Gujarat State Energy Generation Ltd. Vs ACIT (ITAT Ahmedabad)
Held that if the assessee can demonstrate the availability of surplus interest free funds for making investments that are generating tax free income, disallowance under Section 14A of the Act would not be justified. In this case, the own fund of the assessee exceeds the amount of investment. Accordingly presumption can be drawn that the borrowed fund was not utilised for such investments, hence, there cannot be any disallowance of any interest expenses.
FULL TEXT OF THE ITAT JUDGEMENT
Both captioned appeals have been filed at the instance of the assessee & Revenue against the order of the Commissioner of Income Tax (Appeals)-7, Ahmedabad (CIT(A) in short) dated 12/03/2016 relevant to Assessment Year (AY) 2010-11.
2. The 1st issue raised by the assessee is that the learned CIT (A) erred in part confirming the disallowance made by the AO for Rs. 87,544/- under the provisions of section 14A read with rule 8D of Income Tax Rule.
3. The AO during the assessment proceedings found that the assessee has made investments in the shares of other companies worth of Rs. 50 lakhs and at the same time the assessee has claimed interest expenses in its profit and loss account amounting to Rs. 12,84,88,704/- only. But the assessee has not made any disallowance of the expenses under the provisions of section 14A read with rule 8D. Accordingly the AO invoked the provisions of section 14A r.w. rule 8D and made the disallowance as under:
