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TMI Blog2012 (7) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... where no nexus between the expenditure incurred and income generated has been established - the admitted fact that the assessee was having sufficient own interest free fund to cover the investment made in shares no disallowance can be made under section 14A and Rule 8D can be applicable only where disallowance of interest on borrowed capital warrant for expenses out of such borrowed capital with the amount relating to investment in shares and search and not ascertainable - decided against revenue. X X X X Extracts X X X X X X X X Extracts X X X X ..... ovisions of section 147 of the Act read with Rule 8D of the Income Tax Rules is not applicable to the case of the assessee. However, the CIT(A) followed the decision of the I.T.A.T. Special Bench in the case of Chemiwest Limited vs. ITO, 124 TTJ 577 (Del) and held that the expenditure incurred in relation to income which does not form part of total income has to suffer disallowance irrespective of the fact whether any income is earned by the assessee or not. The CIT(A) found it reasonable but disallowed ₹ 15,00,000/- for each year. 5. The ld. Authorised Representative submitted that the Assessing Officer has wrongly invoked Rule 8D retrospectively whereas Rule 8D has been inserted w.e.f. 24.03.2008 applicable w.e.f. Assessment Year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 the income from business. To examine the problem in cases where funds are pumped out of the business which are comprised of both type of funds i.e. borrowed as well as own funds, for non-business purpose. In all such cases where mixed funds are used for bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ₹ 44,50,000/- and reserve and surplus of ₹ 12,59,74,541/- out of which the investment in shares was ₹ 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 section 36(1)(iii) of the Act. In the light of the fact, we do not agree with the finding the CIT(A) which is on presumption basis that borrowed funds has been diverted to investment in shares and that part of the order of CIT(A) is set side a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made under section 14A of the Act. Section 14A is not a charging section but only disallowance of expenditure for a fair ascertaining of allowing common expenses between taxable and non-taxable income. Rule 8D can be applicable only where disallowance of interest on borrowed capital warrant for expenses out of such borrowed capital with the amount relating to investment in shares and search and not ascertainable. In the light of the above judgement of Bombay High Court and others (supra), the disallowance of interest is not warranted under the circumstances. Therefore, there is no question of invoking Rule 8D of the Rules. In the light of the above discussions and after considering the admitted fact that the assessee was having sufficient ..... X X X X Extracts X X X X X X X X Extracts X X X X
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