TMI Blog2019 (5) TMI 948X X X X Extracts X X X X X X X X Extracts X X X X ..... ce u/s.14A read with Rule 8D(2)(iii) is 0.5% of the average value of the investments - AO computed 0.5% of the average value of investments and made disallowance for the same which came to be affirmed in the first appeal - AR submitted that the disallowance made in this regard is excessive and submitted that the disallowance may be made on the reasonable basis, may be, at ₹ 1,000/- per entry - HELD THAT:- This type of ad hocism is impermissible in view of the clear mandate of Rule 8D(2)(iii). As the assessment year under consideration is a period after the insertion of Rule 8D, I hold that the disallowance at 0.5%, being the prescription of the rule, as made and sustained in the first appeal is in order. To sum up, disallowance u/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A)-3, Pune on 05-06-2018 in relation to the assessment year 2009-10. 2. There is a delay of 33 days in presenting this appeal before the Tribunal. The assessee has filed an affidavit in support of the reasons which led to the filing of the instant appeal belatedly. I am satisfied with the reasons. As such the delay is condoned and the appeal is taken up for disposal on merits. 3. The assessee has filed revised grounds. Ground nos. 1 to 3 are against confirmation of disallowance u/s.14A of the Incometax Act, 1961 (hereinafter also called the Act ). 4. Briefly stated, the facts of the case are that the assessee is engaged in the manufacturing of marine parts, reselling and expo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowed. 7. At this juncture, it is relevant to note that section 36(1)(iii) provides for deduction of interest of the amount of interest paid in respect of capital borrowed for the purpose of business or profession. The essence of this provision is that the interest should be allowed so long as the capital borrowed, on which such interest is paid, is used for the purpose of business or profession. If, however, an assessee is having its own interest free surplus funds and such funds are utilised as interest free advances even for a non-business purpose, there cannot be any disallowance of interest paid on interest bearing loans. The Hon'ble Bombay High Court in CIT vs. Reliance Utilities and Power Ltd. (2009) 313 ITR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purchase of its assets and hence the assessee was left with no reserve or own funds for making investment in the sister concern. Thus, it was argued that the borrowed funds had been utilized for the purpose of making investment in the sister concern and the disallowance of interest was rightly called for. The Tribunal, on appreciation of facts, recorded a finding that the assessee had sufficient funds of its own for making investment without using the interest bearing funds. Accordingly, the order of CIT(A) was upheld. When the matter came up before the Hon ble High Court, it was contended by the Department that the shareholders funds stood utilized in the purchase of fixed assets and hence could not be c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resumption that the shareholders fund of a company was utilized for the purchase of fixed assets. If an assessee has interest free funds as well as interest bearing funds at its disposal, then the presumption would be that investments were made from interest free funds at the disposal of the assessee. Similar view has been taken by the Hon'ble Dehi High Court in CIT vs. Tin Box Company (2003) 260 ITR 637 (Del), holding that when the capital and interest free unsecured loan with the assessee far exceeded the interest free loan advanced to the sister concern, disallowance of part of interest out of total interest paid by the assessee to the bank was not justified. 8. Applying the above proposition in the c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able basis, may be, at ₹ 1,000/- per entry. He filed a copy of dividend account showing number of entries. In my considered opinion, this type of ad hocism is impermissible in view of the clear mandate of Rule 8D(2)(iii). As the assessment year under consideration is a period after the insertion of Rule 8D, I hold that the disallowance at 0.5%, being the prescription of the rule, as made and sustained in the first appeal is in order. To sum up, disallowance u/s.14A of the Act is sustained at ₹ 4,88,721/- and the assessee gets relief of ₹ 2,73,505/-. 11. The other ground raised by the assessee is against the confirmation of disallowance of foreign tour expenses a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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