TMI Blog2016 (2) TMI 618X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted before AO - Held that:- even if it is assumed that this advance was given out of borrowed funds, no part of the interest payable on such notional amount of borrowings cannot be disallowed as the advance was given in the course of business. Therefore on the facts of the case, Applying the ratio of the decisions of the Bombay High Court in the case of CIT v. Reliance Utilities And Power Ltd. [2009 (1) TMI 4 - BOMBAY HIGH COURT ] we hold that the interest free advance of ₹ 7.5 Crores to BSSL was made by the Assessee out of own funds and the advance was for the purpose of the business of the Assessee in the course of Joint development of property with BSSL. Hence no part of interest payable on borrowings can be disallowed on grounds of interest free advance of ₹ 7.5 Crores to BSSL. The revenue’s appeal on this issue is dismissed. - Decided against revenue - ITA No.114/Bang/2015, CO No.144/B/2015 - - - Dated:- 14-1-2016 - SMT. ASHA VIJAYARAGHAVAN, JUDICIAL MEMBER AND SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER For The Appellant : Shri Sunil Kumar Agarwala, Jt. CIT(DR) For The Respondent : Shri S. Ramasubramanian, CA ORDER Per Asha Vijayaraghavan, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue is that the Rule 8D should be followed and prorate interest payable on borrowings should disallowed, even if the Assessee had sufficient owned funds for making the investments. 8. We have heard both the parties. The Delhi High Court in the case of CIT v TAIKISHA ENGINEERING INDIA LTD (370 ITR 338) has held that under sub-section (2) of section 14A of the Income-tax Act, 1961, the Assessing Officer is required to examine the accounts of the assessee and only when he is not satisfied with the correctness of the claim of the assessee in respect of expenditure in relation to exempt income, can he determine the amount of expenditure which should be disallowed in accordance with such method as prescribed, i.e., rule 8D of the Income-tax Rules, 1962. Therefore, the Assessing Officer, at the first instance, must examine the disallowance made by the assessee or the claim of the assessee that no expenditure was incurred to earn the exempt income. If and only if the Assessing Officer is not satisfied on this count after making reference to the accounts, is he entitled to adopt the method as prescribed, i.e., rule 8D . Thus, rule 8D is not attracted and applicable to all assessees who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een assailed by the department. Their only grievance is that there should be proportionate disallowance of interest payable on borrowings whether or not the Assessee had sufficient borrowed funds for making the Investments. Only the actual expenditure incurred which can be related to investments even if no exempt income has been earned from such investments. 12. In our opinion, from a reading of the ratio of various High Courts on this aspect only actual expenditure which can be attributed to Investments and that too only investments from which exempt income has been earned and excluded in the assessment, has to be disallowed u/s 14A. In the circumstances we have no hesitation in upholding the decision of the CIT(A) deleting the notional disallowance of interest expenditure of ₹ 13,67,830/- made u/s 14A by the AO. 13. The revenue s appeal on this issue is dismissed. 14. The next ground of appeal of the revenue is against the deletion of disallowance of interest of ₹ 1,17,112,000/- being interest payable by the Assessee on account of interest free advances of ₹ 7.5 Crores interest free advances given by the Assessee to M/s Bhoruka Steel Services Ltd (BSSL ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h M/s Bhoruka Steel Services Pvt. Ltd despite of the fact that transaction relating to immovable property (land) was finalised. However, the CIT(A) observed that since the assessee had sufficient non-interest bearing funds, no interest could be disallowable. 20. The CIT(A), however, held both concerns are closely related and the assessee parked said amount for business purpose i.e. development of I.T.Park and other companies having certain percentage of right and interest on 7 acres 26 guntas of land at Mahadevapura Industrial Area, K.R.Puram, Bangalore. The CIT(A) therefore held interest attributable on an amount of ₹ 7.5 crores is not disallowable and deleted the addition of ₹ 1,17,12,008/-. 21. Aggrieved, the Revenue is in appeal before us. 22. We have heard both the parties. The only grievance of the Revenue is that the facts relating to the Interest free advance given to BSSL Ltd was not submitted before the AO. The CIT(A) has found that the Assessee had sufficient interest free owned funds which will cover the interest free loans to BSSL. This is not disputed by the department. The funds are available from the Financials of the Assessee and hence it canno ..... X X X X Extracts X X X X X X X X Extracts X X X X
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