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2022 (4) TMI 20 - AT - Income TaxDisallowance u/s 14A r.w. Rule 8D(2)(ii) and 8D(2)(iii) on account of expenditure incurred for earning of tax exempt income - HELD THAT:- As decided in SOUTH INDIAN BANK LTD. VERSUS COMMISSIONER OF INCOME TAX [2021 (9) TMI 566 - SUPREME COURT] 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 the investments. As Hon’ble Supreme Court in the case of CIT (LTU) vs. Reliance Industries Ltd.[2019 (1) TMI 757 - SUPREME COURT] wherein it has been held that if the assessee is possessed of sufficient interest free funds to meet the investments, then, under the circumstances presumption will be that the interest free advances/investments have been made by the assessee out of owned funds/interest free funds. In view of above discussion, no disallowance is attracted on account of interest expenditure u/s 14A of the Act read with Rule 8D(2)(ii) of the I. T. Rules. Disallowance of administrative expenditure u/s14A of the Act read with Rule 8D(2)(iii) the issue is squarely covered by the decisions of the Hon’ble Delhi High Court in the case of Joint Investments Private Ltd[2015 (3) TMI 155 - DELHI HIGH COURT]and further in the case of ACB India Limited vs. ACIT [2015 (4) TMI 224 - DELHI HIGH COURT] wherein it has been held that for computing the average value of investment u/s 14A of the Act read with rule 8D(2)(iii), only the investment yielding non-taxable income have to be considered and not the entire investment. In view of this, the Assessing Officer is directed, accordingly, to consider only the investments yielding tax exempt income for computation of disallowance under Rule 8D(2)(iii) of the I.T. Rules. In view of the above discussion, the impugned order of the CIT(A) is set aside. Appeal of the assessee stands partly allowed.
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