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2020 (10) TMI 247 - AT - Income TaxInterest on borrowed funds not utilised for business purposes of the assessee - Disallowance u/s.36(1)(iii) or alternatively u/s.14A - interest free funds available with the assessee were much more than the investments made by the assessee in subsidiary companies OR not? - whether borrowed funds were utilised in equity of subsidiaries and thus the assessee is entitled to dividend income therefrom which is exempt u/s.10(34) ? - HELD THAT:- AO has disallowed the interest on the entire investment though according to the assessee, the cash credit account contains both interest free as well as interest bearing funds. As held in SA Builders [2006 (12) TMI 82 - SUPREME COURT] – where the interest free funds and interest bearing funds are mixed and the assessee makes investments in sister concern, it is to be presumed that such investments are out of interest free funds only and there cannot be any disallowance of interest on borrowed funds. Though the assessee has filed before us, the financial statements as on 31st March, 2010 to show that the interest free funds available with it at the time of investments, were much more than the investments made by the assessee, we are of the opinion that it needs verification by the AO. We remit the appeal to the AO for the limited purpose of verification of AO’s own and interest free funds available and if the AO finds that the assessee’s own and interest free funds were much more than the investments made by the assessee, then no disallowance shall be made by the AO and if it is found that such funds are not sufficient, then, disallowance shall be made only to the extent of funds utilised for investment over and above the own funds available with the assessee. Appeal of assessee is treated as allowed for statistical purposes.
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