Disallowance u/s 14A cannot be made just because separate accounts of tax free investment are not maintained: SC

The Apex Court in the matter of The Commissioner of Income Tax vs UTI Bank Ltd in the matter relating to disallowance under Section 14A of the Income Tax Act, 1961 has dismissed the appeal of the Department.

The Court Ordered:

In view of the findings of fact noticed by the High Court, the legal issue relating to disallowance under Section 14A of the Income Tax Act, 1961 would be covered against the Revenue in view of the judgment of this Court in ‘South Indian Bank Ltd. v. Commissioner Of Income Tax’ [( 2021) 10 SCC 153].

Recording the aforesaid the appeal is dismissed without any order as to costs.

The Supreme Court in the matter of ‘South Indian Bank Ltd. v. Commissioner Of Income Tax’ [( 2021) 10 SCC 153] has pronounced that where interest free own funds are available with the assessee and the assessee exceeded its investments in tax-free securities; investments would be presumed to be made out of assessee’s own funds and proportionate disallowance was not warranted under section 14A on ground that separate accounts were not maintained by assessee for investments and other expenditure incurred for earning tax-free income.

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