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2023 (2) TMI 574 - AT - Income TaxDisallowance of interest expenditure u/s 14A r.w. Rule 8D - disallowance under Rule 8D(2)(ii) of the Income-tax Rules with respect to interest - HELD THAT:- CIT(A) while deciding the issue in favour of the assessee has given a finding that on the loan that have been borrowed by the assessee for working capital purpose, Banks had imposed stringent End- Use conditions which prohibited the use of funds for investments in shares or other companies or capital market. The End-Use of the funds were monitored by considering the auditors certificate for End-Use compliance that were filed by the assessee. He has given a finding that no penal interest has been charged by the bank to the assessee or the loans have been recalled for violating the conditions of diverting the funds for making investments in shares or capital markets. He has thereafter given a finding that the interest bearing funds borrowed by the assessee have not been utilized for making the investments. Hon’ble Delhi High Court [2022 (8) TMI 1344 - DELHI HIGH COURT] had upheld the order of Tribunal and had held that no substantial question of law arise for consideration. - Decided against revenue. Disallowance under Rule 8D(2)(iii) - AO has considered the average value of the entire investments for working out the disallowance @ 0.5% of the average investments - HELD THAT:- We find that Hon’ble Delhi High Court in the case of Delhi International Airport (P.) Ltd. [2022 (10) TMI 300 - DELHI HIGH COURT] has held that Section 14A of the Act envisages that there should be actual receipt of income and hence Section 14A of the Act will not apply where no exempt income is received or receivable during the relevant previous year. Before us, it is assessee’s contention that the AO has considered the average value of the entire investments (which included investments from which no dividend has been received by the assessee) for working out of the disallowance under Rule 8D(2)(iii) of the Income-tax Rules - we find force in the arguments of Learned AR. We, therefore, restore the issue back to the file of AO and direct him to work out the disallowance under Rule 8D(2)(iii) of the Income-tax Rules on the basis of investments, which have yielded exempt income and in accordance with law. Needless to state that AO shall grant adequate opportunity of hearing to the assessee and assessee is also directed to promptly produce relevant document as called for by authorities. Thus the ground of the assessee is allowed for statistical purposes.
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