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2016 (8) TMI 51 - AT - Income TaxDisallowance u/s. 14A - whether disallowance can be made under Rule 8D? - Held that:- Following the principles laid down by the Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd., [2009 (1) TMI 4 - BOMBAY HIGH COURT] we are of the opinion that no part of the interest paid on the borrowed funds can be disallowed under Rule 8D(2)(ii). Moreover, if at all there is any diversion of funds that should trigger disallowance u/s. 36(1)(iii) i.e., for diversion of funds from the business. AO has not disallowed any amount u/s. 36(1)(iii). In view of this, we are of the opinion that the interest paid on term loans obtained cannot be considered as interest which is not directly attributable to any particular income or receipt under Rule 8D(2)(ii). In view of this, disallowance of ₹ 11,49,176/- invoking the sub-Rule 2(ii) is set aside. Coming to the disallowance invoking Sub- Rule (2)(iii) of 0.5% of average value of investment, Rule 8D(2) (iii) specifies that an amount equal to ½% of the average value of investment, income from which does not or shall not form part of the total income, as appear in the balance sheet of assessee on the first day and the last day of the previous year has to be attributed. Working has to be made on the investment as specified, without segregating them on income yielding or non-income yielding during the year. The investment in Bill Roth Hospitals Ltd., has potential to earn dividend in a later year. Thus AO is correct in disallowing 0.5% of the average investments as available in the balance sheet. To that extent, assessee’s contentions are rejected. - Decided partly in favour of assessee
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