No disallowance towards interest cost u/s 14A of Income Tax Act when investment made out of own funds: ITAT grants Relief to ICICI Bank [Read Order]

The Income Tax Appellate Tribunal (ITAT), Mumbai bench, while granting relief to ICICI Bank, held that no disallowance shall be made towards the interest cost under section 14A of the Income Tax Act, 1961, when the investment is made out of own funds.

The assessee, ICICI Bank Ltd, engaged in the business of banking and related activities, had earned certain exempt income. While filing the return of income, the assessee disallowed a sum of Rs. 6.63 crores at 1% of the total dividend income earned towards administrative expenses.

The Assessing Officer invoked the provisions of section 14A, stating that the assessee had not discharged the onus of evidencing the source of investment from own funds.

Accordingly, the assessing officer made a disallowance of Rs. 458.866 crores towards interest paid and Rs. 17.37 crores towards administrative expenses after adjusting the suo moto disallowance made by the assessee.

Aggrieved, the assessee filed a further appeal before the CIT(A), who allowed the disallowance made by the assessing officer. Thereafter, the assessee filed a second appeal before the tribunal. During the proceedings, Aarti Vissanji, Counsel for the assessee, argued that when investments are made out of own funds, there cannot be any disallowance towards interest cost under section 14A. Furthermore, she argued that the Assessing Officer did not record any reasons to reject the suo moto disallowance made by the assessee towards administrative expenses and proceeded to compute the disallowance afresh towards administrative expenses.

Himanshu Sharma, Counsel for Revenue, supported the order of the Assessing Officer, stating that the Assessing Officer made a reasonable estimate of the expenses incurred. The tribunal observed that the assessee made a suo moto disallowance of Rs. 6.63 crores. Furthermore, the assessee had its own funds, which were more than the investment. It is a settled position that when own funds are more than the investments, there cannot be any disallowance towards interest.

After reviewing the facts and records, the two-member bench of Padmavathy S (Accountant Member) and Amit Shukla (Judicial Member) held that no disallowance shall be made towards the interest cost under section 14A of the Income Tax Act, 1961, when the investment is made out of own funds.

Hence, the bench allowed the appeal of the assessee, ICICI Bank.

To Read the full text of the Order CLICK HERE

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