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2013 (9) TMI 114 - AT - Income TaxDisallowance made out of the interest claimed under section. 36(1)(iii), being the differential amount of interest paid on the borrowings and that charged on the advances to associate concerns - decline in the rate of interest charged from sister concerns - Held that:- in the absence of direct nexus between the funds borrowed and advances made, no disallowance can be made - Decided in favor of assessee. Addition u/s 40A(2) - difference in interest charged from the sister concern and interest paid to bank - Held that:- Assessing Officer has not challenged the genuineness of business expenditure but made the above addition of differential interest on the ground of reasonableness or because the transaction is adversely interpreted by him. Similar Interest has been paid in the preceding assessment years but no addition was made. As per facts the interest has been paid wholly and exclusively for the purposes of the business, hence, the reasonableness can not be doubted and the same can not be disallowed partly. Nature of transaction of purchase and sale of units - application of section 94(7) - held that:- section 94(7) applies to any person that buys or acquires any securities or unit within a period of 3 months prior to the record date; if such person sells or transfers such securities or units within a period of 3 months after such date. - s regards the amendment w.e.f. 1-4-2005 by which the period of sale or transfer of the unit has been extended from 3 months to 9 months, it is observed that the amendment is clearly prospective and in no way can be said to be clarificatory in nature so that it can apply to Assessment Year 2004-05. The language used in the amended section 94(7) is plain and unambiguous. - Decided in favor of assessee. Receipt of dividend subsequent to the purchase of units, - As regards the observation made by the Assessing Officer that the units have been transacted in a way that the appellant had indulged in this device of dividend stripping with a view to reducing the tax liability, it is observed that the Assessing Officer has simply accused the appellant without bringing any material on record to substantiate such accusation. It is pertinent to note that the concerned mutual fund is a SEBI approved and recognized one. It is not the Assessing Officer’s case that SEBI is a party to such colorable device. - Decided in favor of assessee. Disallowance of interest and other expenditure by invoking section 14A of the Income Tax Act as the funds were utilized in investments for earning exempt income - Learned Commissioner of Income Tax (Appeals) deleted the disallowance on the ground that the disallowance was made by the Learned Assessing Officer without any correlation or nexus having been established between such expenditure and dividend income. According to the Learned Commissioner of Income Tax (Appeals) it was a notional disallowance which cannot be upheld – Held that:- Disallowance of interest and other expenditure was also made in earlier years on earning of exempt dividend income – Matter remanded to the A.O. for disallowance of interest and other expenditure in the light of the decision of Hon’ble Bombay High Court in the case of Godrej and Boyce Mfg. Co. Ltd. v. Deputy Commissioner of Income-tax [2010 (8) TMI 77 - BOMBAY HIGH COURT] – Decided in favor of Revenue.
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