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2022 (2) TMI 776 - HC - Income TaxAddition u/s 14A r.w.r. 8D - “disallowance of proportionate expenses” and “disallowance of depreciation on tax free securities applying section 14A - Whether no expenditure was incurred or claimed towards earning of those exempt incomes? - HELD THAT:- the issues involved herein deserve to be answered in favour of the assessee, as per the decision of the Supreme Court in South Indian Bank Ltd. v. Commissioner of Income-tax [2021 (9) TMI 566 - SUPREME COURT] as held that in a situation where the assessee has mixed fund (made up partly of interest free funds and partly of interest- bearing funds) and payment is made out of that mixed fund, the investment must be considered to have been made out of the interest free fund. Disallowance would be legally impermissible for the investment made by the assessees in bonds/shares using interest free funds, under Section 14A - if investments in securities is made out of common funds and the assessee has available, non-interest-bearing funds larger than the investments made in tax-free securities then in such cases, disallowance under Section 14A cannot be made. Also the proportionate disallowance of interest is not warranted, under Section 14A of Income Tax Act for investments made in tax free bonds/ securities which yield tax free dividend and interest to Assessee Banks in those situations where, interest free own funds available with the Assessee, exceeded their investments. With this conclusion, we unhesitatingly agree with the view taken by the learned ITAT favouring the assessee. Thus we remand the matter to the Assessing Officer to decide the issues raised herein afresh, taking note of the observations made in the Supreme Court decision as referred to above and pass appropriate orders, within a period of three months from the date of receipt of a copy of this judgment
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