2017 (8) TMI 661 - HC - Income Tax

Addition u/s 14A - ITAT deleted the disallowance by linking investment to the source of funds for the purpose of excluding interest expenditure from the consideration under Section 14A - Held that - The Tribunal has found that the interest free funds are more than investments. It was observed that the Assessee had sufficient interest free funds to cover the investment. The balance sheet shows that the Assessee has interest free funds amounting to ₹ 14,88,38,332/and the investment of ₹ 9,71,56,751/, which shows that the Assessee was having sufficient interest free funds to make the investment. Considering the factual matrix of the present case, the judgment of this Court in Commissioner of Income Tax vs. Reliance Utilities and Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT ) would squarely apply. The Tribunal has not committed any error in applying the said judgment. - Decided against revenue

Summary

Issues:
Appeal pertains to Assessment Year 2008-09. Error in not upholding disallowance under Section 14A read with Rule 8D. Interpretation of linking investment to source of funds. Application of judgment in Commissioner of Income Tax vs. Reliance Utilities and Power Ltd. regarding interest free funds and investments.

Analysis:

1. The main issue in this case revolves around the disallowance made by the Assessing Officer under Section 14A of the Income Tax Act read with Rule 8D. The Appellant argued that the Tribunal erred in not upholding the disallowance and wrongly linked investment to the source of funds without following the computation method prescribed in Rule 8D. The Tribunal, however, found that the Assessee had sufficient interest free funds to cover the investment, as evidenced by the balance sheet figures.

2. The Respondent relied on the judgment in the case of Commissioner of Income Tax vs. Reliance Utilities and Power Ltd., where it was established that if a company has both interest free funds and loans available, the presumption would be that investments were made from interest free funds if they were adequate to cover the investments. In the present case, the Tribunal found that the Assessee indeed had enough interest free funds to support the investments made, aligning with the principles laid down in the aforementioned judgment.

3. Upon reviewing the Tribunal's decision and the facts of the case, the Court concluded that the judgment in Commissioner of Income Tax vs. Reliance Utilities and Power Ltd. was applicable. The Tribunal did not err in applying the principles established in that case, as it was evident that the Assessee possessed ample interest free funds to justify the investments made. Therefore, the Court dismissed the appeal, stating that no substantial question of law arose from the matter at hand and no costs were awarded.

In summary, the High Court of Bombay upheld the Tribunal's decision regarding the disallowance under Section 14A read with Rule 8D for the Assessment Year 2008-09. The Court found that the Assessee had sufficient interest free funds to cover the investments, in line with the principles established in a previous judgment. As a result, the appeal was dismissed, and no costs were awarded.