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2013 (10) TMI 1304

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..... , the same is perceptibly demonstrated, the common pool of funds hypothesis, could apply, being reasonable, so that all the funds, howsoever derived, are construed as having financed the relevant investments proportionately. Thus consider it fit and proper that the matter qua the disallowance under section 14A with reference to the interest attributable to the balance investment of ₹ 156.12 lakhs is restored back to the file of the learned Commissioner of Income-tax (Appeals), so as to allow the assessee an opportunity to present its case before him, and who shall decide the same in accordance with law, issuing definite findings of fact, and after hearing both parties, giving the assessing authority due opportunity to examine and rebut the assessee's case. Decided in favour of assesse by way of remand. - I.T.A. No.4689/Mum/2012 - - - Dated:- 11-10-2013 - SHRI SANJAY ARORA AND SHRI SANJAY GARG, JJ. For the Appellant : Shri Vipul Joshi For the Respondent : Shri S. K. Madhuk ORDER Sanjay Arora (Accountant Member).- This is an appeal by the assessee directed against the order by the Commissioner of Income-tax (Appeals)-10, Mumbai ( CIT(A) for sho .....

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..... ty. 3. We have heard the parties, and perused the material on record. 3.1. It would be, before we proceed to delineate the issue involved and its adjudication, recount the facts of the case, which are fairly simple and undisputed. The assessee, a firm acting as a manufacturer's representatives, commission agent and dealer in a variety of items, viz., iron and steel and hardware materials, oil and oil seeds and chemicals, was observed during the course of the assessment proceedings to have made investments at ₹ 397.37 lakhs during the relevant year, the break-up of which, including the opening value of the investments, i.e., as on March 31, 2006 (at ₹ 9.65 lakhs), as provided, is as under : (Rs. in lakhs) 1 In shares and units of mutual fund 361.12 2 Office premises 9.56 3 FDR/s with bank 36.33 407.01 The entire investment in shares (Rs. 31.35 lakhs) and units (Rs. 329. .....

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..... extent sustained, would only be under section 14A, i.e., as sustained by the learned Commissioner of Income-tax (Appeals), and not under section 36(1)(iii). No grievance qua this aspect of the matter, therefore, obtains or is, in any case, maintainable. Further, that the dispute is essentially one of the valuation, i.e., towards quantifying the borrowing attributable to the balance investment in shares and units (Rs. 156.12 lakhs), i.e., after deducting the amount of borrowings for the said investment made from Kotak Mahindra Prime Ltd. at ₹ 205 lakhs. While the assessee claims the same to be out of the partner's capital, the Revenue has, in the absence of a direct nexus, applied the common pool of funds hypothesis, which is only reasonable where there are no year-marked or dedicated funds toward specified purposes. In this regard, we find considerable merit in the Revenue's case, i.e., in principle. Even though the subject matter of a disallowance under section 36(1)(iii) is the same as of that under section 14A, i.e., interest on borrowed capital, there is yet a definite, qualitative difference attending the two. What the assessee is required to exhibit, in orde .....

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..... , could be considered as towards financing investment in shares, so as to qualify for the proportionate formula. We say so as the matter is essentially factual, and toward which we extract from the decision by the co-ordinate bench in the case of AFL P. Ltd. v. Asst. CIT in I.T.A. Nos. 3123/Mum/2011 and 951/Mum/2012 dated August 14, 2013 (since reported in [2013] 28 ITR (Trib) 263 (Mum)) (page 272) : 6.5. . . . In other words, as also stated by the learned Commissioner of Income-tax (Appeals), the onus is on the assessee, and unless it is able to show that the borrowed funds have been utilised for specified purposes, as in the case of dedicated funds, viz., term loans, working capital advances, etc., the general pool of funds hypothesis shall prevail, and the disallowance of the interest to the proportionate extent, ensue. Reference in this context is also made to the decision in the case of Hercules Hoists Ltd. v. Asst. CIT [2013] 22 ITR (Trib) 527 (Mum) (paragraph 48, at pages 563 and 564 of the reports). The matter is principally factual, to be decided on the facts as led by the assessee. In short, the matter is entirely factual, and turns on its facts, .....

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..... a Prime Ltd., so that it is only the balance investment in business that is to be taken into account, i.e., in the denominator, excluding ₹ 205 lakhs both from the value of the exempt investment as well as the total investment. Needless to add, if the bank loans are dedicated funds, toward financing working capital, application of which is demonstrated, the same would also warrant a similar exclusion to the extent it is funding by borrowed capital is established. Unless, however, the same is perceptibly demonstrated, the common pool of funds hypothesis, could apply, being reasonable, so that all the funds, howsoever derived, are construed as having financed the relevant investments proportionately. 4. In view of the foregoing, we only consider it fit and proper that the matter qua the disallowance under section 14A with reference to the interest attributable to the balance investment of ₹ 156.12 lakhs is restored back to the file of the learned Commissioner of Income-tax (Appeals), so as to allow the assessee an opportunity to present its case before him, and who shall decide the same in accordance with law, issuing definite findings of fact, and after hearing both p .....

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