2015 (3) TMI 1277

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..... owance u/s.14A by observing that from the perusal of balancesheet of the assessee, it is noticed the assessee has invested funds in giving loans and advances, fixed assets and also in partnership firm in the form of capital and current account. Thus, assessee has investments in his balancesheet, income from which is exempt from tax (i.e. share of profit from firm). Also, on perusal of profit and loss account, it is noticed that assessee has claimed huge interest expenditure, salary, general expenses, staff welfare etc. also. But the assessee has claimed all such expenditure against taxable income only and no expenses were disallowed by him as incurred in relation to those investments income from which is non-taxable. It is' also noticed .....

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..... Capital of the Partnership' firms for making other interest bearing investments-viz. granting loans to third parties. As per ld. AR, the interest free owned funds had been utilized for making investments in the partnership firms in order to earn taxable interest income. Further, the fact that, even though some of the borrowings made from Bapa Real Estate Pvt. Ltd. had been utilized for making investments in the partnership firm in the current year, the fact that such investments had also earned taxable income and not exempt income for the assessee, cannot be overlooked. Based on the above analysis of balance sheet and in the facts that, assessee had not advanced any funds/made investments, which are of the interest free nature and furt .....

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..... it in the disallowance so made by the AO, insofar as rule 8D can be applied only when assessee has claimed certain expenditure against earning of exempt income. In the instant case, the AO has made disallowance under Rule 8D on the plea that the assessee has made investment in partnership firm, income of which is exempt. We found that on the capital so invested in the partnership firm, the assessee has earned substantial interest income which is liable to tax. As per the audited profit and loss account placed in the record, we found that assessee has earned gross interest income of Rs. 2,51,65,257/- and paid interest of Rs. 80,17,792/- which resulted into net interest income of Rs. 1,71,47,465/-. Most of the investment was out of interest f .....

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