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Cyquator Media Services Private vs. Dy. Commissioner Of Income Tax - (Income Tax Appellate Tribunal) (19 Jul 2023)

Where assessee's own funds and other non-interest bearing funds were more than the investment in tax-free securities, no disallowance under Section 14A of the IT Act can be made

MANU/IU/0613/2023

Direct Taxation

The assessee is a private limited company and is engaged in the business of providing wireless services, electronics telecommunication, GSM/GPRS modems, buying, selling advertising space in print media and subscriber management services for media companies. The Assessing Officer ("AO") vide order passed under Section 143(3) of the IT Act computed the disallowance of Rs.80,08,92,309 under Section 14A read with Rule 8D after considering the suo moto disallowance already made by the assessee.

The learned CIT(A), vide impugned order, dismissed the appeal filed by the assessee and upheld the disallowance made under Section 14A read with Rule 8D. The only dispute raised by the assessee is against disallowance made under Section 14A of the IT Act read with Rule 8D of the Income Tax Rules, 1962 ("the Rules").

The investment to the extent of Rs. 146660.93 lacs in the books of the assesseeis nothing but the shares transferred to the assessee pursuant to the scheme of amalgamation with Essel Business Process Ltd. The Revenue has not brought any material to controvert the facts as emanating from the material placed on record. Therefore, the investment to the extent of Rs. 146660.93 lacs cannot be considered for computation of disallowance under section 14A read with Rule 8D(2)(ii), since no interest-bearing funds were utilised for the acquisition of the aforesaid investment.

High Court in CIT vs HDFC Bank Ltd. held that where assessee's own funds and other non-interest bearing funds were more than the investment in tax-free securities, no disallowance under section 14A of the IT Act can be made. Supreme Court in South Indian Bank Ltd. vs CIT held that disallowance under section 14A of the IT Act would not be warranted where interest-free own funds exceed the investment in tax-free securities and in such a case the investment would be presumed to be made out ofassessee's own funds. Therefore, in view of law laid down by the Supreme Court and the High Court, there is no merit in disallowance of Rs. 80,08,92,309 made by the AO and upheld by the learned CIT(A) under Section 14A read with Rule 8D(2)(ii). Therefore, the disallowance of Rs. 80,08,92,309 made by the AO and upheld by the learned CIT(A) is deleted. The appeal by the assessee is allowed.

Tags : ASSESSMENT   DISALLOWANCE   LEGALITY  

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