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TMI Blog2014 (4) TMI 777X X X X Extracts X X X X X X X X Extracts X X X X ..... accumulated losses leaving behind net funds available to the assessee at Rs.10.11 crores only which were entirely invested in the said investments - the funds invested in the current assets are in the form of loans and advances which also are interest free advances –the contention of the assessee that interest free funds were used in the partnership business cannot be accepted – thus, there is no infirmity in the order of the CIT(A) – Decided against Assessee. - I.T.A. No. 4395/Del/2013 - - - Dated:- 21-3-2014 - Shri U. B. S. Bedi And Shri T. S. Kapoor,JJ. For the Appellant : Shri V. P. Bansal, C.A. For the Respondent : Shri Satpal Singh, Sr. DR. ORDER Per TS Kapoor, AM: This is an appeal filed by the assessee again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore or at the time of hearing. 2. The brief facts of the case are that during assessment proceedings, the Assessing Officer observed that assessee had incurred an expenditure of interest amounting to Rs.22,23,971/-. The Assessing Officer further observed that assessee had made investment amounting to Rs.1,02,27,2045/- which were outstanding as on 31.3.2009. The Assessing Officer from the various submissions also observed that these investments were made by the assessee as partner's capital in three firms. The Assessing Officer observed that assessee had claimed this interest expense which had to be incurred because of borrowings made by assessee for making heavy investments in partnership firm from which the income will always remain ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he said partnership firms for constructing guest house/hotel. The amount has been advanced as a measure of commercial expediency and not from the point of view whether the amount was advanced for earning profits. Further the revenue has to see the what a prudent business man will do to run the business. In view of the above facts, it is submitted that since the amount has been advanced to the sister concerns as prudent businessman for the purpose of commercial expediency and the interest as claimed should be allowed. 3. The Assessing Officer, however, did not agree with the contentions of the assessee. Therefore, the Assessing Officer had made the addition by holding as under:- The submissions of the assessee have been considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed and added to the income of the assessee company. 4. Aggrieved the assessee filed appeal before Ld CIT(A) and Ld CIT(A) on the basis of various submissions directed the Assessing Officer to compute the disallowance strictly in terms of provisions of Rule 8D after verification of computation given by the appellant. The Ld CIT(A) had observed as under:- 6.3. Regarding the ground No.2(iii) the appellant has contended that the company had interest free funds of Rs.8,56,75,067/- as on 31.3.2008, while the investment wade was only Rs.2,89,24,250/-. It was also submitted during the year that no loans were raised from the bank and the entire investment of Rs.7,20,90,795/- during the year was out of interest free funds available with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the entire interest expenses by holding that the same was directly attributable to earning of exempt income. The Ld AR pleaded that if Rule 8D was applied, the total disallowance would have been restricted to Rs.12,63,490/-. On careful consideration I find that the contention of the appellant has merit. I have held that the appellant has used mixed funds for making investment and it is not the case that entire amount of borrowed funds were used for making investment. The provisions of 14A were specially brought in the statute for addressing such circumstances. This was to minimize discretion in the hands of the Ld Assessing Officer and thereby to reduce the subjectivity. The provisions of Rule 8D which were notified on 24.3.2008 are inten ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here is no doubt that expenditure has been incurred in the form of bank interest and other interest and this interest expense was incurred by the assessee partly to make investments in the partnership firms, the income of which is exempt under the provisions of the Income Tax Act, 1961. From the analysis of income as per schedule 10 placed at paper book page 7, we find that the major income consisted of only commission, rent and there is no other business activity. The incurring of interest is in no way connected with earning of this income. Moreover, we find that out of total funds of Rs.12.75 crores, funds amounting to Rs.2.37 crores were invested in current assets and Rs.27.17 lacks were in the form of fixed assets and accumulated losses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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