2019 (11) TMI 358 - AT - Income Tax

Disallowance u/s 14A read with rule 8D - HELD THAT - Overdraft account balance before outflow of the fund for investment was ₹ 11.99 crores and after outflow, it was increased to ₹ 14.99 crores and thus investment of ₹ 3 crores, was made out of interest-bearing overdraft account. This finding of the fact has not been rebutted by the assessee before us. When there is a direct evidence that investment has been made out of borrowed fund, there is no requirement to refer to the presumption that investment was made out of interest free funds generated or available with the company. In view of the finding that investment was made out of borrowed funds, the learned CIT(A) computed the disallowance under Rule 8D Hon ble Delhi High Court in the case of Joint Investment Private Limited 2015 (3) TMI 155 - DELHI HIGH COURT he restricted the disallowance to the amount of exempted dividend income of ₹ 7,50,000/-. In view of clear finding that investment in the shares was made out of borrowed funds, the request of the assessee to remit the matter back to the Assessing Officer for deciding in view of the assessment for assessment year 2013-14 is rejected. CIT(A) on the issue in dispute is well reasoned and we do not find any error in the same. Accordingly, we uphold the finding of the learned CIT(A) on the issue in dispute. The ground of the appeal of the assessee is accordingly dismissed.

Summary

Issues involved:
Disallowance under section 14A of the Income Tax Act, 1961 for assessment year 2012-13.

Detailed Analysis:
1. The Assessing Officer made a disallowance of &8377; 9,59,850 under section 14A of the Act read with rule 8D of Income Tax Rules, 1962, due to lack of explanation regarding expenditure related to exempt income. The disallowance was later rectified to &8377; 9,59,850 in an order under section 154 of the Act.
2. The assessee appealed to the CIT(A), who restricted the disallowance to &8377; 7,50,000, following a decision of the Delhi High Court.
3. The assessee argued that no borrowed funds were used for share investment and requested a reduction in disallowance to &8377; 75,000, as done in a subsequent assessment year.
4. The CIT(A) found that the investment in shares was made from an overdraft account, indicating a direct nexus between borrowed funds and the investment.
5. The CIT(A) computed the disallowance under Rule 8D to &8377; 42,59,850 but restricted it to &8377; 7,50,000 based on judicial precedents.
6. The Tribunal upheld the CIT(A)'s decision, stating that the investment was made from borrowed funds, justifying the disallowance of &8377; 7,50,000. The request to remit the matter back to the Assessing Officer was rejected.

This detailed analysis covers the issues involved in the legal judgment comprehensively, outlining the arguments presented by the parties and the reasoning behind the final decision.