TaxTMI 
TaxTMI 
2022 (6) TMI 1560
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.... loans and subscription to debentures/ preference shares. 3. The AO made addition in this case on account of a) disallowance of 132,06,920/- under section 14A of the Act . b) disallowance of provision for bad & doubtful debts claimed under section 36(1)(viia)(c). The revenue is not in appeal against this deletion by the Ld. CIT(A). 4. The appellant has filed detailed written submission before revenue authorities which is summarized as under: "The learned Assessing Officer has made a disallowance of Rs, 4,52,06,920/- u/s 14A against the dividend income of Rs. 75,38,220/-. The disallowance has been worked out as under:- Interest cost 4,13,39,546 0.5% of average investment 38,67,374 4,52,06,920 The loans taken by the appellant by issuance of bonds etc. are for its business of lending for tourism and infrastructure projects. No interest bearing funds have been invested in shares/mutual funds. Detailed chart showing the position of investments, Reserve, Loans position, Profit, Fixed Assets, Cash Flow on yearly basis is submitted herewith in proof of the fact that the appellant has not used interest bearing ....
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....ng in his order u/s 143(3) dated 25-02-2015 that upto the assessment year 2011-12 the assessee has not used any interest bearing funds in investments which give income not chargeable to tax. Copy of the said assessment order Is submitted herewith. Therefore, no disallowance is called for on account of interest. As regards the disallowance by way of 0.5% of average investments is concerned, the Hon'ble Delhi High Court in the case of ACB India Ltd. vs. ACIT in ITA No. 615/2014 vide order dated 24-03-2015 it has been held that only the investment yielding non-taxable income have to be considered for working out disallowance u/s 14A and not all the investments. Accordingly, the disallowance works out to Rs. 7,03,934/- as per details and calculations enclosed. Since the assessee has suo-moto disallowed Rs. 1,00,000/- in its computation as disallowance u/s 14A, the net disallowance may kindly be restricted to Rs. 6,03,934." 5. At the outset, the facts of the case are that during the year under consideration the assessee earned dividend of Rs. 75,38,220/-. The details of the dividend received is as under: Name of Comp....
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....9. While working the above disallowance, the AO has taken the amount of interest expenditure at Rs. 41,63,85,365/-, the amount of average investment at Rs. 77,14,74,853/- and the amount of average total assets (as appearing in the balance sheet) - Rs. 7790690542/-. 10. Snippets of the order of the Ld.CIT(A): * Rule 8Dof the IT rules, relevant to the expenditure in relation to income which does not form part of the total income shall be the aggregate of following amounts, namely: - (i) the amount of expenditure directly relating to Income which does not form part of total income; (ii) in a case where the assessee has incurred expenditure by way of interest during the previous year which is not directly attributable to any particular income or receipt, an amount computed in accordance with the following formula, namely = A x B/C Where A= amount of expenditure by way of interest other than the amount of interest included in clause (i) incurred during the previous year; B = the average of value of investment, income from which does not or shall not form part of the total income, as appearing in the balance sheet of....
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....4,13,39,546/- and Rs. 38,67,374/- under the second limb & third limb of Rule 8D respectively. * The AO justified the disallowance under second limb because of the fact that interest bearing funds are part of funds available with the assessee for investment in the assets, i mid that there can be 4 scenarios of nexus between the borrowed funds and investments which are as under; ⮚ An assessee has sufficient interest free funds for the investments yielding exempt income. ⮚ An assessee has sufficient interest free funds for the investments, however, has also borrowed funds for capital expenses, working capital, etc. ⮚ Investments are made through a common pool of borrowed and own funds, ⮚ Direct nexus, investment made out of borrowed funds. * In the present case, it is on record that the assessee has sufficient interest free funds for the investments, however, the assessee has also borrowed funds for capital expenses, working capital, etc. It may be worth mentioning that the assessee has failed to showcase the exact date wise details of sourcing of fund for investment out of non-interest bearing fund....