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TMI Blog2019 (7) TMI 701X X X X Extracts X X X X X X X X Extracts X X X X ..... vented by sufficient reason, we condone the delay and admit the appeal for hearing and adjudication. 3. Brief facts as taken from the appeal for AY 2009-10 are, assessee filed his return of income for the AY 2009-10 on 27/09/2009 admitting income of Rs. 6,55,950/-. Subsequently, the case was selected for scrutiny and notices u/s 143(2) and 142(1) were issued. In response, AR of the assessee submitted all the information called for. 3.1 Assessee's income consists of income from house property, income from salary, income from business being share income from partnership firm M/s Sri Durga Traders and income from other sources being dividend received from various persons/concerns. The share income from partnership firm and the dividend received were claimed as exempt. In the computation of income, assessee claimed loss on account of interest paid to the tune of Rs. 12,93,947/-. 3.2 During the assessment proceedings, the AO verified the interest paid details along with return of income, it was noticed that total interest paid by the assessee amounted to Rs. 15,35,470/-, out of which, interest received of Rs. 2,41,523/- was reduced and the net amount of interest paid of Rs. 12,93,947 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... during the year was out of the total investment of Rs. 2 lakhs made in different companies over a period of time is out of his own funds and there was no nexus between the borrowed money and investment made in the shares of the companies. By relying on various case laws, he submitted that no addition was called for u/s 14A of the Act. 6. After considering the submissions of the assessee, the CIT(A) reduced the disallowance made by the AO u/s 14A by observing as under: "06.0 The submission of the appellant and the assessment order have been carefully considered. The appellant has shown a total investment in shares of Rs. 2,42,53,505/-. Out of this, Rs. 2,40,20,500/- was invested in equity shares of M/s Pancharatna Metal Processing ltd. and the balance was invested in the companies from which a dividend income of Rs. 29,599/- has been received during the previous year under consideration. The assessee has also shown interest income of Rs. 2,41,523/- on loans/advances given and interest from bank etc. According to the appellant, his own capital was utilised for making investments, the income from which were exempt and therefore, Sec 14A were not applicable to his case. 06.1 It is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ising the following grounds of appeal: 1. The learned Assessing Officer erred in making a disallowance for a sum of Rs. 12,32,966/- in terms of section 14A and the learned CIT(Appeals), Hyderabad has erred in upholding the same. 2. The appellant craves leave to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if it is considered necessary." 8. Before us, ld. AR filed written submissions, which are as under: " With reference to the above we would like to inform you that the dividend income of Rs. 29,558/- was received by the assessee from various companies (including listed companies) in which the assessee has made an investment. The detail of investments made has been enclosed as Annexure 1 for your ready reference). This is to inform you that out of Rs. 29,558/-, no dividend was received from Pancharatna Metal Processing Limited. 1. The interest income received on the investment made out of the borrowed funds is Rs. 2,41,523/-. Particulars Amount in Rs. Interest income received Rs. 2,41,523/- Less: Interest paid Rs. 15,35,470/- Net Interest paid Rs. 12,93,947/- From the above table, it can be drawn th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee had sufficient proprietary funds for investment, there could be no resort to section 14A so as to disallow any part of the interest on borrowed funds. Following the above case law, even if the assessing officer calculates the expenditure which does not form part of total income, he must do it by taking the proprietary funds on a proportionate basis. As on 31.03.2009, the assessee has an amount of Rs. 66,19,504/- in his capital account. As such, interest received on such investments must be reduced from the same. 9. On the other hand, ld. DR relied on the orders of revenue authorities. 10. Considered the rival submissions and perused the material on record. We notice that assessee is earning income form house property, income from salary, income from business being share income from partnership firm M/s Sri Durga Traders and income from other sources being interest/dividend received from various persons/concerns. During this year, as per the balance sheet submitted before us, it is noticed that assessee having his own capital to the extent of Rs. 66.19 lakhs and borrowed loans to the extent of Rs. 2.37 crores and assessee has utilized the funds to invest in shares to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has borrowed majority of the funds from lenders and made investment in M/s Pancharatna Metal Processing Ltd. It is clearly an investment activity, which is not earned any income during this year. Rule 8D can be applied only when there is mixed funds available with the assessee, which cannot be segregated, but, considering the financial pattern of the assessee, it is clear that interest expenditure incurred by the assessee is towards investment activities. Therefore, this expenditure can be set off against income from investments. Therefore, assessee cannot claim any expenditure, which is exempt from tax i.e. dividend income as well as share income from partnership firm. Therefore, in our considered view, assessee is not eligible to claim portion of interest expenditure incurred towards investment activities, which has not earned any income. We notice that CIT(A) has allowed the interest expenditure proportionate to the borrowed funds and own funds. Therefore, we are inclined to accept the findings of the ld. CIT(A) and accordingly, interest expenditure is allowed proportionately to the own funds available with the assessee i.e. 22% and 78% of the interest expenditure is sustained. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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