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Income Tax Appellate Tribunal, ‘’A’’ BENCH, AHMEDABAD
Before: SHRI KUL BHARAT & SHRI WASEEM AHMED
आदेश/O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals)-3, Ahmedabad dated 16/11/2017 (in short “Ld.CIT(A)”) arising in the matter of assessment order passed under s. 143(3) r.w.s. 147 of the Income Tax Act, 1961 (here-in-after referred to as "the Act") dt.19/12/2016 relevant to the Assessment Year 2014-2015.
The assessee has raised the following grounds of appeal:
The learned C.I.T. (Appeals) has erred in confirming the part disallowance of interest expenses incurred of Rs.3,11,5747- out of total disallowance made by A.O. of Rs. 50,18,707/-. It is submitted that the advances were given out of interest-free funds available with the assessee and therefore no disallowance is called for. Thus It is prayed before your honour that the notional disallowance confirmed by the Ld. CIT(A) of Rs.3,11,5747- being incorrect and unlawful and deserves to be deleted.
2. The order passed by the learned C.I.T. (Appeals) is bad in law and contrary to the provisions of law and facts. It is submitted that the same be held so now. 3. Your appellant craves leave to add, alter and/or to amend all or any of the grounds before the final hearing of appeal.
The only issue raised by the assessee is that the learned CIT (A) erred in confirming the addition made by the AO for ₹3,11,574 on account of diversion of interest-bearing fund.
Briefly stated facts are that the assessee the present case is an individual and engaged in the business of trading and supplying of iron and steel products under the name and style of M/s Nilin Industries. The assessee in the year under consideration has shown an advance for a sum of Rs. 29,00,359.00 to M/s Kundan steal industries without charging any interest.
The AO during the assessment proceedings found that the assessee on one hand has incurred interest expenses of ₹92,72,946 and on the other hand it has not charged the interest on the advance given to the party. Accordingly, he worked out the amount of proportionate interest of ₹3,48,047 and added to the total income of the assessee.
Aggrieved assessee preferred an appeal to the learned CIT (A).
The assessee before the learned CIT (A) submitted that it has given advances to M/s Kundan Steal Industries in the course of the business. Therefore there cannot be disallowance on such advances given in the course of business on account of diversion of interest-bearing fund.
Similarly the assessee also claimed that he has huge sufficient interest- free fund of ₹3,63,21,855.00 as on 31 3 2014. Therefore it is to be presumed that such advance was given by the assessee out of the interest-free funds available with it.
However the learned CIT (A) disagreed with the contention of the assessee and confirmed the order of the AO. However the learner CIT (A) found that there was the calculation errors in the amount of interest. As per the learned CIT (A) the actual amount of interest is of ₹3,11,574.00 which needs to be disallowed. Accordingly the learner CIT (A) confirmed the order of the AO in part.
Being aggrieved by the order of the learners ITA the assessee is in appeal before us.
The learned AR before us reiterated the submissions as made before the learned CIT-A whereas the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. At the outset we note that the contention raised by the assessee before the learned CIT (A) that he has sufficient interest free fund available with him which was utilised to give the advance to M/s Kundan steal industries has nowhere been doubted by the authorities below. Therefore we are of the view that there cannot be any disallowance on account of interest expenses for the diversion of fund. It is because it is presumed that such advance has been given out of the interest-free fund available with the assessee. In this regard we find support and guidance from the judgement of Hon’ble Bombay High Court in the case of Reliance Utilities and Power Ltd. reported in 313 ITR 340 wherein it was held as under:- “The principle therefore would be that if there are funds available both interest- free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT(A) and Tribunal”.
8.1 Similarly, we also rely on the judgment of the Hon’ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd reported in 366 ITR 505 (Bom). The relevant extract of the order is reproduced below:-
“Where assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in tax-free securities, it would have to be presumed that investment made by the Assessee would be out of the interest-free funds available with Assessee and no disallowance was warranted u/s 14A.”
8.2 Similarly, we also find support from the judgment of Hon’ble Gujarat High Court in the case of UTI Bank Ltd. reported in 32 Taxmann.com 370 where the headnote reads as under : “If there are sufficient interest free funds to meet tax free investments, they are presumed to be made from interest free funds and not loaned funds and no disallowance can be made under section 14A”.
In view of the above proposition, we hold that no disallowance of interest expense claimed by the assessee can be made on account of advance paid to M/s Kundan Steel Industries as discussed above. Hence, we reverse the order of the authorities below. The AO is directed to delete the addition made by him.
In the result, the appeal of the assessee is allowed Order pronounced in the Court on 03/10/2019 at Ahmedabad.