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2020 (11) TMI 491 - AT - Income TaxDisallowance u/s 14A - Assessee has made suo moto disallowance - Non recording of satisfaction - HELD THAT:- AO without recording any satisfaction to the correctness of the claim of the assessee proceeded to apply provisions of Rule 8D of the Income Tax Rules for disallowances u/s 14A - This is against the mandate of the provisions of section 14A(2) - recording of the satisfaction about the correctness of the claim of the assessee with respect examination of accounts is the primary conditions to invoke any disallowance u/s 14A - several judicial precedents relied upon before us also held so - AO has failed to record any satisfaction with respect to the correctness of claim of the assessee of not incurring any expenditure to earn exempt income , on examination of the account, the disallowance made by the AO and disallowance restricted by the ld CIT(A) cannot be upheld Interest paid to the bank u/s 36(1)(iii) - assessee has given loans and advances to various sister concern and other parties on which interest has not been charged - HELD THAT:- In the present case the assessee has interest free funds available in the form of share capital and free reserve amounting to ₹ 37.05 crores whereas interest free loans and advances were only ₹ 17.32 crores. Therefore, it is apparent that assessee has sufficient interest free funds available to advance the above loan to its sister concern free of interest. The issue is squarely covered in favour of the assessee in CIT Vs. Reliance Industries Ltd [2019 (1) TMI 757 - SUPREME COURT] wherein, it has been held that when the interest free funds available to the assessee were sufficient to make its investment which could be presumed that such interest free loans are made from interest free funds available with the assessee - we direct the ld AO to delete the disallowance of interest expenditure - Decided in favour of assessee.
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