Only net interest expenses to be considered for the purpose of making disallowance u/s.14A of the Income Tax Act,1961

Last updated: 06 January 2021

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This Income Tax Appellate Tribunal ruling clarifies that for disallowances under Section 14A of the Income Tax Act, 1961, only net interest expenses should be considered. The case involved an assessee who argued that interest paid on borrowings, which were then advanced to parties for interest income (offered for tax), should be adjusted against the interest received. The tribunal's decision focuses on the principle of considering net interest expenses in such scenarios.

Court :
ITAT Chennai

Brief :
This appeal filed by the assessee is directed against the order of the learned CIT(Appeals)-8, Chennai dated 06.02.2019 and pertains to assessment year 2015-16.

Citation :
I.T.A.No.1018/Chny/2019

IN THE INCOME TAX APPELLATE TRIBUNAL ,
‘C’ BENCH, CHENNAI

BEFORE SHRI V.DURGA RAO, JUDICIAL MEMBER
AND SHRI G. MANJUNATHA, ACCOUNTANT MEMBER

I .T.A.No.1018/Chny/2019
Assessment Year : 2015-16)

M/s. Mint Properties Pvt.Ltd..,
122, Broadway,
Chennai -600 108.
PAN: AAACM 5348Q
Appellant

The Income Tax Officer,
Corporate Ward-4(1)
Chennai.
Respondent

Appellant by : Mr. M.Karunakaran, Advocate
Respondent by : Mr. G.Johnson, Addl.CIT
Date of hear ing : 17.12.2020
Date of Pronouncement : 31.12.2020

O R D E R

PER G. MANJUNATHA, AM:

This appeal filed by the assessee is directed against the order of the learned CIT(Appeals)-8, Chennai dated 06.02.2019 and pertains to assessment year 2015-16.

2. The assessee has raised the following grounds of appeal:-

“1. The learned Commissioner of Income-tax Appeals) erred in confirming the disallowance of Rs.16,23,470/- made under section 14A of the Act.

2. The authorities below erred in taking the interest paid of Rs.10,76,939/- as attributable to investments in the firms, the share income from which is exempt from taxu/s 10(2A) of the Act for disallowance u/s 14A r/w Rule 8D(2)(ii).

3 The authorities below should have seen that the borrowals on which interest was paid were directly advanced to various parties for interest and such interest of Rs. 27,62,380/- was offered for tax as income.

4. The appellant submits that there is a direct nexus between the borrowals and advances/loans given and therefore the interest paid has to be adjusted against the interest received and offered for tax.

To know more in details find the attachment file

FAQ :

The judgement clarifies that only net interest expenses are to be considered when making disallowances under Section 14A of the Income Tax Act, 1961.

The judgement specifically discusses interest expenses incurred by the assessee.

The judgement suggests that if borrowed funds on which interest is paid are advanced to others and that interest income is offered for tax, the interest paid should be adjusted against the interest received.

It means that the calculation for disallowances under Section 14A should account for the net effect of interest paid and interest received, rather than the gross interest paid.

This appeal relates to the assessment year 2015-16.