Only because the sum total of share capital and reserves was far greater than the loan advanced to sister concern it was held in CIT v. Raghuvir Synthetics Ltd. (2013) 354ITR222 that no disallowance could be made out of interest paid on borrowed capital.
The ratio of this decision can be utilized in the context of s. 14A provisions where the AO if presented with a statement of interest free funds to show that the assessee maintain substantial interest free funds to match the investments in tax free securities and that it has thus not utilized any monies for making investments in tax free securities.
Having said that then it is for the AO to bring evidence to hold otherwise in the absence of which even rule 8D interference would be improper
Post No. - 487
In the case of CIT v. Punjab Agra Industries Corporation Ltd. (119TAX860) the assessee promoted a sister concern in a joint venture with a private Sector Company and advanced loans besides investing in shares. The sister concern went sick. In forming a revival plan the assessee waived off the interest on loans. The P & H High Court held that interest waived is to be allowed as legitimate business expenditure as such expenditure is made to safeguard its share capital and loan.
In the author's opinion if such waiver is exercised in the beginning of the year it may be possible to avoid booking of income itself.
Post No. - 486
Following the Supreme Court ruling in the case of Bharat Commerce and Industries Ltd. Vs. Commissioner of Income-tax (230ITR733) the Delhi High Court in the case of Usha Sales Ltd. v. CIT (119TAX472) held that all liability for interest incurred under various sections of the Income tax Act, 1961 is not deductible, be it interest for failure to deduct tax, failure to pay advance tax, failure to pay tax itself etc etc. Meaning thereby that the real cost of such interest is as much as 23% after taking tax effect. It is therefore advisable to pay taxes in advance and