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2023 (10) TMI 22 - AT - Income TaxDisallowance u/s 14A - assessee is disputing the computation of disallowance under second and third limb - HELD THAT:- As regards the interest disallowance we notice that the assessee has given a breakup of the available interest-bearing funds received as unsecured loan and loans from Axis Bank which is stated to be Rs. 9.04 Cr and out of this application of the fund to the tune of Rs. 5.26 Cr are towards the business assets and Rs. 3.77 Cr approx towards non-business assets. During the course of hearing, assessee stated that the assessee is ready to admit the disallowance of interest expenditure of Rs. 47,08,373/- calculated at the rate of 12.5% of the funds applied for non-business assets at Rs. 3.77 Cr. Since the non-business assets inter-alia includes the investments in shares and other investments there remains no justification to make interest disallowance u/s 14A of the Act separately. We, therefore, delete the interest disallowance made under Rule 8D(2)(ii) of the I.T. Rules, 1962. Interest disallowance under the third limb calculated at the rate of 0.5% of the average investment assessee stated that only the investments fetching exempt income should be considered for the purpose of calculating 0.5% disallowance. The details of the same has been placed as per which the average investment fetching exempt income is shown at Rs. 3.66 Cr. Remaining investments are either in mutual funds or other investments which do not fetch exempt income. Thus, applying the rate of 0.5% on the average investment yielding exempt income of Rs. 3.66 Cr, the disallowance under third limb would work out to Rs. 1,83,000/-. Disallowance u/s 14A stands confirmed partly. Alternate claim made by the assessee wherein it has been contended that disallowance u/s 14A of the Act cannot exceed the exempt income - As we fail to find any merit in this ground because assessee has stated that exempt income during the year is only Rs. 6,70,100/- being the dividend earned on the exempt income but he failed to take note of the fact that exempt income also comprises of long term capital gain from sale of equity shares at Rs. 4,85,822/- exempt u/s 10(38) of the Act, dividend income at Rs. 12,96,867/- and PPF interest at Rs. 92,372/-. Therefore, this alternate ground no. 6 raised by the assessee is dismissed. Disallowance of interest expenditure u/s 36(1)(iii) - From perusal of the sheet, we notice that out of the interest-bearing funds of Rs. 9.04 Cr (approx.) assessee has applied Rs. 3.77 Cr for non-business assets. Even if we take the highest rate of interest which in this case has been charged by M/s. Morgan Stanley India Capital Pvt. Ltd. on the loan given to the assessee i.e. 12.5% and if applied on the annual basis on the funds employed for non-business assets purposes, the interest expenditure will work out to Rs. 47,08,373/-. The non-business assets include the investment in shares, ICICI Prudential Life Insurance, PPF, increase in interest free loans and advances and repayment of interest free unsecured loan. We, therefore under the given facts and circumstances of the case are of the considered view that against the interest disallowance of Rs. 1,58,99,942/- confirmed by ld. CIT(A), we, on the basis of the details available on records and the application of interest-bearing funds to non-business assets, sustain the disallowance of interest expenditure u/s 36(1)(iii) of the Act at Rs. 47,08,373/- and partly allow ground no. 2 raised by the assessee.
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