TMI Blog2019 (6) TMI 146X X X X Extracts X X X X X X X X Extracts X X X X ..... aries without charging any interest. In fact, the assessee has charged interest @ 12% on the loans advanced to the subsidiaries. Therefore, the difference in the interest rate between the borrowed funds and loans advanced is only 3.25%. In any case of the matter, since the assessee had advanced the loan in connection with its business, no disallowance u/s 36(1)(iii) could be made as per the ratio laid down in the decisions cited by the learned Authorised Representative. - Ground raised is allowed. Disallowance u/s 14A r/w rule 8D - HELD THAT:- There is no dispute that in the previous year relevant to the assessment year under dispute, the assessee had earned exempt income by way of dividend amounting to ₹ 3,663 only. Whereas, th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ced that the assessee has borrowed money from Kotak Mahindra Prime Ltd. at interest rate of 15.25% per annum. Whereas, it has advanced loan of ₹ 20 crore to sister concern at the interest rate of 10.84% per annum and subsequently such loan was converted to preferential shares. Therefore, the Assessing Officer held that the difference in interest rate on the amount borrowed and the amount lent by the assessee works out to 4.41%. Accordingly, computing the differential interest by applying the aforesaid rate of 4.41%, he made a disallowance of ₹ 88.20 lakh under section 36(1)(iii) of the Act. 5. Though, the assessee challenged the aforesaid disallowance before the first appellate authority, however, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions of the Assessing Officer and learned Commissioner (Appeals). 8. We have considered rival submissions and perused the material on record. As could be seen from the factual matrix of the case, the assessee had availed loan of ₹ 37.50 lakh from Kotak Mahindra Prime Ltd. at the interest rate of 15.25% per annum. Whereas, it has advanced loan to its subsidiaries Patel Engineering Ltd. and Patel Realty Ltd. @ 12% per annum. The Assessing Officer has disallowed a part of interest under section 36(1)(iii) of the Act due to the difference in rate of interest between the borrowals made by the assessee from bank and interest charged on loans advanced to subsidiary. It is not disputed that Patel Engineering Ltd. and Patel Real ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to explain why disallowance under section 14A r/w rule 8D should not be made. Though, the assessee objected to the disallowance, however, the Assessing Officer rejecting the objections of the assessee proceeded to compute the disallowance under rule 8D(2), which worked out to ₹ 1,97,89,061. The assessee challenged the aforesaid disallowance before learned Commissioner (Appeals). 12. After considering the submissions of the assessee in the context of facts and materials on record, though, learned Commissioner (Appeals) agreed with the Assessing Officer that disallowance under section 14A of the Act has to be made, however, he restricted such disallowance to the exempt income earned during the year amounting to ₹ ..... X X X X Extracts X X X X X X X X Extracts X X X X
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