The Delhi High Court upheld the deletion of disallowance under the Income Tax Act, 1961 as the availability of interest-free funds more than investments.
The Court further observed that if the assessee claims a certain amount of expenditure was incurred by him to earn the income which does not form part of the total income, the AO is required to examine the accounts, and thus, satisfy himself as to the correctness of the claim made by the assessee about the expenditure incurred in that regard.
By the instant appeal, the appellant/revenue seeks to assail the order passed by the Income Tax Appellate Tribunal (ITAT). According to Ruchir Bhatia, senior standing counsel, who appeared on behalf of the appellant/revenue, the sole issue that arises for consideration is: whether the Tribunal has erred in deleting the disallowance amounting to Rs. 80,66,72,112/- made by the Assessing Officer (AO) under Section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income-tax Rules 1962.
The record showed that the AO had taken into account the balance sheets of financial years (FY) ending on 31.03.2010 and 31.03.2011. A comparison of the information embedded in the said balance sheets revealed to the AO that the investments made by the respondent/assessee in equity shares at the beginning of the period in issue i.e., FY 2010-11 (AY 2011-12) was Rs. 2,73,331.69 lakhs. It also revealed that at the end of said FY, the investments fell to Rs.1,78,239.36 lakhs.
In other words, the Tribunal concluded that the respondent/assessee had sufficient interest-free funds available with it to make investments in the AY in issue, insofar as the first aspect is concerned. In support of this conclusion, the Tribunal relied on the judgment of the Bombay High Court rendered in CIT-2, Mumbai v. HDFC Bank Ltd.
A Division Bench comprising Justices Rajiv Shakdher and Girish Kathpalia observed that “Concededly, the interest-free funds available to the respondent/assessee were more than the investments made in the AY in issue. Furthermore, as noted by the Tribunal, the AO had not recorded his dissatisfaction [having regard the accounts of the respondent/assessee] before discarding the suo motu disallowance made by the respondent/assessee and triggering disallowance qua the respondent/assessee. This issue is no longer res integra insofar as this court is concerned.”
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