Tribunal rules no disallowance under section 14A of Income Tax Act.

The Tribunal allowed the appeal of the assessee, ruling that no disallowance was warranted under section 14A of the Income Tax Act, 1961, as there was no exempt income earned during the relevant assessment year. The Tribunal set aside the lower authorities' orders and confirmed that the investments were made from own funds, thus no interest disallowance was justified. The decision was pronounced on 29th May 2019.

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Issues:
Disallowance of interest under section 14A r.w.s. 36 of the Income Tax Act, 1961 for Assessment Year 2012-13.

Analysis:
The appeal was filed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance of interest under section 14A r.w.s. 36 of the Income Tax Act, 1961. The Assessing Officer found that the assessee had made investments in shares of sister concerns and other business concerns, borrowing funds and paying interest. The assessee claimed the investments were made from own funds and thus no interest should be disallowed. The AO, however, disallowed interest relating to investments at a certain amount. The CIT(A) upheld the AO's order, leading to an appeal before the Tribunal.

The assessee argued that investments were made from own funds, hence no disallowance was warranted. Additionally, since no dividend income was received during the year, disallowance under section 14A was not applicable. The Tribunal considered the arguments and the material on record. It noted that the AO accepted the opening balance of own funds but rejected advances received without a written agreement. However, as the AO did not suspect the genuineness of the funds, there was no basis for disallowance under section 36(1)(iii) for diversion of funds.

Regarding section 14A, the Tribunal referred to a previous case where it was held that in the absence of exempt income, no disallowance was warranted. Since the assessee did not earn any dividend income, the Tribunal found no grounds for disallowance under section 14A. The Tribunal cited precedent cases to support its decision. Consequently, the Tribunal allowed the appeal of the assessee, setting aside the orders of the lower authorities and confirming that no disallowance was required under section 14A due to the absence of exempt income.

In conclusion, the Tribunal allowed the appeal of the assessee, emphasizing that in the absence of exempt income, no disallowance was justified under section 14A of the Income Tax Act, 1961. The order was pronounced on 29th May 2019.

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