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2019 (4) TMI 512

I 219 - KARNATAKA HIGH COURT] we examine the amount of interest free funds available with the assessee and compare it with investment in tax free securities. We find that assessee was having interest free own funds in the form of share capital and reserves and surplus. In addition to that, the assessee is also having fund in the form of CCDs on which no interest is being paid by the assessee. If we add up these two amounts, it is seen that total interest free funds available with the assessee is of as against the investment in tax free securities of ₹ 51,76,46,752/-. Hence interest free funds available with the assessee is more than investment in tax free securities. - Disallowance u/s. 14A r.w.r. 8D(2)(iii) being 0.5% of average .....

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ut establishing any direct nexus between expenditure incurred and earning of dividend income and, therefore, no real satisfaction was recorded on the basis of the accounts as required by law. (b) That the Ld. C.I.T.(A) erred in having endorsed the alleged satisfaction of the A.O. to attract provisions of s. I 4A r.w.r. 8D(2)(ii) of the Rules that the entire loan amount was invested in mutual funds and hence interest of ₹ 92,71,233/- on such loan represented direct expenditure to earn exempt income in spite of the fact that the loan was received and utilized for the project at Jaipur and investments in shares/MF were out of own funds/internal resources. (c) That the Ld. C.I.T.(A) further erred in upholding the disallowance of ₹ 1 .....

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No. 980/Bang/2018 are as under. 1) That the order passed by the Ld. C.I.T.(A) to the extent it is prejudicial to the interests of the appellant is arbitrary, erroneous, without proper reasons, invalid and bad in law. 2a) That the Ld. C.I.T.(A) on the facts and circumstances of the case erred in law in having upheld the disallowance of ₹ 1,40,10,214/- made u/s. 14A r.w.r. 8D of the Rules in spite of the fact that alleged satisfaction was derived purely on suspicion that the assessee must have incurred administrative and other expenses without establishing any direct nexus between expenditure incurred and earning of dividend income and, therefore, no real satisfaction was recorded on the basis of the accounts as required by law. (b) Tha .....

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No. 980/Bang/2018. Accordingly, this appeal of the assessee is dismissed as not pressed. 5. Regarding the appeal of the assessee for Assessment Year 2013-14 in ITA No. 979/Bang/2018, he submitted that ground nos. 1, 5 and 6 are general and ground nos. 3 and 4 are not pressed. Accordingly these grounds are rejected as not pressed. 6. In respect of ground no. 2, he submitted that out of total disallowance made by the AO u/s. 14A of ₹ 1,05,65,349/-, disallowance of ₹ 92,71,233/- is on account of disallowance of direct interest expenses pertaining to tax exempt investments and ₹ 12,94,116/- is on account of disallowance out of administrative expenses @ 0.5% of average amount of tax exempt investments. He submitted that the dis .....

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n pool of funds and non-interest bearing funds were more than the investments in tax-free securities, no disallowance of interest expenditure u/s. 14A of the IT Act, 1961 can be made. He also pointed out that the investments is only of ₹ 51,76,46,752/- and hence, total interest free funds available with the assessee is more than the investments in tax free securities. 7. As against this, the ld. DR of revenue supported the orders of authorities below. In particular, our attention was drawn to Para 4.3 of the assessment order and it was submitted by her that this is the finding of the AO that the entire amount of term loan of ₹ 30 Crores was used for making investments in mutual funds. She submitted that under these facts, disall .....

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he light of these facts, now we examine the applicability of the judgment of Hon'ble Karnataka High Court rendered in the case of CIT and Another Vs. Microlabs Ltd. (supra). In this case, it was held by Hon'ble Karnataka High Court that when investments are made out of a common pool of funds and non-interest bearing funds were more than the investments in tax-free securities, no disallowance of interest expenditure u/s. 14A of the IT Act, 1961 can be made. No contrary judgment was cited by the learned DR of the revenue and therefore, we are duty bound to follow and apply this judgment cited by the learned AR of the assessee. We find that this judgment is squarely applicable in the present case and respectfully following the same, we .....

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u/s. 14A r.w.r. 8D(2)(ii) of IT Rules, 1962 is deleted and accordingly ground no. 2(b) is allowed. Regarding the second disallowance of ₹ 12,94,116/- u/s. 14A r.w.r. 8D(2)(iii) of IT Rules, 1962 being 0.5% of average investment, we hold that there is no infirmity in the order of CIT (A) in that regard because learned AR of the assessee has also fairly conceded in that regard. This disallowance of ₹ 12,94,116/- u/s. 14A r.w.r. 8D(2)(iii) of IT Rules, 1962 being 0.5% of average investment is upheld and accordingly, ground no. 2(c) is rejected. 12. In the result, the appeal of the assessee for Assessment Year 2013-14 is partly allowed. 13. In the combined result, the appeal of the assessee for Assessment Year 2013-14 is partly allo .....

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