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TMI Blog2015 (3) TMI 398X X X X Extracts X X X X X X X X Extracts X X X X ..... year. It has also claimed exempt dividend income of Rs. 12,600/-. However, no expenses have been apportioned towards expenses incurred for earning the exempted income attributable to holding of such investments. The AO, therefore, asked the assessee to explain as to why disallowance u/s.14A should not be made. Rejecting the various arguments advanced by the assessee and relying on various decisions the AO disallowed an amount of Rs. 66,565/- u/s.14A r.w. Rule 8D. The above amount consists of disallowance of interest of Rs. 57,929/- under Rule 8D(2)(ii) and administrative expenses of Rs. 8,636/- under Rule 8D(2)(iii). 3. Before CIT(A) it was submitted that as on 31-03-2009 the assessee had sufficient interest free funds aggregating to Rs. 4391.19 lakhs which is more than sufficient to finance the investment of Rs. 17,27,510/- the income on which is exempt. Relying on the decision of the Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. where it has been held that if there be interest free funds available to an assessee sufficient to meet its investment and at the same time the assessee had raised a loan, it can be presumed that the investments were fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal finding of the AO that the assessee utilized the interest bearing funds for making the investment in the mutual funds, the dividend income of which is exempt, there is no justification for making disallowance u/s.14A r.w. Rule 8D. While doing so, the Tribunal has followed the decision of Hon'ble Punjab & Haryana High Court in the case of CIT Vs. Hero Cycles Ltd. reported in 323 ITR 518 where it has been held that disallowance u/s.14A requires finding of incurring of expenditure for earning exempt income and without such finding no expenditure can be disallowed u/s.14A of the I.T. Act. Referring to the decision of the Pune Bench of the Tribunal in the case of Addl. CIT Vs. M.D. Industries vide ITA No.2454/PN/2012 order dated 31-01-2014 for A.Y. 2008-09 he submitted that the Tribunal in the said decision has held that when the AO failed to establish any nexus between the borrowed funds and the investments in the tax free funds, therefore, the apportionment of expenses on pro-rata basis to make disallowance u/s.14A was not justified. It was held that when the funds were available both interest free and interest bearing, then a presumption arises that interest free funds have b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the same time section 14A(2) does not override section 14A(1) of the Income Tax Act. 6.4 In the case of Hero Cycles Ltd. (Supra) the Hon'ble High Court of Punjab and Haryana has observed that disallowance u/s.14A required finding of incurring of expenditure for earning exempted income, and without said finding no expenditure can be disallowed u/s.14A of the Act. The Hon'ble High Court considered section 14A(2) and Rule 8D(1) also. In the case of CCI Ltd. (Supra) the assessee earned the dividend income on the assets which was claimed exempt but the profit on the sale was offered as business income. In this case, there cannot be profit on the transfer of the mutual funds but as we have held that there is no specific finding by the AO nor by the CIT(A) that infact the assessee has used the interest bearing funds for investment, on this factual aspect, we hold that there is no justification to make the disallowance. We accordingly delete the addition made by the AO u/s.14A r.w. Rule 8D as the mandate of section 14A(1) is not fulfilled." 8.2 Similar view has been taken by the Tribunal in the case of M.D. Industries (Supra). Since the own capital and free reserves of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Hon'ble Bombay High Court in the case of CIT Vs. Ghatge Patil Transports Ltd. vide ITA No.1002/2012 and ITA No.1034/2012 order dated 14-10-2014 where it has been held that Employees' contribution paid after the due date prescribed under the relevant Act but deposited on or before the due date of filing of the return prescribed u/s.139(1) is to be allowed as expenditure. The Pune Benches of the Tribunal are also taking the consistent view that Employees' contribution towards Provident Fund, if deposited before the due date of filing of the return prescribed u/s.139(1) is to be allowed. We therefore do not find any infirmity in the order of the CIT(A) on this issue. Accordingly, the ground raised by the Revenue is dismissed. 14. Ground of appeal No.3 by the Revenue reads as under : "3. Whether on the facts and in the circumstances of the case, the Ld.CIT(A)-I, Nashik was justified in deleting the disallowance of Rs. 48,228/- made on account of disallowance of write-off u/s 36(1)(vii)of the Income Tax Act, 1961." 14.1 Facts of the case, in brief, are that the AO during the course of assessment proceedings noted that the assessee had deposited earnest money deposi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee and charged against the profits for the year. Admittedly this is not a write off of any debt arising on account of any income in the past. However, business necessity of making such deposits is undisputed. Hence, the loss arising on account of write off of such deposits is clearly a business loss allowable u/s 37(1) of the I.T. Act. The only issue that remains is the year of allowability. Considering the rationale behind the provisions of deduction allowable u/s.36(1)(vii) and the smallness of amounts involved, it would be fair to allow deduction for such losses in the year of write off. Therefore, the impugned disallowance of Rs. 48,228/- is deleted. The ground of appeal is allowed". 17. Aggrieved with such order of the CIT(A) the Revenue is in appeal before us. 18. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. In the instant case we find the Ld.CIT(A) allowed the claim of deduction as business loss considering the smallness of the items. It is an admitted fact that these are very old ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nds available with the assessee Equity share capital Rs. 8,89,58,380/- Reserves & Surpluses Rs.10,64,97,678/- Depreciation Reserve Rs.16,12,23,167/- Unsecured Loans - WMDC/DIC S. T. Loans Rs. 8,05,39,916/- Unsecured loans from Star Lite Components Ltd. Rs. 9,00,000/- TOTAL Rs.43,91,19,141/- It may kindly be noted that, in the case of CIT vs. Reliance Utilities & Power Ltd., (copy of decision enclosed) the Hon'ble Bombay High Court has held that, where an assessee has his own funds as well as borrowed funds, a presumption can be made that the advances for non-business purposes have been made out of the own funds and that the borrowed funds have not been used for this purpose. Accordingly, it is held that, the disallowance of the interest on the borrowed funds is not justified" 19.3 Rejecting the various explanations given by the assessee and following various decisions the AO made addition of Rs. 9,33,867/- being interest @12% on interest free advances, the details of which are as under : Kreepa Steel Industries Rs.5,60,511/- Usha Chemicals Rs.3,46,999/- Elme Plast Co. Rs. 26,357/- 20. Before CIT(A) the assessee submitted that the interest fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned assessment order and the submissions of the assessee. It is not disputed that, the funds used for making interest free non business purpose advances were by use of cash credit limits. However, it is equally true that it is the very same cash credit account, in which sale proceeds are also deposited. Thus, the issue in dispute is clearly covered by the decisions cited by the learned A.R. of assessee i.e. Supreme court decision in the case of East India Pharmaceutical Works Ltd. V. CIT (224 ITR 627), the Calcutta High court decision in the case of Woolcombers of India Ltd. V. CIT (134 ITR 219) and the Bombay High court decision in the case CIT V/s Reliance Utilities & Power Ltd (313 ITR 340). Therefore, the impugned disallowance of interest of Rs. 9,33,867/- is unjustified, hence deleted. This ground of appeal is, therefore, allowed." 22. Aggrieved with such order of CIT(A) the Revenue is in appeal before us. 23. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and the Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the AO in the inst ..... X X X X Extracts X X X X X X X X Extracts X X X X
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