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2024 (3) TMI 254 - HC - Income TaxAllowable deduction of interest paid on the borrowings - Application of Section 14A and Section 36(1)(iii) - AO disallowed the interest holding that no deduction is to be allowed in respect of expenditure incurred in relation to income which does not form part of the total income under the Income Tax Act - Assessee argued that the expenditure claimed was not hit by Section 14A of the Act, on the ground that although borrowed funds were partly utilised for investment in shares held as trading assets, such investment was made with the intention to acquire and retain a controlling interest in the company and that the receipt of dividend thereon was merely incidental - Tribunal held that the interest paid on the borrowings was not allowable as deduction HELD THAT:- The fact remains that such dividend income is non taxable and in that scenario, if expenditure is incurred on earning the dividend income, that much of the expenditure which is attributable to the dividend income has to be disallowed and cannot be treated as business expenditure. As the dividend income from the two companies is not taxable and in that scenario the expenditure incurred on interest paid on funds borrowed in respect of investment in shares of two operating companies is hit by Section 14A of the Act inasmuch as the dividend received on such shares does not form part of the total income. We do not find any infirmity in the findings arrived at by the ITAT, the question of law is answered in affirmative.
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