TMI Blog2017 (12) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) of rule 8D(2), the ld. AR submitted that such calculation suffers from infirmities which have not been sorted out by the ld. first appellate authority as well. She submitted that certain expenses which do not relate to exempt income have also been considered. Without going into the details of such expenses, I consider it expedient to set aside the impugned order on this score as well and remit the matter to the file of Assessing Officer for deciding this issue as per law, after allowing reasonable opportunity of being heard to the assessee. It is made clear that if the disallowance under clauses (i) and (iii) of Rule 8D(2) exceeds the amount of exempt income, then, the disallowance should be restricted to the extent of exempt income as has been sustained in the first appeal. If, however, this exercise results in some further relief to the assessee, the same should be granted. Enhancement of income u/s 57(iii) - assessee earned interest income on fixed deposits with the bank - deduction was claimed for a sum being the amount paid to the bank on overdraft facility and the remaining amount was offered to tax - Held that:- The issue raised through this ground is no more res i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /-. As against that, the assessee s capital at the close of the year stood at ₹ 2.97 crore as against the opening capital of ₹ 2.26 crore. This shows that investment in securities yielding exempt income was made out of own funds of the assessee. 6. I have heard the ld. AR and perused the relevant material on record. Section 36(1)(iii) provides for deduction of interest of the amount of interest paid in respect of capital borrowed for the purpose of business or profession. The essence of this provision is that the interest should be allowed so long as the capital borrowed, on which such interest is paid, is used for the purpose of business or profession. If, however, an assessee is having its own interest free surplus funds and such funds are utilised as interest free advances even for a non-business purpose, there cannot be any disallowance of interest paid on interest bearing loans. The Hon'ble Bombay High Court in CIT vs. Reliance Utilities and Power Ltd. (2009) 313 ITR 340 (Bom) , has held that where an assessee possessed sufficient interest free funds of its own which were generated in the course of relevant financial year, apart from substantial shareholder ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1999, is fallacious. In upholding the order of the Tribunal, the Hon ble High Court held that: If there be interest free funds available to an assessee sufficient to meet its investment and at the same time the assessee had raised a loan, it can be presumed that the investments were from the interest free funds available . Thereafter, the judgment of the Hon ble Supreme Court in the case of East India Pharmaceutical Works Ltd. Vs. CIT (1997) 224 ITR 627 (SC) and also the judgment of the Hon ble Calcutta High Court in Woolcombers of India Ltd. Vs. CIT (1981) 134 ITR 219 (Cal) were considered. It was finally concluded that: The principle, therefore, would be that if there are funds available both interest free and overdraft and/or loans taken, then a presumption would arise that the investments would be out of interest free funds generated or available with the company, if the interest free funds were sufficient to meet the investment . Consequently the interest was held to be deductible in full. 7. From the above judgment, it is manifest that there can be no presumption that the shareholders fund of a company was utilized for purchase of fixed assets. If an assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the total income. The effect of this decision is that while making disallowance under Rule 8D(2)(iii), it is only the average of those investments which have yielded exempt income are to be taken into consideration and not the average of all investments as has been done by the AO in this case. Adverting to the facts of the instant case, it is seen that the disallowance has been made in ignorance of the above mandate of law as approved by the Hon ble Delhi High Court. I, therefore, set aside the impugned order and direct the computation of correct amount of disallowance under clause (iii) of Rule 8D(2). 12. As regards the computation made under clause (i) of rule 8D(2), the ld. AR submitted that such calculation suffers from infirmities which have not been sorted out by the ld. first appellate authority as well. She submitted that certain expenses which do not relate to exempt income have also been considered. Without going into the details of such expenses, I consider it expedient to set aside the impugned order on this score as well and remit the matter to the file of Assessing Officer for deciding this issue as per law, after allowing reasonable opportunity of being heard to ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
