2021 (1) TMI 1242 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - HELD THAT - It is quite evident that, firstly, assessee had own substantial fund for making the investment; and secondly, the assessee had duly explained and demonstrated that the loan funds could not have been utilized for the purpose of investment. Under these circumstances, the disallowance of interest under Rule 8D (2)(ii) cannot be made and has been deleted by the ld. CIT(A). As decided in own case 2018 (5) TMI 1021 - ITAT DELHI assessee has kept all the funds in one common pool, the presumption that the investment has been made from interest bearing funds cannot be appreciated, since for the year under consideration assessee has substantially demonstrated before Ld.CIT(A) regarding sufficient funds being available for investment purposes other than the interest/bearing funds which has not been refuted by Ld. CIT-D.R. CIT(A) has observed that the funds are to be strictly utilised by assessee as per guidelines issued by RBI - submissions advanced by Ld. Counsel regarding there being no details that was filed by assessee in order to demonstrate the non-utilisation of interest bearing funds for the purpose of investments that could yield dividend income. - Decided in favour of assessee.

Summary

Issues:
Disallowance of interest under Rule 8D(2)(ii) for Assessment Year 2011-12.

Analysis:
The appeal was filed by the Revenue against the order passed by CIT(A)-XXXI, New Delhi for the quantum of assessment under section 143(3) for the Assessment Year 2011-12. The main issue revolved around the disallowance of interest amounting to ?18.17 crore under Rule 8D(2)(ii). The assessee, a Multi-State Cooperative Society, had shown dividend income from various companies and a joint venture with another company. The Assessing Officer computed the disallowance under Rule 8D at ?20.49 crore. However, the CIT(A) deleted the disallowance of interest under Rule 8D(2)(ii) based on the substantial own funds available to the assessee and the restrictions imposed by banks on the use of borrowed funds for specific purposes only, excluding investments. The CIT(A) considered the factual position, the law, and the judgments of the jurisdictional High Court, leading to the deletion of the disallowance.

In a similar case for Assessment Year 2009-10, the Tribunal confirmed the findings of the CIT(A) regarding the interest disallowance. The Tribunal observed that the Revenue failed to establish through documentary evidence that interest-bearing funds were utilized for investments. The Tribunal upheld the CIT(A)'s decision to delete the disallowance under Rule 8D(2)(ii) based on the sufficient funds available for investment purposes other than the interest-bearing funds. The Tribunal noted the strict guidelines issued by the RBI and the absence of details proving the utilization of interest-bearing funds for investments that generate dividend income.

Considering the totality of facts and following the principles established in previous judgments, the Tribunal dismissed the appeal of the Revenue. The order pronounced on 25th January 2021 upheld the decision to delete the disallowance of interest under Rule 8D(2)(ii) for the Assessment Year 2011-12, in line with the findings and conclusions drawn from the factual position and legal precedents.