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2006 (10) TMI 250 - AT - Income TaxExpenditure incurred in relation to income not includible in total income - section 14A are not applicable to the expenditure incurred in relation to earning of dividend income? - disallowance of the interest paid - investment in shares dividend - exempt u/s 10(33) - HELD THAT:- It is an admitted position that part of the borrowed money was utilized for the purpose of investment in shares, from which dividend income is received, which is exempt from tax. In view of the decision of Ahmedabad Bench in the case of Harish Krishnakant Bhatt [2004 (8) TMI 342 - ITAT AHMEDABAD] the expenditure being the interest on borrowed capital for the purpose of investment in shares dividend from which is exempt u/s 10(33) of the I.T. Act is not to be allowed as an expenditure in view of the provisions of section 14A of the I.T. Act. The interest on borrowings attributable to investments made in foreign companies is to be considered for allowance u/s 57(iii) of the I.T. Act and the same shall be considered by the Assessing Officer as per the provisions of the Act. The assessee has also utilized part of the borrowings raised during the year for investment made in units of growth fund. The claim being of investment in growth plan, no income from which is received from year-to-year and the annual accretions are added to the NAV of the growth fund without any distribution of income which is taxable in the hands of the assessee-company for the year under consideration. In view of the facts that the income from such investments is not amenable to tax, the interest on such borrowings utilized for making investments in the units of the growth fund is not allowable as an expenditure in view of the provisions of section 14A of the I.T. Act. The issue at length was also considered by Co-ordinate Bench of Mumbai Tribunal in Macintosh Finance Estate Ltd.’s case [2006 (2) TMI 578 - ITAT MUMBAI] and it was held that interest expenses cannot allowed to be added to the cost of investment. Therefore, this ground of appeal raised by the assessee is partly allowed for statistical purpose. Disallowance on total administrative and other expenses - HELD THAT:- We find from the perusal of the administrative expenses that no expenditure is directly relatable to the earning of dividend income and there is no merit in making ad hoc disallowance of portion of the expenditure being attributable to earning of dividend income. Accordingly, we direct the Assessing Officer not to disallow any expenditure towards earning of dividend income. In the result, the appeal filed by the assessee is partly allowed.
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