2019 (1) TMI 1535 - HC - Income Tax

Disallowance on account of proportionate interest u/s 14A r.w.r. 8d(2)(ii) - sufficiency of own funds - Tribunal deleted the addition - Held that - Investment made in shares which gave rise to exempt income was made out of its own funds and not out of borrowed funds i.e. interest bearing funds. In such a case this Court in CIT Vs. HDFC bank Vol. 2014 (8) TMI 119 - BOMBAY HIGH COURT has in identical circumstances held that the principle laid down in Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT would equally apply while computing the disallowance under Section 14A of the Act. - Decided against revenue

Summary

Issues:
Challenge to order under Section 260A of the Income Tax Act, 1961 related to Assessment Year 2008-09; Disallowance of proportionate interest under Section 14A r.w.r. 8d(2)(ii) by the Tribunal.

Analysis:
The appeal under Section 260A of the Income Tax Act, 1961 challenged the order passed by the Income Tax Appellate Tribunal (the Tribunal) related to Assessment Year 2008-09. The Revenue raised a question regarding the deletion of disallowance on account of proportionate interest under Section 14A r.w.r. 8d(2)(ii). The respondent-assessee, a non-banking finance company, claimed exempt dividend income in its return for the Assessment Year 2008-09 and made a suo-moto disallowance of expenditure. However, the Assessing Officer disallowed expenditure under Section 14A of the Act r/w Section 8D(2)(ii) of the Rules, resulting in a substantial disallowance of &8377; 8.39 crores, including interest paid to the extent of &8377; 7.87 crores.

The respondent appealed to the Commissioner of Income Tax (Appeals) (CIT(A)), who deleted the disallowance of proportionate interest paid on borrowed funds. The Revenue then appealed to the Tribunal, which found that the investments generating exempt income were made from the company's own funds, not borrowed funds. The Tribunal relied on a previous court decision to uphold the CIT(A)'s decision, leading to the dismissal of the Revenue's appeal.

Both the CIT(A) and the Tribunal concurred that the investments leading to exempt income were made from the company's own funds, not borrowed funds. The Court referred to a previous judgment to support this finding, stating that the principle applied while computing disallowance under Section 14A. Consequently, the Court found no fault with the Tribunal's order dated 5th August, 2015.

The Court concluded that the proposed question did not raise any substantial legal issue and, therefore, dismissed the tax appeal without any order as to costs.