TMI Blog2018 (5) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... only out of own funds of the assessee and not out of borrowed funds. Hence there cannot be any disallowance of interest under second limb of Rule 8D(2) of the Rules. We find that during the year under appeal, the same old investments were brought forward from earlier years. Moreover, the profits of the assessee for the year also has increased during this year and investments had decreased during the year. Case of Pr.CIT vs Rasoi Ltd [2017 (2) TMI 863 - CALCUTTA HIGH COURT] followed. No disallowance towards Interest under second limb of Rule 8D(2) of the Rules is warranted With regard to disallowance under Rule 8D(2)(iii) of the Rules, we hold that only investments yielding exempt income should be considered for the purpose of working o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee in Miscellaneous Application is allowed. 2. Accordingly, this appeal was refixed for this limited purpose of adjudication on the issue of disallowance u/s 14A of the Act and was heard on 26.4.2018. 3. The brief facts of the issue of disallowance u/s 14A of the Act are that the assessee is a limited company engaged in the manufacturing business of rising of ore, manufacturing of nitrogen gas and ferro alloys, trading of iron ore and ferro alloys, generation of electricity (wind mill) and railway siding for captive use. The assessee in the year under consideration earned dividend income of ₹ 7.10 crores which was claimed as exempt u/s 10(34) of the Act. The ld AO questioned the assessee for invoking the provisions of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the authorities below had not established any nexus between incurring of the expenses of such magnitude with earning of tax-free income. 2. For that on the facts and in the circumstances of the case, there having been net reduction in the Investments during the relevant year from which the tax exempt income was earned and in the years of making investment there being no finding recorded by the AO that the investments were made out of borrowed funds, the authorities below were unjustified in law in disallowing part of the interest paid by invoking provisions of sec. 14A of the Income Tax Act. 3. For that on the facts and in the circumstances of the case and without prejudice to Ground Nos. 1 2 above, the authorities below w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... both the assessment years the Appellate Authority held that there was no finding of direct nexus between the borrowed fund and investment in shares. The assessee s own funds were far in excess of the average total investments. There could not be any presumption of utilization of borrowed funds. Hence disallowance under section 14A read with Rule 8D(2)(ii) was deleted while disallowance of indirect expenses of ₹ 1,82,346/- by application of Rule 8D(2)(iii) upheld with the direction to allow relief of the sum already disallowed by the appellant itself. On appeal preferred by the Revenue the Tribunal held as follows:- We have heard rival submissions and gone through facts and circumstances of the case. We find that now the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Share Capital 0.49 0.49 0.49 0.49 General Reserves 544.30 1105.14 1165.14 1249.15 Profit and Loss A/c 32.53 45.77 568.18 1319.55 Total Own Funds 577.32 1150.91 1733.81 2569.19 Investments 321.02 352.15 295.73 283.46 Profit for the year 572.24 771.52 896.54 1256.5 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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