Tribunal remits disallowance issue for verification, directs re-computation. Review of interest disallowance instructed. Appeal partly allowed.

The Tribunal remitted the issue of disallowance under section 14A r.w. Rule 8D to the Assessing Officer for verification of interest-free funds against investments and directed a re-computation of disallowance under Rule 8D2(iii) based on a Special Bench decision. In regards to the disallowance of interest under section 36(1)(iii), the Tribunal instructed the Assessing Officer to review the case in line with prior decisions, allowing the assessee to provide evidence. The appeal was partly allowed for statistical purposes, addressing both issues raised by the assessee.

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Issues:
1. Disallowance under section 14A r.w. Rule 8D of the Act.
2. Disallowance of interest under section 36(1)(iii) of the Act.

Issue 1: Disallowance under section 14A r.w. Rule 8D of the Act:
The appeal was filed by the assessee against the order of the Ld.CIT(A) for the Assessment Year 2011-12, mainly concerning the disallowance under section 14A r.w. Rule 8D of the Act. The Assessing Officer calculated the disallowance under Rule 8D2(ii) and Rule 8D2(iii), which was upheld by the Ld.CIT(A) based on the previous year's order. The assessee argued that interest-free funds exceeded investments, citing relevant case laws. The Tribunal remitted the issue to the Assessing Officer to verify the adequacy of interest-free funds compared to investments, following High Court decisions. The Tribunal directed the Assessing Officer to recompute the disallowance under Rule 8D2(iii) based on a Special Bench decision, allowing the appeal for statistical purposes.

Issue 2: Disallowance of interest under section 36(1)(iii) of the Act:
Regarding the disallowance of interest under section 36(1)(iii) of the Act, the assessee contended that no specific borrowing was made for acquiring assets, and it had sufficient interest-free funds. The Assessing Officer disallowed interest expenses assuming borrowing funds were used for assets. The Tribunal noted similar issues in previous years and directed the Assessing Officer to re-examine the case in line with earlier decisions, granting the assessee an opportunity to present evidence. Grounds 2 and 3 were allowed for statistical purposes, and the appeal was partly allowed.

In conclusion, the Tribunal addressed the issues of disallowance under section 14A r.w. Rule 8D and disallowance of interest under section 36(1)(iii) of the Act. The Tribunal remitted the first issue to the Assessing Officer to verify the adequacy of interest-free funds compared to investments and directed a re-computation of disallowance under Rule 8D2(iii) based on a Special Bench decision. For the second issue, the Tribunal directed the Assessing Officer to re-examine the case in line with earlier decisions, granting the assessee an opportunity to present evidence, and allowed the appeal partly for statistical purposes.

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