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TMI Blog2022 (6) TMI 1240X X X X Extracts X X X X X X X X Extracts X X X X ..... ) It is, therefore, prayed that the order of Ld. CIT(A) may be set aside and that of the Assessing Officer Be restored." 3. The brief facts of the case are that during the course of the assessment proceedings for the impugned year, the AO noted that the assessee had made investments in shares, the income from which is exempt from tax. Further, as per the profit and loss account, the assessee has claimed interest on the loans and also incurred other expenses. However, the assessee has not deducted such interest payment/expenses relating to the investment in shares for earning interest. Therefore, expenditure relatable to investments in shares and securities is required to be disallowed under section 14A of the Act. The assessee submitted that the investment during the year has been made from share equity capital, share premium and free reserves only and hence, there is no scope for disallowance of expenses under section 14A of the Act since no interest bearing funds were utilized to buy shares. The AO however rejected the assessee submission by holding that the assessee has made investments in shares and securities, income from which is exempt from tax. The motive of such investmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act, 1961 has been proved by the appellant. Therefore, the addition made by the AO is uncalled for and deleted." 5. Regarding the additions under section 14A of the Act, the Ld. CIT(Appeals) gave partial relief to the assessee by deleting the 14A disallowance as per Rule 8D (ii) of Rs. 18,23,172/- on the ground that the assessee was having sufficient interest-free funds available at its disposal for making investment and further the assessee had interest income of Rs. 2, 61, 42, 321/-against the interest expense of Rs. 23, 62, 370/-and therefore there is net interest income and according to decision of the jurisdictional High Court in the case of Nirma Credit and Capital Private Limited [2017] 85 taxmann.com 72 (Gujarat) which has held that for purpose of applying clause (ii) of sub-rule (2) of rule 8D, prior to its amendment with effect from 2-6-2016, amount of expenditure by way of interest would be interest paid by assessee on borrowings minus taxable interest earned during financial year, disallowance under Rule 8D(ii) was set aside. As regards disallowance of administrative expenses under Rule 8D(iii), Ld. CIT(Appeals) set aside the matter to the AO to take average of investm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es for the purpose of computation under Rule 8D(2) (iii). The grounds of appeal are accordingly partly allowed." 6. The Revenue is in appeal before us against the aforesaid order of the Ld. CIT(Appeals). Regarding the addition under section 68 of the Act, the Ld. DR primarily relied upon the observations made by the Ld. Assessing Officer and argued that the genuineness and creditworthiness of the transaction is questionable. The counsel for the assessee relied on the observations made by the Ld. CIT(Appeals) who accepted the genuineness of the creditors in view of the facts placed on record viz. loan agreement with M/s Sandesh Procon LLP, bank statement, audited balance sheet of M/s Sandesh Procon LLP evidencing the above transaction. Further counsel for the assessee submitted that the genuineness of the loan is further supported by the fact that the amount of loan was repaid back along with interest on which TDS has also been deducted. In view of the above, the identity, creditworthiness and genuineness as required under section 68 of the Act has been proved by the assessee. With respect to the additions under section 14A of the Act, the Ld. DR relied upon the observations made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of share capital of Rs. 2.78 crores and reserves on surplus of Rs. 27.69 crores and CCD of Rs. 4.19 crores to make the investment of Rs. 4.86 crores from which dividend income has been earned)from which investments are made so as to be able to earn exempt income. Further, Ld. CIT(Appeals) observed that during the year, the assessee earned interest income of Rs. 2,61,42,321/-as against interest expenditure of Rs. 23,62,310/- and therefore there is a net interest income during the year. The jurisdictional Gujarat High Court in the case of Torrent Power [2014] 44 taxmann.com 441 (Gujarat)held that where it was apparent from records that assessee had sufficient funds for making investments in shares and interest free bonds and it had not used borrowed funds for such purpose, Assessing Officer was not justified in invoking provisions of section 14A in order to disallow one per cent of interest expenses incurred for earning exempt income. Also, the Mumbai Tribunal in the case of Doha Bank QSC [2021] 124 taxmann.com 70 (Mumbai - Trib.)held that disallowance made under section 14A read with rule 8D is to be carried out on basis of netting of interest expenditure. The Hon'ble High Court ..... X X X X Extracts X X X X X X X X Extracts X X X X
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