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2017 (2) TMI 738 - AT - Income TaxDisallowance u/s 14A - Held that:- We observe that assessee had earned exempt dividend income of ₹ 65.33 lacs and also paid interest of ₹ 15.52 lacs on borrowed funds and assessee’s investment as on 31.03.2007 stood at ₹ 9.52 crores as against ₹ 10.38 crores as on 31.3.2006. Further amended Rule 8-D with respect to disallowance u/s 14A of the Act came in effect from Asst. Year 2008-09 whereas in this appeal we are dealing with Asst. Year 2007-08. We find force in the arguments of the ld. AR that ld. CIT(A) has failed to appreciate the fact that the assessee has already offered income as taxable income and hence ld. Assessing Officer erred in invoking provisions of section 14A of the Act since corresponding income has already been offered to tax. As regards balance disallowance of ₹ 97,314/- i.e. (Rs.5,76,925 – ₹ 4,79,611) we find that assessee’s investment as on 31.03.2007 stands at ₹ 9.52 crores whereas interest free funds which included share capital and reserves stood at ₹ 38.42 crores as on 31.3.2007 which means that assessee’s interest free funds is almost 4 times the investment made. CIT vs. Torrent Power Ltd. (2014 (6) TMI 185 - GUJARAT HIGH COURT) has held that if the assessee has sufficient interest free funds to cover up the investment then no disallowance of interest expenses is called for.As in the present case out of the total disallowance of ₹ 5,76,925/- PMS charges of ₹ 4,79,611/- has already been disallowed by adding it back to the business income and as far as remaining amount of ₹ 97,314/- is concerned, we find that assessee is having sufficient interest free funds to cover up the investments and in this case no disallowance on interest expenses is called for. We accordingly delete the disallowance u/s 14A and allow the appeal of assessee.
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