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TMI Blog2012 (3) TMI 210X X X X Extracts X X X X X X X X Extracts X X X X ..... see had not charged any interest on such advances whereas substantial amount of interest was paid on the funds borrowed. On being show caused as to why the proportionate disallowance of interest be not made, the assessee justified its claim by stating that it has Share capital, Reserves and surplus and unsecured loans amounting to Rs. 3544.64 lakh on which no interest was payable. The Assessing Officer, in the absence of any nexus between the interest free loans advanced with the interest free funds available with the assessee, made the above disallowance by applying 15% rate of interest. The learned CIT(A) upheld the assessment order by observing that apart from Share capital (Rs. 15.25 crore) and Reserves and surplus (Rs. 19.48 crore), the assessee had debit balance of Profit and loss account amounting to Rs. 3.93 crore in addition to a liability of Rs. 24.43 crore on account of interest payable to M/s. Sahara India Financial Corporation Limited which the assessee had not debited to its profit and loss account. Considering these facts he sustained the addition. 4. After considering the rival submissions and perusing the relevant material on record it is found as an admitted posi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the above judgment it is manifest that if the assessee has interest free funds as well as interest bearing funds at its disposal, then the presumption would be that investments were made from interest free funds available with the assessee. Adverting to the facts of the instant case it is observed that the interest free funds available at the disposal of the assessee are far in excess of the interest free loans advanced to the sister-concerns. Respectfully following the mandate of the Hon'ble jurisdictional High Court in the case of Reliance Utilities & Power Ltd. (supra), we order for the deletion of the addition. This ground is allowed. 7. Second ground is against the confirmation of disallowance of Rs. 3,36,49,307 towards accrued interest payable to M/s. Sahara India Financial Corporation Limited u/s 40(a)(ia) of the Act. The facts apropos this ground are that the assessee claimed deduction of interest expenditure of Rs. 3.36 crore payable to M/s Sahara India Financial Corporation Limited, for which no accounting entry was passed in the books of account. Deduction was claimed in the computation of total income. On being called upon to explain as to why the interest sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as a bogus claim and there was no liability to pay. It can be seen that the term loan was received by the assessee from this concern way back and in the earlier years also it kept on claiming deduction for interest on such amount. Liability to pay did accrue in this year, which was duly acknowledged by the assessee as well. What the assessee did not do, which in the opinion of the AO eclipsed its claim for deduction, was not recording of such transaction in the books of account. As we have noticed earlier that in the mercantile system of accounting, deduction is allowed on accrual of liability, it is not material whether the amount is paid or not or whether or not it is recorded in the books of account. 10. Be that as it may in the assessment year 2003-2004 the assessee claimed deduction for similar interest payable on term loan to M/s Sahara India Financial Corporation Limited to the tune of Rs. 2.51 crore which was allowed by the Assessing Officer in the assessment framed u/s 143(3). Subsequently, the learned CIT, taking recourse of the provisions of section 263, held that the amount of interest was not deductible. The assessee challenged the said order of the ld. CIT before the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been paid on or before the due date specified in section 139(1), that the disallowance of interest is called for. Let us examine section 194A in Chapter XVII-B, which is relevant for the purpose requiring deduction of tax at source on interest other than interest on securities. It can be noticed from the language of sub-section (1) as under:- "194A. (1) Any person, not being an individual or a Hindu undivided family, who is responsible for paying to a resident any income by way of interest other than income by way of interest on securities, shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force." (Emphasis supplied by us) 12. A bare perusal of this provision indicates that the requirement for deduction of tax at source arises "at the time of credit of such income to the account of the payer or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode whichever is earlier". Explanation to section 194A(1) provides that where any income by way of interest is credite ..... X X X X Extracts X X X X X X X X Extracts X X X X
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