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2017 (11) TMI 1208 - AT - Income TaxDisallowance of portion of the interest expenditure - Held that:- Since the advances given by the assessee to the two concerns were for the purpose of business of land aggregation for its infrastructure development project in Navi Mumbai, and thus a part of the interest expenditure relatable to such deployment of funds could not be disallowed u/s 36(1)(iii) of the Act. Thus, having regard to the above discussion, the partial interest expenditure disallowed by the lower authorities is not justified, and is hereby directed to be deleted. There is no claim by the bank of recovering any penal interest. In our considered opinion, the plea of the assessee with regard to the disallowance of penal interest is not without merit. Ostensibly, if there is no claim/recovery by the bank of penal interest, the question of any disallowance of the same would not arise. So however, since the said fact involves a factual appreciation, we direct the Assessing Officer to verify as to whether the penal interest has been paid to the bank or not. If it is found that no penal interest of ₹ 5,40,00,000/- has been paid to the bank, no disallowance would be warranted and the entire expenditure of interest would be allowable u/s 36(1)(iii) of the Act in view of our aforesaid discussion. If his finding is to the contrary, the Assessing Officer shall be free to decide the allowability as per law, after hearing the assessee. Therefore, for this limited purpose, the matter is remanded back to the file of the Assessing Officer. Since we have held that the interest expenditure is allowable, as a consequence, the expenditure incurred by the assessee in respect of loan processing charges deserves to be allowed Disallowance sustained u/s 14A - Held that:- Factually, the investments during the year which have yielded the exempt income are very much the same, which were held by the assessee in the earlier assessment year. Therefore, once no interest expenditure has been found to be relatable to such investments in the past, then, in the instant year it is inconceivable as to how certain interest expenditure can be attributable to the same. Even otherwise, we find that the interest expenditure debited by the assessee in its Profit & Loss Account is majorly on account of loan raised from Central Bank of India, which we have already discussed in the earlier paras and the balance of the expenditure on car loan and on late payment of TDS. None of the aforesaid elements of interest expenditure can be said to be relatable to the exempt income. It is quite well-settled that interest expenditure which are directly attributable to the taxable income cannot form a part of the interest expenditure which is considered for disallowance as per Rule 8D(2)(ii) of the Rules. Considering the entirety of facts and circumstances of the case, in our view, no disallowance in terms of Rule 8D(2)(ii) of the Rules is merited out of interest expenditure. Thus, on this aspect, assessee succeeds. Disallowance out of overheads/administrative expenditure as per Rule 8D(2)(iii) the only plea of the assessee is that the investments which have not yielded the exempt income be excluded while computing the disallowance. The said plea of the assessee is supported by the judgement of the Hon'ble Delhi High Court in the case of Cheminvest Ltd. vs. Commissioner of Income Tax (2015 (9) TMI 238 - DELHI HIGH COURT). On this aspect, we direct the Assessing Officer to recompute the disallowance as per Rule 8D(2)(iii) of the Rules after excluding the investments which have not yielded the exempt income during the year.
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