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TMI Blog2018 (3) TMI 953X X X X Extracts X X X X X X X X Extracts X X X X ..... ent as ₹ 2.485 cr. - Held that:- Assessee had made investment and issued debentures to the tune of ₹ 8.41 cr., the return of which would be in the form of interest which is taxable. Hence, we are inclined to accept the argument of the Ld. AR that the same should be excluded while calculating disallowance u/s. 14A read with Rule 8D of the Rules. Similarly, in respect of investment made in the capital of a partnership firm, the assessee has earned taxable interest of ₹ 41,16,090/- and accordingly, the said investment also would be outside the purview of sec. 14A read with Rule 8D of the Rules and therefore, we direct both these amounts should be excluded while 8D(2)(iii) investment is computed. Coming back to computation of Rule 8D(2)(iii) of the Rules. This Tribunal has consistently followed the dictum of law laid down in REI Agro Ltd. Vs. DCIT [2013 (9) TMI 156 - ITAT KOLKATA ] in which the Tribunal held that only investment which has given rise to the exempted income should be taken into consideration while computing disallowance u/s. 14A read with Rule 8D. This order has been upheld by the Hon’ble High Court vide judgment [2013 (12) TMI 1517 - CALCUTTA HIGH C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 961 (hereinafter referred to as the Act ). Therefore, he deleted the disallowance of interest of ₹ 1,77,54,031/-. Aggrieved, revenue is before us. 3. We have heard rival submissions and gone through the facts and circumstances of the case. We find that the AO had disallowed the interest payment on unsecured loan on the ground that the assessee had diverted ₹ 36.76 cr. for non-business purposes out of the borrowed funds. The Ld. AR in order to controvert this contention of the AO argued that the assessee is having own funds to the tune of ₹ 25.90 cr. including the interest free loans in the form of optionally convertible debenture. Meaning thereby that, in any case, the disallowance of interest made by the AO should be reduced proportionately to the extent of availability of own funds. The AO, however, noted that an amount of ₹ 5,51,88,177/- was shown as payment of interest towards unsecured loans taken from different parties and out of the said amount, ₹ 1,46,54,769/- was shown in project expenses and was capitalized under the head work in progress . And the balance of ₹ 4,05,33,408/- was debited in the P L Account. The AO after perusal of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... credited and debited the same amount in P L Account, so it is revenue neutral. However, the Ld. CIT(A) has taken note of the inventory of closing work in progress in the P L Account and has stated that the assessee has offered income. However, the Ld. CIT(A) has lost sight of the fact that the same amount (Rs.21,45,945/- as opening work in progress and a sum of ₹ 1,76,61,621/- towards project expenses, totaling ₹ 1,98,07,566/-) has been debited in the P L Account and the Ld. CIT(A) has taken not of only the credit side of ₹ 1,98,07,566/- the P L Account, ignoring the debit side of ₹ 1,98,07,566/-. From this, it could be inferred that there is absolutely no income offered by the assessee towards the activity of work in progress as it is revenue neutral. However, on perusal of significant accounting policies of the assessee company enclosed in page 26 of the paper book which reveals on the accounting treatment given for revenue recognition, the assessee has stated as under: a)Construction work in progress reflects the cost incurred for project pending completion. The same shall be charged to revenue in the year in which income from sale of such project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the details of which have been given in page 9 of the impugned order of the ld. CIT(A) which has not been gone through by the Ld. CIT(A) or by the AO to give a factual finding as to whether the assessee had utilized the said amount of ₹ 36.76 cr. for business purpose as contended by the assessee. Hence, under these facts and circumstances it is necessary to determine the actual fact whether lending of monies and the investments in subsidiaries, associate companies, partnership firm as tabulated in page 6 of the assessment order and page 9 of CIT(A) s order are part and parcel of business activity of the assessee. This factual finding would be necessary to determine the fact of utilisation of borrowed funds for the business purposes which will in turn be essential to determine the allowability of interest u/s. 36(1)(iii) of the Act. Hence, in the fitness of things we deem it appropriate to remand this issue to the file of the AO to address this issue in the light of directions given above. The assessee is also at liberty to adduce evidence in support of its contentions. Accordingly, revenue s ground of appeal is allowed for statistical purposes. 7. In respect of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X
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