Delite Infrastructure Pvt. Ltd Vs ACIT (ITAT Delhi)
No Section 14A Disallowance Without Nexus: ITAT Deletes ₹1.29 Cr Where Borrowed Funds Not Used for Exempt Income
The Delhi ITAT partly allowed the assessee’s appeal and held that disallowance under Section 14A read with Rule 8D was unsustainable where borrowed funds were not used for making investments yielding exempt income. The Assessing Officer had disallowed ₹1.29 crore by invoking Section 14A on the premise that borrowed funds were utilised for earning dividend income from mutual funds. Though the Tribunal upheld that the AO had properly recorded satisfaction before invoking Section 14A, it found on facts that the investments in mutual funds were made out of interest-free funds received from the holding company and were fully redeemed by August 2016, whereas the bank loan of ₹40 crore was taken only in November 2016.
Since dividend income was earned prior to availing the interest-bearing loan, there was no direct or indirect nexus between borrowed funds and exempt income. Accordingly, the disallowance under Section 14A was deleted. However, the Tribunal held that interest paid on the later loan could not be allowed against short-term capital gains from mutual fund redemption and directed that such interest be carried forward. Interest and penalty issues were held to be consequential and premature. The appeal was thus partly allowed with substantial relief to the assessee.
FULL TEXT OF THE ORDER OF ITAT DELHI
