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2023 (8) TMI 427 - AT - Income TaxDisallowance of expenses pertaining to earning of exempt income as per section 14A - scope of sufficiency of own funds - HELD THAT - CIT(A) correctly deleted the disallowance of interest u/s 14A noting the fact that own interest free funds of the assessee by way of share capital and Reserves which was far in excess of investments made and in earlier years identical disallowance was deleted finding sufficiency of own funds for making investment. Disallowance of interest expenses not incurred for business purpose as per section 36(1)(iii) - Also the disallowance of interest u/s 36(1)(iii) on account of capital advances was deleted by the Ld.CIT(A) following the same reasoning of availability of sufficient own funds for making the advances. This finding of fact by the Ld.CIT(A) of availability of sufficient own funds for making investments/advances has not been controverted by the Revenue before us. Also, it is settled law that where sufficient own funds are available, presumption is that own funds have been used for the purpose of making the advances/investments, calling for no disallowance of interest whether u/s 14A or under section 36(1)(iii) of the Act. See Reliance Industries Ltd. 2019 (1) TMI 757 - SUPREME COURT Assessee appeal allowed.
Issues Involved:
1. Disallowance of expenses under section 14A of the Income Tax Act, 1961. 2. Disallowance of interest expenses under section 36(1)(iii) of the Income Tax Act, 1961. Summary of Judgment: Issue 1: Disallowance of Expenses under Section 14A The Revenue appealed against the deletion of a disallowance of Rs. 13,84,018/- under section 14A, which included: - Interest expenses amounting to Rs. 12,96,174/- computed as per Rule 8D(2)(ii). - Administrative expenses amounting to Rs. 87,844/- computed as per Rule 8D(2)(iii). The CIT(A) deleted the disallowance, noting that the assessee had sufficient interest-free funds for making investments. The investments in question were in shares of GSCSC Ltd. and advances to a partnership firm, with income from these investments being exempt under sections 10(2A) and 10(38) of the Act. The CIT(A) relied on the decision of the Hon'ble Bombay High Court in CIT Vs. Reliance Utilities & Power Ltd., 313 ITR 340 (Bom), which established that if sufficient interest-free funds are available, it is presumed that such funds were used for investments. Issue 2: Disallowance of Interest Expenses under Section 36(1)(iii) The Revenue also appealed against the deletion of disallowance of Rs. 1,54,69,412/- and Rs. 13,10,618/- under section 36(1)(iii), which pertained to: - Advances to related parties amounting to Rs. 1,54,69,412/-. - Advances for capital assets amounting to Rs. 13,10,618/-. The CIT(A) deleted these disallowances, noting the sufficiency of the assessee's own interest-free funds amounting to Rs. 40,50,89,897/-, which were far in excess of the advances made. The CIT(A) followed his order from the preceding year, which had also deleted similar disallowances, citing the same rationale and relying on the decision in Reliance Utilities & Power Ltd. The CIT(A) also noted that the advances were for business purposes and thus did not warrant disallowance under section 36(1)(iii). Conclusion: The Tribunal upheld the CIT(A)'s findings, noting that the Revenue did not controvert the CIT(A)'s finding of sufficient own funds available for making the investments/advances. The Tribunal reiterated that when sufficient own funds are available, it is presumed that such funds are used for investments/advances, negating the need for disallowance under sections 14A or 36(1)(iii). The appeal by the Revenue was dismissed. Order Pronounced: 22nd March, 2023 at Ahmedabad.
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