2017 (3) TMI 1985

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.... Tax Appeal No. 135/LKW/2013, Deputy Commissioner of Income Tax, Range-6, Lucknow Versus U.P. Power Corporation Limited). 3. This appeal was admitted on 26.11.2015 on following Substantial questions of law : "i) Whether the order of Tribunal upholding disallowance of Rs. 5,27,58,286/- by invoking provisions of Section 14A, is vitiated in law, as the same is based on wrongful assumption of facts relating to investment in DISCOMS? ii) Whether on a true and correct interpretation of Section 14A of Act, Tribunal was legally correct in upholding disallowance of interest amounting to Rs.5,27,58,286/- as had been made in the assessment? iii) Whether there existed any material/basis for Tribunal, come to the conclusion....

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....s selected for scrutiny and notice was issued under Section 143(2) on dated 07.09.2009 and under Section 142 (1), on 15.11.2010, respectively. With regard to interest paid by Assessee, it was claimed that it is directly attributable to transmission and distribution of electricity business of Assessee. Assessing Officer (hereinafter referred to as "A.O.") did not agree and disallowed substantial amount of interest under Rule 8D read with Section 14A. To be more precise, A.O. disallowed Rs. 9,59,31,453/- under Section 14A and added the same to Assessee's income. 8. In Appeal Commissioner of Income Tax (Appeal) (hereinafter referred to as "CIT (A)" ) has held that once investment has been made in the subsidiaries certain direct and indirect....

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....e and partly to the taxable income. In absence of Section 14A, the expenditure incurred in respect of exempt income was being claimed against taxable income. The mandate of Section 14A is clear. It desires to curb the practice to claim deduction of expenses incurred in relation to exempt income against taxable income and at the same time avail the tax incentive by way of exemption of exempt income without making any apportionment of expenses incurred in relation to exempt income." 12. Tribunal has observed that "Interest is receivable on account of loans to DISCOMS and exempt dividend is receivable on account of investments in DISCOMS. Interest receipt is chargeable to tax and not exempt. But Since the interest expenditure on account of ....