2016 (7) TMI 959 - HC - Income Tax

Disallowance of interest expenses u/s 14A - Held that - It is an undisputed position in this case that interest free funds available with the assessee are much more than the investments made to earn exempt incomes as in the case of Reliance Utilities and Power Ltd. (2009 (1) TMI 4 - BOMBAY HIGH COURT ). Thus the presumption applies. Further nothing has been shown to us to warrant taking a different view to that taken in Reliance Utilities and Power Ltd. (supra). In view of the fact that the question as raised stands concluded by the decision of this Court in favour of the respondent assessee

Summary

Issues:
Challenge to order under Section 260A of the Income Tax Act, 1961 regarding interest expenses disallowance under Section 14A.

Analysis:
The appeal challenged the Income Tax Appellate Tribunal's order for Assessment Year 2008-09 regarding the disallowance of interest expenses under Section 14A of the Income Tax Act. The respondent assessee had earned dividend income and share of profit from a partnership firm, both claimed as exempt under Section 10 of the Act. The Assessing Officer disallowed expenses under Section 14A, which was upheld by the Commissioner of Income Tax. The Tribunal observed two elements of disallowance: interest expenses and other expenses under Rule 8D of the Income Tax Rules.

The Tribunal found that the investment leading to exempt income was significantly less than the interest-free funds available with the assessee. Relying on a previous court decision, the Tribunal held that if interest-free funds are sufficient to cover investments, it is presumed that the investments came from interest-free funds. As a result, the Tribunal deleted the addition of interest expenses. However, the Tribunal upheld the disallowance of other expenses under Rule 8D of the Rules for the relevant assessment year.

The Revenue contested the deletion of interest expenses but accepted the decision regarding other expenses. The High Court dismissed the appeal, citing the precedent set by a previous court decision. It was established that the interest-free funds available with the assessee were more than enough to cover the investments made for earning exempt income, aligning with the decision in the previous case. As no new evidence was presented to warrant a different view, the court concluded that no substantial question of law arose for consideration, leading to the dismissal of the appeal without costs.