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TMI Blog2017 (12) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... cept the adjournment application filed for the Revenue and proceeding to dispose of the appeals on merits ex parte qua the Revenue. 3. The first issue raised in this appeal is against the confirmation of part disallowance u/s 14A of the Income-tax Act, 1961 (hereinafter called 'the Act'). 4. Briefly stated, the facts of the case are that the assessee earned exempt dividend income amounting to Rs. 92,842/-. Since no disallowance was offered u/s 14A, the Assessing Officer, after recording satisfaction, computed disallowance u/s 14A as per Rule 8D(2) at Rs. 1,75,884/-, comprising of Rs. 1,03,406/- under clause (i), Rs. 39,558/- under clause (ii) and Rs. 32,920/- under clause (iii). The ld. CIT(A) reduced the disallowance to the extent of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its own which were generated in the course of relevant financial year, apart from substantial shareholders' funds, presumption stands established that the investments in sister concerns were made by the assessee out of interest free funds and, therefore, no part of interest on borrowings can be disallowed on the basis that the investments were made out of interest bearing funds. In that case, the AO recorded a finding that a sum of Rs. 213 crore was invested by the assessee out of its own funds and Rs. 1.74 crore out of borrowed funds. Accordingly, disallowance of interest was made to the tune of Rs. 2.40 crore. The assessee argued that no part of interest bearing funds had gone into investment in those two companies in respect of which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he very basis on which the Revenue had sought to contend or argue their case that the shareholders' fund to the tune of over Rs. 172 crore was utilized for the purpose of fixed assets in terms of the balance-sheet as on March 31, 1999, is fallacious." In upholding the order of the Tribunal, the Hon'ble High Court held that: "If there be interest free funds available to an assessee sufficient to meet its investment and at the same time the assessee had raised a loan, it can be presumed that the investments were from the interest free funds available". Thereafter, the judgment of the Hon'ble Supreme Court in the case of East India Pharmaceutical Works Ltd. Vs. CIT (1997) 224 ITR 627 (SC) and also the judgment of the Hon'ble Calcutta High Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecurities, no disallowance of interest expenditure u/s 14A can be made. This view has been taken by following the judgment of the Hon'ble Bombay High Court in CIT vs. HDFC Bank Ltd. (2014) 366 ITR 515 (Bom). It is further observed that this issue is no more res integra in view of the recent judgment delivered by the Hon'ble Supreme Court in Godrej & Boyce Manufacturing Company Ltd. vs. DCIT (2017) 394 ITR 449 (SC), in which it has been held that when interest free funds in the form of share capital and reserves are more than investment, then no disallowance of interest can be made u/s 14A. 9. Adverting to the facts of the instant case, I find that the Assessing Officer has taken value of investments yielding exempt income at Rs. 76 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lation suffers from infirmities which have not been sorted out by the ld. first appellate authority as well. She submitted that certain expenses which do not relate to exempt income have also been considered. Without going into the details of such expenses, I consider it expedient to set aside the impugned order on this score as well and remit the matter to the file of Assessing Officer for deciding this issue as per law, after allowing reasonable opportunity of being heard to the assessee. 13. It is made clear that if the disallowance under clauses (i) and (iii) of Rule 8D(2) exceeds the amount of exempt income, then, the disallowance should be restricted to the extent of exempt income as has been sustained in the first appeal. If, howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X
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