2011 (7) TMI 519 - HC - Income Tax

Disallowance u/s 14A - Tribunal held that there was sufficient surplus funds available with the assessee to invest and there was no nexus that could be established with the expenditure incurred by the assessee for earning the dividend income - Held that - By discussing at length the similar view taken in the case of A.C.I.T vs. Jupiter Corporate Services Limited 2009 (7) TMI 1100 - ITAT AHMEDABAD it concluded that in absence of any material it was evident that no expenditure had been incurred by way of interest which could be related to dividend income nor was brought any material to suggest that the borrowed funds were utilized for investment in shares - While there was no disallowance of interest paid on borrowed funds was made in the preceding Assessment Year there was no material available before the Tribunal to take a different view than already taken in the earlier Assessment Year - Logic given for conclusion requires no interference - It was on the basis of evidence which was presented before the Tribunal that the conclusion had been arrived at with regard to availability of the free-funds for investment and therefore this Appeal merits no consideration - Accordingly the present Tax Appeal is dismissed with no order as to costs.

Summary

Issues: Disallowance of interest payment on borrowed capital for earning exempt income under Section 14A of the Income-Tax Act, 1961.

The judgment by the High Court of Gujarat pertains to a Tax Appeal concerning disallowances made by the Assessing Officer for the Assessment Year 2001-2002. The assessee had invested in shares and showed dividend income on 500 Equity Shares of Bank of Baroda. The Assessing Officer disallowed the interest payment on borrowed capital related to the investment in shares, stating it was for earning exempt income. The CIT [A] ruled in favor of the assessee, stating it had sufficient interest-free funds for investment. The Tribunal upheld the CIT [A] decision. The High Court considered the question of whether the Tribunal was correct in deleting the disallowance made under Section 14A of the Act. The Tribunal based its decision on Section 14A, which disallows deductions for expenditure related to income not forming part of the total income. It found that the assessee had surplus funds available for investment, no fresh investment was made during the relevant year, and disagreed with the Assessing Officer's claim that the investment was made from borrowed funds. The Tribunal also noted the absence of evidence linking the expenditure to the dividend income or showing that borrowed funds were used for the investment. It cited a similar case to support its decision. The High Court upheld the Tribunal's decision, stating that the conclusion was based on evidence presented, and there was no reason to interfere. The Tax Appeal was dismissed with no order as to costs.