Cera Sanitaryware Ltd. Vs DCIT (ITAT Ahmedabad)
ITAT Ahmedabad held that disallowance of expenses under section 14A of the Income Tax Act not justifiable as there was sufficient own interest free funds available with the assessee for making investment. Thus, appeal of assessee allowed.
Facts- The assessee was noted to have earned exempt income of Rs.22,44,171/- and to have made suo moto disallowance of expenses for the purpose of earning the exempt income u/s. 14A of the Act amounting to Rs.3,69,059/-. The assessee was asked to justify the suo moto disallowance made. Due reply was furnished by the assessee. The AO not being satisfied with the reply of the assessee, invoked Rule 8D of the Income Tax Rules, 1962 for the purpose of computing the quantum of disallowance and worked out the same to be Rs.8,39,390/-. Since the assessee had suo moto made disallowance of Rs.3,69,059/-, the balance amount of Rs.4,70,331/- was further disallowed by the AO and added to the income of the assessee u/s. 14A of the Act. The same was confirmed by the ld.CIT(A).
Conclusion- Held that there was sufficient own interest free funds available with the assessee for making investment, and it is settled law that in such circumstances, the presumption is that the own fund has been utilized for making investments, and no disallowance of expenses is to be made under section 14A of the Act. The Hon’ble apex court in the case of South India Bank Ltd. vs CIT C.A.No.9606 of 2011 & Others dt 09-Sept 2021 that where there are mixed funds of the assessee and the own funds of the assessee are sufficient for making investment no disallowance of interest u/s 14A of the Act is warranted. Therefore, the dissatisfaction recorded by the AO with respect to financial expenses not disallowed by the assessee, we find is not correct. Thus, the computation of disallowance in the present case under section 14A of the Act by invoking Rule 8D of the IT Rules was not in accordance with law.
