Tribunal rules in favor of assessee, deletes disallowance under section 14A.

The Tribunal ruled in favor of the assessee, deleting the disallowance of Rs. 12,08,801 under section 14A r.w. Rule 8D(2)(ii) related to interest expenditure. The balance sheet demonstrated sufficient own interest-free funds to cover investments, indicating investments were made from non-interest bearing funds. Citing the Jurisdictional High Court precedent, the Tribunal allowed the appeal, pronouncing the order on July 2, 2019.

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Issues:
Disallowance made under section 14A r.w. Rule 8D(2)(ii) of the Act.

Analysis:
The appeal was filed by the assessee against the order of the Commissioner of Income Tax (Appeals)-4, Pune for the assessment year 2012-13. The sole issue raised in the appeal was regarding the disallowance made under section 14A r.w. Rule 8D(2)(ii) of the Act. The assessee, a private limited company engaged in the manufacture and sale of fertilizers, had declared a total income of Rs. 91,36,633 for the relevant assessment year. The Assessing Officer disallowed Rs. 13,52,528 under section 14A r.w. Rule 8D, concerning the exempt dividend income earned by the assessee. The assessee contended that there was no utilization of borrowed funds for investments, as it possessed sufficient own interest-free funds, making any disallowance of interest expenditure unjustified.

During the proceedings, the assessee's representative referred to the balance sheet showing own interest-free funds of Rs. 7,54,94,324 and investments of Rs. 4,25,91,226. The representative argued that previous tribunal decisions had deleted similar disallowances on interest expenditure under Rule 8D(2)(ii) for assessment years 2008-09 and 2010-11. The assessee's contention was supported by citing the law laid down by the Jurisdictional High Court in a specific case. On the contrary, the Department's representative defended the impugned order, but acknowledged that similar issues had been decided in favor of the assessee in previous assessment years.

After hearing both parties and examining the authorities' orders, the Tribunal noted that the balance sheet demonstrated sufficient own interest-free funds to cover the investments, creating a presumption that the investments were made from non-interest bearing funds. Citing the precedent set by the Jurisdictional High Court, the Tribunal ruled in favor of the assessee, deleting the disallowance of Rs. 12,08,801 under section 14A r.w. Rule 8D(2)(ii) related to interest expenditure. Consequently, the appeal of the assessee was allowed, and the order was pronounced on July 2, 2019.

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