2022 (8) TMI 1344 - HC - Income Tax

Disallowance u/s 14A r.w.r. 8D - ITAT held that it was incumbent upon the AO to demonstrate that interest - bearing funds had been utilized for making the investments - HELD THAT - Both the appellate authorities below have given concurrent findings of fact that at the end of the Financial Year 2010-11 the Society s total borrowings was at Rs.11, 352 crore whereas the fund required for making capital and fixed assets stood at Rs.19, 791 crore. The bank had imposed stringent end use condition and limits while sanctioning the loans which were only for specific purposes. There was specific prohibition for the use of the funds for investment in shares of other companies and capital markets. So the borrowed funds could not have been utilised for the investment purposes. It has been noted by both the appellate authorities that there was huge availability of assessee s own surplus funds the details of which were furnished by the assesse. ITAT in the present case has relied on the decision of its coordinate Bench in assessee s own case for the Assessment Year 2009- 10 against which no appeal has been filed - no substantial question of law arises.

Summary

Issues:
- Challenge to the order of the Income Tax Appellate Tribunal (ITAT) for the Assessment Year 2011-12.
- Interpretation of Rule 8D(2)(ii) regarding the disallowance of interest expenditure not directly attributable to any particular income.
- Utilization of borrowed funds for investment purposes.
- Reliance on previous ITAT decision for the Assessment Year 2009-10.

Analysis:
1. The appellant filed an Income Tax Appeal challenging the ITAT's order for the Assessment Year 2011-12. The counsel for the Appellant argued that the ITAT erred in requiring the Assessing Officer to demonstrate the utilization of interest-bearing funds for investments. The counsel contended that Rule 8D(2)(ii) mandates a proportionate disallowance of interest expenditure not directly related to income, as per the formula in the rule.

2. Both appellate authorities found that the Society had significant borrowings at the end of the Financial Year 2010-11, while the funds required for capital and fixed assets exceeded the borrowings. The bank imposed strict conditions on fund usage, prohibiting investment in shares or capital markets. The authorities noted the availability of the assessee's surplus funds, indicating that borrowed funds were not used for investments.

3. The ITAT relied on a previous decision for the Assessment Year 2009-10, where no appeal was filed by the assessee. Considering these factors, the Court concluded that no substantial question of law arose in the present appeal and dismissed the case.

This detailed analysis covers the issues raised in the legal judgment, including the challenge to the ITAT order, interpretation of Rule 8D(2)(ii), utilization of borrowed funds, and reliance on a previous ITAT decision.