Interest bearing fund can be invested in share of another company and the expenditure on investment can not be disallowed under sec 14A

Last updated: 28 December 2011

Court :
INCOME TAX APPELLATE TRIBUNAL

Brief :
Facts of the case in brief are that the A.O. during the course of assessment proceedings noted that the assessee has earned exempt dividend income of Rs. 4,63,50,000/- on investments made. He noted that the assessee has borrowed interest bearing funds and has invested in shares and securities. Therefore, he was of the opinion that the assessee satisfies all the conditions for disallowance of expenses attributable for earning of exempt income u/s 14A of the Act. On being confronted by the A.O. it was submitted by the assessee that it has suo motu disallowed an amount of Rs. 47,99,527/- u/a 14A. The assessee filed detailed break-up of amount borrowed and amount invested and tried to prove the nexus of borrowed funds utilized for giving loans and advances. It was explained that the expenditure of Rs. 47,99,527/- has been directly incurred in relation to investment in shares of Adlabs Films Ltd. And balance interest of Rs. 8,39,12,877/- is directly incurred in relation to loan given to Swan Consultants Ltd. on which taxable interest has been received. It was accordingly submitted that no disallowance u/s 14A read with rule 8D2(ii) can be resorted to. However, the A.O. was not satisfied with the explanation given by the assessee and calculated the disallowance u/s 14A r.w. Rule 8D at Rs. 4,15,71,862/-. After deducting interest expenditure of Rs. 47,99,527/- disallowed by the assessee, the A.O. made an addition of Rs. 8,31,91,23,665/-.

Citation :
ACIT – 7(2),R. No. 624, Aayakar Bhawan, M.K. Road, Mumbai – 20.Appellant Vs.M/s Reliance Land Pvt. Ltd.,6th Floor, Nagin Mahal,82 Veer Nariman Road, Churchgate, Mumbai 400 020.PAN AAACR 2367J Respondent