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TMI Blog2014 (11) TMI 405X X X X Extracts X X X X X X X X Extracts X X X X ..... direction to the Assessing Officer to disallow interest and administrative expenditure under Sec. 14A read with Rule 8D alleging that the same was incurred for earning exempt income. 2. The learned CIT(A) further erred in confirming the disallowance of advance Written off as bad debt amounting to Rs. 2,01,79,541/-. 3. The learned CIT(A) further erred in confirming the action of assessing officer of treating repairs and maintenance expenditure as capital expenditure amounting to Rs. 25,400/-. Your appellant reserves the right to add, to alter or amend any of the above grounds, if necessary". 2. The assessee, later on filed additional grounds of appeal, which are as under: "The Appellant craves leave to raise the following additional gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income is from the sale of these shares held as investments, dividend and other incomes. The assessee, therefore, utilizes its funds from its business activity, for the smooth functioning of its business, it utilizes certain borrowed funds, on which it pays interest. Since the acquiring of investments and sale thereof is the business of the assessee, therefore, one to one correlation could not be done, which is relatable towards borrowed funds, because as such, the assessee has common pool of funds. It was further explained to the AO that where borrowings are for the purposes of activities of business, then apportionment of interest expense for disallowance, is not called for. The assessee, placed reliance on a number of decisions on this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... back to the income of the assessee under section 14A. 11. Besides the above, the AO also disallowed Rs. 10,41,356/-, being expenses relatable to dividend income. 12. Aggrieved by this order, the assessee approached the CIT(A). Before the CIT(A), the assessee reiterated its submissions on the issue made before the AO. The CIT(A), after considering the submissions made, observed, "I do not agree with the submission of the AR. The Hon'ble ITAT, Mumbai, in the case of ITO vs Daga Capital Management (P) Ltd 26 SOT 603/119 TTJ 289 (Mum) has already decided this issue that Rule 8D is retrospective in nature. Hence the AO is justified in disallowing expenditure incurred by the assessee for earning dividend income which is exempt. However, I fin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2005-06. 19. Now the only issue left before us, as to what should be disallowance to be made u/s 14A, as Rule 8D is inapplicable. In the instant year, i.e. 2005-06, only the provisions of section 14A existed, which prescribed expense not to be allowable in case of earning tax free income. 20. We have been consistently holding that a reasonable disallowance out of tax free income would suffice. We, therefore, set aside the order of the CIT(A) on this issue and restore the issue of disallowance to be made to the AO, with the direction that certain reasonable amount, as per the trends of movements of funds through banking channels, may be made on the dividend income, claimed to be exempt. 21. Ground no. 1 is therefore, allowed for statist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee. 27. Against this order of the CIT(A), the assessee is before the ITAT. Along with its primary ground of appeal, raised an additional ground that if the write off was not to be allowed then the assessee be allowed the benefit of capital loss. 28. Before us, the AR reiterated the facts as submitted by it before the revenue authorities and the DR placed reliance on the orders of the revenue authorities and pleaded that disallowance is entirely based on legal provisions. 29. We have heard the rival arguments and have perused the orders and material placed before us. We notice that the AO has disallowed the claim mainly on the ground that the assessee did not comply with the conditions prescribed u/s 36(2) of the Act for allowing the dedu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he claim of the assessee from the angle of NBFC, we are of the view that this issue requires fresh examination by the AO to determine whether the ICD, made by the assessee would at all fall in the category of money lent in the ordinary course of business. 32. From the assessment order, we notice that the assessee has decided to write off the amount after making one time settlement with the subsidiary company, by which the subsidiary company paid Rs. 50.00 lakhs to the assessee. However, the assessment order mentions the subsidiary company has to pay the amount of Rs. 50.00 lakhs as 31.12.2004 in the first paragraph of page 10. In the second paragraph, the date is mentioned as 31.12.200S. This contradiction of dates, needs to be verified. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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