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2019 (5) TMI 287 - AT - Income TaxDisallowance u/s. 36(1)(iii) - AO disallowed the proportionate interest treating it as related to capital work-in-progress - HELD THAT:- CIT(A) confirmed the order of AO; without considering the fact that assessee has its own funds. Out of total Term Loan of ₹ 35.00 crore taken for Bellary Project, ₹ 27.88 was disbursed up to 31.07.2009 and the interest on same has already been capitalized. The balance loan of ₹ 7.12 crore was disbursed between 01.08.2009 to 31.03.2010 and the interest of ₹ 15.11 lakhs on this portion is charged to revenue. In worst case the amount which can be disallowed towards interest on capital WIP (work in progress) is to be ₹ 15.11 lakhs only. Balance loan amount of ₹ 7.12 crore, which was disbursed between 1.8.09 to 31.03.10 and interest on such loan of ₹ 15.11 lakh needs to be verified by AO, whether it falls in revenue zone or capital zone. Assessee treated ₹ 15.11 lakh as revenue expenditure. If this interest of ₹ 15.11 lakh is before put to use an asset, then it may be capitalized. Otherwise, it would be revenue expenditure. Therefore, AO should examine this factual aspect and to adjudicate the issue in accordance to law. Disallowance of interest u/s. 36(1)(iii) - AO held that assessee had utilized borrowed capital invested in SBI Mutual Fund of ₹ 5 crores - HELD THAT:- As we already sent the issue back to the file of AO to examine whether the interest is to be capitalized or not in respect of balance loan of ₹ 7.12 crores ( ₹ 35 crores – ₹ 27.88 crores), which was disbursed between 01.08.2009 to 31.03.2010. Therefore, disallowance of ₹ 2,93,580/- amounts to double addition/double taxation. Issue needs to be examined by AO whether investment for one month is not from borrowed fund. AO should verify whether investment of ₹ 5 crores is from own sources. Therefore, we direct the AO to examine this factual aspect and to adjudicate the issue in accordance to law. Hence, ground no. 4 raised by the assessee is allowed for statistical purpose. Disallowance u/s. 14A - Counsel pointed out that the assessee did not claim any exempt income. Assessee has offered the exempted income for taxation, therefore, there is no any question arises to disallow exempted income - HELD THAT:- This factual aspect should be examined by AO to ascertain whether assesse has offered for taxation the entire exempt income or not. If the assesse has offered the entire exempt income, no disallowance is warranted; otherwise AO is directed to compute disallowance as per the provisions of section 14A r.w.rule 8D . This ground of assessee’s appeal is allowed for statistical purpose.
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