No disallowance can be made u/s 14A r.w.r. 8D if interest income is more than interest expenditure:

AO found that the assessee-company is a partner in several partnership firms and has earned profits from such firms which have been claimed as exempt u/s 10(2A). Also, the assessee had paid interest on unsecured loans during the year under consideration. AO therefore took a view that assessee invested such borrowed funds in various partnership firms and earned exempted income. Consequently, he made disallowance u/s 14A r.w.r. 8D. Hon’ble ITAT observed that the assessee had sufficient own funds and hence, it was of the view that it was unfair on the part of revenue to presume that borrowed funds had been utilised for the purpose of making investment in such partnership firms. It was further observed that interest income earned by the assessee was more than the interest expenditure. Hon’ble ITAT, following the order in the case of “ITO vs. Karnavati Petrochem Pvt. Ltd. – ITA No.2228/Ahd/2012”, held that when the interest income was more than interest expense, AO was not justified in invoking the provisions of S.14A r.w.r. 8D. Accordingly, the impugned addition was deleted.

[Safal Reality Pvt. Ltd. vs. ACIT – ITA Nos.2334/Ahd/2012 & 1842/Ahd/2013]