2011 (11) TMI 816 - AT - Income Tax

Summary

Issues involved:
Cross-appeals by assessee and Revenue challenging order on disallowance u/s 14A for interest expenses in investment in shares of M.P. Power Generating Company.

Assessee's Appeal:
- Assessee challenges disallowance u/s 14A for interest expenses on investment in shares of M.P. Power Generating Company.
- Assessee argues direct nexus of interest free funds and investment, no disallowance u/s 14A required.
- Assessee contends no dividend income earned, hence no disallowance u/s 14A warranted.
- Tribunal finds direct nexus between investment and share capital contributed by state Govt., upholds assessee's appeal.

Revenue's Appeal:
- Revenue contests disallowance u/s 14A on investment in shares of M.P. Power Generating Company.
- Assessing Officer justifies disallowance towards interest expenses.
- Tribunal notes investment in shares by state Govt. and SIDBI, disallows proportionate interest claimed u/s 14A.
- Tribunal rules no disallowance needed as direct nexus between investment and share capital contributed by state Govt.

Assessee's Cross-Appeal:
- Assessee aggrieved by direction for remaining investment on plea of lack of relevant documents.
- Tribunal finds details of investment available, questions if amount was borrowed or share capital.
- Tribunal holds burden on Revenue to prove interest bearing funds were invested in shares, which was not discharged.
- Assessee's appeal allowed as investment in shares for business operation/commercial expediency.

Conclusion:
- Revenue's appeal dismissed, assessee's appeal allowed.
- Order pronounced in open court in presence of both sides' representatives.