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2015 (7) TMI 829 - AT - Income TaxDisallowance of interest expenditure u/s 14A - Held that:- When assessee was having enough non-interest bearing surplus fund to make the investment and department has failed to establish any nexus between the borrowed funds and investment, presumption would be that assessee has made investment utilizing its own funds. The decisions relied upon by ld. DR would be of no help to department as they are not on the proposition, whether interest expenditure will be disallowable where assessee proves that investments were out of non-interest bearing surplus fund. In the aforesaid view of the matter, we do not find any reason to sustain the disallowance of interest expenditure made by AO under rule 8D(2)(ii) read with section 14A of the Act. However, as far as disallowance made under rule 8D(2)(iii) is concerned, we are of the view that such disallowance has to be sustained in view of specific provision contained under sub-section (3) of section 14A, which provides that even in a case where an assessee claims that no expenditure has been incurred by him in relation to income which does not form part of total income, still disallowance can be made by AO. In view of the aforesaid, we direct AO to compute disallowance @ 0.5% of the total average investment in terms with rule 8D(2)(iii) of IT Rules. - Decided partly in favour of assessee.
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