2017 (8) TMI 1392 - HC - Income Tax

Addition applying section 14A read with rule 8D - sufficiency of own funds - Held that - As the assessee is possessed of sufficient interest-free funds of its own and in excess of the investment made, then no part of the interest paid on borrowed funds can be disallowed on the basis that investments are made out of the interest-bearing funds under section 14A of the Act. No fault can be found with the impugned order of the Tribunal in following the decision of this court in Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT - Decided in favour of assessee.

Summary

Issues:
Challenge to order of Income-tax Appellate Tribunal regarding addition under section 14A of the Income-tax Act, 1961.

Analysis:
1. The appeal challenges the Tribunal's order dated March 20, 2013, related to the assessment year 2008-09, concerning the addition of ?1,40,06,686 made under section 14A of the Income-tax Act, 1961 read with rule 8D of the Income-tax Rules.

2. The Tribunal allowed the respondent/assessee's appeal against the disallowance of interest expenditure of ?1.40 crores under section 14A of the Act. The order noted that the respondent had non-interest bearing funds exceeding the amount invested in tax-free dividend-earning shares. It also highlighted the interest income and payments made, ultimately dismissing the appeal based on the decision in CIT v. Reliance Utilities and Power Ltd.

3. The Revenue's counsel did not contest that the issue was against them per the decision in CIT v. Reliance Utilities and Power Ltd. However, they referred to a conflicting decision by the Punjab and Haryana High Court in Avon Cycles Ltd. v. CIT. The appeal was adjourned pending the Supreme Court's decision on the Avon Cycles Ltd. case.

4. The Tribunal's order aligned with the decision in CIT v. Reliance Utilities and Power Ltd., emphasizing that if the assessee had sufficient interest-free funds exceeding the investments, no disallowance of interest paid on borrowed funds could be made under section 14A. The Tribunal was not bound by the Punjab and Haryana High Court decision, and the order was deemed appropriate based on the local court's ruling.

5. The substantial question of law was answered in favor of the respondent/assessee, upholding the Tribunal's decision. The appeal was dismissed with no costs awarded.

This detailed analysis covers the issues involved in the legal judgment comprehensively, outlining the arguments presented and the court's reasoning behind the final decision.