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2014 (8) TMI 1057 - AT - Income TaxDisallowance u/s 14A - Held that:- CIT(A) examined the investment if any made during the year and whether the same was out of borrowed funds and has to exempt income or taxable income earned by the assessee on those investments. It was found that total investment during the year was ₹ 18.09 crores. It was further found that investment of ₹ 18 crores was out of borrowed funds but was only for a short period of two days. Whatever income was yielded through these investments, was offered as taxable income by the assessee in its return of income. It was also found by the CIT(A) that balance investment of ₹ 9,500/- was made in a company incorporated in Abu Dhabi, dividend income was also taxable. Accordingly, though disallowance was warranted u/s.14A, the CIT(A) also examined investment made after 31-3-2006, which had yielded only taxable income and recorded a finding to the effect that no direct or indirect expenditure was incurred by the assessee during the year for earning exempt income. Accordingly, he deleted the disallowance of interest expenditure of ₹ 77,82,750/- made by the AO. In respect of disallowance of administrative expenses to the tune of ₹ 21,27,075/-, the CIT(A) after following the order of the Tribunal for A.Y.2005-06 held that administrative and managerial expenditure of ₹ 7,12,177/- being 2% of total exempt income was attributable to earning of exempt income. Accordingly, disallowance was restricted to ₹ 7,12,177/-. No reason to interfere in the order of CIT(A) for deleting the interest expenditure and restricting the disallowance of other expenses to the tune of ₹ 7,12,177/-.- Decided against revenue Disallowance of interest claimed u/s.36(1)(iii) - Held that:- Advance of ₹ 3.30 crores was made by the assessee to M/s Al Rahba International Trading LLC, Abu Dhabi, which is an entity operating in breeding and processing of poultry based in Abu Dhabi. Under Abu Dhabi law, any entity operating in Abu Dhabi needs to necessarily have a majority shareholding by a resident domiciled in Abu Dhabi. This, however, does not prohibit the profit sharing ratio and funding ratio to be different. However, share of the assessee company in the capital of M/s Al Rahba International Trading LLC was restricted to 45% because of the shareholding restriction in Abu Dhabi. In respect of profit and loss, it was decided by the partners that share of assessee would be 70%. Accordingly, part of the funding was required to be attributed towards share capital in the ratio of shareholding while the balance funding was required to be structured as loan. Thus, the assessee had satisfactorily explained the business expediency of investment of ₹ 3.30 crores in the said company for the purpose of business only i.e. for getting more share of profit in that company. The detailed finding recorded by the CIT(A) at para 2.3 with regard to application of funds for the purpose of business has not been controverted by the department by bringing any positive material on record. Accordingly, we do not find any reason to interfere in the findings of the CIT(A) for deleting the disallowance of interest made by the AO - Decided against revenue
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