The Tax Publishers2018 TaxPub(DT) 5168 (Ahd-Trib)

 

Gujarat Fluorochemicals Ltd. v. Dy. CIT

 

INCOME TAX ACT, 1961

--Disallowance under section 14A--Expenditure against exempt incomeInterest Expenses----Where mixed fund was available, i.e., interest bearing and interest free fund, presumption was to be that investment would be made out of own fund (interest free) as such, no disallowance under section 14A r/w rule 8D would be made.--On scrutiny of accounts, it revealed to AO that assessee had made investments, which had resulted tax free income to assessee. Assessee contended that it had mixed fund and own fund was utilized for investment purposes. AO made disallowance under section 14A read with rule 8D after computing interest expenditure on borrowed fund and DRP also affirmed applicability of rule 8D. Held: If there were funds available both interest-free and overdraft and/or loans taken, then a presumption would arise that investments would be out of interest-free fund generated or available with company, if interest-free funds were sufficient to meet investments. Assessee had demonstrated that it was having sufficient interest free funds which could take care of investments. Therefore, no interest expenditure was to be disallowed with help of rule 8D. Disallowance made by assessee itself was proper and justified.

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