TMI Blog2013 (8) TMI 379X X X X Extracts X X X X X X X X Extracts X X X X ..... e of business then such expenditure is not allowable - assessee has right to replace his own capital with borrowed funds which were already used for the purpose of business in acquiring assets and other - for the purpose of ascertaining profit and gains, the normal principles of commercial accounting should be applied, so long as they do not conflict with any express statutory provisions - The onus is on the assessee to furnish the relevant material regarding replacement of borrowed funds by own capital and interest free funds available with the assessee - Following decision of Commissioner of Income-Tax Versus Prem Heavy Engineering Works P. Limited [2005 (4) TMI 32 - ALLAHABAD High Court] - Decided in favour of assessee. - ITA No.236/Agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A inserted by the Finance Act, 2006 w.e.f. 01.04.2007 is a procedural amendment of which effect is retrospective. The Assessing Officer calculated amount of disallowance of Rs.11,34,432/- on the basis of Rule 8D of Income Tax Rules, in accordance with section 14A of the Act. The CIT(A) held as under :- I have analysed the matter and following the judgement in the case of Godrej Boyce Mfg. Co. Ltd., 234 CTR (Bombay) 1 wherein it has been held that provisions of sub-section (2) (3) of section 14A and the provisions of Rule 8D of IT Rules which have been notified w.e.f. 24.3.08 shall apply w.e.f. A.Y. 2007-08, I hold that the A.O. was not right in applying the provisions of Rule 8D while making disallowance under sec. 14A of the Act. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14A of the Act. However, the CIT(A) on presumptions held that some of the borrowed funds have been diverted to investment in shares and accordingly restricted the disallowance to the extent of Rs.8,00,000/-. 5. The Ld. Departmental Representative, on the other hand, relied upon the order of the CIT(A). 6. We have heard the ld. Representatives of the parties and records perused. The Assessing Officer made out the case that section 14A of the Act read with rule 8D of which the effect is retrospective and applicable to Assessment Year 2006-07, the year under consideration. The Assessing Officer disallowed the amount calculated under Rule 8D of IT Rules. The CIT(A) did not agree with the view that Section 14A read with Rule 8D is applicabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Investment in shares Rs.5,28,01,422/- 8. After considering the totality of the facts of the case, the limited issue to be decided before us is whether the interest claim of the assessee is disallowable on the ground that the assessee has used the interest bearing borrowed funds in the investment of shares. The claim of interest on borrowed fund is allowable under section 36(1)(iii) of the Act. According to the said section 36(1)(iii) the amount of interest paid in respect of capital borrowed for the purpose of business or profession is allowable expenses so long as the amount borrowed is used in the business. The interest paid on such borrowing is an expenditure which is required to be deducted in the computation of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(iii) of the Act. The Ld. Authorised Representative relied upon various decisions of which gist has been filed but these decisions related to the invocation of section 14A of the Act. These cases have been decided by the Court/Bench considering the facts of respective cases. In the light of above discussions and judicial pronouncements noted above, if we consider the facts, we find that the assessee was having share capital of Rs.44,50,000/- and reserve and surplus of Rs.12,59,74,541/- out of which the investment in shares was Rs.5,28,01,422/-. Thus, we find that the assessee was having sufficient own funds in the form of share capital and reserves to make investment in shares. Under the circumstances, no disallowance is required under sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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