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2006 (2) TMI 578 - ITAT MUMBAIDisallowance u/s 14A - interest on borrowed funds - used for acquiring shares as investment - Capital gains - Cost Of Acquisition - HELD THAT:- It is now settled position that income from investment i.e., dividend is exempt and hence as per the provisions of section 14A, no interest expenses on this account is allowable. The judgment of Hon’ble Jurisdictional High Court rendered in the case of Tata Chemicals Ltd.[2002 (4) TMI 42 - BOMBAY HIGH COURT] does not help the case of the assessee because in this case, it is held by Hon’ble High Court that a positive finding is given by the Tribunal that investment in tax-free bonds has been in the course of business and since it is a finding of fact, no substantial question of law arises. The Tribunal order in this case was passed on 14-1-1999 whereas section 14A was inserted with retrospective effect by Finance Act, 2001 and hence section 14A was not available before the Tribunal. Thus, we set aside the order of learned CIT(A) on this issue and restore this issue to the file of the Assessing Officer with a direction to quantify the amount of interest expenses allowable with regard to investment in stock-in-trade out of borrowed funds and dividend received on shares held as stock-in-trade. The Assessing Officer should allow the interest as per above discussion after providing adequate opportunity of being heard to the assessee. This ground is partly allowed for statistical purposes. It is settled position that such interest is allowable under the head ‘Income from other sources’ and in this year, the same is not so allowable because of section 14A as per which, no expenses is allowable, which are incurred for earning an exempt income and since dividend has been made exempt u/s 10(33) from 1-6-1997 being the date from which section 115-O was inserted by the Finance Act, 1997. Once we find that interest expenses is an allowable expenditure under the head ‘Income from other sources’, it cannot be allowed to be added to the cost of investment only because in this year, no deduction is allowable because the dividend income has been made exempt. The issue in the present case is squarely covered against the assessee by the judgment of Hon’ble Calcutta High Court rendered in the case of L.N. Dalmia [1993 (3) TMI 15 - CALCUTTA HIGH COURT]. In this case also, the judgment of Hon’ble Delhi High Court rendered in the case of Mithlesh Kumari [1973 (2) TMI 11 - DELHI HIGH COURT] was considered by Their Lordships and the same was distinguished because in this case, the investment was in shares whereas in the case of Mithlesh Kumari (supra) the investment was in plots of land. Thus, this issue is decided against the assessee and this ground is rejected - In the result, this appeal of the assessee is partly allowed for statistical purposes.
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