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2015 (7) TMI 775 - AT - Income TaxDisallowance made u/s 14A - Held that - The assessee was having its own interest free funds which is morethan the investments in question. Further, there was no disallowance on account of interest expenditure u/s 14A for the earlier assessment years. We note that the AO has took the opening balance of investments at 9.30 Crores and closing at 14.85 Crores therefore, keeping in view of the availability of assessee s own fund we find that the assessee has established the claim that the no borrowed funds was used for the purpose of investments. Therefore, disallowance by the AO on interest expenditure u/s 14A is not justified. Accordingly, we delete the disallowance made by the AO u/s 14A on account of interest expenditure. Disallowance of the general administrative expenses under rule 8D(2)(iii) - AO has computed the disallowance being 0.5% of the average investments - Held that - It is not disputed that the assessee has received dividend income on which the expenditure incurred by various venture capital funds has already been disallowed and the amount received by the assessee is net amount. Therefore, for the purpose of disallowance u/s 14A expenditure already disallowed from the dividend income prior to the allocation to the assessee is required to be taken into account. In the facts and circumstances of the case, we direct the AO to re-compute the disallowance by reducing the amount of expenditure already disallowed from the dividend income from the amount worked out by the AO at ₹ 6,04,000/-. - Decided partly in favour of assessee.
Issues Involved:
1. Disallowance under Section 14A of the Income Tax Act. 2. Utilization of borrowed funds for investments. 3. Disallowance of administrative expenses under Rule 8D(2)(iii). Detailed Analysis: 1. Disallowance under Section 14A of the Income Tax Act: The primary issue raised by the assessee pertains to the disallowance made under Section 14A of the Income Tax Act, 1961. The assessee argued that the provisions of Section 14A were not applicable in their case as they had not incurred any expenditure to earn the exempt income. The Assessing Officer (AO) did not accept this contention and made a disallowance under Section 14A read with Rule 8D, which was upheld by the Commissioner of Income Tax (Appeals) [CIT(A)]. 2. Utilization of Borrowed Funds for Investments: The assessee, an asset management company, contended that it had sufficient own funds for making the investments and had not utilized any borrowed funds. The AO, however, made a disallowance on account of interest expenditure, assuming the utilization of borrowed funds. The CIT(A) also concurred with the AO, stating that the assessee had not produced a certificate from the bank confirming the utilization of the loan for the stated purpose. The Tribunal found that the AO had not examined the availability of the assessee's own funds and that the CIT(A) had not conducted further enquiry to verify the utilization of the loan. The Tribunal noted that the assessee had produced loan sanction letters and other evidence to support its claim. 3. Disallowance of Administrative Expenses under Rule 8D(2)(iii): The AO computed the disallowance of administrative expenses under Rule 8D(2)(iii) as 0.5% of the average investments. The assessee argued that the exempt income received was net of expenses already disallowed under Section 14A by the venture capital funds. The Tribunal directed the AO to re-compute the disallowance by reducing the amount of expenditure already disallowed from the dividend income. Conclusion: The Tribunal concluded that the disallowance under Section 14A on account of interest expenditure was not justified as the assessee had sufficient own funds for the investments. The Tribunal deleted the disallowance made by the AO on interest expenditure. Regarding administrative expenses, the Tribunal directed the AO to re-compute the disallowance by considering the expenses already disallowed by the venture capital funds. The appeals for both assessment years were allowed in part, with specific directions for re-computation of disallowance on administrative expenses. Pronouncement: The judgment was pronounced in the open Court on 17th July 2015.
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