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2021 (9) TMI 836 - AT - Income TaxDisallowance u/s 14A - Allowability of interest expenses - HELD THAT:- Disallowance by taking resort to section 14A cannot be made as the assessee has not earned any exempt income, secondly when the assessee is having interest free fund the expenditure of interest incurred on borrowed funds, cannot be disallowed merely on the ground that the assessee is required to prove nexus between the interest free advances/loan given to the related parties; and thirdly without prejudice to other submissions, the interest earned by the assessee to the extent is eligible for set off against interest payment - Thus, the addition could be made. CIT(A) dismissed the appeal purely on the basis that the assessee failed to establish that borrowed fund was utilized for the purpose of business.As noticed even before CIT(A), it was submitted that the assessee had sufficient interest free fund available for making advances. It was also stated that since no tax free income is earned, hence no disallowance could be made. Lastly, it was also stated that the assessee is eligible for setting off interest earned and offered for taxation. Admittedly, no finding is recorded by the Ld.CIT(A) on these submissions. Revenue has not disputed the fact that the authorities below have not allowed set off of the interest earned and offered for tax. Moreover, the assessee has not earned any exempt income under these undisputed facts, the additions made by invoking the provision of section 14A of the Act is hereby restricted to a sum of ₹ 7,14,646/- as prayed by the assessee. Thus, grounds raised by the assessee in this appeal are allowed.
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