2021 (2) TMI 1298 - AT - Income Tax

Disallowance u/s 14A - assessee offered a suo-motu disallowance towards the expenditure to earn dividend income - As specifically contended before the AO and the ld. CIT(A) that no borrowed funds were utilized for the purpose of making the investments which yielded the dividend income for the year under consideration - HELD THAT - The lower authorities without considering the submissions made in proper perspective had proceeded to make the disallowance. On perusal of the material it is clear that no borrowings were utilized for the purpose of making the investments which yielded the dividend income. The borrowings shown in the books of account were made for specific purpose. In the absence of evidence to the contrary, it cannot be presumed that the borrowed funds have been utilized for the purpose of making the investments which yielded the dividend income. Therefore, we are of the considered opinion that no further disallowance u/s 14A of the Act is warranted. Accordingly, we direct the Assessing Officer to delete the addition made u/s 14A of the Act. Appeal of assessee allowed.

Summary

Issues:
Computation of disallowance under section 14A of the Income Tax Act, 1961.

Analysis:
The appellant, a firm engaged in manufacturing automotive components, filed an appeal against the order of the ld. Commissioner of Income Tax (Appeals) for the assessment year 2012-13. The dispute arose due to a disparity between the returned income and the assessed income, primarily on account of an addition made under section 14A of the Act. The Assessing Officer invoked Rule 8D of the Income Tax Rules, 1962, to compute the disallowance, which was confirmed by the ld. CIT(A). The appellant contended that no borrowed funds were utilized for investments yielding dividend income, and made a suo-motu disallowance of a certain amount towards expenditure for earning dividend income.

The main issue in the appeal was the computation of the disallowance under section 14A of the Act. The appellant argued that no borrowed funds were used for investments generating dividend income during the relevant year. It was emphasized that the borrowings shown in the books of account were for specific purposes, and there was no evidence indicating the use of borrowed funds for dividend-yielding investments. Relying on the material presented, the tribunal concluded that no further disallowance under section 14A was justified. Consequently, the tribunal directed the Assessing Officer to delete the addition made under section 14A of the Act.

In conclusion, the tribunal allowed the appeal of the assessee, highlighting that no additional disallowance under section 14A was warranted based on the absence of evidence indicating the utilization of borrowed funds for investments yielding dividend income. The tribunal's decision focused on the specific facts and submissions made by the appellant, ultimately leading to the deletion of the disputed addition under section 14A of the Income Tax Act, 1961.