2013 (5) TMI 611 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - CIT(A) deleted the addition - Held that - The assessee was having total interest free income of 1,10,59,410/- whereas the investment in shares was of Rs. 1,06,00,670/-. Thus the interest free funds available with the assessee were in excess of the investment made in shares from which dividend income which is exempt in nature were received. CIT(A)found after perusal of the assessment orders of earlier years that there was no disallowance of interest by the assessing officer in the earlier years on the basis of which an inference could be drawn that the interest bearing funds of all the earlier years have been utilized for making investment in shares which has generated exempt income and thereby raised the issue of disallowance u/s 14A. In the light of these undisputed facts of CIT(A) had held that this was not a fit case in which provisions of section 14A were attracted placing reliance on the decision of CIT vs. M/s Lubi Submersibles Ltd 2011 (7) TMI 519 - Gujarat High Court wherein held that there was a sufficient surplus fund available with the assessee to invest and there was no nexus that could be established with the expenditure incurred by the assessee for earning the dividend income. In favour of assessee.

Summary

Issues:
Appeal against order of Ld. CIT(A)-VIII Ahmedabad regarding deletion of addition under Section 14A read with Rule 8D of the Act.

Analysis:
The Revenue's appeal challenged the deletion of an addition made by the Assessing Officer under Section 14A read with Rule 8D of the Act. The primary issue was whether the assessee had established the utilization of interest-free funds for investment in exempted sources. The Assessing Officer disallowed an amount by applying Rule 8D and added it to the assessee's income. The assessee contended that interest-free funds exceeded investments in shares generating exempt income. The Ld. CIT(A) considered the submissions and deleted a portion of the disallowance. The Revenue appealed against the deletion of a specific amount.

The core contention revolved around the nexus between interest-free funds and their utilization in investments yielding exempt income. The assessee argued that interest-free funds exceeded investments in shares, indicating no diversion of interest-bearing funds. The Ld. CIT(A) analyzed the balance sheet details, noting reductions in loans and advances, and increased current liabilities. The Ld. CIT(A) relied on the absence of interest disallowance in previous years to support the assessee's position. The decision rested on whether the provisions of Section 14A were applicable based on the available facts and past assessments.

The Ld. CIT(A) referenced the decision in CIT vs. M/s Lubi Submersibles Ltd, emphasizing the Tribunal's findings on the treatment of funds and the absence of a nexus between expenditure and dividend income. The Tribunal concluded that there was no evidence of interest expenditure related to dividend income or the utilization of borrowed funds for share investments. The decision highlighted the sufficiency of free funds for investments and upheld the Tribunal's reasoning. Consequently, the Ld. CIT(A) upheld the deletion of the disallowance, citing the precedent and the lack of material to support a different view.

Ultimately, the Tribunal found no fault in the Ld. CIT(A)'s order and dismissed the Revenue's appeal. The decision was based on the established facts, the absence of a nexus between funds and investments, and the precedent set by the Tribunal and the High Court of Gujarat. The order of the Ld. CIT(A) was upheld, concluding the legal proceedings regarding the addition under Section 14A read with Rule 8D of the Act.