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2020 (1) TMI 1049 - AT - Income TaxAddition on account of interest paid u/s 36(1)(iii) - interest bearing funds to group company without charging interest - CIT-A deleted the addition - HELD THAT:- The assessee is in the business of real estate, entertainment & power generation and the loans & advances include investments in the property business of the assessee. Hence, it can be said that the advances recoverable included the advances which are business advances on which no interest is disallowable. It was also part of the record that another advances interest has been charged by the assessee as found out by the ld. CIT (A) on going through the Schedule 17 of the balance sheet. Since, the loans & advances have been given on account of commercial expediency and notional interest can be charged on such advances or interest can be disallowed u/s 36(1)(iii). In the case of Taparia Tools [2015 (3) TMI 853 - SUPREME COURT] observed that while examining the allowability of deduction, the Assessing Officer is to consider the genuineness of the business borrowings and that the borrowings was further purpose of business and genuine. Once, the genuineness is proved and interest is paid on the borrowings, no interest can be disallowed on the grounds that the assessee has not correctly used the amounts borrowed. Also in the case of SA Builders [2006 (12) TMI 82 - SUPREME COURT] held that in case of interest bearing loans taken and interest free advances given, what is to be looked into is the measure of “commercial expediency” and “for the purpose of the business”. Hence, keeping in view the facts of the case and legal prepositions laid down on this aspect of allowability of interest u/s 36(1)(iii), we hereby decline to interfere with the order of the ld. CIT (A). The appeal of the revenue on this ground is dismissed. Disallowance u/s 14A - suo-moto disallowance by assessee - CIT (A) deleted the addition owing to non-adherence in accordance with the provisions of Section 14A(2) - DR argued that to invoke Rule 8D(2), no satisfaction is required as it is an automatic provision for determining the disallowance - HELD THAT:- While a lot of emphasis is placed by the counsel on wordings of section 14A(2) which refer to the need of Assessing Officer's satisfaction to the effect that the claim made by the assessee is incorrect, it simply overlooks the provisions of section 14A(3) which state that a disallowance u/s 14A(2) can also be made in a case in which assessee claims that no expenditure has been incurred for earning the tax exempt income. A plain reading of the statutory provisions of section 14A(2) and (3) shows that when assessee offers a disallowance u/s 14A,the provisions of section 14A(2) read with Rule 8D cannot be invoked unless the Assessing Officer is satisfied about incorrectness of the disallowance so offered, but when assessee does not offer any disallowance u/s 14A on his own, the provisions of section 14A(2) read with Rule 8D can be invoked without there being any need to express satisfaction about the incorrectness of such a claim. In the instant case, the assessee had made a suo-moto disallowance and the Assessing Officer has not recorded the dissatisfaction about the disallowance suo-moto made by the appellant and has not identified any expenditure which can be considered to be expended in connection with the investment activity. The appellant has own funds which are far more than the investments. The plain reading of the statutory provisions of section 14A(2) and 14A(3) shows that when the assessee offered the disallowance u/s 14A, the provisions of Section 14A(2) read with Rule 8D cannot be invoked unless the Assessing Officer is dissatisfied about the correctness of the disallowance so offered. Suo-moto disallowance made by the assessee, the further disallowance made by the Assessing Officer under Rule 8D(2)(ii)&(iii) read with Section 14A, is hereby deleted. - Decided in favour of assessee.
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