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2017 (3) TMI 78 - AT - Income TaxDisallowance u/s section 14A read with rule 8D - Held that:- A.R. has brought our attention to the order of the Tribunal in the own case of the assessee for A.Y. 2006-07 wherein the Tribunal has restricted the disallowance under section 14A in similar circumstances to the extent of 5% of the exempt income earned by the assessee for that assessment year under consideration. Following the same yardstick, we restrict the disallowance under section 14A to the extent of 5% of the exempt income for this year also. The appeal of the assessee is therefore treated as partly allowed. Disallowance of expenditure - Held that:- Hon’ble Bombay High Court in the case of CIT vs. Srishti Securities (P.) Ltd. (2009 (1) TMI 408 - BOMBAY HIGH COURT ) while relying upon various case laws, has held that if the capital has been borrowed for the purpose of business or profession of the assessee company then the interest paid on the borrowed funds is an allowable expenditure. It has been further held that in case of an investment company, the amount borrowed may be utilised for the purpose of acquisition of stock in trade or for the purpose of acquisition of capital assets. The ratio of the above decision of the Hon’ble Bombay High Court squarely applies in the case of the assessee. Even otherwise as observed above, we have already directed for disallowance under section 14A at the rate of 5% of the dividend income earned. The said disallowance made under section 14A will also take care of the interest expenditure incurred by the assessee on investments relatable to earning of exempt income. Under the circumstances, no further disallowance is attracted in this case. Allowable expenditure u/s 36 - Held that:- The interest expenditure incurred by the assessee for the purpose of strategic investment as the investment being the business of the assessee is an allowable expenditure under section 36(1)(iii) of the Income Tax Act. Computation of disallowance under section 14A - Held that:- Direct the AO to exclude the strategic investments made in group/associate companies for the purpose of computation of disallowance under section 14A read with Rule 8D.
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