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2021 (12) TMI 928 - ITAT MUMBAIDisallowance u/s.14A in respect of strategic investments made by the assessee - CIT(A) applied the provisions of Section 36(1)(iii) of the Act and held that since investments were made out of borrowed funds by the assessee company, the interest paid on borrowings would be disallowed u/s.36(1)(iii) - HELD THAT:- CIT(A) is bound to adjudicate only that issue which is before him and not consider a new source of income which is disallowance of interest u/s.36(1)(iii) of the Act as it is not the subject matter of the appeal before him. In any case, in the absence of exempt income derived by the assessee during the year, the disallowance made by the ld. AO u/s.14A of the Act has been deleted by the ld. CIT(A). The matter ends there. CIT(A) could not have looked into a new source of income i.e. disallowance of interest u/s.36(1)(iii) of the Act. We also find that from the perusal of the entire CIT(A)’s order, there is not even a whisper about proposal to enhance the assessment by issuing proper enhancement notice to the assessee in terms of Section 251 of the Act. In any case, the undisputed fact is that the borrowed funds has been utilized by the assessee for making investment in the group company which is made in the ordinary course of business and hence, once the borrowed funds are utilized for the purpose of business, the interest paid thereon would be squarely allowable as deduction u/s.36(1)(iii) of the Act. The law is very well settled on this issue by series of judicial pronouncements including various decisions of the Hon’ble Supreme Court - we direct the ld. AO to delete the disallowance of interest u/s.36(1)(iii) - Appeal of the assessee is allowed.
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