Business expenditure: Disallowance of expenditure in relation to exempt income: Section 14A: A. Ys. 2001-02 to 2005-06: Where available interest free funds are more than the investment in tax free securities, disallowance of interest u/s. 14A will not be justified:

In the relevant years, the assessee claimed that no disallowance of interest be made u/s. 14A of the Incometax Act, 1961 in view of the fact that the asessee had interest free funds available more than the investment in tax free securities. The Assessing Officer rejected the claim and made disallowance of interest u/s. 14A on proportionate basis. The Tribunal deleted the addition.

On appeal by the Revenue, the Bombay High Court upheld the decision of the Tribunal and held as under:

“i) We find that the facts of the present case are squarely covered by the judgment in the case of Reliance Utilities and Power Ltd.; 313 ITR 340 (Bom). The findings of fact given by the ITAT in the present case is that the assessee’s own funds and other non-interest bearing funds were more than the investment in the tax-free securities.

ii) I n the present case, undisputedly the assessee’s capital, profit reserve, surplus and current account deposits were higher than the investment in the taxfree securities. In view of this factual position, as per the judgment of this Court in the case of Reliance Utilities and Power Ltd.; 313 ITR 340 (Bom), it would have to be presumed that the investment made by the assessee would be out of the interest-free funds available with the assessee.

iii) We therefore, are unable to agree with the submission of Suresh Kumar that the Tribunal had erred in dismissing the appeal of the Revenue on this ground.

iv) We do not find that the question gives rise to any substantial question of law. Appeal is therefore rejected.