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2023 (4) TMI 133 - AT - Income TaxDisallowance u/s 14A r.w.r 8D - As submitted that if the calculation is done in terms of clause (ii) of rule 8D(2), the disallowance would get substantially reduced - HELD THAT:- It is clear from the language of the rule that 1% disallowance is to be made “of the annual average of the monthly averages of opening and closing balances of the value of the investment” and not the average of opening and closing balances on annual basis. We, therefore, set aside the impugned order on this score and remit the matter to the AO for computing 1% disallowance by considering the annual average of the monthly averages of opening and closing balances of the value of investments. Disallowance on account of interest - HELD THAT:- As seen from the assessee”s balance sheet that the investments in securities yielding exempt income has been reflected as “Non Current Investments” amounting to Rs.197.98 crore under the broad head “Non Current Assets”. As against that, the assessee”s balance sheet shows shareholders fund to the tune of Rs.166.20 crore plus “Other long term borrowings – Unsecured” to the extent of Rs.127.50 crore taken from related parties and directors which are non-interest bearing. If we add up the total amount of non interest bearing funds available with the assessee, it clearly emerges that the said amount is far in excess of the amount of investment in exempt income yielding securities to the tune of Rs.197.98 crore. Hon'ble Supreme Court in Godrej & Boyce Manufacturing Co. Ltd [2017 (5) TMI 403 - SUPREME COURT] has held that no disallowance of interest can be made as per rule 8D when interest bearing funds are more than the investments made by the assessee in securities yielding exempt income. Disallowance of interest made by the AO as sustained in the first appeal, cannot be countenanced. We, therefore, order to delete the addition to this extent. Appeal is partly allowed.
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