TMI Blog2019 (9) TMI 1071X X X X Extracts X X X X X X X X Extracts X X X X ..... 2)(iii), the CIT(A) rightly observed that the disallowance cannot exceed the expenses incurred by the assessee. Hence, we uphold the order of Ld.CIT(A) in this regard. Disallowance u/s.36(1)(iii) - DR submitted that the assessee has failed to submit any documentary evidences and explanation of interest paid on these advances to - admission of additional evidence. - HELD THAT:- The issue raised by the Revenue that the CIT(A) has no power to set aside the matter to the AO for verification and allowing the same is not as per law and the CIT(A) has no such power to aside the issue to the file of AO. Besides the contention of Ld.DR was that the CIT(A) has admitted the additional evidence in the form of analysis of inflow and outflow of funds and interest thereon. The Ld.CIT(A) allowed relief to the tune of ₹ 18,40,03,334/- on the basis of said analysis. So far as the question of admitting the additional evidence is concerned, we do not find any merit in the contentions of the Revenue as the CIT(A) has only considered the analysis of the inflow and outflow of the funds which was also filed by the assessee before the AO. Therefore, on this count, the ground raised by the Revenu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bearing funds borrowed from private parties at a high rate of interest to its sister concerns without charging any interest or charging a lesser rate of interest when compared to the rate at which it was borrowed. In further appeal by the appellant the ITAT 'C Bench, Mumbai vide its order in 1TA No.2851/Mum/2014 dated 06/10/2016 has set aside the issue to the file of AO for re-examination of the working of interest filed by the appellant before them. Since, this issue has been set aside by the ITAT to the file of the AO, the penalty levied u/s 271(1)(c) should be kept on hold. Therefore, I direct the AO to withdraw the penalty levied on this issue. However, he is at liberty to levy the penalty if he again decides the issue against the appellant and finds that there is a concealment of income. 3.1. We, therefore, do not find any reason to interfere with the order of Ld.CIT(A) in this regard and accordingly we uphold the same by dismissing the appeal of Revenue for the AY.2009-10. 4. The assessee in its Cross-Objection No.249/Mum/2018 for the AY.2009-2010, has challenged the penalty proceedings initiated u/s.274 r.w.s.271(1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds were far more than the investments made by the assessee in the share/securities yielding tax free income, therefore, the presumption is that the investments were made out of assessee s own funds and not out of interest bearing funds. In this connection the Ld.CIT(A) has relied on the decision in the case of HDFC Bank Ltd., [366 ITR 505]. On the disallowance of ₹ 3,90,430/- under rule 8D(2)(iii), the Ld.CIT(A) observed that the disallowance u/s.8D(2)(iii) cannot exceed the actual expenses charged to profit and loss account. During the year, the expenses under the head other expenses were only ₹ 81,086/-. Accordingly, the Ld.CIT(A) held that at most the disallowance under rule 8D(2)(iii) should be at ₹ 81,086/- and, thus, restricted the disallowance to that amount. 9. After hearing both the parties and perusing the material on record, we observe that the order of Ld.CIT(A) is very reasoned and a speaking one. Ld.CIT(A) has rightly relied on the decision in the case of HDFC Bank Ltd. (supra), wherein the Hon ble Bombay High Court has held that in case the interest free funds available with the assessee are more than the investments in the securit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... private borrowings at very high rates of interest and paid interest of ₹ 25.42 crores. The interest received was only ₹ 3.21 crores. The AO has worked out the disallowance in a simple arithmetics by working of net interest paid and further reduced by the interest disallowed under limb(ii) of Rule 8D(2) and the balance was disallowed holding that the same was incurred on funds diverted for non-business purposes. The ld.AR on the other hand has worked out the interest diverted for non-business purposes at ₹ 2,94,49,546 and requested to consider only this amount for disallowance u/s 36(1)(iii) of the Act. I consider the working at page-58 of the paper book, volume.2 as reasonable and direct the AO to adopt the same for the purpose of disallowance u/s 36(1)(iii) of the. Act. However, the AO is at liberty to verify the correctness of the working and the method adopted. The appellant is hereby directed to supply this working to the AO at the time of giving effect to this order. The ground is allowed accordingly. 12. Ld. DR vehemently submitted before us that the CIT(A) has set aside the issue to the file of AO whereas the CIT(A) has no such power unde ..... X X X X Extracts X X X X X X X X Extracts X X X X
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