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Income Tax Appellate Tribunal, “SMC” BENCH, MUMBAI
Before: SHRI D. KARUNAKARA RAO
अऩीराथी की ओय से / Appellant by : Ms. Beena Santosh, DR प्रत्मथी की ओय से/ Respondent by : None सुनवाई की तायीख / Date of Hearing : 08.02.2017 घोषणा की तायीख /Date of Pronouncement : 07.04.2017 आदेश / O R D E R PER D. KARUNAKARA RAO, AM:
This appeal filed by the Revenue on 26.09.2016 is against the order of the CIT (A)-13, Mumbai dated 8.7.2016 for the assessment year 2003-2004. In this appeal, Revenue raised the following ground which reads as under:- “On the facts and in the circumstances of the case and in law, the CIT (A) was erred in holding that the assessee company had sufficient funds of its own for advancing the interest-free loans to its subsidiary & other companies without using the interest bearing funds even though the Balance Sheet of the assessee company as at 31.3.2003 shows that the assessee company has no interest free surplus funds at its disposal and therefore, borrowed funds have been utilized and proportionate interest on these borrowed funds was rightly disallowed by the Assessing Office.”
2. Briefly stated relevant facts of the case are that this the second round of proceedings before the Tribunal. In the first round, the Tribunal vide its order dated 28.4.2011 set aside certain issues to the file of the AO for fresh consideration. Assessment Order was passed order on 8.2.2013 giving effect to the said Tribunal’s order, wherein AO made disallowance u/s 36(1)(iii) of the Act amounting to Rs. 1,63,30,293/- which is the subject matter appeal under consideration. Aggrieved with the said disallowance made by the AO, assessee carried the matter in appeal before the first appellate authority.
During the proceedings before the first appellate authority, after considering the submissions of the assessee, CIT (A) granted relief to the assessee and deleted the addition made by the AO. Dissatisfied and agreed with the said decision of the CIT (A), Revenue is in appeal before the Tribunal by raising the above mentioned ground.
During the proceedings before the Tribunal none appeared to represent the case of the assessee. Considering the covered / settled nature of the issue, I proceed to adjudicate the appeal with the help of the Ld DR, who dutifully relied on and supported the order of the AO. 4. On hearing the Ld DR and on perusal of the orders of the Revenue Authorities as well as the relevant material placed before the Tribunal, I find, CIT (A) decision given on the issue at page no. 10 of his order is relevant in this regard. Considering the significance and for the sake of completeness of this order, relevant lines from page 10 of the CIT (A)’s order extracted as under:- “From a plain reading of the above extract, it would become clear that the Hon’ble jurisdictional High Court had held that if both interest free and interest bearing funds were available to the assessee, then a presumption would arise that the assessee’s investment would be out of its interest free funds, provided they were sufficient to meet the investment. In the appellant’s case, this is indeed the case as total interest- free funds were Rs. 208.43 Crs while its interest-free advances totalled Rs. 10.88 Crs. In these circumstances, no question of disallowance out of interest payment made on the interest bearing leans would arise in the appellant’s case. Respectfully following the aforecited decision of the Hon’ble jurisdictional High Court, the addition of Rs. 1,63,30,293/- made u/s 36(1)(iii) of the Act is hereby disallowed. The AO is so directed. Ground nos. 2, 3, 4, 5 and 6 are accordingly allowed.” 5. It is a settled principle at the level of the Hon’ble jurisdictional High Court vide its judgment in the case of CIT vs. Reliance Utilities & Power Ltd (313 ITR 340), which is relevant for the proposition that if there are funds available both interest- free and overdraft and / or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest free funds were sufficient to meet the investments. Considering the same, I am of the opinion, CIT (A) rightly following the precedent on the issue while granting the relief to the assessee. Therefore, in my considered view, the order of the CIT (A) on this issue is fair and reasonable and it does not call for any interference. Accordingly, ground raised by the Revenue is dismissed.