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TMI Blog2020 (1) TMI 1049X X X X Extracts X X X X X X X X Extracts X X X X ..... uction, the Assessing Officer is to consider the genuineness of the business borrowings and that the borrowings was further purpose of business and genuine. Once, the genuineness is proved and interest is paid on the borrowings, no interest can be disallowed on the grounds that the assessee has not correctly used the amounts borrowed. Also in the case of SA Builders [ 2006 (12) TMI 82 - SUPREME COURT] held that in case of interest bearing loans taken and interest free advances given, what is to be looked into is the measure of commercial expediency and for the purpose of the business . Hence, keeping in view the facts of the case and legal prepositions laid down on this aspect of allowability of interest u/s 36(1)(iii), we hereby decline to interfere with the order of the ld. CIT (A). The appeal of the revenue on this ground is dismissed. Disallowance u/s 14A - suo-moto disallowance by assessee - CIT (A) deleted the addition owing to non-adherence in accordance with the provisions of Section 14A(2) - DR argued that to invoke Rule 8D(2), no satisfaction is required as it is an automatic provision for determining the disallowance - HELD THAT:- While a lot of emphasis is placed by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he interest bearing funds to group company without charging interest and the department has also filed appeal before the Hon'ble ITAT in A.Y. 2011-12 on the similar issue. 2. The ld. CIT (A) has erred in deleting the additions made by the AO u/s 14A of ₹ 37,40,940/- on the ground that provision of Sec. 14A(2) read with Rule 8D cannot be invoked unless the A.O. is dissatisfied about the correctness of the disallowance made by the assessee himself which is correctness of the suomoto disallowance. The A.O. demonstrated her dissatisfaction about the correctness of the suo-moto disallowance in her assessment order when she has elaborately discussed why additions of ₹ 37,40,940/- is being made u/s 14A of the I.T. Act." 3. Brief facts of the case are that the assessee has obtained loans of ₹ 17.15 crores on which interest of ₹ 1.44 crores has been paid. The assessee has used this amount towards extending interest free loans & advances, investments and capital work. The share capital and the reserves & surplus of the assessee are to the tune of ₹ 397.96 crores. Details of own funds Amount(lacs) Share Capital 10,707.46 Reserves & Surplus 29,088 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Sujani Textiles P. Ltd. (supra) is distinguishable on the facts that the amounts utilized in this case are for non-business purpose. Similarly, the case of Sarabhai Sons P. Ltd. (supra), it was argued that the predominant purpose of expenditure was different from that of the assessee who is in the regular business of power generation through gas turbines and running of multiplex theatres. 10. Heard the arguments of both the parties and perused the material available on record. 11. The assessee is in the business of real estate, entertainment & power generation and the loans & advances include investments in the property business of the assessee. Hence, it can be said that the advances recoverable included the advances which are business advances on which no interest is disallowable. It was also part of the record that another advances interest has been charged by the assessee as found out by the ld. CIT (A) on going through the Schedule 17 of the balance sheet. Since, the loans & advances have been given on account of commercial expediency and notional interest can be charged on such advances or interest can be disallowed u/s 36(1)(iii). In the case of Taparia Tools ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 247 CTR 162 (Del.). The relevant portion is as under: "Sub-section (2) of Section 14 A of the said Act provides the manner in which the Assessing Officer is to determine the amount of expenditure incurred in relation to income which does not form part of the total income. However, if we examine the provision carefully, we would find that the Assessing Officer is required to determine the amount of such expenditure only if the Assessing Officer, having regard to the accounts of the assessee, is pot satisfied with the correctness of the claim of the assessee in respect of such expenditure in relation to income which does not form part of the total income under the said Act. In other words, the requirement of the Assessing Officer embarking upon a determination of the amount of expenditure incurred in relation to exempt income would be triggered only if the Assessing Officer returns a finding that he is not satisfied with the correctness of the claim of the assessee in respect of such expenditure. Therefore, the condition precedent for the Assessing Officer entering upon a determination of the amount of the expenditure incurred in relation to exempt income is that the Assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee that no expenditure has been incurred in relation to income which does not form part of the total income under the said Act for such previous year, the Assessing Officer shall determine the amount of the expenditure in relation to such income in accordance with the provisions of sub-rule (2) of Rule 8D. We may observe that Rule 8D(1) places the provisions of Section 14A(2) and (3) in the correct perspective. As we have already seen, while discussing the provisions of Sub-sections (2) and (3) of Section 14A, the condition precedent for the Assessing Officer to himself determine the amount of expenditure is that he must record his dissatisfaction with the correctness of the claim of expenditure made by the assessee or with the correctness of the claim made by the assessee that no expenditure has been incurred. It is only when this condition precedent is satisfied that the Assessing Officer is required to determine the amount of expenditure in relation to income not includable in total income in the manner indicated in sub-rule (2) of Rule 8D of the said Rules. 31. It is, therefore, clear that determination of the amount of expenditure in relation to exempt income under Rule 8 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee, is not satisfied with correctness of the claim of the assessee in respect ,of such expenditure in relation to income which does not form part of the total income under this Act and section 14A(3) provides that, "the provisions of sub section (2) shall apply in relation to a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of the total income under this Act". While a lot of emphasis is placed by the counsel on wordings of section 14A(2) which refer to the need of Assessing Officer's satisfaction to the effect that the claim made by the assessee is incorrect, it simply overlooks the provisions of section 14A(3) which state that a disallowance u/s 14A(2) can also be made in a case in which assessee claims that no expenditure has been incurred for earning the tax exempt income. Therefore, a plain reading of the statutory provisions of section 14A(2) and (3) shows that when assessee offers a disallowance u/s 14A,the provisions of section 14A(2) read with Rule 8D cannot be invoked unless the Assessing Officer is satisfied about incorrectness of the disallowance so offered, but when assessee do ..... X X X X Extracts X X X X X X X X Extracts X X X X
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