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2016 (8) TMI 1089 - HC - Income TaxAddition made on account of interest paid on Bank OD and unsecured loan - ITAT deleted the addition - Held that - We find that the impugned order records the fact that the interest free advances made by the respondent assessee to its sister concern was to the extent of ₹ 28.67 crores at a time when it had its own interest free funds available to the extent of ₹ 41.84 crores. Therefore, in view of the decision of this Court in Commissioner of Income Tax Vs. Reliance Utility and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT wherein it is held that if both interest free funds and interest bearing funds are available, then a presumption arises that investments / advances have been made out of interest free funds, the disallowance of interest payment of ₹ 46.84 lakhs made to the bank was deleted. This was since interest free advances are much less than the interest free funds available with the respondent assessee giving rise to the presumption as laid down in Reliance Utility Power Ltd. (supra). - No substantial question of law - Decided against revenue Disallowance u/s 14A - ITAT restricting the disallowance only to the extent of 5% of dividend income arbitrarily - Held that - Disallowance made by the CIT(A) at 5%, the exempt dividend income is reasonable. - Decided against revenue
Issues:
1. Challenge to the order of the Income Tax Appellate Tribunal for Assessment Year 2007-08. 2. Justification for deleting the addition made on account of interest paid on Bank OD and unsecured loan. 3. Justification for restricting the disallowance under Section 14A to 5% of dividend income. Analysis: Issue 1: Challenge to the Tribunal's Order The High Court considered an appeal challenging the order dated 10th May, 2014 passed by the Income Tax Appellate Tribunal (the Tribunal) for Assessment Year 2007-08 under Section 260A of the Income Tax Act, 1961. Issue 2: Interest Payment Disallowance Regarding the first question raised by the Revenue, the Court noted that the impugned order deleted the addition made on account of interest paid on Bank OD and unsecured loan. The Court referred to a decision in Commissioner of Income Tax Vs. Reliance Utility and Power Ltd. where it was held that if both interest-free funds and interest-bearing funds are available, a presumption arises that investments/advances have been made out of interest-free funds. Since the interest-free advances were significantly less than the interest-free funds available with the assessee, the disallowance of interest payment was deleted by the Tribunal, following the precedent set by the mentioned case. Issue 3: Disallowance under Section 14A Regarding the second question raised, the Assessing Officer disallowed an expenditure under Section 14A of the Act. However, the CIT(A) held that Rule 8D cannot be invoked for the relevant assessment year based on a decision in Godrej and Boyce Manufacturing Ltd. Vs. Dy. Commissioner of Income Tax. The CIT(A) then disallowed the expenditure to the extent of 5% of the dividend earned, which was upheld by the Tribunal. The Tribunal considered the 5% disallowance as reasonable, citing previous cases where a 2% disallowance was also deemed reasonable. Consequently, the Court found no substantial question of law in this regard and did not entertain the issue. In conclusion, the High Court dismissed the appeal, upholding the Tribunal's order on both issues. No costs were awarded in the matter.
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