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2019 (11) TMI 981 - AT - Income TaxDisallowance u/s. 36(1)(iii) - Assessee contended that amounts borrowed by the assessee were utilized for the purpose of the business and therefore no proportionate interest is liable to be disallowed u/s. 36(1)(iii) - HELD THAT:- On a perusal of the balance sheet, we find that assessee had sufficient interest free own funds to the extent of ₹ 804.95 Crores in the form of share capital, reserves and surplus and money received against share warrant and the assessee made investment in work in progress at ₹ 48.11 crores and also increase in long term loans and advances to the extent of ₹ 31.03 crores. Therefore, undoubtedly the assessee is having its own interest free funds more than the amount of advances given to various parties and the investments shown in capital work in progress. In the case of CIT v. Reliance Utilities and Power Limited [2009 (1) TMI 4 - BOMBAY HIGH COURT] identical issue has come up before the Hon'ble Jurisdictional High Court as to whether there can be any disallowance u/s. 36(1)(iii) of the Act when the assessee has interest free funds more than the investments and when assessee paid interest on borrowals utilized for investments. Assessee is having sufficient interest free funds much more than the investments made by the assessee in capital work in progress and also in providing long term loans and advances to various parties. In the circumstances, the presumption is that the assessee has made investments from out of its interest free funds only and therefore there cannot be any proportionate disallowance u/s. 36(1)(iii) - we direct the Assessing Officer to delete the disallowance made u/s. 36(1)(iii) Disallowance made u/s. 14A r.w. Rule 8D - HELD THAT:- Hon'ble Supreme Court in the case of PCIT v. State Bank of Patiala (2018 (11) TMI 1565 - SC ORDER) the Special Leave Petition filed against the decision of the Hon'ble Punjab and Haryana High Court in the case of PCIT v. State Bank of Patiala [2018 (4) TMI 23 - PUNJAB & HARYANA HIGH COURT] has been dismissed by upholding the order of the Hon'ble High Court in holding that amount of disallowance u/s. 14A of the Act shall be restricted to amount of exempt income only and not a higher figure. We respectfully following the said decision direct the Assessing Officer to restrict the disallowance u/s. 14A r.w. Rule 8D of I.T. Rules only to the extent of exempt income earned by the assessee during the relevant Assessment Year. This ground is partly allowed. Assessee in default u/s. 201(1) - TDS u/s 194H and 194C - disallowance u/s. 40(a)(ia) for non-deduction of tax at source in respect of professional fees and payments made towards advertisements - HELD THAT:- Assessee therein, cannot be treated as “as assessee in default” u/s 201(1), if the recipient has offered the income and has paid the taxes thereon - In the case of the assessee before us, the recipients of the payment, have already offered the income in their hands and therefore, the assessee cannot be treated as “as assessee in default” Disallowance of interest on Service Tax and VAT - Assessee submits that the said amounts are not penal in nature and hence allowable as business expenditure - HELD THAT:- Interest paid on Service Tax and VAT is not penal in nature and therefore is allowable as deduction. Thus, following the said decision BSR & Co. . [2018 (8) TMI 1903 - ITAT MUMBAI] . we direct the Assessing Officer to delete the disallowance of interest on Service Tax and VAT and recompute the income of the assessee.
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