COMMISSIONER OF INCOME TAX Vs. TORRENT POWER LTD.

JUDGEMENT

(1.) Challenging the order of the Income Tax Appellate Tribunal, present Tax Appeal under section 260A of the Income Tax Act ("the Act" here-in-after) preferred by the Revenue proposing the following substantial questions of law for our consideration:

(2.) This appeal arises in the following factual background. The assessee for the assessment year 2006-2007, filed the return of income. A notice was issued under section 143(2) of the Act by the Assessing Officer calling for certain details. The assessee had shown the exempt income being tax free interest on bonds, exempted under section 10(15) to the tune of Rs. 1.01 crores (rounded off) and dividend exempt under section 10(23D) of Rs. 12.98 crores (rounded off), the total sum worked out to Rs. 14 crores (rounded off). The Assessing Officer had sent show cause notice as to why the disallowance under section 14A would not be made in this case. According to the assessee, it had huge amount of interest free funds and no part of expenditure also was incurred towards the investment activity. The Assessing Officer after considering in detail the submissions, was of the opinion that the interest relatable to the earning of tax free income was not allowable under section 14A. It also objected to interest bearing loan and financial charges to the tune of 43.4%, amount which reduced the business profit. A reasonable figure of 1% of the said interest expenditure which worked out to Rs. 43.47 lacs was disallowed under section 14A and added back the said amount to the total income of assessee.

(3.) CIT(Appeals) was approached by the assessee challenging such addition on part of the Assessing Officer. It held that: