TMI Blog2010 (12) TMI 738X X X X Extracts X X X X X X X X Extracts X X X X ..... borrowed funds - The assessee has also been able to show in this case that the funds borrowed have been utilized for the business of the company as is evident that the bank loans have been obtained for the working capital of the company - it very clear that the AO had disallowed the interest on the ground that had assessee not made the investments, it would have saved the interest expenditure incurred on loans as the investment amount would have gone to reduce the loan - The assessee is entitled to take his own decision and to carry on the business with more of the borrowed funds rather than using his own funds - Decided in favour of the assessee - ITA No. 4063 (Del) 2006 - - - Dated:- 16-12-2010 - A.D. Jain, K.D. Ranjan, JJ. Stephe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure, if the money invested in the interest bearing bonds had been utilized for normal business purposes other than investments; and that, however, the assessee's claim of having share holders' fund of Rs. 203.17 crores could also not be ignored. The AO, as such, disallowed interest of Rs. 16,65,919/- on a pro-rata basis, invoking the provisions of section 14A of the I.T. Act. 3. The learned CIT(A), by virtue of the impugned order, deleted the disallowance. 4. Aggrieved, the Department is in appeal. 5. The learned DR has argued that the ld. CIT(A) has erred in deleting the disallowance on account of interest expenditure relatable to tax free income of the assessee, without taking into consideration the ratio in 'CIT v. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds were mixed and it was not possible to ascertain as to whether the investment in the tax free bonds was out of the assessee's own funds or from borrowed funds; that this could only have been ascertained, if the cash flow of the assessee had been examined, and the source of investment in the tax free bonds clearly identified, which had not been done by the AO; that the AO had not established any nexus between the borrowed funds and the investments in the tax free bonds ; and that therefore, apportionment on a pro-rata basis was not proper. Nothing has been brought on record to counter the assessee's contention that the investment in the tax free bonds had been made out of the share holders' funds. 8. We do not find any error in the or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of its own funds, the assessee had taken loans on which interest was paid and all the money available with the assessee was kin common kitti, as held by this court in 'CIT v. Abhishek Industries Ltd.' [2006] 205 CTR (PandH) 304: 286 ITR 1(PandH) and, therefore, disallowance u/s 14A was justified. We do not find any merit in this submission. The judgment of this court in 'CIT v. Abhishek Industries Ltd.'(supra) was in issue of allowability of interest paid on loans given to sister concern, without interest. It was held that deduction for interest was permissible when loan was taken for business purpose and not for diverting the same to sister concern without having nexus with the business. The disallowance made therein have to be read in tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be for the purpose of the business and on this finding of facts the disallowance was upheld. 14. It is to be further noted that in the said case itself, the court has not refused to grant relief in respect of profit earned during the year being more than the investment and the advances only on the ground that the assessee had not placed material to show that it had generated surplus in excess of the investment and advance prior to such investment and advances. There is a categorical finding by the court that no material was placed in this regard by the assessee. The obvious implication of this observation is that the assessee been able to show that it has got surplus before the investment then it could claim that such investments have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the funds on which interest has been paid for purposes of the business. The AO has not controverted this factual aspect. The argument of the AO, as stated in the assessment order, that the assessee would have definitely saved interest expenditure, if the amount of the investment made would have been utilized for normal business purposes rather than in investment. As such, it is not the case of the AO that borrowed funds, on which interest has been paid, have been utilized for making investment but the case of the AO is had the money not been utilized for investment, this money would have gone to reduce the borrowings and in consequence the interest expenditure would have been less. The argument of the revenue is far-fetched, as it is fo ..... X X X X Extracts X X X X X X X X Extracts X X X X
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