TMI Blog2012 (9) TMI 1029X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, grounds of appeal in ITA No.440/Agr/2011 for A.Y. 2007-08 are reproduced as under:- 1(i) Because the Ld. CIT(A) has wrongly, illegally and arbitrarily confirmed the addition of ₹ 15,37,500/- made by the Assessing Officer as proportionate disallowance out of interest payment on account of advances given to the persons as mentioned in the Assessment Order. (ii) That the Ld. CIT(A) while confirming the addition of ₹ 15,37,500/- has erred in rejecting the appellant submission and ignoring the legal position. (iii) Because under the facts and circumstances of the case and the legal position the addition of ₹ 15,37,500/- confirmed by the Ld. CIT(A) deserves to be deleted. 2(i) Because the Ld. CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... une of ₹ 5,62,460/- which was increased to ₹ 9,19,62,460/- as on 31.03.2007. The A.O. further noticed that no expense on this account has been apportioned by the assessee. The A.O. invoked section 14A of the Act and calculated the amount of disallowance applying Rule 8D ₹ 24,69,235/-. 6. The CIT(A) confirmed the order of the A.O. on the ground that on the amount given to M/s. Amar Shikha Wood Product and Smt. Asha Bajaj, the assessee has failed to furnish any evidence that the sums were given for the purpose of business or in accordance with business expediency. The CIT(A) also confirmed the disallowance of ₹ 24,69,235/- made by the A.O. invoking section 14A of the Act observing that though rule 8D is applicable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Representative, on the other hand, relied upon the order of Revenue Authorities. 9. We have heard the ld. Representatives of the parties and records perused. The contention of the ld. Authorised Representative that the interest free advance given was out of current account and out of business turnover is not interest free fund available with the assessee. As per the detailed discussion made by the I.T.A.T., Mumbai Bench in the case of ACIT vs. H.P. Shah Co. ITA No.3694/M/2006 order dated 15.01.2009 it was held that such fund out of business turnover is not interest free fund available with the assessee though the assessee did not pay interest on such fund. Such business funds cannot be used for giving interest free advances to sister ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed funds in the investment of shares. The claim of interest on borrowed fund is allowable under section 36(1)(iii) of the Act. According to the said section 36(1)(iii) the amount of interest paid in respect of capital borrowed for the purpose of business or profession is allowable expenses so long as the amount borrowed is used in the business. The interest paid on such borrowing is an expenditure which is required to be deducted in the computation of the income from business. To examine the problem in cases where funds are pumped out of the business which are comprised of both type of funds i.e. borrowed as well as own funds, for non-business purpose. In all such cases where mixed funds are used for business and other than business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the light of above discussions and judicial pronouncements noted above, if we consider the facts, we find that the assessee was having share capital of ₹ 44,50,000/- and reserve and surplus of ₹ 12,59,74,541/- out of which the investment in shares was ₹ 5,28,01,422/-. Thus, we find that the assessee was having sufficient own funds in the form of share capital and reserves to make investment in shares. Under the circumstances, no disallowance is required under section 36(1)(iii) of the Act. In the light of the fact, we do not agree with the finding the CIT(A) which is on presumption basis that borrowed funds has been diverted to investment in shares and that part of the order of CIT(A) is set side and delete the add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er section 14A of the Act. Section 14A is not a charging section but only disallowance of expenditure for a fair ascertaining of allowing common expenses between taxable and nontaxable income. Rule 8D can be applicable only where disallowance of interest on borrowed capital warrant for expenses out of such borrowed capital with the amount relating to investment in shares and search and not ascertainable. In the light of the above judgement of Bombay High Court and others (supra), the disallowance of interest is not warranted under the circumstances. Therefore, there is no question of invoking Rule 8D of the Rules. In the light of the above discussions and after considering the admitted fact that the assessee was having sufficient own intere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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