TMI Blog2019 (4) TMI 512X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 investment - 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 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. - ITA Nos.979 &980/Bang/20 - - - Dated:- 5-4-2019 - Shri Arun Kumar Garodia, Account ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 ₹ 12,94,1 16/- u/s. 14A r.w.r. 8D(2)(iii) of the Rules being 0.5% of average value of investment of ₹ 51,76,46,752/-which was against the decision of Hon. ITAT, Kolkata in REI Agro Ltd. vs. DCIT (244 ITD 141), duly affirmed by the Hon. Calcutta High Court vide its order dated 19.04.2014 in ITAT No.220 of 2013 holding that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) That the Ld. C.I.T.(A) erred in having endorsed the alleged satisfaction of the A.O. to attract provisions of s.14A r.w.r. 8D(2)(ii) of the Rules that part of the loan amount was invested in mutual funds and hence proportionate interest of ₹ 1,21,36,406/- on such loan represented dir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 disallowance made by the AO of ₹ 92,71,233/- out of interest expenditure should be deleted because the assessee is having sufficient interest free own funds of ₹ 31,46,00,987/- as share capital and reserves and surplus as can be seen in the balance she ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, 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, disallowance made by the AO out of interest expenditure should also be confirmed. 8. Regarding the disallowance of ₹ 12,94,116/- u/s. 14A r.w.r. 8D(iii) of IT Rules being 0.5% of average investment value, the ld. AR of assessee submitted that this disallowanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments 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 hold that in the facts of the present case, it is to be presumed that the investment was out of interest free funds available with the assessee and therefore, no disallowance u/s 14A r.w.r. 8D (ii) can be made out of interest expenditure. 10. This view ..... X X X X Extracts X X X X X X X X Extracts X X X X
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