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2016 (10) TMI 1270 - AT - Income Tax


Issues:
1. Disallowance of expenses under Section 14A of the Income Tax Act, 1961.
2. Disallowance of interest on loan not utilized for business purpose.

Issue 1: Disallowance of expenses under Section 14A:
- The Assessing Officer (AO) disallowed expenses incurred in earning exempt dividend income of ?83,13,550 under Section 14A read with Rule 8D, amounting to ?1,20,82,774.
- The CIT(A) held that the disallowance cannot exceed the exempt income earned, relying on legal pronouncements and the decision of Hon'ble ITAT, Chandigarh.
- The CIT(A) restricted the disallowance to ?83,13,550, aligning with the dividend income earned by the appellant during the assessment year.
- The Tribunal dismissed the Revenue's appeal, citing the decision of the Delhi High Court that the disallowance under Section 14A cannot exceed the exempt dividend income.

Issue 2: Disallowance of interest on loan not utilized for business purpose:
- The AO disallowed interest expenses of ?8,62,668 on a pro-rata basis, as the funds were not used for the business purpose of the appellant.
- The CIT(A) deleted the disallowance, considering the main business activities of the appellant, including dealing in shares, leasing, and finance, and investments.
- The Tribunal upheld the CIT(A)'s decision, stating that the distinction made by the AO regarding the use of borrowed funds for investments in unlisted companies was not proper.

In conclusion, the Tribunal upheld the CIT(A)'s decision in both issues, dismissing the Revenue's appeal and allowing the appellant's contentions regarding the disallowances under Section 14A and interest on loans not utilized for business purposes.

 

 

 

 

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