AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2014 (3) TMI 1009
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....e of Rs. 33,65,770/-. The A.O. observed that the assessee debited a sum of Rs. 3,61,605/-in the income and expenditure account under the head 'Interest paid to Bank'. It was found that the assessee had utilized overdraft (OD.) facility from the bank to invest in IPO of the Indian Companies and has paid interest to the bank. The assessee was asked to explain as to why interest claimed as paid to the HDFC Bank against OD a/c be not disallowed u/s 14A of the Act. It was explained that the assessee purchased FDRs from his own funds and after that on the force of these FDRs he has opened a OD a/c and has availed the OD facility. It was stated that from bank the assessee received interests on FDRs of Rs. 17,25,644/- and has paid interest on OD a/c of Rs. 3,61,605/-. The assessee had his own funds and did not obtain loan for purchasing FDRs , therefore, the interest paid cannot be disallowed as the interest earned and interest paid are directly related to each other. After considering this reply, the A.O. being not satisfied because according to him receipt of interest on FDRs is a different source and interest paid on loan amount which was invested in assets generating exempt income do n....
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....aid of Rs. 3,61,605/- has to be allowed. It is a fact that the OD account was opened against these FDRs only. This fact has not been denied by the A.O. or by the ld CIT(A). In that view of the matter we do not find any fallacy in the claim of the assessee that a nexus between these two aspects i.e. receipt of interest on FDRs and payment of interest on OD a/c, which have been taken against the security of FDRs, does exist and it has not been spelt out by the authorities as to how there is no such direct nexus between two. In case, there is a nexus then netting of interest has to be considered and the impugned addition deserves to be deleted. Before, we conclude our finding, we would like to incorporate the following portion of ld CIT(A)'s order for ready reference. "I do not concur with this submission of the appellant because once the appellant had invested the surplus funds in the FDR he no longer had, any surplus funds. The FDR was an asset which was used as collateral for taking the overdraft facility. Once the surplus available with the appellant had already been used to invest in one kind of asset that is FDR in preference to the other kind of asset i.e. the IPO and shares ....
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....hus the facts of the case are covered by the finding of Hon. Jurisdictional High Court above in so far that since the expenditure on account of higher rate of interest payment does not have a direct ne6us in the earning of the interest it cannot be allowed as expenditure u/s 57(iii). iv) It is pertinent to note that AR of the appellant has failed to furnish specific details in spite of repeated opportunities during the appellate proceedings. For example it has been submitted that investment in IPO (average per month) 2 lakh" was made during the year, however on perusal of the overdraft account submitted it is seen that Rs. 26,40,550/- was withdrawn from this account for investment IPOs and shares" Thus it is seen that the appellant has not brought clarity to facts in spite of repeated opportunity. Similarly in spite of repeated opportunity the nexus between interest paid on account of overdraft taken for investment in shares & IPOs and interest paid on overdraft taken for advancing loans on interest was not given after repeated adjournments. v) The very fact that the OD facility used to give advances to persons from whom he has shown interest income of Rs. 11,58,6551- further....
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....the FDRs, the bank extended OD A/c facility to the assessee. From the bank, the assessee received interest on FDRs amounting to Rs. 17,25,644/- and the assessee has paid interest on OD a/c of Rs. 3,61,605/-. If we correlate these two accounts, the net receipt of the year in the hands of the assessee comes to Rs. 13,64,039/-. As per the ld. AR, the assessee has earned interest of Rs. 13,64,039/- on his funds. The ld. AR has argued and has also written in his written submissions that during the year the assessee has not obtained any new or fresh loan and had sufficient funds with him. The case of the A.O. is that the assessee utilized the OD a/c in share applications and as such the interest on OD a/c is not allowable u/s 14A of the Act. As per the assessee, section 14A applies on loan amount on which the assessee has paid interest. After considering the rival stands, we have found that the assessee had his own funds and was free to utilize the same in any manner he liked. He could invest them in shares directly and in that case question of no disallowance of interest would not arise. Here the assessee has adopted different mode as after making FDRs of his own funds with the bank, he....
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....s there was evidence to show that such interest bearing funds have been invested in the investments which had generated the tax exempt dividend income. (v) DCIT Vs. Maharastra Seamless Ltd. (2011) 52 DTR 5 (Del Trib) The Assessing Officer did not establish any nexus between the borrowed funds and the investment in tax free bonds. Apportionment on a pro-rata basis was improper in the absence of anything brought by the Assessing Officer to rebut the assessee stand. 2.5 We have found that the assessee has utilized OD facility during the year mainly for advancing the money to various persons for earning interest and the assessee has also earned interest income of Rs. 28,85,254/- from various persons including on KVPs and FDRs. It has not been established by the A.O. that the assessee utilized the withdrawals from OD a/c in IPO. The only amount of Rs. 2.00 lacs is found as utilized in IPOs but it is also a fact that no investment in share has been made during the year. The assessee has also earned short term capital gain income of Rs. 2,54,823/- out of these transactions which are part of taxable income. We are in agreement with the submissions of the ld. AR that OD limit was mainl....