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2016 (10) TMI 1270

2015 (3) TMI 155 - DELHI HIGH COURT] has taken the view that the disallowance u/s 14A of the Act cannot exceed the exempt dividend income. In view of the aforesaid judicial pronouncement, we are of the view that there is no merit in ground nos.1 and 2 raised by the Revenue. Disallowance of interest on loan which was not utilized for business purpose - HELD THAT:- AO has accepted that the investments made out of borrowed funds in quoted shares as use of borrowed funds for the purpose of business of the company. However to the extent borrowed funds were used in making investments in unlisted/unquoted companies, the AO has treated the same as not for the purpose of business of the Assessee. Such a distinction was rightly held by the CIT(A) to .....

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ing total income of an Assessee, the AO had to disallow expenses that were incurred in earning exempt dividend income. The AO computed the disallowance u/s.14A of the Act read as follows: In the above situation provision of Section 14A read with Rule 8D applied and after applying the same with reference to exempted income as claimed by the assesee for ₹ 83,13,550/- . The disallowances work out to ₹ 1,20,82,774/-. Rule 8D(2) (i) NIL Rule 8D((2)(ii) interest 1,29,16,413 X 17,17,80,126+ 10,46,99,437/- 2 _____________________________________ 18,81,64,850+12,53,23,297 = 1,29,16,413+13,83,39,781 18,81,64,850+ 12,53,23,297 = 15,67,44,073 = 1,13,91,576 Rule 8D (2) (iii) ½ % of ₹ 13,82,39,781 6,91,198 Total 1,20,82,774/- In .....

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llant s contention that provisions of section 14A are not applicable to the appellant company. It is submitted the disallowance u/s.14A cannot in case exceed the amount of dividend income earned during the year. Reliance is placed in this regard on the decision of Hon ble ITAT, Chandigarh in case of ACIT vs. Punjab State Coop & Marketing wherein the Hon ble Tribunal has held that disallowance u/s.14A cannot exceed the exempt income. Further, it is stated that in appellant s own case for A. Y.2009-10, the AO has vide his order u/s 143(3) dated 17.11.2011 restricted the disallowance u/s14A to the extent of dividend income earned. In support of this contention a copy of assessment order for A.Y.2009-10 is furnished for ready reference. Thu .....

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are dismissed. 8. Ground no.3 raised by the Revenue read as under: 2. That is the facts and in law of the case the Ld. CIT(A) erred in allowing the interest on loan amounting to ₹ 862668/- which was not utilized for business purpose. 9. The AO disallowed interest expenses claimed by the assessee for the following reasons: DISALLOWANCE OF INTEREST The assessee has debited ₹ 1,29,16,413/- secured loan and unsecured loan for ₹ 14,61,16,864/- and ₹ 3,95,67,216. Examination of balance sheet also shows investment in unquoted share for ₹ 57,51,120/- as per Sch. 5 and also loan and advance as per Sch,5 for ₹ 88,35,187/-. The assessee was asked to explain vide order sheet dated 08.02.2008 why interest debited to P .....

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including the findings of the AO in the impugned assessment order and other materials brought on record. The AO has made the disallowance of the interest paid towards the loan and advances on pro-rata basis on account of non use of the fund for the purpose of business of the appellant since no benefit derived the appellant during the year out of the said loan amount. However, in this regard, the AR of the appellant submitted that the main business of the appellant company is dealing in shares, leasing and finance in all kinds of goods and securities and making investments etc. During the year under assessment, the appellant company has purchased share of Apollo Tyres Ltd. sold shares of Sunlife Trade Links Pvt. Ltd. and secured loan taken .....

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e entire facts of the case and keeping in view the principle of the judgments of the cases relied upon. I am of the view that the AO was not justified in making the impugned disallowance of the interest paid towards loan and advances on pro-rata basis by holding that the funds were not used for the business purposes of 3 appellant. It is seen that one of the main business activities of the appellant has dealing in shares along with leasing and finance in all kinds of goods and securities and making investments. Therefore, I agree with the contention of the appellant that the appellant company has not derived any benefit from the investment of shares in the relevant year under appeal cannot be the sole reason for disallowance of interest exp .....

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