2009 (10) TMI 56 - HC - Income Tax

Disallowance u/s 14A interest on loan from bank interest free advances - CIT (A) arrived at a finding that on the last date of accounting year the investment was only Rs.80, 000/-. Another finding of fact which was recorded was that the investment was made in the preceding year and no part of investments were correlated with the borrowed funds. The CIT found that investment made in Zurich India Top 200 funds was advances from the loan and therefore only to this extent the interest could be disallowed under Section 14A of the Act - ITAT confirmed the order of CIT(A) held that - no question of law much less substantial question of law arises for consideration appeal dismissed.

Summary

Issues:
1. Disallowance of interest on advances made by the assessee.
2. Disallowance of expenses under Section 14A of the Income Tax Act.
3. Disallowance of depreciation on flats shared by the assessee with other firms.

Issue 1 - Disallowance of interest on advances made by the assessee:
The Assessing Officer disallowed a sum of Rs.7,13,700/- as interest, considering the interest-free advances made by the assessee. However, the CIT(A) overturned this decision, stating that the advances were made before the loan was taken, and hence not related to the borrowed funds. This was deemed a factual finding, and no question of law arose.

Issue 2 - Disallowance of expenses under Section 14A of the Income Tax Act:
The Assessing Officer disallowed expenses of Rs.10,00,000/- under Section 14A. The CIT(A) found that only a portion of the investment was correlated with borrowed funds, specifically in Zurich Mutual Fund and Zurich India Top 200 Fund. The Tribunal agreed that ad hoc disallowance without evidence was unjustified, and reduced the disallowance to Rs.107510/- based on the actual correlation of investments with borrowed funds.

Issue 3 - Disallowance of depreciation on shared flats:
The Assessing Officer disallowed 50% of the depreciation claimed on flats shared by the assessee with other firms, citing that those firms operated from the same address. However, the CIT(A) clarified that the other firms were actually functioning from a different address. The ITAT confirmed this finding, noting that the disallowance was made without evidence. The Tribunal upheld the CIT(A)'s decision, leading to the conclusion that no substantial question of law arose for consideration.

In conclusion, the court dismissed the appeal, as it found no substantial question of law to be addressed in the case.