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2017 (3) TMI 1325 - AT - Income TaxDisallowance made u/s. 14A r.w.r. 8D - Held that:- There is no finding given by the AO or CIT(A) that any of the borrowed funds have been diverted for investments in shares. Eventhough the Ld.CIT(A) discussed the principles of law, he did not examine whether any of the borrowed funds have been diverted for investment. Unless the funds were out of the borrowed funds, no disallowance is warranted under rule 8D(2)(ii) It was the contention that borrowed funds were utilised in the business of assessee. Assessee’s contention that AO has not disallowed any amount u/s. 36(1)(iii) has a valid point. Invoking Rule 8D(2) will only come with reference to ‘other interest’ which was not directly related to the business. Since there is no finding by the AO that the interest claim is not for the purpose of business, in my opinion, invoking section 14A and disallowance on on a proportionate basis is not correct. As seen from the record also, most of the funds were borrowed in earlier years, substantial amount was also invested in earlier years. There seems to be no disallowance in earlier years u/s. 14A. In view of that, the disallowance u/s. 8D(2)(ii) cannot be sustained. Coming to the issue of disallowance u/s. 8D(2)(iii) i.e., 0.5% on the average investments, assessee’s contention was that no such disallowance was warranted, as no income was earned during the year. However, it cannot be stated that assessee has not utilised its personnel and efforts to make investments in the shares. There will be some expenditure involved, which cannot be quantified. Therefore, Rule 8D(2)(iii) provides for estimation of expenditure for 0.5% of average investments.
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