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TMI Blog2023 (10) TMI 22X X X X Extracts X X X X X X X X Extracts X X X X ..... . Interest disallowance under the third limb calculated at the rate of 0.5% of the average investment assessee stated that only the investments fetching exempt income should be considered for the purpose of calculating 0.5% disallowance. The details of the same has been placed as per which the average investment fetching exempt income is shown at Rs. 3.66 Cr. Remaining investments are either in mutual funds or other investments which do not fetch exempt income. Thus, applying the rate of 0.5% on the average investment yielding exempt income of Rs. 3.66 Cr, the disallowance under third limb would work out to Rs. 1,83,000/-. Disallowance u/s 14A stands confirmed partly. Alternate claim made by the assessee wherein it has been contended that disallowance u/s 14A of the Act cannot exceed the exempt income - As we fail to find any merit in this ground because assessee has stated that exempt income during the year is only Rs. 6,70,100/- being the dividend earned on the exempt income but he failed to take note of the fact that exempt income also comprises of long term capital gain from sale of equity shares at Rs. 4,85,822/- exempt u/s 10(38) of the Act, dividend income at Rs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ied in confirming the action of the AO towards disallowance of interest amounting to Rs. 1,58,99,942/- and such action of the Ld. CIT(A) in affirming the action of the AO is bad in law and in view of the facts and in the circumstances it may be held accordingly. Even otherwise and without prejudice the disallowance in such respect cannot be more than Rs. 47,08,373/- and in view of the facts and in the circumstances it may be held accordingly. 3. Without prejudice to Grounds No. 1 2 above, the Ld. CIT(A) s action in affirming the action of AO in making disallowance of expense of Rs. 17,03,930/- u/s 14A is bad in law and in view of the facts and in the circumstances it may be held accordingly. Even otherwise and without prejudice the disallowance so computed by AO u/s 14A is over and above disallowance already made towards interest and hence to such extent it is bad in law and it may be held accordingly. 4. Without prejudice to Grounds No. 1 to 3 above, the Ld. CIT(A) failed to appreciate the fact that for invocation of sec. 14A satisfaction as to correctness of books required as per said provision has not been recorded by AO and such invocation of sec. 14A in such re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are found without any substance and devoid of merits as the same submissions were filed before the AO who had rejected them after consideration of facts and circumstances of the case. I have noticed that AO had given opportunity of being heard to the appellant before making addition. AO had also discussed and incorporated appellant s submission in the assessment order. Further, AO is found to have given reasons as to why he had rejected the appellant s contentions. In the facts and circumstances of the case on hand, I am inclined to agree with the findings of the AO and all the additions made by the AO stand confirmed. All the grounds 1 to 4 taken by the appellant are dismissed. 5. Aggrieved, the assessee is now in appeal before this Tribunal. 6. Ld. Counsel for the assessee submitted that the assessee is engaged in two types of business of which one is of supply of railway track material under the sole proprietorship concern M/s. Krishna Industrial Corporation having turnover of Rs. 3.39 Cr and the second is business of purchase and sale of shares/equities and during the year there is a purchase and sale of shares at Rs. 2,43,46,488/- and Rs. 1,18,93,316/- respectively. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 47,08,373/-. 7. On the other hand, ld. D/R vehemently argued supporting the orders of both the lower authorities. 8. We have heard rival contentions and perused the records placed before us. The first issue for our consideration is disallowance u/s 14A of the Act which has been raised by the assessee in ground nos. 3, 4, 5 6. We observe that ld. AO has computed the disallowance u/s 14A of the Act at Rs. 17,03,930/- . The exempt income earned by the assessee during the year is Rs. 61,47,689/- which comprises of dividend income of Rs. 12,96,867/-, long term capital gain at Rs. 4,85,822/- and PPF interest at Rs. 92,372/-. Ld. AO has computed the disallowance u/s 14A of the Act applying Rule 8D of Income Tax Rules, 1962 which consists of three limbs. Under the first limb the disallowance of Rs. 39,864/- has been made towards the amount of expenditure directly relating to the income which does not form part of total income. There is no dispute at the end of the assessee regarding this amount. Under the second limb interest disallowance at Rs. 15,87,650/- has been made towards interest expenditure incurred by the assessee attributable towards application of funds for earning e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e has stated that exempt income during the year is only Rs. 6,70,100/- being the dividend earned on the exempt income but he failed to take note of the fact that exempt income also comprises of long term capital gain from sale of equity shares at Rs. 4,85,822/- exempt u/s 10(38) of the Act, dividend income at Rs. 12,96,867/- and PPF interest at Rs. 92,372/-. Therefore, this alternate ground no. 6 raised by the assessee is dismissed. 13. So far as ground no. 2 is concerned it is against the finding of ld. CIT(A) sustaining disallowance of interest amounting to Rs. 1,58,99,942/-. We notice that for computing the said disallowance, ld. AO has referred to a figure of Rs. 9,94,96,513/- being the debit balance of the proprietor s capital account standing in the books of sole proprietorship concern M/s. Krishna Industrial Corporation. Ld. AO based on this debit balance came to a conclusion that the said amount has been used by the proprietor in his individual name and since the source of the said sum is the unsecured loan, he disallowed the interest expenditure of Rs. 1,58,99,942/-. 14. We, however, notice that ld. AO was partially correct because the debit balance appearing in the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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