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2016 (8) TMI 737 - ITAT MUMBAIDisallowance u/s. 14A - Held that:- The undisputed facts of the case are that the assessee had shown dividend income of ₹ 25. 99 lakhs that it had not made any disallowance u/s. 14 A of the Act, that the AO after considering the submission of the assessee made a disallowance of ₹ 50. 64 lakhs. We find that the assessee had borrowed the funds for its business (pages 107-09 of the paper book), that it had not invested the borrowed money for making investment that yielded dividend income, that the own funds of the assessee were of ₹ 68. 78 crores, that the investment was of ₹ 12. 26 crores only. In our opinion, if the funds owned by the assessee or more than the investments made no disallowance could be made for interest expenditure. The presumption, as held by the various honorable High Courts, is that the assessee utilised its own funds for making investments. In the case under consideration the AO had not brought on record any fact proving that the loan taken by the assessee was not used for the business purposes. If the assessee had utilised the borrowed funds for its business and not for the investment, there was no justification for invoking the provisions of section 14A of the Act. Therefore, we hold that the order of the FAA confirming the disallowance of ₹ 43. 42 lakhs under the head interest expenses cannot be endorsed. As far as the disallowance made under the head 0. 5% of the average investment is concerned, we would like mention that same should be restricted to 2% of the dividend income. Effective ground of appeal, raised by the assessee, is allowed in its favour, in part.
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