2016 (3) TMI 312 - AT - Income Tax

Disallowance u/s 14A r.w. Rule 8D - Held that - Hon ble Jurisdictional High Court in the case of CIT v. HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT has laid down the proposition that, if the assessee s capital, profits, reserves and surplus and current account deposits are higher than the investments in tax free securities, then it would be presumed that the investments made by the assessee would be out of interest free funds available with the assessee. Respectfully following the decision of the Hon‟ble Bombay High Court in the case of HDFC Bank Ltd. (supra) and of the co-ordinate bench in the case of Centrum Direct Ltd. 2016 (3) TMI 233 - ITAT MUMBAI , we concur with the contention of the assessee that no disallowance of interest can be made u/s 14A r.w. Rule 8D of the Act. - Decided in favour of assessee

Summary

Issues involved:
Cross appeals by Revenue and Assessee against CIT(Appeals) order for Asst. Year 2009-10.

Assessee's Appeal:
1. Disallowance u/s 14A read with Rule 8D.
- Assessee argued investments made from own funds, no disallowance warranted.
- CIT(A) upheld disallowance, citing Reliance Utilities & Power Ltd. case.
- Assessee claimed investments made from share capital and reserves, no interest disallowance.
- Tribunal referred to HDFC Bank Ltd. and Centrum Direct Ltd. cases, agreed with assessee, no interest disallowance.
- Disallowance u/s 14A r.w. Rule 8D(2)(iii) upheld, certain investments excluded.

Revenue's Appeal:
1. General opposition to CIT(A) order.
2. Disallowance u/s 14A r.w. Rule 8D.
- Revenue challenged exclusion of foreign company investments and share application money from disallowance.
- Tribunal upheld exclusion based on Strides Arcolab Ltd. case, investments not generating exempt income.
- Dismissed Revenue's appeal, directed to re-compute disallowance.

In conclusion, Assessee's appeal partly allowed, Revenue's appeal dismissed. Tribunal upheld disallowance u/s 14A r.w. Rule 8D(2)(iii) while excluding certain investments. The judgment was pronounced on 29th January, 2016.