TaxTMI 
TaxTMI 
2013 (8) TMI 379
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....icer which has been reduced by the CIT(A) to the extent of Rs.8,00,000/- invoking section 14A of the Income Tax Act, 1961 ('the Act' hereinafter). The second effective ground is in respect of disallowance of Rs.2,00,000/- made by the Assessing Officer and restricted by the CIT(A) to the extent of Rs.1,00,000/- out of various expenses on account of personal use. 3. Brief facts of the case are that the assessee company carries on business of manufacturing and trading of Laundry soap, detergent powder and detergent cake. During the assessment proceedings, the Assessing Officer noticed that the assessee made investment of Rs.5,28,01,422/- in shares, income of which is exempt from tax and earned income to the tune of Rs.3,91,317/-. The Assess....
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....ot form part of total income, it has to suffer disallowance irrespective of the fact whether any income is earned by the assessee or not. Therefore, I hold that as the assessee has made substantial investment in shares and it has also resorted to borrowing of funds on which interest of Rs. 3386271/- has been paid, therefore, it is logical to presume that some of the borrowed funds have been diverted to investment in shares. I consider it fair and reasonable to estimate such expenditure at Rs.8 lacs. Therefore, the disallowance made by the A.O. to the extent of Rs.8 lacs is confirmed. Ground is partly allowed." 4. The Ld. Authorised Representative submitted that the CIT(A) did not accept the Assessing Officer's view that section 14A of th....
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....came final as Revenue did not file any appeal against the order of CIT(A) wherein it has been held that section 14A read with rule 8D is applicable w.e.f. 2007-08. However, the presumption of the CIT(A) was that some borrowed funds have been diverted to investment in shares of which income is exempt. The Ld. Authorised Representative pointed out the position of share capital, reserve & surplus, unsecured loan etc. and loan given and investment in shares. The details which is pointed out from order of the CIT(A) at page no.2 reads as under :- "Share Capital Rs.44,50,000/- Reserve and Surplus Rs.12,59,74,541/- Unsecured Loan NIL Secured Loan:- O.D. Limit Rs.2,52,72,561/- Vehicle Loan Rs.15,50,588/- R....
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....is sufficient to cover such interest free investment. In that circumstances, it is presumed that the investment in interest free funds were out of own capital and reserves and under such circumstances, the Revenue cannot disallow interest claim of the assessee under section 36(1)(iii) of the Act. The Allahabad High Court in the case of CIT vs. Prem Heavy Engineering Works Pvt. Ltd., 285 ITR 554 (Alld.) wherein it has been held that if the assessee had adequate interest free funds by way of proprietary capital or by way of interest free deposits from customers, there is inference that borrowed funds are not diverted for non-business purposes. The Apex Court in the case of Munjal Sales Corporation vs. CIT(A) 298 ITR 298 wherein law laid down ....