2014 (1) TMI 1401

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....3(3) of the Income Tax Act, 1961 (for short "the Act"). Since the grounds raised by THE assessee in both the years under appeal are common, except variation in figures, therefore, as a matter of convenience, these were heard together and are being disposed of by way of this consolidated order. However, in order to understand the implication, it would be necessary to take note of facts of one appeal and, accordingly, we are narrating the facts, as they appear in ITA No. 2143/Mum./2009, for the assessment year 2008-09. 2. The only issue involved in both the years under appeal is, whether or not the learned Commissioner (Appeals) is justified in confirming the disallowance made by the Assessing Officer under section 14A of the Act of Rs. 26....

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....as made strategic investment in Ramesh Hotel Resorts Pvt. Ltd. and the intention was not to earn exempt income but to earn business income by way of providing catering services in the proposed hotel. The assessee has not earned any dividend from this investment. It was also submitted that the entire investment was made out of own funds including the interest free loans taken from the promoters. It was pointed out that the assessee's own funds in the form of share capital and free reserves was at Rs. 4.34 crores and interest free loans were to the tune of Rs. 0.80 crores which was sufficient for making the investment. Thus, interest component cannot be brought for the purpose of working the disallowance under section 14A r/w rule 8D. The lea....

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....ed from the working of rule 8D. 6. On the other hand, the learned Departmental Representative submitted that the assessee has not demonstrated as to what was the availability of interest free funds at the time of making the investment. If, in the balance sheet, there are interest free funds in the form of share capital, reserve and surplus and interest free loans, then it cannot be held that the entire funds have been used for investment purpose and all the assets and working capital is from interest bearing funds. Thus, it cannot be held that the entire interest free funds have been utilized for the purpose of investment, at least this has not been demonstrated by the assessee before any of the authorities. Therefore, the disallowance u....