Disallowance u/s. 14A cannot exceed exempt income, No S. 14A Disallowance in the absence of nexus between exempt Income and Interest Cost

ACIT Vs. Punjab State Coop & Marketing (ITAT Chandigarh)– The assessee has placed on record the details of investment along with the amount of investment in shares in five companies made by the assessee. On perusal of the said details reveal that majority  of the investments were made prior to 1994 and on the said investments no dividend has been received by the assessee during the year. The assessee had received the dividend of Rs. 3,96,000/- from Indian Potash Supply Agency Madras, in which the investment was made between the years 1970 to 1975. Another dividend of Rs. 4410/- received from Central Warehousing Corp. Ltd.

In which the investment was made during the years 1950 to 1962. No fresh investment has been made during the year under consideration. The CIT (Appeals) at page 17 of the appellate order had reproduced the observations of the Honourable Punjab & Haryana High Court in CIT Vs. Winsome Textile Industries Ltd. (supra), under which it was laid down that where there is nothing to indicate that investment in purchase of shares was made out of borrowed funds, no dis-allowance was warranted u/s 14A of the Income Tax Act. Following the above said ratio laid down by the Jurisdictional High Court in CIT Vs. Winsome Textile  Industries Ltd. (supra) and followed in CIT  Vs. Metal-man Auto P. Ltd. (supra) we find no merit in the grounds of appeal raised by the Revenue in this regard. The total dividend income received by the assessee was Rs. 4,00,410/- against which dis-allowance of Rs. 12,73,462/- by invoking the provisions of section 14A of the Act is not warranted.

ITAT Chandigarh

A.C.I.T. Vs. Punjab State Coop & Marketing Fed. Ltd.

ITA No. 548/Chd/2011

(Assessment Year : 2007- 08)

Punjab State Coop & Marketing Fed.Ltd.Vs. A.C.I.T.

ITA No.579/Chd/2011

(Assessment Year : 2007- 08)

Date of hearing  :                  07.09.2011

Date of Pronouncement :  30.09.2011

O R D E R

PER SUSHMA CHOWLA, J.M, :

The cross appeals filed by the Revenue and the assessee are against the order of the Commissioner of Income-tax(Appeals), dated 02.02.2011 relating to assessment year 2007-08 against the order passed under section 143(3) of the I.T. Act, 1961.

2. The Revenue has raised the following grounds :

“1.  On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in allowing appeal of the assessee without appreciating the facts of the case.

2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in deleting the addition made by the A.O. on account of wrong claim of deduction u/s 80P(2)(e) by the assessee.

3. On the facts and circumstances of the case the CIT(A) has erred in directing to charge interest only on Rs. 7.01 crore whereas the amount outstanding was of Rs.17.01 crore.’