Advance Valves Pvt. Ltd Vs ACIT (ITAT Delhi)
ITAT Delhi held that disallowance u/s. 14A of the Income Tax Act unjustified as sufficient interest free funds were available for investment. Also held that inclusion of bank charges and bank guarantee charges for making disallowance u/s. 14A unjustified.
Facts- The case of the assessee company was selected for scrutiny assessment. AO noticed that the assessee made investment in a partnership firm. The income derived therefrom was not includible in the taxable income of the assessee. Therefore, AO issued show-cause notice asking as to why provisions of section 14A r.w. Rule 8D of the Income Tax Rules, 1962 should not be invoked. AO did not accept the contentions of the assessee and proceeded to make disallowance u/s 14A of the Act. Thereby, he made addition of Rs.9,06,947/-.
CIT(A) sustained the addition. Being aggrieved, the present appeal is filed.
Conclusion- Held that CIT(A) as well the assessing authority has not brought any material suggesting that the interest free funds were diverted for earning of tax free income. Under these facts, the disallowance made in respect of interest expenditure is not justified. Moreover, the Assessing Officer and Ld. CIT(A) did not advert to the submissions of the assessee that bank charges and bank guarantee charges do not partake character of interest and had been wrongly included as interest while making disallowance u/s 14A of the Act.
