Appeal partly allowed: disallowance issue remanded, deduction granted for investments.

The Tribunal partially allowed the appeal, remanding the disallowance u/s. 14A issue for further verification regarding the source of investments from interest-free funds. Additionally, the Tribunal directed the Assessing Officer to grant the deduction u/s. 54EC as per legal provisions, allowing the appellant's investments in two financial years to claim the deduction under section 54EC of the Act.

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Issues:
1. Disallowance u/s. 14A of the Income Tax Act, 1961
2. Disallowance u/s. 54EC of the Act

Issue 1: Disallowance u/s. 14A of the Income Tax Act, 1961:
The appellant challenged the disallowance made under section 14A amounting to Rs. 19,31,965. The appellant argued that no disallowance should be made as it had substantial internal accruals and interest-free funds for investments. However, the authorities found that the appellant failed to provide evidence that interest-free funds were solely used for investments. The appellant claimed a presumption that investments were made from interest-free funds, citing a previous case. The authorities noted that investments were made from an OD account, mixing own and interest-bearing funds, invalidating the presumption. The Tribunal remanded the issue to the Assessing Officer for verification, emphasizing the need to establish the source of investments from interest-free funds.

Issue 2: Disallowance u/s. 54EC of the Act:
The appellant sold a windmill, claiming exemption under section 54EC of the Act. The Assessing Officer limited the deduction to Rs. 50 lakhs, citing the maximum permissible limit. The appellant argued that investments of Rs. 1 crore were made in two financial years within the prescribed time frame. The Tribunal analyzed the legal provisions and relevant case laws. It noted that prior to an amendment, an assessee investing Rs. 50 lakhs in each of two financial years could claim the deduction. Following the Madras High Court's interpretation, the Tribunal allowed the deduction for the appellant's investments in two financial years, as the amendment was not applicable to the relevant assessment years. The Tribunal directed the Assessing Officer to grant the deduction under section 54EC of the Act as per law.

In conclusion, the Tribunal partially allowed the appeal for statistical purposes, remanding the disallowance u/s. 14A issue for further verification and directing the grant of deduction u/s. 54EC as per legal provisions.

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