2015 (10) TMI 2646 - AT - Income Tax

Tribunal rules in favor of assessee on expense disallowance under Income Tax Act

Ganeshay Overseas Industries Ltd Versus The D.C.I.T., Central Circle-1, Chandigarh and vice-versa

Ganeshay Overseas Industries Ltd Versus The D.C.I.T., Central Circle-1, Chandigarh and vice-versa - TMI Issues involved:Disallowance of expenses under section 14A of the Income Tax Act, 1961 - Disallowance of interest expenditure relating to tax-free income - Disallowance of administrative expenses under section 14A of the Act.Analysis:1. The case involved cross-appeals against the order of the Commissioner of Income Tax (Appeals) for the assessment year 2010-11. The Assessing Officer had disallowed Rs. 84,00,560 under section 14A of the Act, invoking Rule 8D of the Income Tax Rules.2. The assessee argued that investments were made from own funds, not borrowed, and the interest expenses claimed were related to taxable income. The Commissioner upheld the disallowance, noting the secured loan from a bank and interest expenses. However, she restricted the disallowance to the extent of exempt income earned.3. The assessee appealed, reiterating that investments were from own funds and interest expenses were linked to taxable income. The Department argued for adherence to Rule 8D for disallowance.4. The Tribunal found that investments were made in earlier years from owned funds, not borrowed, and interest paid during the year was not linked to tax-free income. Relying on a High Court judgment, the Tribunal held no disallowance on interest expenditure could be made.5. Regarding administrative expenses, the Tribunal noted the Assessing Officer's failure to record satisfaction on the claim of no such expenditure by the assessee. Citing jurisprudence, the Tribunal held no disallowance under section 14A could be made in such circumstances.6. Consequently, the Tribunal allowed the assessee's appeal and dismissed the Revenue's appeal. The judgment was pronounced on October 19, 2015.