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2013 (1) TMI 41 - ITAT MUMBAIDisallowance of expenses u/s 14A – Rule 8D - Expenditure incurred in relation of exempt income - Whether any income has been earned or not, expenses incurred in relation to the said investment which is not going to result into any taxable income has to be disallowed u/s 14A - Assessee had made investment in the units of mutual fund – Held that:- Following the decision in case of GODREJ AND BOYCE MFG. CO. LTD. (2010 (8) TMI 77 - BOMBAY HIGH COURT) that Rule 8D which is applicable only from assessment year 2008-09 and in respect of prior years, disallowance of expenses relating to exempt income both direct and indirect expenses has to be made on a reasonable basis after allowing opportunity of hearing to the assessee. Issue restore back to decide in light of said judgement AO. Disallowance of interest u/s 36(1)(iii) – Nexus between borrowing with the business activity - Assessee engaged in the business of syndication activities and insurance business - AO argued that syndication activities were of the nature of liaison activity resulting into commission income - Nexus between huge borrowings made by the assessee to the tune of Rs.4.59 crores with the business – Given interest free advances of Rs.1.13 crores – Held that:- In the immediate preceding year i.e. 2006-07, assessee had the same activities and interest on borrowings of Rs.3.70 crores had been allowed by the AO which means that AO accepted the nexus of borrowings with the business activities. Therefore, in the current year, no disallowance of expenses can be made in relation to opening balance of Rs.3.70 crores. The disallowance can only be made in relation to interest free advances given by the assessee. Therefore, disallowance has to be made only in relation to such interest free advances @ 14.5% as done in earlier year. Partly allowed in favour of assessee
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