ITAT upheld claim u/s 14A (of Income Tax Act, 1961) on interest bearing funds not used for investment
ITAT upheld claim u/s 14A (of Income Tax Act, 1961) on interest bearing funds not used for investment
On scrutiny of assessee's return, AO found that assessee had made an investment and paid interest of Rs.13.95 crores on borrowing. Presuming assessee to have utilized borrowed funds for investment, AO applied 15% interest rate of investment, and disallowed amount u/s 14A (of Income Tax Act, 1961). CIT(A) deleted disallowance. ITAT upheld CIT(A)'s order as AO had not established that interest bearing funds were used by assessee for investment, generating tax free income.-501335
1. Aassessee filed its return of income declaring total income at Rs.1994,60,380/-. The case of the assessee was selected for scrutiny assessment and notice under section 143(2) (of Income Tax Act, 1961) was issued and served upon the assessee. On scrutiny of the accounts, it revealed to the AO that the assessee has made an investment of Rs.184,99,364/-. The ld.AO has further observed that the assessee has paid interest of Rs.13.95 crores on the borrowing. He, therefore, presumed that the assessee must have utilized borrowed funds for the purpose of investment. The ld.AO applied 15% interest rate of the investment and worked an amount of Rs.27,74,905/-. He disallowed this amount u/s 14A (of Income Tax Act, 1961).
2. CIT(A) deleted the disallowance.
3. On appeal, the ITAT held as under:
“4. On due consideration of the facts and circumstances of the case, in the light of the above facts, it is discernible that the investment of the assessee has gone down from immediately preceding year. Its reserve and surplus has been increased. The interest free funds are much higher than the investment. Therefore, on proportionate basis interest expenses cannot be allocated to the investment made by the assessee. The ld.CIT(A) has recorded a finding of facts that the AO has not established nexus exhibiting the fact that the interest bearing funds have been used by the assessee for investment, generating tax free income. In view of the above facts, we do not find any merit in the appeal of the Revenue. Consequently, the appeal as well as CO are dismissed.”
Case Reference - ACIT v Prabhudas Kishordas Tobacco Products P.Ltd.
IN THE INCOME TAX APPELLATE TRIBUNAL "C" BENCH, AHMEDABAD
BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND
SHRI MANISH BORAD, ACCOUNTANT MEMBER
ITA.No.2723/Ahd/2012 With CO No.33/Ahd/2013
(Asstt. Year: 2005-2006)
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