2013 (3) TMI 606 - HC - Income Tax

Addition on account of Modvat - Disallowance being interest attributable to interest free advances - Held that - Deletion the addition on account of Modvat - This issue is covered by the decision of the Apex Court in case of Commissioner of Income-tax vs. Indo Nippon Chemicals Co. Ltd. reported in 2003 (1) TMI 8 - SUPREME Court . In the result this issue does not require any further detailed reasonings. Deletion the disallowance being interest attributable to interest free advances - The Tribunal relied on the decision of the Bombay High Court in case of CIT vs. Reliance Utilities and Power Ltd. reported in 2009 (1) TMI 4 - HIGH COURT BOMBAY . It was held that if there were funds available both interest-fee 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. We see no reason to interfere in the said issue when both the Authorities have concurrently held that there were sufficient funds available with the company and they held in favour of the assessee. - Decided against the revenue.

Summary

Issues:
1. Deletion of addition on account of Modvat
2. Deletion of disallowance of interest attributable to interest-free advances

Analysis:
1. The first issue pertains to the deletion of the addition on account of Modvat by the Income Tax Appellate Tribunal (ITAT) for the Assessment Year 2003-2004. The CIT(Appeals) also upheld the deletion, stating that the amount was an advance to the Govt. adjustable against excise duty payable. The Tribunal concurred with the CIT(A) findings, citing the decision of the Apex Court in the case of Commissioner of Income-tax vs. Indo Nippon Chemicals Co. Ltd. The Tribunal found no need for further detailed reasoning, ultimately leading to the dismissal of this issue.

2. The second issue involves the deletion of the disallowance of interest amounting to Rs. 4,99,370, attributed to interest-free advances. The CIT(Appeals) ruled in favor of the assessee, highlighting that the borrowed funds were used for acquiring fixed assets, and surplus funds were available for making the advances in question. The Tribunal, relying on the decision of the Bombay High Court in CIT vs. Reliance Utilities and Power Ltd., held that if interest-free funds were sufficient to meet investments, a presumption would arise that investments were made out of such funds. As both authorities found in favor of the assessee, stating that there were adequate funds available, the Court saw no reason to interfere, leading to the dismissal of the Tax Appeal.

In conclusion, the High Court dismissed the Tax Appeal, upholding the decisions of the lower authorities in both issues, finding no substantial question of law to be addressed.