Whether interest paid on borrowings will be disallowed u/s 14A if assessee’s own funds and non-interest bearing funds exceeds investment in tax-free securities?

Last updated: 02 August 2014

Court :
Bombay High Court

Brief :
The Respondent-assessee is a bank. In the given case, the Bombay High Court has to decide whether the Tribunal was correct in holding that the investment in tax free securities/investments are represented by assessee's own funds in the shape of share capital and reserves, ignoring the fact that the assessee is a bank involved in transactions of money in various forms and treasury operations is only out of its functions?(B) Whether the ITAT was correct in law in holding that the broken period interest is allowable as a deduction, inspite of the Hon'ble Supreme Court's decision in case of CIT v/s Vijay Bank and Rajasthan High Court's decision in case of Bank of Rajasthan ?(C) Whether the ITAT is right in law in holding that the assessee is entitled for deduction with respect to the diminution in value of the investment and amortization of premium on investment held to maturity on the ground of mandate by RBI guidelines thereby ignoring the decision of the Supreme Court in case of Southern Technologies vs. CIT ? Held that interest interest paid on borrowings will not be disallowed u/s 14A if assessee’s own funds and non-interest bearing funds exceeds investment in tax-free securities.

Citation :
CIT – Appellant – Versus – HDFC Bank Ltd - Respondent