2011 (12) TMI 743 - AT - Income Tax

Summary

Issues involved: Appeal against order restricting disallowance u/s 14A of the Income Tax Act for A.Y. 2007-08.

Summary:
The Revenue challenged the CIT(A)'s decision to limit the disallowance u/s 14A to &8377; 47,99,527/- instead of &8377; 3,67,72,335/- as determined by the Assessing Officer (A.O.). The A.O. found that the assessee earned exempt dividend income and had borrowed interest-bearing funds for investments. The assessee claimed to have voluntarily disallowed &8377; 47,99,527/- u/a 14A, providing a breakdown of borrowed and invested amounts to show a direct nexus. However, the A.O. disagreed, calculating the disallowance at &8377; 4,15,71,862/-. The CIT(A) reviewed the case, noting a one-to-one nexus between interest paid and received, and ruled in favor of the assessee, deleting the A.O.'s addition. The ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal.

The ITAT found that the assessee demonstrated a clear link between interest paid to lenders and received from borrowers, supporting the claim that only the interest paid on funds borrowed from Sonata Investments P. Ltd. for investing in exempt income-generating shares could be disallowed u/s 14A. As there was no evidence to refute the CIT(A)'s factual findings on the nexus between interest payments and receipts, the ITAT upheld the CIT(A)'s decision, dismissing the Revenue's appeal.