Disallowance under Section 14A of Income TAx Act, 1961
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Disallowance could not be made on interest for earning exempt income under section 14A as assessee had available, non-interest-bearing funds larger than the investments made in tax- free securities.
When the funds available to the assessee both interest free and interest bearing loans, there shall be a presumption that the investments made would be out of the interest free funds available with the assessee, provided the interest free funds were sufficient to meet the investments which means that when the interest free funds are available to the assessee which were sufficient to meet its investments should be presumed that investments were made out of such interest free funds.
The issue before the Hon’ble Supreme Court (SC) was whether section 14A of the Income-tax Act, 1961 (the Act) enables the Department to make disallowance on expenditure incurred for earning tax-free income, where the assessee does not maintain separate accounts for the investments and other expenditure incurred for earning the tax-free income
In the landmark judgement the Hon’ble Supreme Court of India allowed the appeal of the South Indian Bank by settling the long drawn battle between the assessee and the department on whether proportionate disallowance of interest paid by the banks is called for under section 14A of the Income Tax Act for investments made in tax free bonds/securities which yield tax free dividend and interest of assesse Banks when assesse had sufficient interest free own fund which were more than the investments made.
Sandesh Procon LLP Vs ACIT (Gujarat High Court) A bare perusal of the reasons and original the assessment order made under Section 143(3) of the Act, the facts emerge that, the respondent authority had determined the issue of disallowance after considering the material available and now again without any tangible material available with the Assessing […]
JCIT Vs Reliance Life Sciences Pvt. Ltd. (ITAT Mumbai) We agree with the submissions of the Ld. Counsel for the assessee that since assessee has not earned any exempt income and therefore no disallowance is warranted u/s. 14A of the Act. In the case of Joint Investments Pvt. Ltd. v. CIT [372 ITR 694] the […]
माननीय उच्च न्यायालय की न्यायमूर्ति संजय कौल और न्यायमूर्ति ऋषिकेश राय की पीठ ने 09/09/2021 को एक अहम फैसले में यह बात कही जो सरकार को सोचने पर विवश करती है कि कराधान प्रणाली में व्याप्त खामियों को दूर करना क्यों जरुरी है. सिविल अपील क्र 9606 आफ 2011 और इससे संबंधित 32761 आफ 2018 […]
South Indian Bank Ltd Vs Commissioner of Income Tax (Supreme Court of India) 1. For purposes of 14A, a presumption can be made that investments have been made out of interest free funds even when there are mixed funds and there is no bifurcation in books of accounts for interest expense. 2. It needs to […]
CIT to at least record a prima facie finding that certain amount claimed by assessee as deduction in its computation of income de facto related to earning of dividend income. Thus, it was held that in the absence of any such prima facie finding, the reassessment was erroneous and no addition could be made under section 14A.
Disallowances u/s.14A could not exceed amount of exempt income, therefore, AO was directed to restrict disallowances u/s.14A to the extent of exempt income earned for the impugned assessment year.
