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TMI Blog2019 (4) TMI 192X X X X Extracts X X X X X X X X Extracts X X X X ..... ovide special provisions for computation of disallowance which can be more than that of exempt income claimed by assessee?" 2. Ground No. 1 of the appeal is regarding the disallowance made by the Assessing Officer on account of interest expenditure of Rs. 66,26,803/- was restricted by the ld. CIT(A) to Rs. 77,732/-. 3. The assessee filed its return of income on 13/10/2010 declaring total income of Rs. 3,27,35,724/- while completing the scrutiny assessment U/s 143(3) of the Income Tax Act, 1961 (in short the Act) on 26/3/2013, the Assessing Officer made disallowance of Rs. 66,26,803/- U/s 36(1)(iii) of the Act on account of investment made by the assessee in the mutual fund units from the borrowed funds. The Assessing Officer also made disallowance U/s 14A of the Act of Rs. 1,62,04,699/-. On appeal, the ld CIT(A) deleted the addition by considering some fresh evidence without giving an opportunity to the Assessing Officer. The matter was carried to this Tribunal by the revenue and the Tribunal vide order dated 04/8/2016 remitted the matter back to the record of the Assessing Officer for deciding the issue afresh after verification and examination of the additional evidence as well ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, the ld. CIT(A) has rightly restricted the addition to the interest expenditure incurred on OD account. He has further contended that the other loan and borrowed amounts were for specific purpose and were not used for the purpose of investment in mutual funds. The ld AR has further submitted that the assessee's own interest free fund is more than the investment made during the year under consideration and therefore, no disallowance is called for u/s 36(1)(iii) of the Act. He has filed the balance sheet as on 31/3/2010 and submitted that the assessee was having its own interest free funds of more than the investment made in the mutual funds during the year under consideration. The ld AR has further submitted that the profit in the year under consideration is also more than the investment made in the mutual funds. He has relied on the order of the ld. CIT(A). 6. We have considered the rival submissions as well as relevant material on record. The Assessing Officer has made disallowance on account of interest expenditure by considering the debit balance in the OD account of Rs. 5,25,93,672/- and then applied average interest rate of 12.6% on the said debit balance to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of OD account was to the tune of Rs. 77,733/- only and the disallowance u/s 36(1)(iii) of the Act cannot exceed Rs. 77,733/-. It is an admitted fact that the OD account was used for making investment in mutual funds and therefore, in view of the above discussion and looking to the totality of facts and circumstances of the case, the disallowances of Rs. 66,26,803/- made by the AO u/s 36(1)(iii) of the Act is hereby restricted to Rs. 77,733/-." Thus, the ld. CIT(A) has not examined the actual moment and flow of funds in the OD account and has considered only the actual interest charged by the bank to the OD account of the assessee. There is no dispute that the assessee has made the investment of Rs. 130.31 crores in the mutual funds and the said investment was made through the OD account. However, since the debit balance in the OD account did not remain for a long period as there was a corresponding deposits in the OD account, therefore, the interest charged on the OD account is very less. The Assessing Officer while disallowing the proportionate interest has considered the average interest rate by considering the overall interest liability of the assessee, we find that the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,62,04,699/-. 8. The Assessing Officer after considering the interest disallowance U/s 36(1)(iii) of the Act has taken the balance interest expenditure of Rs. 27,39,19,108/- for the purpose of disallowance U/s 14A of the Act read with Rule 8D of the Income Tax Rules, 1962 (in short the Rules). Thus, the Assessing Officer worked out the disallowance on account of interest expenditure U/s 14A of the Act at Rs. 1,48,51,556/- and the disallowance of indirect administrative expenditure being .5% of average investment in mutual funds was made of Rs. 13,53,143/-. Thus, the Assessing Officer has made total disallowance U/s 14A of the Act at Rs. 1,62,04,699/-. The said disallowance made by the Assessing Officer was challenged before the ld. CIT(A). The ld CIT(A) held that the investment in mutual funds was made by the assessee from his own funds and therefore, no disallowance is called for on account of interest expenditure U/s 14A of the Act. As regards the disallowance of common administrative expenditure, the ld. CIT(A) has restricted the same to the dividend income earned by the assessee of Rs. 1,81,392/-. 9. Before us, the ld DR has submitted that as far as the investment made by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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