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TMI Blog2014 (8) TMI 107X X X X Extracts X X X X X X X X Extracts X X X X ..... stified to invoke the provisions of Section 14A read with Rule 8D of the Act - disallowance of Rs. one lac on account of administrative expenses which has been upheld by CIT(A) and against which Assessee is not an appeal, no disallowance on account of interest u/s 14A read with Rule 8D is called for – Decided in favour of Assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... o ₹ 1,53,495 u/s. 234B. 4. Ground No. 1 was not pressed and requires no adjudication and therefore dismissed. 2nd ground is with respect to disallowance u/s. 14A. 5. During the course of assessment proceedings, A.O noticed that Assessee has earned dividend income to the tune of ₹ 5,42,87,601/- which was exempted from tax. He also noticed that Assessee had taken loan of ₹ 10,59,78,146/- on which interest of ₹ 14,24,681/- was paid.. The submission of the Assessee that Assessee had made investments out of it own funds and no interest bearing funds was utilized for the purpose of investments was not found acceptable to the A.O as there was intermingling of own funds and borrowed funds. A.O was of the view that Assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmon account from which all payments for investments are made and borrowed funds are also deposited. Therefore it cannot be said that appellant has used interest free and owned funds for making investments. Since appellant has borrowed funds and also invested in exempt securities, the disallowance of interest has to be made. The rule 8D provides formula for disallowance of interest which was used by the assessing officer. As per the decision of Bombay High Court in the case of Godrej and Boyce, rule 8D is applicable from assessment year 2008-09 however the disallowance in earlier years is to be made by making proper estimation. Therefore it is clear that disallowance of interest on borrowed funds relating to investment resulting in exempt i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Safal Reality Pvt. Ltd. vs. ACIT (ITA NO. 2334/Ahd/2012 order dated 29.11.2013 for the proposition that when interest income was more than the interest expenditure than A.O was not justified to invoke provisions of Section 14A read with Rule 8D of the Act. He also placed reliance on the decisions cited in the aforesaid order. He further submitted that Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. 2009 313 ITR 340 has held that if there are funds available both interest free and over draft and or loans taken than a presumption would arise that investments would be out of interest free funds generated or available with the company. He also submitted that disallowance of ₹ 1 lac confirmed by CIT(A) has not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Section 14A read with Rule 8D of the I.T. Act. Further the year under appeal is A.Y. 06-07 and in the year under appeal the provisions of Rule 8Dare not applicable in view of the decision in the case of Godrej & Boyce Ltd. (supra). Considering the aforesaid facts and in view of the fact that the disallowance of Rs. one lac on account of administrative expenses which has been upheld by CIT(A) and against which Assessee is not an appeal, we are of the view that in the present case no disallowance on account of interest under section 14A read with Rule 8D is called for. We thus direct its disallowance.
9. In the result, the appeal of Assessee is allowed.
Order pronounced in Open Court on 30 - 06 - 2014. X X X X Extracts X X X X X X X X Extracts X X X X
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