DCIT 10(2)(2), MUMBAI vs. MAFATLAL INDUSTRIES LTD, MUMBAI

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.