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2018 (2) TMI 1588 - AT - Income TaxInterest claimed as expenditure disallowed u/s. 36(1)(iii) - Held that:- No reason to interfere with the findings of Ld.CIT(A) holding that the investments are for business purposes and no amount of interest can be disallowed u/s. 36(1)(iii). The order of Ld. CIT(A) is as per the finding of facts by AO in consequential proceedings and in tune with the orders of ITAT in earlier years. Disallowance u/s 14A r.w.r. 8D - Held that:- Rule 8D(ii) envisages only the interest which is not directly attributable. Having given a finding that the interest paid is for the purpose of investment in business and allowing the same u/s. 36(1)(iii), the same cannot be considered as ‘directly not attributable interest’. When there is direct nexus with business, the same cannot be considered again u/r 8D(ii). Therefore, the disallowance of interest under Rule 8D(ii) does not arise. To that extent, the order of CIT(A) is not correct factually as well as legally. While examining the fresh investment of ₹ 2,82,67,573/- in KRAEL during the year, if any interest allowable to that investment out of borrowed funds, the corresponding interest is directly disallowable u/s. 36(1)(ii). But, he gave a finding that the investment is for the purpose of business, consequent to finding of AO in later year. While invoking rule 8D(ii), he should have at best considered that amount of investment for proportionate disallowance, but directly he took entire average of entire investment and disallowed, even the interest allowable under the head ‘business’. The order of CIT(A) is thus based on misconceptions and wrong appreciation of facts and law thus, not sustainable. Hence, his order and findings from paras 6.13 to 6.17 are thus, set aside. Neither the AO nor the CIT(A) has considered any amount for disallowance under Rule 8D(iii). Therefore, this forum cannot invoke the said rule. Disallowance u/s. 14A cannot be made/restricted, by this forum as there is nothing to disallow under Rule 8D(ii) and AO or CIT(A) has not disallowed any amount under Rule 8D(iii). The grounds are accordingly considered allowed.
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