JAYRAM LILARAM MAKHIJA,AHMEDABAD vs. THE ITO, WARD-1(3)(2), AHMEDABAD

The solitary grievance of the assessee in the instant case is towards disallowance of interest amounting to Rs.5,57,312/- under s.36(1)(iii) of the Act on the ground that a part of the borrowed funds have been diverted and utilized towards interest free loans and advances of non-business nature.

When the matter was called for hearing, the learned AR for the assessee adverted our attention to the balance sheet of the assessee and submitted that assessee has interest free own funds to the tune of Rs.79,77,239/- at its disposal. Therefore, the alleged diversion of funds to the tune of Rs.13,56,712/- towards interest free loans and advances and investment in bungalow Rs.32,87,900/- should be presumed to have been made out of such own funds.

The learned DR, on the other hand, relied upon the orders of the lower authorities.

We have carefully considered the rival submissions. The maintainability of proportionate disallowance of interest expenditure under s.36(1)(iii) of the Act is in question. It is the case of the assessee that when the assessee has sufficient interest free funds in the form of capital and reserves and at the same time the assessee has borrowed funds in the form of loans, it can be reasonably presumed that investment in question made by the assessee were made from the interest free funds available. We find ourselves in agreement with the aforesaid plea of the assessee in the light of the decision rendered in the case of (i) CIT vs. UTI Bank Ltd. [2013] 32 taxmann.com 370 (Guj), (ii) CIT vs. Reliance Utilities & Power Ltd. [2009] 313 ITR 340 (Bom.) & (iii) CIT vs HDFC Bank Ltd. 366 ITR 505 (Bom.). Therefore, as demonstrate on behalf of the assessee towards availability of interest free surplus funds sufficient to meet the

In the result, appeal of the Assessee is allowed.