We could notice from the record that the assessee was having share holding funds to the extent of 2607.18 crores and the investment made by it was to the extent of Rs. 195.10 crores. In other words, the assessee had sufficient funds for making the investments and it has not used the borrowed funds for such purpose. This aspect of huge surplus funds is not disputed by the Revenue which earned it the interest on bonds of dividend income.
With regard to disallowance of 1% of administrative expenses averred to have incurred on account of the earning of interest, there is nothing on record to indicate that there has been in fact any actual expenditure incurred by the assessee for earning tax free income of Rs. 14 crores. It is also to be noted that out of the total amount of exempt income of Rs. 14 crores, the assessee could point out that 12 crores(rounded off) was earned by Sujen project which was under construction for which no expenditure had been claimed and for the remaining income of Rs.7.88 crores which consist of dividend and tax free interest, no part of expenditure appears to have been made towards the investment activity as emerging from the material. According to the respondent, the total investment from the huge surplus is comparatively small and investment made was effortless, without any burden of administrative expenses.
There is no finding given by the A.O regarding any direct nexus between interest bearing borrowed funds and investment. Hence, in our considered opinion, no disallowance u/s. 14A can be made out of interest expenditure in the facts of the present case. In the result, the appeal of the assessee is dismissed.
