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TMI Blog2017 (2) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... .2007 which means that assessee’s interest free funds is almost 4 times the investment made. CIT vs. Torrent Power Ltd. (2014 (6) TMI 185 - GUJARAT HIGH COURT) has held that if the assessee has sufficient interest free funds to cover up the investment then no disallowance of interest expenses is called for.As in the present case out of the total disallowance of 5,76,925/- PMS charges of 4,79,611/- has already been disallowed by adding it back to the business income and as far as remaining amount of 97,314/- is concerned, we find that assessee is having sufficient interest free funds to cover up the investments and in this case no disallowance on interest expenses is called for. We accordingly delete the disallowance u/s 14A and allow the appeal of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... the delay and proceed to adjudicate the appeal. 4. Briefly stated facts of the case are that the assessee is a private limited company engaged in the business of manufacturing industrial fragrance, flavours and perfumes. Return of income was filed on 30.10.2007 showing total income at ₹ 1,93,98,830/- and value of fringe benefits at ₹ 2,75,925/-. Case was selected for scrutiny assessment. Notices u/s 143(2) of the Act followed by notice u/s 142(1) of the Act were issued. Necessary details including audited financial statement were provided. During the course of assessment proceedings ld. Assessing Officer while examining the provisions of section 14A of the Act observed that assessee received exempt dividend income of ₹ 65.33 lacs and investment as on 31.03.2007 of ₹ 9,52 crores. Also interest of ₹ 15.52 lacs was paid on the borrowed funds of ₹ 1.46 crores. In reply to the show cause notice of ld Assessing Officer about disallowance u/s 14A of the Act, assessee submitted that Rule 8-D r.w.s.14A of the Act has been made applicable w.e.f.24.3.2008 and it is not applicable its case for Asst. Year 2007-08. However, ld. Assessing Officer after taking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned for taxable and non taxable heads of incomes, then disallowance as per rule 8D will have to be made. The onus is on the assessee to establish that the investments made for earning the tax free incomes have been made out of own funds and the borrowed funds. 4.3,2 At the same time a perusal of the audited accounts of the appellant reveals that the appellant is making investment in tax free securities through Portfolio Management Services and through its own office. The total PMS charges paid during the year is ₹ 4,79,611/- during the entire year. This expense is clearly disallowable under section 14A. 4.3.3 The borrowed capital of the appellant is ₹ 1.46 crores only as against the investment in securities tor ₹ 9.52 crore as on 31.03.200/- From the details submitted it Is seen that the appellant is also having profits from investments and dividend from investments which are being re-invested in tax free securities. The appellant is also having separate cash credit account for manufacturing purposes. Hence, the disallowance of interest paid in proportion to ratio of investment in tax free securities to total assets is not reasonable. The total disallowance ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I). Ltd. - (2014) 41 taxmann.com 540 (Guj) > CIT vs. Reliance Utilities & Power Ltd. - 313 ITR 340 (Bom) > Munjal Sales Corporation vs. CIT - 298 ITR 298 (SC) Accordingly, impugned disallowance deserves to be deleted in toto. 7. On the other ld. Departmental Representative (DR) vehemently argued supporting the orders of lower authorities. 8. We have heard the rival contentions and perused the material placed before us and gone through the decisions relied on by the ld. AR. Solitary grievance of the assessee is against the action of ld. CIT(A) confirming the action of ld. Assessing Officer making disallowance of ₹ 5,76,925/- u/s 14A of the Act. We observe that assessee had earned exempt dividend income of ₹ 65.33 lacs and also paid interest of ₹ 15.52 lacs on borrowed funds and assessee's investment as on 31.03.2007 stood at ₹ 9.52 crores as against ₹ 10.38 crores as on 31.3.2006. Further amended Rule 8-D with respect to disallowance u/s 14A of the Act came in effect from Asst. Year 2008-09 whereas in this appeal we are dealing with Asst. Year 2007-08. 9. We further observe that ld. AR referred to the computation of income wherein portfolio manage ..... X X X X Extracts X X X X X X X X Extracts X X X X
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