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2017 (1) TMI 1758 - ITAT PUNEDisallowing interest paid on borrowed funds by assessee to the extent interest free loan given for the purpose of business - HELD THAT:- We are of the view that the observation of the AO that the assessee had advanced loans even before assessee had became a major share-holder is factually incorrect. The submission of the assessee that to diversify into new business, Sentosa Resorts Pvt Ltd was formed and the assessee has advanced loans to it on account of commercial expediency has not been controverted by Revenue by placing any material on record. In the case of S.A. Builders Limited [2006 (12) TMI 82 - SUPREME COURT]has held that the expression “commercial expediency” is of one wide import and includes such expenditure as a prudent businessman incurs for the purpose of business. It further held that the expenditure may not have been incurred under any legal obligation but yet it is an allowable business expenditure if it was incurred on grounds of commercial expediency. It held that the true test is whether the amount advanced to subsidiary or associated company or any other party was advanced as a measure of commercial expediency. If so, interest was deductible - no disallowance of interest could have been made by AO. We therefore set aside the order of AO and thus, the ground of assessee is allowed. Disallowing expenditure u/s 14A & Rule 8D - there is no tax free income claimed in the return filed to appreciate various case laws brought to their notice during the assessment proceedings - HELD THAT:- Presumption of investments to be out of interest free funds is established and therefore no disallowance on account of interest could be made by invoking the provisions of Sec.14A r/w Rule 8D of IT Rules 1962. As far as the disallowance of other expenses under Rule 8D is concerned, it is assessee’s submission that the investments on which the disallowance u/s 14A has been made has not yielded any tax free income The aforesaid submission of the assessee has not been controverted by the Revenue. We find that ld. CIT(A) has relied upon CBDT Circular No.5/2014 dated 11.02.2014 to hold that even when assessee has not earned any tax free income, provisions of Sec.14A are applicable. At the same time we find that the Hon’ble Delhi High in the case of Cheminvest Ltd. Vs. CIT reported in [2015 (9) TMI 238 - DELHI HIGH COURT] has held that provisions of Sec.14A will not apply if no exempt income is received or receivable during the relevant previous year. We are of the view that no disallowance of u/s 14A could be made in the present case. Thus, this ground of the assessee is allowed.
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