2021 (2) TMI 422 - ITAT HYDERABAD - Income Tax

Head Note / Extract:
Disallowance u/s 14A r.w. Rule 8D(2)(ii) - proportionate interest expenditure disallowance - HELD THAT:- We notice that it had interest free funds of ₹ 13,02,47,08,990/- representing share capital followed by ₹ 7,49,10,320/- of reserves and surplus; respectively. Meaning thereby that assessee’s non-interest bearing funds exceed more than its exempt income’s investment. We quote CIT Vs. Reliance Utilities & Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT] and CIT Vs. HDFC Bank Limited [2014 (8) TMI 119 - BOMBAY HIGH COURT] that the necessary presumption that flow in such an instance is that of utilisation of non-interest bearing funds only in deriving exempt income. We go by this process reason alone to delete proportionate interest expenditure disallowance. Third limb of administrative expenditure disallowance - CIT-DR fails to dispute that both the lower authorities have gone by the assessee’s gross amount of investments than those yielding its exempt income only. We therefore direct the Assessing Officer to restrict the impugned disallowance to the extent of assessee’s exempt income yielding investments. The assessee gets part relief to this extent. This first substantive issue is partly decided in assessee’s favour. Addition of interest income treated as ‘income from other sources’ - HELD THAT:- We find no merit in assessee’s stand in principle since its interest income is not related to any revenue deriving business activity. The same therefore deserves to be treated as ‘income from other sources’ only going by the CIT(A)’s detailed discussion extracted hereinabove in the light of various judicial precedents. The fact also remains that neither of the lower authorities has proceeded on netting formula going by Hon'ble apex court’s decision in ACG Associated Capsules Pvt. Ltd.[2012 (2) TMI 101 - SUPREME COURT]. We therefore direct the Assessing Officer to allow netting benefit qua the impugned addition vis-à-vis the corresponding expenditure incurred at the taxpayer’s behest in above terms. Set-off of its impugned interest income against business losses - CIT(A) appears to have denied the assessee the impugned intra head set-off of the two heads of income, it is not clear as to under which clause of Section 72 was invoked to decline this relief. We thus are of the opinion that this issue of set-off of interest income against business loss deserves to be considered afresh as per law. We restore this issue back to the Assessing Officer therefore.