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2019 (4) TMI 192 - AT - Income TaxDisallowance of interest u/s 36(1)(iii) - allegation that fund were used for purchase of mutual fund - HELD THAT:- Neither the AO nor the CIT(A) has verified the source of these credits in the OD account whether these transfers in the OD account were made from the other loan account or assessee’s own fund. If these transfers in the OD account are made from the assessee’s own fund then certainly the disallowance to the extent of the interest charged on the OD account can be considered for the purpose of investment made in the mutual funds but if the said transfer of fund in the OD account is from other loan account or any part of fund is from some other loan account then the disallowance has to be calculated based on the actual borrowed fund utilized for investment in mutual funds. Since the Assessing Officer has considered the amount therefore, the disallowance should not exceed the amount which was disallowed by the Assessing Officer in the impugned order. Hence, in the facts and circumstances, we find that despite the second round, the assessee has not produced the relevant details to show the moment of the fund in the OD account and specifically the credit/deposits made in the OD account so as to support its contention that the assessee’s own fund was utilized for investment in mutual funds and not the borrowed funds. In absence of the relevant details and evidence, the issue cannot be decided conclusively. Hence, we are constrained to remand the matter to the AO for verification of the source of fund. Disallowance u/s 14A - HELD THAT:- Disallowance U/s 14A of the Act on account of interest expenditure, this issue is common to the disallowance of interest expenditure made by the Assessing Officer U/s 36(1)(iii) of the Act in ground No. 1 of the appeal. Hence, in view of our finding and observation on ground No. 1 of the revenue’s appeal, this issue is set aside to the record of the Assessing Officer on same terms for verification of the moment of the fund and actual source of investment in the mutual funds. Disallowance on account of common/indirect administrative expenditure being 0.5% of the average investment as per Rule 8D(2)(iii) of the Rules - Since the dividend income during the year is only ₹ 1,81,392/-, therefore, in view of the binding precedents on this issue, the disallowance made U/s 14A read with Rule 8D(2)(iii) of the Rules, cannot be more than the exempt income. The Hon’ble Delhi High Court in the case of Cheminvest Ltd. v. Commissioner of Income-tax-IV [2015 (9) TMI 238 - DELHI HIGH COURT] has held that if there is no exempt income earned by the assessee during the year, no disallowance can be made on account of administrative expenditure, therefore, we find that the disallowance restricted by the CIT(A) to the extent of exempt income is proper and justified.
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