TaxTMI 
TaxTMI 
2010 (12) TMI 738
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....nsideration the ratio of the decision in the case of 'CIT v. H.R. Sugar Factory (P)Ltd.' 187 ITR 363, where it has been held that if part of the funds have been utilized for non business purposes, part disallowance of interest is justified. 2. Whether, on the facts and in the circumstances of the case, the ld. CIT(A) was justified in deleting the disallowance on account of interest expenditure amounting to Rs. 16,65,919/- relatable to the tax free income invoking provisions of sec. 14A without taking into consideration the ratio of the decision in the case of 'India Metals and Ferro Alloys Ltd. v. CIT' 193 ITR 344, where it was held that it is for the assessee to prove that the borrowed fund has been utilized for business purposes."....
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....e, on the other hand, has strongly supported the impugned order. Reliance has been placed on the decision dated 13.10.2010, of the 'E' Bench of the Tribunal in 'Minda Investments Ltd. v. DCIT', in ITA No. 4046(Del)2009 for assessment year 2006- 07,(copy placed on record), authored by one of us (the J.M.). 7. We have heard the parties and have perused the material on record. The ld. CIT(A), while deleting the disallowance, has observed, that the assessee had maintained that the interest expenditure in question was incurred in respect of the borrowing on cash credit limits utilized for normal business purposes of the assessee; that no part of the borrowed funds had been utilized by the assessee for making investment in the tax free bo....
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....nt on a pro rata basis was improper in the absence of anything brought by the AO to rebut the assessee's stand that the investment in the tax free bonds had been made out of the funds of the share holders of the AO. 9. In 'Minda Investments Ltd. v. DCIT'(supra), it has been observed, inter alia, that : "6.3.........................Secondly, the assessee has urged that no expenditure has been identified to have been incurred to exempt income. Neither the AO nor the ld. CIT(A) has rebutted these (sic. this)submissions. The AO has gone into (sic. on) to make the ad-hoc estimate which is not sustainable in the light of the Hon'ble Punjab and Haryana High Court decision above [sic. 'CIT v. Hero Cycles Ltd.' 323 ITR 518 (PandH)]. ....
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....rt of its contention is misplaced, so far as the present case is concerned. 13. In the said case, the issue before the court was deduction of the expenditure on account of the interest on the loans taken from the various banks. Considering the dates of investments and advances to the subsidiary companies, the interest was disallowed. The factual finding given by the Tribunal was that the borrowed funds carrying interest were not utilized for the purposes of business and as such the disallowance was proper. Based on these facts, it was held that where an assessee seeks to deduct certain items from his business profits, the onus of proving the same falls on him. Accordingly, for claiming deduction of the interest in terms of section 3....
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....e company. A reading of the assessment order makes it very clear that the AO had disallowed the interest on the ground that had assessee not made the investments, it would have saved the interest expenditure incurred on loans as the investment amount would have gone to reduce the loan. In view of this, the reliance placed by the revenue on this judgment is misplaced. 15. The revenue has also placed reliance on the judgment in the case of 'CIT v. H.R. Sugar Factory Pvt. Ltd.', 187 ITR 363 on the plea that if a part of the funds has been utilized for non-business purposes, part disallowance of interest is justified. There can't be two opinions to this fact that if a part of funds has been utilized on which interest has been paid for n....