ORACLE GRANITO LIMITED,AHMEDABAD vs. THE DY.CIT, CIRCLE-3(1)(2) NOW CIRCLE-3(1)(1), AHMEDABAD

The above appeal has been filed by the assessee against order passed by the Ld.Commissioner of Income-Tax(Appeals), National Faceless Appeal Centre (NFAC), Delhi [hereinafter referred to as “ld.CIT(A)] dated 27.12.2023 under section 250 of the Income Tax Act, 1961 ("the Act" for short) dismissing the appeal of the assessee against the order of the Assessing Officer (AO) passed under section 143(3) read with section 254 the Act pertaining to Assessment Year 2008-09.

The grounds raised in the appeal read as under:

The matter was carried in appeal before the Tribunal. The ITAT noted that since the assessee had not furnished necessary break-up of the fund flow statements for reconciliation of funds utilized in acquiring the capital assets, therefore, in the interest of justice the matter was restored back to the AO to decide the issue afresh after examining all the relevant details furnished by the assessee.

The same was confirmed by the ld.CIT(A) in his ex parte order passed.

Before us, the ld.counsel for the assessee contended that the disallowance of interest made was grossly against the settled law that where sufficient interest free funds are available with the assessee, the presumption is that the same fund has been deployed for investment in capital assets, calling for no disallowance of interest 4 under section 36(1)(iii) of the Act. In this regard, he drew our attention to the order of the Hon’ble Apex Court in the case of CIT Vs. Reliance Industries Ltd., 410 ITR 466 (SC). He, thereafter, pointed out that in the first round itself, the assessee had pointed out the sufficiency of own funds available for making investment in the capital assets which was noted by the ld.CIT(A) also. He pointed out that the assessee had also demonstrated through his bank accounts that the investment in fixed assets had been made from his current account, where all the sale proceeds of the business was deposited.

In this regard, he drew our attention to page no.20 of the order of the ld.CIT(A) in the first round, reproducing written submissions filed by the assessee to the above effect before the ld.CIT(A) and to para 6.2.1 of the order of the ld.CIT(A), noting the fact of sufficiency of funds for making investment in capital assets as under;

The ld.DR relied on the orders of the ld.AO/CIT(A) contending that since the assessee had failed to furnish any fund flow statements, as directed by the ITAT, the disallowance had been rightly made by the AO in the second round also.

We have heard contentions of both the parties carefully, and also gone through the orders of both the Revenue authorities in the first and second round of the proceedings, as pointed out to us during the course of hearing.

Clearly, the ITAT merely noted the non-furnishing of fund flow statement by the assessee, but there was no direction by the ITAT to decide the issue of allowance of interest only after examining of the fund flow statements. The ITAT had noted the absence of fund flow statement for restoring the matter back to the AO since it was of the view that there was no reason or basis given by the ld.CIT(A) for treating the amount invested in capital assets by the assessee as out of interest free funds.

Having noted so, we do not agree with the ld.DR that the disallowance of interest needs to be upheld merely for the reasons that the assessee has not furnished fund flow statement. As rightly pointed out by the ld.counsel for the assesse, it is a settled law that when sufficient own funds are available with the assessee, presumption is that the owned funds are utilized for making the investment in capital assets, calling for no disallowance of interest under section 36(1)(iii) of the Act, Reliance Industries (supra). The assessee had reiterated the fact of sufficient own interest free funds available with it for making investments in capital assets during the year to the AO, as noted above by us.

Besides, we have noted that the even if the assessee had not furnished fund flow statements, it has demonstrated usage of own funds for the purpose of investment in capital assets by furnishing copies of bank accounts, being current accounts, from where the 8 assessee demonstrated the fact that all the sale proceeds received during the course of business deposited therein were utilized for acquiring capital assets and no interest bearing loans were used for the same.

In our view, this demonstration of the facts by the assessee, coupled with the ratio of Hon’ble Apex Court, as noted above, is sufficient for accepting the plea of the assessee that no interest bearing funds had been deployed for acquiring capital assets, therefore calling for no disallowance of interest under section 36(1)(iii) of the Act.

In the result, the appeal of the assessee is allowed.