TMI Blog2016 (3) TMI 142X X X X Extracts X X X X X X X X Extracts X X X X ..... ions. We also agree with the contention of the ld. AR that without establishing any nexus between the expenditure incurred and investment, Rule 8D cannot be invoked. - Decided in favour of assessee Disallowance of interest - Held that:- We note that the interest free advances given to six companies during F.Y. 2006-07 pertained to A.Y 2007-08. When the assessee’s company established that no interest bearing funds were utilised for these impugned interest free advances, then disallowance can be held as sustainable. When the CIT(A) himself has recorded a finding of fact at Pg 8/9 of the order that amounts advanced to six companies was out of internal accruals/ redemption of Mutual Funds and not out of Borrowed funds, we do not find any val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any interest expenditure in respect of debentures and accordingly directed to Assessing Officer to reduce the disallowances under Rule 8D (2) (ii) to that extent. 4. On the facts and the circumstances of the case, the Ld. CIT (A) erred in directing the Assessing Officer to restrict disallowance under Rule 8D (2) (ii) by taking into consideration the value of average investment at ₹ 55 Lacs as against ₹ 14,64,21,896/- taken by the Assessing Officer. 3. The assessee has raised the following grounds in its cross objection: 1. That on the facts and in Law the learned Commissioner of Income Tax, (Appeals)- VIII, New Delhi, erred in upholding that Rule 8D was attracted despite no exempt income earned during the year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sted equity shares of group/joint venture company not for purposes of earning dividend. The ld. AR further submitted that the AO without establishing nexus between expenditure incurred and the investment invoked Rule 8D made addition of ₹ 45,26,964/- by (i) incl. Interest ₹ 2,00,63,733/- which has been allowed towards taxable income [no disallowance in view of Bharti Overseas Pvt. Ltd [DHC] (ii) 0.5% of Avg Value of Investment taking the convertible debentures into consideration even though the income there from is not exempt u/s 10(34). The disallowance made by the lower authorities u/s 14A deserves to be deleted in the absence of exempted income. The ld. AR pleaded that in view of no exempted income earned during the year unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Briefly stated, the facts giving rise to this issue are that the assessee has nine group companies to whom loans were advanced. During A.Y. 2006-07 assessee gave interest free loans aggregating ₹ 4.75 crore to six group companies out of its owned funds/out of interest free borrowings. The AO, in order u/s 143(3) of the Act for AY 2006-07, after examination, made no disallowance/addition on this account. The assessee advanced monies charging interest to 3 Group Companies out of interest bearing borrowed funds. The accounts for AY 2006-07 confirm that there was a Car Loan from HDFC ₹ 6,86,109/ interest free loan of ₹ 75,00,000/ from Director. The source of funds to enable assessee to advance interest free loans have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 3,94,54,990/- Less Interest Capitalised ₹ 1,93.91,256/- Interest [other than car Loans] ₹ 2,00,63,734/- Add:-Interest on car loans ₹ 7.34.695/- Total Deduction claimed [P L] ₹ 2.07.98.429/- AO has, at Para 3.3, Pg 4 of order, wrongly concluded that since no interest charged on the interest free loans to the Six Companies interest of 48,49,411/ is disallowed by assuming chargeable interest @12%. The difference between Interest earned ₹ 1,40,05,645/ and interest claimed as deduction ₹ 2,00,63,733/ i.e ₹ 60,58,088/- repre ..... X X X X Extracts X X X X X X X X Extracts X X X X
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