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Income Tax Appellate Tribunal, DELHI BENCH “C” NEW DELHI
Before: SHRI N.K. BILLAIYA & SHRI AMIT SHUKLA
O R D E R
PER AMIT SHUKLA, JUDICIAL MEMBER:
The aforesaid appeal has been filed by the Revenue against the impugned order dated 30.06.2017 passed by CIT(A)-XXXI, New Delhi for the quantum of assessment passed u/s.143(3) for the Assessment Year 2011-12 on following grounds:- “1. Whether Ld. CIT(A) was justified in deleting the disallowance of Rs.18.17 crore as per Rule 8D(2)(ii) when the facts of the case relied upon by Ld. CIT(A) in the case of Bharti Overseas Pvt. Ltd., are different as this case is related to the interest on borrowings taken for business purposes like cash credit and short term loans which is not in the case of M/s. IFFCO.”
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The brief facts qua the issue involved are that the assessee is a Multi-State Cooperative Society and had shown dividend income from various companies as well from joint venture with M/s. OMIFCO at Oman for sums amounting to Rs.165,20,92,522/-. The Assessing Officer after detailed discussion computed the disallowance under Rule 8D at Rs.20.49 crore. Since, the Revenue has challenged the disallowance of interest under Rule 8D(2)(ii) only, the relevant observation and the finding of the ld. CIT(A) in this regard are that, at the end of the financial year 2010-11, the Society’s total borrowings was at Rs.11,352 crore, whereas the fund required for making capital and fixed assets stood at Rs.19,791 crore. Further, the bank has imposed stringent end use condition and limits while sanctioning the loans which were only for the specific purposes. There was specific prohibition for the use of the funds for investment in shares of other companies and capital markets. So the borrowed funds could not have utilised for the investment purposes. It has been further noted that there was huge availability of assessee’s own surplus funds, the details of which were furnished by the assessee. In these circumstances it has been held that no disallowance of interest could have been made. The relevant observation and the conclusion drawn by the ld. CIT (A) in this regard reads as under: “5.4.1 The ld. AR submitted that at the end of the Financial Year 2010-11, the Society’s total borrowings amounted to Rs. 11,352/- crores whereas, the funds required for working capital
3 ITAs No.6083/DEL/2017 by the Society and fixed assets stood at Rs.19,791/- crores. In this regard, to further fortify the above, appellant submitted that the Banks impose stringent end use conditions while sanctioning these loans and limits which include use for the business purpose only and specifically prohibit use of the funds for investment in the shares of other companies or Capital Markets. It was submitted that similar restrictions are also contained in the RBI’s ECB Guidelines. A copy of such terms in Cash Credit and Short Term Loans was filed. It was further submitted that the Banks monitor compliance of these conditions through monthly submissions of Stock Statements and independent Statutory Auditor's Certificate as per RBI Guidelines. A copy of Statutory Auditor's certificate evidencing compliance was also filed. The Id. AR affirmed that during the Previous Year 2010-11, relevant to Assessment Year 2011-12, there has been no instance of levy of a penal Interest or recall of the loan for violation of the end use conditions. He, therefore, summed up his arguments pleading that in view of the above cited legal position and the facts, disallowance of interest under Rule 8D2(ii) cannot be made in terms of section 14A. 5.4.2. I have considered the findings recorded by the Id. AO as per the assessment order, the submission made by the appellant, the position of the law and the facts of the case on record. It is seen that this issue came up for consideration before the CIT (A) -11, New Delhi in Assessment Year 2010-11 i.e. the immediately preceding year and before the CIT(A), XXIII, New Delhi, in the Assessment Year 2009-10. The two CslT(A) in the aforesaid orders, allowed this ground of the appellant based on the factual position and have quashed the disallowance under 4 ITAs No.6083/DEL/2017
Rule 8D2(ii) for the aforesaid two years. The year wise chart of the availability of own funds furnished by the appellant shows that the factual position is similar to the one in the earlier years. On the jurisprudence, the judgment of the jurisdictional High Court in the case of Bharti Overseas (supra) is in favour of the plea of the appellant. Accordingly, respectfully following the judgment of Hon'ble Delhi High Court and the CIT(A)'s orders in the preceding two years, the addition of Rs.18.17 crores is directed to be deleted. Thus, the ground no. 4 is allowed to the appellant.”
Further, it has been pointed out by the ld. counsel that in Assessment Year 2009-10, the Tribunal has confirmed the similar finding of the ld. CIT (A) while deleting the interest disallowance in and 4168/Del/2014.
On the other hand, ld. DR has relied upon the order of the Assessing Officer.
After considering the relevant facts and material on record, it is quite evident that, firstly, assessee had own substantial fund for making the investment; and secondly, the assessee had duly explained and demonstrated that the loan funds could not have been utilized for the purpose of investment. Under these circumstances, the disallowance of interest under Rule 8D (2)(ii) cannot be made and has been deleted by the ld. CIT(A). The Tribunal in assessee’s own case for Assessment Year 2009-10 has observed and held as under:
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We have perused the submissions advanced by both the sides in the light of records placed before us. On perusal of categorical observations by Ld. CIT(A) which has been reproduced hereinabove, it is observed that Revenue has not been able to establish by way of documentary evidences that the interest bearing funds were utilised for the purposes of investments. The Certificate issued by the auditors which was verified by Ld. CIT(A) has not been found fault with by Revenue. Even though assessee has kept all the funds in one common pool, the presumption that the investment has been made from interest bearing funds cannot be appreciated, since for the year under consideration assessee has substantially demonstrated before Ld.CIT(A) regarding sufficient funds being available for investment purposes other than the interest/bearing funds which has not been refuted by Ld. CIT-D.R. Ld.CIT(A) has observed that the funds are to be strictly utilised by assessee as per guidelines issued by RBI. Further we have verified records in the context of both orders dt. 30.09.2016 as well as 05.04.2018 and are convinced with the submissions advanced by Ld. Counsel regarding there being no details that was filed by assessee in order to demonstrate the non-utilisation of interest bearing funds for the purpose of investments that could yield dividend income. Considering the totality of facts, we do not find any infirmity in Ld. CIT(A) deleting disallowance computed by Ld.AO under Rule 8(111). We therefore uphold the order of Ld. CIT(A) on this ground.
Accordingly, appeal filed by the Revenue stands dismissed.”
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Thus, respectfully following the aforesaid principle, we are dismissing the appeal of the Revenue.
In the result, the appeal of the Revenue is dismissed.
Order pronounced in the open Court on 25th January, 2021