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TMI Blog2018 (9) TMI 527X X X X Extracts X X X X X X X X Extracts X X X X ..... iii) of the Act which was rightly disallowed by the Assessing Officer. AR made an alternative claim that the assessee earned agricultural income on the said land to the tune of ₹ 1,93,540/- and therefore, interest should be disallowed to that extent only and the total interest cannot be disallowed - Held that:- Merely because the assessee did not earn agricultural income to the extent of disallowance of interest, disallowance cannot be reduced. It is not hard and fast rule that on each and every investment in exempted yielding asset, the assessee would earn income equivalent to the interest income. Earning of exempted income is not certain because it depends on various factors. The established facts are that the assessee used the borrowed funds for the purpose of acquisition of agricultural land and not for the purpose of business. Therefore, once the income is exempted u/s. 10(1) of the I.T. Act, the said income is directly related to the investment made in the agricultural land, it is not possible to accept the alternative contention of the Ld. AR that part of the interest may be disallowed out of the total disallowance made by the Assessing Officer. This contention of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds by the assessee which calls for proportionate disallowance. According to the CIT(A), it is not for the Assessing Officer to determine how much investment the assessee should make in land for the purpose of assessee s business. It was stated that business interest was well understood by the assessee and the Assessing Officer cannot step into the shoes of the businessman so as to determine how the business is to be conducted. In view of the above, the CIT(A) held that there was no merit in the addition of ₹ 90,73,279/- made by the Assessing Officer and deleted the same. 4. Against this, the Revenue is in appeal before us. The Ld. DR submitted that objective and actual business of assessee over the years was to provide asset management service to various customers directly from customer s data available in various branches of Muthuttu Mini Group of Companies and the purchase of land from interest bearing funds was not for the purpose of business of the assessee but for the purposes of cultivation of tapioca, which is exempt being agricultural income. It was submitted that once the income from cultivation of tapioca was claimed as agricultural income and exempt from income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .93 66,51,500 75,15,474.93 113% Profit before Tax 1,11,79,809.27 7,77,744 1,04,02,065.27 1337% Income Tax 40,85,887 1,10,000 39,75,887 3614% Profit After Tax 70,93,922.27 6,67,744 64,26,178.27 962.37% Net Profit Ratio 25% 10% 15% Thus the Ld. AR stated that there was no addition of any fixed assets during the year. Further the Ld. AR gave the details of Fixed Assets and Long Term borrowings as follows: Particulars Fixed Assets Long Term Borrowings Opening Balance 7,57,53,541 8,25,10,213 Closing Balance 7,34,44,336 9,09,56,368 Difference (23,09,205) 84,46,155 Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s a business expenses. The Ld. AR relied on the judgment of the Supreme Court in the case of CIT vs. M/s. Chettinad Logistics Pvt. Ltd. 2018 (7) TMI 567 wherein it was held that in the instant case, there is no dispute that no income i.e., dividend, which did not form part of total income of the Assessee was earned in the relevant assessment year. Therefore, to our minds, the addition made by the Assessing Officer by relying upon Section 14A of the Act, was completely contrary to the provisions of the said Section. According to us, Rule 8D, only provides for a method to determine the amount of expenditure incurred in relation to income, which does not form part of the total income of the Assessee. Rule 8D, in our view, cannot go beyond what is provided in Section 14 A of the Act. - Decided in favour of assesse . Thus the Ld. AR submitted that the amount of disallowance cannot exceed exempt income. The assessee had earned exempt income of ₹ 1,93,540/-, whereas the assessing officer disallowed an amount of ₹ 91,49,868/. In the circumstance, it was requested that the appeal filed by the department may be dismissed. 6. We have heard the rival parties and perused the rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for deduction of interest u/s. 36(1)(iii) of the Act which was rightly disallowed by the Assessing Officer. 7.1 The Ld. AR made an alternative claim that the assessee earned agricultural income on the said land to the tune of ₹ 1,93,540/- and therefore, interest should be disallowed to that extent only and the total interest cannot be disallowed. We do not agree with the alternative contention of the Ld. AR. It is established clearly that the assessee used the borrowed funds for the purchase of agricultural land. The Assessing Officer has considered the proportionate interest funds used for the purchase of agricultural land and considered only ₹ 90,73,279/- out of the total interest paid of ₹ 1,39,31,775/-. Being so, there cannot be further allowance of any relief to the assessee. In other words, merely because the assessee did not earn agricultural income to the extent of disallowance of interest, disallowance cannot be reduced. It is not hard and fast rule that on each and every investment in exempted yielding asset, the assessee would earn income equivalent to the interest income. Earning of exempted income is not certain because it depends on various facto ..... X X X X Extracts X X X X X X X X Extracts X X X X
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