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2021 (4) TMI 41 - AT - Income TaxDisallowance u/s.14A on interest - HELD THAT - The Hon'ble Bombay High Court in CIT vs. Reliance Utilities and Power Ltd 2009 (1) TMI 4 - BOMBAY HIGH COURT has held that where an assessee possessed sufficient interest free funds of its own which were generated in the course of relevant financial year, apart from substantial shareholders' funds, presumption gets established that the investments in sister concerns were made by the assessee out of interest free funds and, therefore, no part of interest on borrowings can be disallowed on the basis that the investments were made out of interest bearing funds. Similar view has been taken in CIT vs. Tin Box Company 2002 (11) TMI 75 - DELHI HIGH COURT holding that when the capital and interest free unsecured loan with the assessee far exceeded the interest free loan advanced to the sister concern, disallowance of part of interest out of total interest paid by the assessee to the bank was not justified. More recently, the Hon'ble Supreme Court in CIT (LTU) VS. Reliance Industries Ltd. 2019 (1) TMI 757 - SUPREME COURT has reiterated the same view. When we examine the amount of Investments at ₹ 39.94 crore as against the availability of Share Capital and Reserves at ₹ 397.86 crore, it becomes evident that the amount of such Investments is much less than the amount of shareholders fund. We, therefore, order to delete the disallowance of interest amounting to ₹ 45,16,437/-. Second component of disallowance of interest at half percent of average value of investments - AR did not raise any dispute as to the applicability of 0.5% towards disallowance on the average value of investments. It was, however, requested that only the investments which yielded exempt income should be considered for the purpose of calculation. The Hon'ble Delhi High Court in ACB India Ltd. 2015 (4) TMI 224 - DELHI HIGH COURT has held that the average value of investments, for the purposes of Rule 8D(2)(iii), should be confined to those securities in respect of which exempt income is earned and not the total investments. Similar view has been taken by the Special Bench of the Tribunal in the case of ACIT vs. Vireet Investments (P) Ltd. 2017 (6) TMI 1124 - ITAT DELHI - we set aside the impugned order to this extent and remit the matter to the file of Assessing Officer for recomputing the disallowance under Rule 8D(2)(iii) by considering only such investments in calculating the average value of investments, which yielded exempt income during the year. The assessee will be allowed hearing opportunity in such fresh proceedings. It is further made clear that while computing disallowance u/s.14A, the suo motu disallowance offered by the assessee, to the extent concerning with rule 8D(2)(iii), should be accordingly reduced. Deduction towards Education Cess and Secondary and Higher Education Cess paid u/s. 40(a)(ii) - HELD THAT - We find that this issue is no more res integra in view of the judgment of Hon'ble jurisdictional High Court in Sesa Goa Lt. Vs. JCIT 2020 (3) TMI 347 - BOMBAY HIGH COURT in which it has been held that Education Cess is not disallowable expenditure u/s. 40(a)(ii) of the Act. Similar view has earlier been taken in Chambal Fertilisers and Chemicals Ltd. and Another Vs. JCIT 2018 (10) TMI 589 - RAJASTHAN HIGH COURT . We, ergo, direct to allow deduction for such an amount after verification.
Issues:
1. Disallowance u/s. 14A r.w. Rule 8D(2)(ii) 2. Deduction of Education Cess and Secondary and Higher Education Cess Issue 1: Disallowance u/s. 14A r.w. Rule 8D(2)(ii) The appeal pertains to the assessment year 2014-15 and involves the disallowance u/s. 14A of the Income-tax Act, 1961. The Assessing Officer (AO) observed that Rule 8D(2) was not correctly applied by the assessee, leading to a disallowance of interest and other expenses. The CIT(A) partly allowed the appeal, focusing on the disallowance u/s. 14A. The Tribunal examined the case, considering the balance sheet of the assessee company and relevant legal precedents. It was noted that the investments were much less than the shareholders' funds, leading to the deletion of the disallowance of interest amounting to ?45,16,437. The Tribunal also addressed the disallowance of interest at half percent of the average value of investments, directing the AO to only consider investments yielding exempt income for calculation purposes, in line with legal precedents. Issue 2: Deduction of Education Cess and Secondary and Higher Education Cess The second issue raised in the appeal concerns the deduction of Education Cess and Secondary and Higher Education Cess paid for the relevant year. The Tribunal referred to a judgment by the jurisdictional High Court, which held that Education Cess is not disallowable expenditure u/s. 40(a)(ii) of the Act. Additionally, a similar view was taken by another High Court. Consequently, the Tribunal directed to allow the deduction for the mentioned amount after verification. The appeal was partly allowed based on these considerations. In conclusion, the Tribunal's judgment addressed the issues of disallowance u/s. 14A and the deduction of Education Cess and Secondary and Higher Education Cess. The decision was based on a thorough analysis of the facts, legal provisions, and relevant judicial precedents, ensuring a fair and just outcome for the assessee.
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