The Delhi High Court permits the actual interest expense to be offset against the interest income
CIT Vs RRPR Holding Pvt Ltd (Delhi High Court)
Facts:
- The appeal pertains to the Assessment Year 2009-10.
- The appellant (revenue) challenges the order dated 18.08.2021 by the Income Tax Appellate Tribunal (ITAT).
- Three questions of law are proposed:
- (i) Whether ITAT wrongly restricted the addition under Section 14A of the Income Tax Act to the exempt income?
- (ii) Whether ITAT erred by relying on a different case, Joint Investment Pvt. Ltd.?
- (iii) Whether ITAT was wrong in directing to offset interest income not related to interest expenditure for earning exempt income?
Observations:
4. Questions (i) and (ii) are acknowledged by the appellant to be covered against them by the decision in Joint Investments (P) Ltd. vs. CIT.
- Exempt income earned by the respondent/assessee during the period was Rs.37,93,374/-
- The Assessing Officer disallowed Rs.66,51,45,652/- invoking Section 14A read with Rule 8D of the Income Tax Rules, 1962.
- The court clarifies that disallowance under Section 14A cannot exceed the exempt income, citing Joint Investments (P.) Ltd.
- Proposed question no.(iii) pertains to adjusting interest income against interest expenditure. The AO adjusted interest expended towards 90% of the income, quantifying it at Rs.11,27,234.
- The Tribunal disagreed, stating that actual interest expenditure should be adjusted against the income earned by way of interest, resulting in the deletion of the addition.
Conclusion:
10. The court supports the Tribunal’s decision, stating that the disallowance under Section 14A cannot exceed the exempt income.
- Regarding question no.(iii), the court agrees with the Tribunal’s approach of netting off interest income against interest expenditure.
- No legal questions remain for consideration, and the appeal is closed.
- Pending applications are also closed.