CIT vs. HDFC Bank Ltd (Bombay High Court)

DATE: (Date of pronouncement)
DATE: July 29, 2014 (Date of publication)

Click here to download the judgement (HDFC_14A_own_funds.pdf)

No s. 14A disallowance of interest paid on borrowings if assessee’s own funds and non-interest bearing funds exceeds investment in tax-free securities

For AY 2001-02 to 2005-06, the Tribunal deleted the disallowance made u/s 14A on the ground that as the assessee’s own funds were more than its borrowed funds, the investments in tax-free securities had to be regarded as being made out of the own funds and no disallowance u/s 14A for the interest on the borrowed funds could be made. On appeal by the department to the High Court HELD dismissing the appeal:

In principle, if there are funds available, both interest-free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest-free funds generated or available with the company if the interest-free funds were sufficient to meet the investment. On facts, the assessee’s own funds and other non-interest bearing funds were more than the investment in the tax free securities. Consequently, the ITAT rightly held that there was no basis for deeming that the assessee had used borrowed funds for investment in tax free securities (Reliance Utilities and Power Ltd 313 ITR 340 (Bom), East India Pharmaceutical Works 224 ITR 627 (SC) & Woolcombers 134 ITR 219 (Cal) followed)

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