Interest Expenses can’t be disallowed if Assessee had enough Own Funds

M/s. Bhoruka Investment Ltd. Vs. D.C.I.T. (ITAT Kolkata)

 As far as dis allowance of interest expenses under Rule 8D(2)(ii) of the Rules is concerned, it is clear from the summarized balance sheet of the assessee from the financial years 2008-09 to 2011-12 that the assessee had non-interest bearing funds sufficient to cover the investments made in shares. It has been held by the Hon’ble Bombay High Court in the case of CIT vs Reliance Utilities and Power Ltd. (2009) 313 TR 340 (Bom) and CIT vs HDFC Bank Ltd (2014) 49 taxmann.com 335 (Bom) that where interest free funds and overdraft and loans taken are available with an assessee, then a presumption would arise that the investments would be out of the interest free funds generated or available with the assessee, if the interest free funds were sufficient to meet the investments. The aforesaid view has been followed by the Hon’ble Calcutta High Court in the case of Principal CIT vs Rasoi Ltd. In ITAT o.109 of 2016 in GA No. 633 of 2016 judgment dated 15.02.2017. In view of the aforesaid legal position and the view of the fact that the assessee had enough own funds which was more than the investments which yielded tax free income there can be no dis allowance of interest expenses in terms of Rule 8D(2)(ii) of the Rule.

Full Text of the ITAT Order is as follows:-

ITA No. 129/Kol/2016 is an appeal by the Assessee while ITA No. 329/Kol/2016 is an appeal by the revenue. Both these appeals are directed against the order dated 07.12.2015 of. C.I.T.(A)-5, Kolkata relating to A.Y. 2012-13.

2. Ground Nos. 1 to 6 raised by the assessee in its appeal and ground no.1 raised by the revenue in its appeal can be conveniently taken up together. These grounds relate to dis allowance u/s 14A of the Income Tax Act, 1961 (Act). They read as follows :

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