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TMI Blog2011 (3) TMI 1440X X X X Extracts X X X X X X X X Extracts X X X X ..... e were earned by the assessee. CIT(Appeals) and Tribunal both on facts found that the assessee did not invest borrowed fund for earning interest free income, applying provision of Section 14A for taxing such interest was not justified - Decided in favor of assessee X X X X Extracts X X X X X X X X Extracts X X X X ..... d( ) Remarks 1 15.50% SSNL Bonds 10,00,000 These investments were made on 25/4/95 and 18/4/96 i.e. before obtaining PFC loan. Hence, the same are from own funds and not from borrowed funds. 2 18% PCD in GIPCL 5,76,28,530 These investments were made on 25/4/95 and 18/4/96 i.e. before obtaining PFC loan. Hence, the same are from own funds and not from borrowed funds. 3 Shares in GIPCL 3,20,15,832 Out of the funds invested as PCD as shown above, convertible portion of debenture converted into shares. No fresh investments are made. 4 Shares in GIPCL 10,00,00,000 Amount is not invested from loan obtained from PFC From the above details your goodself can ascertain that amount invested in tax free securities are not from loan obt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n record. In the instant case, the assessee paid interest of 17.31 lakhs to Power Finance Corporation on the sum of 3.83 crores borrowed from them during the year under appeal. The assessee has also made investment of 30.79 crores in shares, debentures and bonds and shown tax free income of 5.68 crores earned on the investment made. The A.O. was of the view that the assessee has made huge investment of 30.79 crores for earning tax free income and for this reason, the assessee has to resort to borrow funds for his other business purposes. Thus, the borrowing has a nexus with the tax free investment and, therefore, he disallowed the interest paid by the assessee. In appeal, the Ld. CIT(A) after considering the submissions of the assessee, hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not applicable to the facts of the instant case as in the instant case it is not in dispute that the borrowed funds were utilized for its own business purposes and the investment in earning tax free income were made out of own interest free funds. In our considered opinion, the assessee is fully justified in arranging its affairs in such a manner where his tax liability is reduced provided the assessee does not resort to any illegal means or enter into a sham transaction for the said purpose. It is the prerogative of the assessee to use its own fund in the manner in which it considers proper. The Revenue cannot dictate the assessee that how the assessee should use its own fund. Thus in our considered opinion the A.O.'s approach in the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 997-1998 and its majority of the investment for tax free security were made before the said period. Only a small portion of investment was made subsequently. Assessee had demonstrated that it had other sources of investment and that therefore, according to assessee no part of the borrowed fund could be stated to have been diverted to earn tax free income. When CIT(Appeals) and tribunal both on facts in the present case found that the assessee did not invest borrowed fund for earning interest free income, we are of the view that not applying provision of Section 14A of the Act for taxing such interest was justified. No question of law therefore, is arising for our consideration. With respect to second question, we find that total impact on r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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