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Assessee by : Shri Satish Jain (AR) Revenue by : Shri Kailash Kanojiya (DR) Date of hearing : 03.05.2017 Date of Pronouncement : 03.05.2017 Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JUDICIAL MEMBER: 1. This appeal u/s 253 of the Income-tax Act (the Act) is directed by assessee against the order of ld. CIT(A)-41, Mumbai dated 28.03.2014 for AY 2010-11. The assessee has raised the following grounds of appeal:
1. The learned CIT (Appeal) erred in confirming disallowance made u/s.14A r/w. 8D of Rs.2935273/- subject to certain directions without properly appreciating the facts of the case and law applicable thereto.
2. The Learned CIT(Appeal) ought to have directed that no disallowance is required to be made u/s.14A r/w. Rule 8D(2)(ii) out of interest of Rs.2566723/- as borrowings are specifically made for the purpose of business of the appellant and as reflected in the audited accounts, such borrowed funds are used in the business assets and hence no disallowance out of interest was called for.
3. Learned CIT (Appeal) should have appreciated that no administrative expenses are incurred for the purpose of earning of Dividend and no disallowance was called for under Rule 8D(2)(iii) of Rs.368550/-, as all the investments are made in the associated concern with a view to hold equity in such concern. All investments were made in earlier years and there has been no sale during the year, no dividend is being received on such shares.
4. Learned CIT (Appeal) should have appreciated that provisions of Section 14A are inapplicable, as dividend received from a Co-operative Bank of Rs.2000/- is not subject to provisions of Section 115-0; hence such dividend is not exempt under the - M/s Binayak Tex Processors Ltd. provisions of Section-10(34) of Income Tax Act for the reason, the provisions of Section-14A are inapplicable.
5. Learned CIT (Appeal) erred in upholding disallowance of depreciation of Rs 4,923/- out of disputed purchases of furniture & fixtures of Rs.98,459/- without appreciating the facts that except a mere suspicion, there is nothing to prove that such purchases are not made by the appellant in the normal course of the business and without appreciating the fact that purchases are supported by duly issued bills, payments are made by account payee cheque and the statement alleged to have been made before the Sales Tax Authorities was neither provided, nor the party was made available to the appellant for cross-examination.
6. Appellant prays that disallowance made be deleted.
At the outset of the proceeding, the ld. AR of the assessee argued that the grounds of appeal
raised in the present appeal are covered in favour of assessee in assessee’s own case for AY 2009-10 in dated 21.03.2014. Ld. DR for the Revenue has not disputed the contention of ld. AR of the assessee.
3. We have considered the rival contention of the parties and have seen that similar grounds of appeal was raised by assessee for AY 2009-10 in appeal filed before the Tribunal and the Tribunal passed the following order:
“6. We have heard the learned representatives of the parties and have also gone through the record. We may observe that the Hon'ble Bombay High Court in the case of 'CIT vs. Reliance Utilities and Power Ltd.' (supra), has observed that if there are funds available, both interest free and overdraft/loans taken, then presumption would arise that investments would be out of the interest free fund generated or available with the assessee. However, there seems to be force in the contention of the learned D.R. that such a presumption would arise only if on the date of investment, assessee had its own/interest free funds available with it. However, a perusal of the orders of lower authorities reveal that the above stated explanation put by the assessee regarding investments made from own funds has not been examined by the lower authorities. The same has been rejected on the ground of it being general in nature.
We may observe that in day to day business, it is for the assessee to see how to manage its business. Even though the assessee may not show in the absence of separate fund flow statement or separate accounts relating to business loans and transactions and investments made from own funds, but if the assessee is able to show the near proximity of availability of own funds may be exactly not on the date of investment or advancement of loan but in a very near future date or within a reasonable short period of time, even then the presumption will be that the investment was made by the assessee from his own funds or in anticipation of availability of its own funds within a short period of time. The principle underlying this proposition is that a businessman has to circulate his money according to the day to day requirements and the likely inflow and outflow of money in the near future is taken into consideration while making investments. Even if on the date of investment/expenditure, own funds may not be available with the assessee but if the investment/ expenditure is made in anticipation of availability of own funds and the own funds are available to the assessee within a very short period of time, then under such circumstances disallowance cannot be made on the entire loan amount but a very reasonable proportionate disallowance can be made and M/s Binayak Tex Processors Ltd. even in certain cases can be ignored due to the shortness of the period between the date of advancement/expenditure and date of availability of own funds. It can be observed by the Assessing Officer from the Balance Sheet as to whether sufficient own funds were available to the assessee during the financial year or the interest free funds were generated during the course of the year even if the assessee could not prove the availability of own funds on the particular date of investment/advancement/expenditure.
The ld. AR of the assessee has relied upon the following reproduced Chart to show that the assessee was having its own sufficient funds for investments.
Particulars A.Y.05-06 A.Y.06-07 A.Y.07-08 A.Y.08-09 A.Y.09-10 1 Investments held 7,20,10,000 7,20,10,000 7,37,10,000 7,37,10,000 7,37,10,000 2 Capital & Free Reserve 19,27,34,088 21,14,70,107 22,10,90,423 29,89,11,892 34,48,80,915 Secured Loans 3 4,53,37,824 (a) Packing Credit 63,68,100 1,04,77,100 1,26,08,000 4,82,95,721 (b) Bill Discounting 5,43,24,525 3,27,77,988 5,37,92,429 19,51,17,861 16,78.65,401 (c) Term Loan ---- ---- 1,35,24,896 2,55,52,351 1,90,20,699
6,06,92,625 4,32,55,088 7,99,25,325 26,89,65,933 23,22,23,924 (d) Unsecured Loan 10,00,000 10,00,000 10,00,000 -------- ---- TOTAL LOAN 6,16,92,625 4,42,55,088 8,09,25,325 26,89,65,933 23,22,23,924 4 Current Assets 2,92,55,376 4,72,33,666 4,10,88,378 10,32,78,183 11,43,39,202 (a) Inventory (b) Sundry Debtors 12,69,19,694 11,02,79,113 23,87,39,116 33,94,67,035 26,92,01,126 15,61,75,070 15,75,12,779 27,98,27,494 44,27,45,218 38,35,40,328 Interest Paid 5 (a) On Packing Credit 10,61,579 7,90,982 2,46,376 1,10,09,764 39,33,828 (b) Bill Discounting 39,31,552 39,02,685 45,46,961 27,77,200 2,20,32,420 (c) Term Loan ---- ---- 7,70,367 22,25,123 26,26,090 49,93,131 46,93,667 55,63,704 1,60,12,087 2,85,92,338 Less: Subsidy on Export Credit --- ---- ---- 21,31,220 45,74,694 1,38,80,867 2,40,17,644 M/s Binayak Tex Processors Ltd.
Year of Amount investment
Interest held are as under:- Saraswat Co-Op Bank 1 10,000 A.Y.2004-05
2 Valiant Glass Works (P) Ltd 7,20,00,000 A.Y. 2005-06 3 Paramount Fintex & 17,00,000 A. Y. 2007-08 Industries (I) (P) Ltd TOTAL: 7,37,10,000 The ld. AR of the assesse explained that investment of the assessee in the assessment year 2003-04 was of Rs.10,000/- as against capital and free reserve of Rs.17.05 crores. In the assessment year 2004-05, investment continued to be Rs.10,000/- and its capital and free reserves were of Rs.17.90 crores, secured loans from bank were of Rs.5.42 crores and unsecured loans were of Rs.15.00 lakhs on which interest was paid to the bank of Rs.34.90 lakhs. In assessment year 2005-06, such investment increased to Rs.7,20,10,000/-. Its capital and free reserves were of Rs.19.27crores, secured loans were of Rs.6.06 crores and unsecured loans were of Rs.10.00 lakhs. Interest paid to the bank was of Rs.49.93 lakhs. Thus, substantial investment had been made in AY 2005-06, secured borrowings had increased during this year by Rs.64.00 lakhs and unsecured loans had decreased by Rs.5.00 lakhs. Thus, net accretion in borrowings was only Rs.59.00 lakhs. Fresh investment made during that year was of Rs.720.00 lakhs. He stressed that from the above, it was clear that the assessee had not utilized borrowed funds for making investments. Incremental borrowings of Rs.59.00 lakhs has been used for the purpose of business as the assessee borrowed funds from banks for its export under PCL limit as well as bill discounting limit. In AY 2006-07, investment continued to be the same. However, its secured borrowings fell down to Rs.4.32 crores during the year. In assessment year 2007-08, investment increased to Rs.737.10 lakhs. Thus, a fresh investment of Rs.17.00 lakhs over its capital and free reserves increased to Rs.22.10 crores. Secured loans were increased to Rs.799.25 lakhs and unsecured loans were of Rs.10,000/-. For assessment years 2008-09 and 2009-10, same investment continued and no fresh investment had been made. In assessment year 2008-09 free reserves and capital of the company were of Rs.29.89 crore and its borrowings from the bank being secured borrowing was of Rs.2689.65 lakhs. There was no unsecured loan. Assessee paid interest to the bank of Rs.138.80 lakhs. Up to assessment year 2008-09, no disallowance u/s 14A had been made in the assessee's case while all the assessments had been completed u/s 143(3) of the Act. He further submitted that in assessment year 2009-10, investment of the assesse remained same at Rs.737.10 lakhs. Its capital and free reserves were of Rs.3448.80 lakhs and secured loans of Rs.2322.20 lakhs on which interest paid was of Rs.240.17 lakhs. Thus, in assessment year 2009-10, there was no fresh investment and as there was no disallowance u/s 14A up to assessment year 2008-09. He therefore contended that no disallowance was warranted u/s 14A of Income-tax Act for the year under consideration also. After considering the above submissions of the assesse and after going through the M/s Binayak Tex Processors Ltd.