without earning any income and had interest-bearing funds amounting to Rs. 19,20,67,163/-. The AO disallowed the interest claim, stating that the Assessee used borrowed funds for non-business purposes. The CIT(A) upheld the AO's decision, but the Tribunal referred to the judgment in Reliance Utilities and Power Ltd., holding that if sufficient interest-free funds are available, it is presumed that investments are made from such funds. The Tribunal found that the Assessee had sufficient own funds and allowed the appeal.

2. Disallowance u/s 14A of the Act:
The Assessee contested the disallowance of Rs. 61,87,099/- u/s 14A, arguing that no expenses were incurred to earn the dividend income of Rs. 14,81,581/-. The AO applied Rule 8D, which was confirmed by the CIT(A). The Tribunal referred to the judgment in Godrej & Boyce Mfg. Co. Ltd., which stated that Rule 8D applies from the assessment year 2008-09 and the AO must determine the expenditure reasonably. The Tribunal remitted the matter back to the AO for fresh determination in light of the said judgment.

3. Deletion of Addition Out of Total Foreign Traveling Expenses Incurred:
The revenue appealed against the deletion of Rs. 19,59,000/- out of foreign travel expenses. The AO disallowed the expenses, stating that the Assessee failed to correlate the expenses with business purposes. The CIT(A) deleted the disallowance, noting that the Assessee provided sufficient evidence, including newspaper articles, proving the business purpose of the travel. The Tribunal upheld the CIT(A)'s decision, finding no infirmity in the deletion of the disallowance.

Conclusion:
The Assessee's appeal was allowed for statistical purposes, and the revenue's appeal was dismissed.