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2016 (3) TMI 724 - AT - Income TaxDisallowance made under Section 14A on account of indirect administrative expenses under Rule 8D(2)(iii) - Held that:- There is no movement in the investment portfolio except ₹ 20,000 which too in NSC. Accordingly when there is no movement in the investment portfolio, then, we are in agreement with the claim of the assessee that there is no expenditure incurred by the assessee on account of indirect expenditure for earning the dividend income. Even otherwise while applying the provisions of section 14A and computing the quantum of disallowance under Rule 8D(2)(iii), it cannot exceed the amount which is attributable for the earning the exempt income. Since the formula given in the Rule 8D does not recognize the actual expenditure incurred by the assessee but it calculates the disallowance being 0.5% of the average investment therefore, this computation of disallowance cannot disregard and over ride the actual expenditure attributable for earning the exempt income. Accordingly, we set aside the orders of the authorities below on this issue and delete the disallowance made by the Assessing Officer on account of indirect expenditure under section 14A by applying Rule 8D(2)(iii). - Decided in favour of assessee Disallowance under section 36(1)(iii) being interest calculated at the rate of 10% on the increase in work-in-progress - Held that:- When there is no dispute that the interest expenditure was incurred by the assessee on the term loan used for expansion of its business, then the same cannot be allowed as revenue expenditure but has to be capitalized as cost of the expansion being part of the work in progress. Accordingly, we do not find any error or illegality in the orders of authorities below on this issue. - Decided against assessee Disallowance of interest attributable to the diverted fund to the related parties by invoking the provisions of Section 40A(2) - Provisions of section 40A(2) invoked and a proportionate disallowance of interest expenditure made - Held that:- We find that when there is no fresh investment during the year under consideration therefore, in view of our finding on this issue in the earlier assessment years, we do not find any error or illegality in the order of the CIT (Appeals) who has recorded that the assessee's own funds are more than ₹ 220 Crores. There is no dispute on this fact that the assessee's own fund as recorded by the CIT (Appeals) amounting to ₹ 220.52 Crores. Therefore, this amount covers the disallowance made by the Assessing Officer by applying the provisions of section 40A(2) of the Act. Accordingly in view of our finding in the appeals for the earlier assessment years, we do not find any error or illegality in the order of the CIT (Appeals) in deleting the disallowance made by the Assessing Officer on account of interest expenditure under Section 14A as well as under Section 40A(2) of the Act. It is pertinent to note that during the year under consideration the interest free advance to the sister concerns are shown at ₹ 128.11 Crores which again is a reduction in the amount of advance to the related parties from the earlier years. Therefore when the assessee was having its own sufficient funds of more than ₹ 220 Crores which covers the advance given to the related parties, then the Assessing Officer is not justified in invoking the provisions of section 40A(2) of the Act in making the disallowance of interest expenditure - Decided against revenue
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