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2013 (7) TMI 359 - HC - Income TaxDisallowance u/s 14A - Assessee claimed dividend income and exemption in administrative expenditure - Tribunal deleted disallowance due to lack of evidence produced by A.O. - Held that - CIT A and the Tribunal both have specifically held the said amount has not been rightly disallowed since the same had been expended from interest free funds, though spent for earning exempt dividend income. It is not the question of the total sum of Rs. 471 lacs, but, a limited sum that has been spent for earning the exempt income, therefore, as rightly held, when there was interest free funds available with the assessee, there does not arise a question of disallowing expenditure under Section 14A of the Act - Decided in favour of Assessee.
Issues:
1. Disallowance of Rs. 18,38,000 under section 14A of the Income Tax Act. 2. Disallowance of Rs. 10,94,242 of software expenses. Analysis: Issue 1: Disallowance under section 14A of the Income Tax Act The case involved a challenge to the disallowance of Rs. 18,38,000 made under section 14A of the Income Tax Act. The Assessing Officer disallowed this amount as it was invested from interest-bearing funds to earn exempted dividend income. However, the CIT [A] held in favor of the assessee, stating that the investment was made from interest-free funds larger than the exempted income. The Tribunal concurred with the CIT [A] and deleted the disallowance. The Tribunal noted that the Assessing Officer failed to establish a nexus between borrowed funds and investments. It was held that no disallowance under section 14A could be invoked in this case. The High Court upheld the Tribunal's decision, emphasizing that the disallowed amount was spent from interest-free funds, making it ineligible for disallowance under section 14A. Issue 2: Disallowance of software expenses Regarding the disallowance of Rs. 10,94,242 of software expenses, the CIT [A] noted that this issue had already been finalized in favor of the assessee in previous proceedings. The Assessing Officer revisited this issue in reassessment, but since it had reached finality in favor of the assessee previously, the matter was not open for further consideration. Consequently, the Tax Appeal was dismissed. In conclusion, the High Court upheld the decisions of the CIT [A] and the Tribunal in both issues, ruling in favor of the assessee and dismissing the Tax Appeal.
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