9911796707
TMI Blog2013 (10) TMI 278X X X X Extracts X X X X X X X X Extracts X X X X ..... stated, the Assessing Officer noticed that assessee has earned mutual fund dividend income of Rs. 79,70,914/- and claimed exemption. As no investment was found in the balance sheet, the Assessing Officer asked for details and noticed that the assessee has invested an amount of Rs. 49 crores in mutual funds and also redeemed them in the year itself. The Assessing Officer asked the assessee to state why expenditure attributable to earning of exempt income should not be disallowed. It was submitted that the assessee company has not incurred any expenditure for earning income and being the mutual fund investment the expenditure pertaining to the same was borne by the mutual fund and the dividend was directly credited to the bank account. The As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vested, at any point of time, maximum of Rs. 27.50 crores. With reference to the source of funds, the assessee enclosed detailed statement of analysis of investment and source of funds vide Annexures 4B, 4C, 4D and 4E to submit that assessee has its own business funds i.e., own share capital, advances received from customers aggregating to over Rs. 72 crores which was the main source of investment in mutual funds. It was submitted thus, the question of making disallowance under sec.14A/36(1)(iii) was wholly unsustainable. 4. The learned CIT(A), however, after extracting some of the submissions in the order rejected the contentions on two reasons that assessee has changed its explanation, as observed in para 6 of the order, and further ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... investment. He relied on various case law in support of contentions. However, he fairly admitted that out of the investments made by the assessee company in mutual funds, an amount of Rs. 5 crores can be considered as investment out of the borrowed funds for the period from 27th July to 14th August 2007 and further an amount of Rs. 12.5 crores from 28.01.2008 to 29.02.2008, which at best can be considered for disallowing the interest. 6. The learned D.R. on the other hand, relied on the orders of the Assessing Officer and CIT(A) and also placed reliance in the case of Everplus Securities & Finance Ltd. vs. DCIT (2006) 101 ITD 151 (Del.). Further it was submitted that the opening balance stated to be in annexure 4D could not be verified. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the amount of investment was not Rs. 49 crores. It also explained that it has earned interest on the temporary advancement of funds to the sister concerns and also investment in term deposits with the borrowed funds. It also explained, for the observation of the Assessing Officer that assessee could have discharged secured loan that the same cannot be accepted on commercial principles as the loans were sanctioned with pre-determined repayment schedule, which the assessee has to adhere in order to get further credit facilities. Therefore, even if it has own funds, it cannot repay the loan due to business expediencies. These aspects were neither examined by the CIT(A) nor commented upon but went onto confirm disallowances on certain le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed only source of Rs. 17.24 crores whereas the initial investment was Rs. 21.50 crores. Balance of the funds on various other investments were stated to be out of project receipts, except investment on 28th January to the extent of Rs. 12 crores which has direct source from the term deposits matured, which itself was a deposite from the borrowed funds. Therefore, partially agreeing with the contention of the learned Counsel for the assessee, proportionate interest for the part period where the borrowed funds were utilised for investment can only be disallowed. This aspect of the disallowance requires verification by the Assessing Officer. Assessing Officer is directed to examine this aspect and restrict the disallowance to the period for wh ..... X X X X Extracts X X X X X X X X Extracts X X X X
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