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TMI Blog2011 (3) TMI 1641X X X X Extracts X X X X X X X X Extracts X X X X ..... ispute relates to the disallowance made under section 14A read with Rule 8D of the Income Tax Rules. The second dispute relates to the disallowance of interest under section 14A while computing the book profit for the purposes of section 115JB of the Act. Since both the issues are interconnected, they are dealt with in a consolidated manner. The brief facts in this connection are that the assessee debited interest of ₹ 43,58,464/- in the Profit and Loss Account. The Assessing Officer while completing the assessment noticed that the assessee's investment in the partnership firm in which the assessee was a partner amounted to ₹ 5,52,46,045/- as on 31.03.2005 and the assessee's 70% share of loss was ₹ 28,58,955/-. In the back ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance made on the above basis, the Assessing Officer also invoked section 14A in support of the disallowance. He noted that the assessee's main sources of income were as under: - (1) Hotel activities - fees from Kamat Hotels (India) Ltd. … ₹ 51,69,209/- (2) Wind Power activities … ₹ 50,04,918/- (3) Financing activities (including … ₹ 1,72,43,939/- dividend of ₹ 1,04,38,584/-) He further noted that there was practically no hotel activity because the only expenditure claimed was depreciation on furniture and fixtures and vehicle expenses. According to him, except for power generation there was no other business activity which required finance for which interest was payable. The dividend was exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per book. Under the head "Secured loans" in Schedule "C" to the accounts the assessee has made a Note which, inter alia, states that it was taken for Wind Energy Farm Project at Satara. Such loan was taken in the earlier year (year ended 31.03.2004) to the extent of ₹ 1,60,00,000/- and it was submitted before us that the loans were taken for the wind energy business and no interest was disallowed in the earlier year. As regards the interest of ₹ 23,51,667/- paid on the secured loan from Satara Co-operative Bank, our attention was drawn to page 80 of the paper book and it was submitted that the loan was taken in the earlier year and an amount of ₹ 92.40 lakhs was invested in the hotel project of Kamat Holiday Resorts Priva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se facts should be verified by the Assessing Officer before any decision is taken regarding the allowability of the interest. In the interest of justice we therefore set aside the orders of the departmental authorities on this point and restore the matter to the file of the Assessing Officer for enabling him to take a fresh decision regarding the allowability of interest after giving adequate opportunity to the assessee. The Assessing Officer also has to keep in mind the guidelines given by the Hon'ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. vs. DCIT (2010) 328 ITR 81 (Bom), before invoking section 14A of the Act. It may be clarified that in the above judgment it has been held that Rule 8D of the Income Tax Rules is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 977/- on account of interest free loans given by the assessee to V V Kamat, HUF, which is a major shareholder of the company. This issue had also come up before the Tribunal in the order cited above. The actual decision is in paragraph 17 of the said order. In this paragraph the following findings have been recorded: - (a) The assessee advanced funds to V V Kamat HUF, as interest bearing loans out of interest free internal accruals and interest free advances received from Kamat Hotels. (b) The financial condition of V V Kamat HUF was precarious looking at the huge losses made from year to year. (c) Due to a number of suits filed against V V Kamat HUF by the creditors, V V Kamat HUF became financially unviable. (d) The debt therefore be ..... X X X X Extracts X X X X X X X X Extracts X X X X
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