Revenue's Appeal Dismissed in Disallowance Case

The Revenue's appeal against the deletion of disallowance under section 14A of the Act read with Rule 8D was dismissed by the Tribunal. The Commissioner and Tribunal found in favor of the assessee, ruling that the disallowance was not sustainable as the interest paid on borrowed funds was for business activities, not related to investments generating exempt income. Additionally, the Tribunal upheld the Commissioner's decision to allow deduction on account of cess on green leaf, following the Supreme Court's precedent in a similar case. As a result, the Revenue's appeal was dismissed, and the assessee received relief on both issues.

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Issues:
1. Challenge to deletion of disallowance under section 14A of the Act read with Rule 8D.
2. Controversy regarding deduction on account of cess on green leaf.

Analysis:
1. The appeal was filed by the Revenue against the order of the Commissioner of Income Tax (Appeals) challenging the deletion of disallowance under section 14A of the Act read with Rule 8D. The Assessing Officer had made a disallowance of &8377; 92,73,089/- as the assessee's disallowance under section 14A was not computed as per Rule 8D. The assessee contended that the disallowance was not sustainable as the interest paid on borrowed funds was for business activities and not related to investments generating exempt income. The Commissioner found merit in the assessee's submissions and deleted the disallowance after considering that the company had sufficient funds of its own for investments. The Tribunal upheld the Commissioner's decision based on similar findings in a previous year's case, emphasizing that no disallowance could be made if the assessee had sufficient own funds for investments.

2. The second issue involved a controversy regarding the deduction on account of cess on green leaf. The Supreme Court's decision in the case of CIT vs. Apeejay Tea Co. Limited clarified that the deduction on account of cess paid should be allowed while computing the income of tea grown and manufactured under Rule 8D. Following this decision, the Tribunal upheld the Commissioner's order giving relief to the assessee on this issue. Consequently, the Revenue's appeal was dismissed, and the Tribunal pronounced the order in February 2017.

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