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2016 (5) TMI 1302 - AT - Income TaxDisallowance of total interest paid on term loan taken from Canara Bank for investment made in acquiring 100% shares of a subsidiary - assessee claimed that this investment was made out of commercial expediency and therefore the learned CIT(A) ought to have allowed the interest paid under section 36(1)(iii) or 37(1) - Held that:- As in the assessee’s own case for A.Y. 2005-06 interest paid for borrowings used for purpose of acquiring shares which has resulted in earning of dividend, and all other expenses in relating to the earning of dividend income will not be allowed as deduction under any other provisions of the IT Act. - Decided against assessee Disallowance of proportionate interest attributable to capital work-in-progress out of the total interest paid - interest free funds were utilized for purchase of capital assets - Held that:- We concur with the findings of the learned CIT(A) in the impugned orders that an examination of the financial statements for the year under consideration evidence that funds (i.e. own interest free funds and borrowed interest bearing funds for business) are mixed and the share capital and reserves which is claimed to be interest free funds is much less than the fixed assets and current assets and therefore no interest free funds were available to the assessee for being utilized in capital work-in-progress. In this factual matrix of the case, we find no reason for interference in the impugned orders of the learned CIT(A) on this issue of proportionate disallowance of interest attributable to capital work-in-progress and therefore uphold the impugned orders for assessment years 2006-07 to 2010-11. Consequently, the assessee’s grounds 2(a) to (c) for assessment years 2006-07 to 2010-11 are dismissed. Disallowance under section 14A r.w. Rule 8D - Held that:- In the case on hand admittedly, the factual position was that the assessee had not earned or received any exempt income in the previous years relevant to assessment years 2009-10 and 2010-11. In these circumstances, in our considered view, the ratio of the decision of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. (2015 (9) TMI 238 - DELHI HIGH COURT) would apply squarely in the case on hand wherein held that no disallowance under section 14A of the Act could be made in a year in which no exempt income had been earned or received by the assessee. It was held that the expression ‘does not form part of the total income’ in section 14A of the Act envisages that there should be an actual receipt of income which is not includible in the total income during the relevant previous years for the purpose of disallowing any expenditure incurred in relation to the said exempt income - Decided in favour of assessee
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