Whether disallowance can be made u/s 14A for the interest on borrowed fund even if it is explained that the funds utilised for investments are not borrowed funds?

Rane Brake Lining Ltd Vs ITO (ITAT Chennai)- A perusal of the assessment order clearly shows that the Assessing Officer has not invoked the provisions of sec. 14A. In fact the Assessing Officer has pointed out that the total investment in shares as on 31.03.2003 was Rs. 26,00,31,694/- which included a sum of Rs. 5,28,82,350/- invested during the year. No dividend income has also been admitted during the relevant assessment year. A peRs.rusal of the order of the learned CIT(A) clearly shows that the assessee had put forward the plea that it had surplus and reserves sufficient to cover such investment in purchase of shares.

This is found in para 3 of the order of the learned CIT(A). The learned CIT(A) has further in para 3 of the order has given a finding that the payment for purchase of shares was made out of OD/CC accounts with the bankers of the assessee company. A perusal of the Balance Sheet of the assessee as on 31.3.2003 shows that the assessee has a reserve and surplus as on 31.3.2003 at Rs. 70.71 crores. Further a perusal of the Balance Sheet shows that the reserves and surpluses during the year ended 31.3.2002 was to anb extent of Rs. 59.36 crores which has increased to Rs. 70.71 crores during the year ended 31.3.2003. The secured loans during the year ended 31.3.2002 was Rs. 19.62 crores which came down as on 31.3.2003 to Rs. 17.92 crores whereas the unsecured loans as on 31.3.2002 stood at Rs. 6.73 crores which also came down to Rs. 5.68 crores as on 31-3-2003. Thus the claim of the assessee before the lower authorities that the assessee did have sufficient funds in the form of surpluses and reserves to cover the investment in the purchase of shares stands supported. In the circumstances, we are of the view that no dis allowance out of the interest expenditure as made by the Assessing Officer and as confirmed by the learned CIT(A) is sustainable. In the circumstances, the said misalliance stands deleted. We are not going into the issue of applicability of sec. 14A at this stage as the dis allowance has not been made by invoking the provisions of sec. 14A of the Act.

IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH ‘A’, CHENNAI
I.T.A. No. 104/Mds/2009

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