TMI Blog2013 (7) TMI 444X X X X Extracts X X X X X X X X Extracts X X X X ..... - GUJARAT HIGH COURT] there is no diversion of interest bearing funds to interest free advances - disallowance made under section 36(1)(iii) deleted - In favour of assessee. Disallowance u/s.14A - Held that:- It is an undisputed fact that no fresh investments have been made by the assessee during the year. It is also a fact that as per the balance sheet of the assessee, the interest free funds in form of capital, reserves and surplus are to the extent of ₹ 84,45,567/- lacs whereas the investments are to the extent of ₹ 22.707/- lacs. Thus, the share holder funds are far in excess of the investments. See CIT vs. Reliance Utilities & Power Ltd.[2009 (1) TMI 4 - HIGH COURT BOMBAY] & CIT vs. Hero Cycles Ltd. (2009 (11) TMI 33 - PUNJAB AND HARYANA HIGH COURT). In the present case, the A.O. has not given a specific finding with respect to the expenditure incurred by assessee for earning tax free income. Further, the interest free funds available with the assessee are far in excess of investments. Thus no addition u/s. 14A can be made. In favour of assessee. - ITA Nos. 2025 & 2026/Ahd/2010 - - - Dated:- 10-5-2013 - G. C. Gupta, VP and Anil Chaturvedi, JJ. For ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . M.S. Venkateshwaran 222 ITR 163 (Mad), K. Somasundaram Brothers CIT 238 ITR 939 (Mad) and CIT vs Motor General Finance Ltd. 254 ITR 449 (Del) which was confirmed in principle by the Supreme Court in the case of Motor General Finance vs CIT 267 ITR 381 (SC). Hence, appeal to ITAT is proposed on this issue. 2(i). On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of interest expenses of ₹ 64,00,000/- u/s.14A of the Act in respect of dividend income of ₹ 10,18,43,271/- which is exempt from tax in the hands of the assessee company. 2(ii). The CIT(A) failed to appreciate that the assessee had taken interest bearing loans and the assessee did not discharge its onus to establish that interest bearing fund was not utilized for the purpose of investment. Since the assessee failed to furnish any quantification, in respect of loan taken and investment made, the disallowance u/s.14A was rightly made by the A.O. For A.Y. 2002-03 1(i). On the facts and in the circumstances of the case and in law, the Ld.CIT(A) erred in deleting the disallowance of interest expenses of ₹ 64,00,000/- u/s.14A of the Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he submission made by the assessee was not found acceptable to the A.O. He disallowed the claim of the assessee by holding as under: 5.5 I have carefully considered reply of the assessee Company. While deciding the case of SA Builder, the Hon'ble Supreme court has held that We wish to make it clear that it is not our opinion that in every case interest on borrowed loan has to be allowed if the assessee advances it to a sister concern. It all depends on the facts and circumstances of the respective case. For instance, if the directors of the sister concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister concern for commercial expediency in many other circumstances (which need not be enumerated here). However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deductio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssue has arisen for A.Y. 07-08 and where the assessee had proved the commercial expediency. He was further of the view that since the facts on the basis of which the A.O. decided the issue and the contention of the assessee was identical in A.Y. 07-08, he following his own decision in appeal for A.Y. 07-08 allowed the claim of the assessee. Aggrieved by the aforesaid order of CIT(A), the Revenue is now in appeal before us. 6. Before us, the ld. CIT. D.R. submitted that there was factual difference as compared to the facts of A.Y. 07-08 as interest free funds were less as compared to the investment made. He further submitted that the assessee had advanced to the loss making concerns and the commercial expediency was not proved before the A.O. He, thus, supported the order of A.O. The ld. A.R., on the other hand, submitted that the assessee has not granted any fresh advance to Gujarat Narmada Auto Ltd. (GNAL) and Narmada Education and Scientific Research Society (NE SRS) during A.Y. 2001-02, however small advance of ₹ 0.03 lacs was given to Gujarat Narmada Finance Investment Co. Ltd. The ld. A.R. submitted that the advance to Gujarat Narmada Auto Ltd. represented payment m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds at its disposal. He thus supported the order of CIT(A). 7. We have heard the rival submissions and perused the material on record. It is an undisputed fact that the assessee had granted loans and advances to its associates and the loans and advances outstanding as on 31.03.2001 to its subsidiaries and its associates was same as that on 31.03.2000 except for an increase of ₹ 0.03 lacs, which supports the contentions of the assessee that no new loans and advances have been granted to the aforesaid concern during the year. Further, from the balance sheet as on 31.03.2001, the assessee has demonstrated that it was having sufficient interest free funds at its disposal. Further, the A.O. has not brought out any tangible evidence to support his contention that interest bearing loans taken by the assessee for the purpose of its own business have been used for non business purpose and the nexus between interest bearing loans and interest free advances has not been proved by the A.O. In the assessee s own case the Hon ble Gujarat High Court dismissed the appeal of the Revenue by holding as under: 10. Thus, it is apparent that the Supreme Court was dealing with the question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eeding, the A.O. noticed that the assessee had received dividend income of ₹ 10,18,43,271/- for A.Y. 01-02 and ₹ 7,13,01,338/- for A.Y. 02-03. He further noticed that the assessee has raised funds out of which ₹ 12893.23 lacs for A.Y. 01-02 ₹ 9,664.24 lacs for A.Y. 02-03 have been utilized for investment in UTI and domestic companies. According to the A.O., investment worked out to 70% of funds raised. He, accordingly, made an addition of ₹ 64 lacs i.e. 70% of 87.73 lacs u/s.14A. Hon ble ITAT had set aside the issue before the A.O. for re-consideration. In the second round, the assessee submitted that the investment in UTI and shares of domestic companies from which the assessee has earned dividend income were made in earlier years and no fresh investment were made during the year. It was further submitted that the assessee had incurred no expenditure for earning dividend. The assessee further relied upon the decision in the case of CIT vs. Hero Cycles Ltd. 290 ITR 398. The contention of the assessee was not found acceptable to the A.O. as he was of the view the year of investment or source of investment does not matter but since, the assessee has ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Reliance Utilities Power Ltd. 313 ITR 340 and in the case of Hero Cycles Ltd. 290 ITR 398. 12. We have heard the rival submissions and perused the material on record. It is an undisputed fact that no fresh investments have been made by the assessee during the year. It is also a fact that as per the balance sheet of the assessee, the interest free funds in form of capital, reserves and surplus are to the extent of ₹ 84,45,567/- lacs whereas the investments are to the extent of ₹ 22.707/- lacs. Thus, the share holder funds are far in excess of the investments. In the case of CIT vs. Reliance Utilities Power Ltd. 313 ITR 340, the Hon ble Bombay High Court has held as under: The principle therefore would be 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. In the case of CIT vs. Hero Cycles Ltd. (2010) 189 Taxman 50 (P H). The Hon ble High Court held as under: The contention of the revenue, that directly or indirectly some ..... X X X X Extracts X X X X X X X X Extracts X X X X
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