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TMI Blog2012 (7) TMI 127X X X X Extracts X X X X X X X X Extracts X X X X ..... Year i.e. 2006-07 & 2007-08 under section 14A of the Income Tax Act, 1961 ('the Act' hereinafter). 3. The brief facts of the issue are that during the assessment proceedings the Assessing Officer noticed that the assessee has made investment in shares to the tune of Rs. 2,85,98,237/- for the year ended on 31.03.2007 and Rs. 4,06,39,408/- for the year ended on 31.03.2006. The Assessing Officer further noticed that the expenses are required to be disallowed under section 14A of the Act as the assessee did not apportion any expenditure. In respect of investment in shares, the income/dividend which is exempt income. The Assessing Officer calculated the amount of disallowance invoking Rule-8D of the Income Tax Rules. The amount of disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wance made by the Assessing Officer is out of interest income as the assessee has made investment in shares which income is exempt. The Ld. Authorised Representative pointed out that the assessee was having sufficient interest free funds before investment in the shares. The relevant fact pointed out by the ld. Authorised Representative from the order of CIT(A) at page no.2 reads as under :- . "F.Y. 2005-06 F.Y. 2006-07 Reserve and Surplus 2,75,16,058/- 3,67,27,564/- Interest free loans received from Directors 1,66,00,000/- 1,66,00,000/- Unsecured Loan inclusive of Interest free loans from Directors. 8,70,40,685/- 8,62,86,766/-" 6. Ld. Authorised Representative submitted that in the light of various judgements including ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that interest free funds given on investment if are out of own funds, i.e. own capital and reserves is sufficient to cover such interest free investment. In that circumstances, it is presumed that the investment in interest free funds were out of own capital and reserves and under such circumstances, the Revenue cannot disallow interest claim of the assessee under section 36(1)(iii) of the Act. The Allahabad High Court in the case of CIT vs. Prem Heavy Engineering Works Pvt. Ltd., 285 ITR 554 (Alld.) wherein it has been held that if the assessee had adequate interest free funds by way of proprietary capital or by way of interest free deposits from customers, there is inference that borrowed funds are not diverted for non-business purposes. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s perused. We find that the case of Assessing Officer is disallowance of interest. The interest expenses is allowable under section 36(1)(iii) of the Act. Such disallowance cannot be made in case where the assessee is having sufficient interest free funds as held by the I.T.A.T., Agra Bench in the case cited above. This view is also fortified by the judgement of Hon'ble High Court of Bombay in the case of CIT vs. Reliance Utility and poer limited, 313 ITR 340 (Bombay). In the case under consideration it is admitted fact that the assessee was having sufficient interest free funds to cover the investment made in shares of which income is exempt under section 10 of the Act. In case of CIT vs. Hero Cycles Limited, 323 ITR 518 (P&H) wherein it h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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