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Facts
The assessee declared total income of ₹55,73,630/- for AY 2012-13, claiming dividend income of ₹8,855 as exempt. The AO disallowed ₹9,58,846/- under Section 14A, which was upheld by the CIT(A). The assessee also paid interest of ₹14,12,187/- on a loan.
Held
The Tribunal directed the AO to restrict the disallowance under Section 14A to the extent of exempt income, ruling in favor of the assessee for this issue. Regarding the interest disallowance, a portion of the loan was used to repay share application money for building construction, and the issue was restored to the AO for proportionate allowance.
Key Issues
Whether the disallowance under Section 14A should be restricted to the extent of exempt income, and whether interest paid on a loan used for repayment of share application money for building construction is deductible.
Sections Cited
14A, 143(3), 24(b)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, DELHI BENCH “F”: NEW DELHI
Before: SHRI M. BALAGANESH & SHRI VIMAL KUMAR
O R D E R PER M. BALAGANESH, A. M.: 1. The appeal in AY 2012-13, arises out of the order of the Commissioner of Income Tax (Appeals)-5, Ludhiana [hereinafter referred to as „ld. CIT(A)‟, in short] in Appeal No. 132/ROT/IT/CIT(A)-5/LDH/2018-19 dated 14.02.2019 against the order of assessment passed u/s 143(3) of the Income-tax Act, 1961 (hereinafter referred to as „the Act‟) dated 14.02.2019 by the Assessing Officer, ACIT, Circle, Hisar (hereinafter referred to as „ld. AO‟).
At the outset, we would like to mention that in view of the repeated adjournments taken by the assessee through his counsel, cost of ₹5,000/- was imposed by the Tribunal on 30.07.2025 to be deposited with Prime Minister‟s National Relief Fund. The ld AR produced the challan for payment of ₹5,000/- on 04.08.2025. This matter was ultimately heard accordingly on 04.08.2025.
The first issue to be decided in this appeal is with regard to the disallowance u/s 14A of the Act.
We have heard the rival submissions and perused the material available on record. The return of income for assessment year 2012-13 was filed by the assessee company on 01.10.2012 declaring total income of ₹55,73,630/-. The ld AO noticed that assessee had dividend income of ₹8,855 and claimed the same as exempt. The ld AO resorted to make disallowance u/s 14A of the Act by applying the computation mechanism provided in Rule 8D(2)(i) and 8D(2)(iii) of the Income Tax Rules (hereinafter referred to as „the Rules‟) and made disallowance of ₹9,58,846/-. The same was upheld by the ld CIT(A).
Before us, the ld AR prayed that the disallowance u/s 14A of the Act need to be restricted only to the extent of exempt income. Reliance in this regard is placed on the decision of the Hon‟ble Jurisdictional High Court in the case of Joint Investments vs. CIT reported in 372 ITR 694(Del). Considering the same, we direct the ld AO to restrict the disallowance u/s 14A of the Act to the extent of exempt income. Accordingly, the first issue is decided in favour of the assessee.
The second issue to be decided in this appeal is with regard to disallowance of interest paid by assessee.
We have heard the rival submissions and perused the material available on record. On perusal of the profit and loss account of the assessee, it was noticed that the assessee had paid a sum of ₹14,12,187/- as interest on loan borrowed from IndusInd Bank Ltd. The total sum debited in the profit and loss account on account of interest paid is only ₹14,12,187/-. But the ld AO had disallowed two sums on account of disallowance of interest i.e. ₹6,86,588 and ₹14,12,187/- which stood confirmed by the ld CIT(A). When the total amount debited on account of interest paid to IndusInd Bank itself is only ₹14,12,187/- the additional disallowance made by the ld AO in the sum of ₹6,86,588/- is required to be deleted automatically. Hence, we hereby order to delete the same without going into merits of such disallowance.
The ld AR submitted that the share application money was received from M/s. Sandhar Estate Pvt. Ltd in earlier year and used for construction of a building. This building has been given on rent and rental income derived by the assessee is being taxed as income from House property. The assessee during the year borrowed ₹9.05 crores from IndusInd Bank, which was partially used for repayment of share application money to Shri Sandhar Estate Private Ltd. It was pleaded by the ld AR that since the original receipt of share application money was used for construction of building, which fetched rental income, interest bearing loan borrowed from IndusInd Bank Ltd, which had been utilized to repay the share application money would make the assessee eligible to claim interest paid to IndusInd Bank on a proportionate basis u/s 24(b) of the Act under the head “Income From House Property”. He stated that from the loan from IndusInd bank Ltd, a sum of ₹2.98 crores was repaid towards share application money and interest to the extent of ₹2.98 crores on proportionate basis is to be allowed in the following manner:-
Rs. 14,12,187 X Rs 2.98 crores ÷ Rs 9.05 crores.
We find lot of force in the argument of the ld AR. But the ld AR was directed to give the details of share application money duly mapping with the utilization of the same, which was promised to be given by the ld AR. However, the same was not furnished to this Tribunal till the date of dictation of this order on 14.08.2025. Hence, in order to verify this fact, we deem it fit and appropriate to restore this issue to the file of the ld AO to consider the allowability of deduction of interest u/s 24 on a proportionate basis to the extent of ₹2.98 crores being utilized for repayment of share application money provided the assessee is able to map the receipt of share application money that being utilized for construction of building, which fetched rental income. The remaining interest shall be liable for disallowance. Accordingly, the grounds raised by the assessee are partly allowed for statistical purposes.
In the result, the appeal of the assessee is partly allowed for statistical purposes.