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2014 (7) TMI 753 - HC - Income TaxInterest expenses disallowed u/s 36(1)(iii) Held that - The assessee was having interest-free funds far in excess of investments, it can be said that the investments are made out of interest-free funds - the AO was not justified in making additions and/or making disallowance u/s 36(1)(iii) of the IT Act Relying upon CIT v. Reliance Utilities & Power Ltd. 2009 (1) TMI 4 - HIGH COURT BOMBAY - no error and/or illegality has been committed by the Tribunal in deleting the disallowance made by the AO u/s 36(1)(iii) of the IT Act no substantial question of law arises for consideration Decided against Revenue. Interest and other expenses incurred for exempted income u/s 14A Held that - The assessee was having sufficient profit and interest free funds in comparison to the investments and with respect to mutual fund transactions, no interest has been charged by the bank except security transaction tax and considering the above when the deductions u/s 14A of the IT Act was restricted to ₹ 64,909/-, it cannot be said that both CIT(A) and Tribunal have committed any error Relying upon CIT v. Reliance Utilities & Power Ltd. 2009 (1) TMI 4 - HIGH COURT BOMBAY - the order of the Tribunal is upheld Decided against Revenue.
Issues:
1. Disallowance of interest expenditure for different assessment years under section 36(1)(iii) of the Income Tax Act. 2. Disallowance made under section 14A of the Income Tax Act towards interest and other expenses incurred in relation to exempted income. Analysis: Issue 1: Disallowance of Interest Expenditure The appeals involved a common question of law regarding the disallowance of interest expenditure for different assessment years. The Revenue challenged the decisions of the Income Tax Appellate Tribunal (ITAT) to delete the additions made on account of disallowance of interest expenditure. The primary argument was that the assessee failed to establish that investments in mutual funds and interest-free advances were made out of own interest-free funds by furnishing day-to-day cash-flow statements. The ITAT relied on the decision of the Bombay High Court in the case of Reliance Utilities & Power Ltd. to support the deletion of disallowances. The High Court concurred with the ITAT's decision, emphasizing that the interest-free funds exceeded investments, indicating that investments were made out of interest-free funds. The Court found no error in the ITAT's deletion of the disallowances for all the assessment years. Issue 2: Disallowance under Section 14A The additional question in one of the appeals pertained to the disallowance made under section 14A of the Income Tax Act towards interest and other expenses related to exempted income. The CIT(A) had restricted the addition made by the Assessing Officer based on the factual position of the case and the decision of the Bombay High Court in the case of Reliance Utilities & Power Ltd. The ITAT confirmed this decision, limiting the disallowance to a specific amount. The High Court upheld the decisions of the CIT(A) and ITAT, noting that the assessee had sufficient profit and interest-free funds in comparison to investments. The Court found no error in restricting the disallowance under section 14A to the specified amount, agreeing with the lower authorities' conclusions. In conclusion, the High Court dismissed all the tax appeals, ruling in favor of the assessee and upholding the decisions of the ITAT and CIT(A) regarding the disallowances of interest expenditure and under section 14A for the respective assessment years.
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