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Income Tax Appellate Tribunal, DELHI BENCHES : SMC-3 : NEW DELHI
Before: SHRI J. SUDHAKAR REDDY
ORDER This appeal filed by the assessee is directed against the order of the CIT(A) dated 21.5.2014 for the assessment year 2010-11.
There are only two issues arising in this appeal. The first issue is the disallowance of interest u/s 36(1)(iii) and the second issue is the disallowance u/s 14A. As far as the disallowance u/s 14A is concerned, as, admittedly, the assessee has not earned any dividend income during the year, the disallowance cannot be made in terms of the judgement of the jurisdictional High Court in the case of Chem Investment 370 ITR
Thus, ground No.3 of the assessee is allowed.
As far as the disallowance u/s 36(1)(iii) is concerned, the Tribunal in the assessee’s own case for AY 2009-10 vide order dated 29th September, 2014 had upheld the order of the CIT(A).
In the impugned assessment year, the ld.CIT(A) has not followed the order of the CIT(A) passed for the immediately preceding year. At para 5.5, he has held:
“….. Thus, in such circumstances, it can be inferred that the capital contributed by the partners of the appellant firm has been used for business purposes. The investments of Rs.5.99 crores, shown in the balance sheet, prima-facie, are not for the purpose of business. Normally, sundry creditors appearing in the balance sheet get reflected as stock in trade and sundry creditors appearing in the balance sheet get reflected as stock in trade and sundry debtors. However, here in case of the appellant firm, not only sundry creditors but also part of secured loans and partner’s capital appearing in the balance sheet also get reflected as stock in trade and sundry debtors. Out of flowing fund, the appellant also used to make investments resulting income not chargeable to tax not only out of business receipts but also out of loan. The appellant firm, as borrower had not repaid the principal sum borrowed on interest out of business profits at the earliest, but preferred to pay interest on the principal sum borrowed by diverting the surplus/borrowed money in the investments of Rs.5.99 crores over the years, which is against the normal human behavior. Before the bank, the appellant, as per the terms & agreements of loans, have categorically admitted to have used its partners’ capital in the business; however, here it is taking plea that it has used partners’ capital in investments which are not for the purpose of business. These two stand are contradictory to each other.”
The finding of the ld.CIT(A) that capital contributed by the partners which is interest free funds, has not gone into investments. It is against the presumption laid down by the Hon’ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd. (2009) 313 ITR 340 (Bom). In any event, consistent with the view taken by the Bench in the assessee’s own case for the earlier assessment year, and also the fact that in the subsequent assessment year the claim of the assessee on similar facts was allowed, we uphold the contention and allow this ground.
In the result, the appeal of the assessee is allowed.
The order pronounced in the open court on 31.08.2016.