TMI Blog2017 (11) TMI 1306X X X X Extracts X X X X X X X X Extracts X X X X ..... nistrative expenses”, we find that first of all, total expenditure debited itself is ₹ 13 lakhs which also contains major expenditure on account of legal and professional expenses which has nothing to do with earning of dividend income. Similarly, registration & filing fees, etc. also cannot be said to be linked with earning of exempt income. Thus, having regard to the nature of accounts and expenditure debited, the amount disallowed by the assessee at ₹ 2,33,444/- is quite reasonable and fair and the Assessing Officer without finding any defect, either in the nature of account or in the claim of the assessee, has erroneously proceeded to arbitrarily compute the disallowance under rule 8D(2)(iii), especially when disallowance has been worked out far excess than the total expenditure debited. Accordingly, the order of the ld. CIT(A) deleting the said disallowance is upheld and the Revenue’s appeal is dismissed.- Decided in favour of assessee. - I.T.A. No.6656/DEL/2015 - - - Dated:- 14-9-2017 - SHRI. G. D. AG RAWAL, PRESIDENT AND SHRI AMIT SHUKLA, JUDICIAL MEMBER For The Applicant : Shri S.S. Rana, CIT (DR) For The Respondent : Shri K. Sampath, Advocate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention and computed the disallowance at ₹ 31,57,440/- mainly on the ground that assessee had borrowed funds on which it was paying interest and at the same time it has also given interest free advances to the sister concern, which is against the business interest and also assessee was unable to establish business purpose for advancing interest free loans. 3. Before the ld. CIT(A), the assessee had submitted following facts and submissions which, for the sake of better understanding of the facts, are reproduced hereunder:- It is humbly submitted that the disallowance of interest was not proper and justified as there was no case for the same except conjecture and surmises. In so far as advance to M/s Gagan Sponge Iron Ltd is concerned, it is submitted that the advance was given mainly in FY 2009-10 (AY 2010-11) and the amount has been received back during the year under consideration on 5/10/2010 as can be seen from the copy of account enclosed. In so far as the fresh amount given during the year to Gagan Sponge Iron Ltd and Venkatesh Diamonds Pvt Limited are concerned, it is submitted that these advances were given out of own funds. As can be seen from the balanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said chart is once again enclosed. A perusal of the chart would show the sources are as follows:- Source (Rs. In lacs) Dividend income during FY 2002-03 10 Sale of shares during FY 2002-03 54 Refund against old advance FY 2002-03 12 Interest free loan from Brahamputra Capital Financial Services Ltd. in FY 2003-04 (Earlier received from Sun Investment Pvt. Ltd. and them repaid) 423 Professional income earned during FY 2003-04 252 Dividend income during FY 2009-10 73 Total 824 Thus the source of impugned advance was clearly proved and it is further clearly proved that no interest bearing borrowings have been diverted in giving the said advance. The AO had completely ignored this factual position and has not even dealt with the contentions of the appellant which was submitted during the course of assessment hearing. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wn funds far exceeded the amount lent, the courts have held that it should be presumed that the money has been lent out of own funds. And accordingly, no interest can be disallowed. 4. Apart from above submissions reliance was placed on the judgment of the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd., 313 ITR 314 (Bom.) and catena of other decisions. The ld. CIT(A), deleted the said disallowance after observing and holding as under:- I have considered the submissions of the appellant as well as the findings of the Ld. AO. Keeping into consideration the various case laws of the higher appellate authorities and the Hon'ble Courts I found that the Ld. AO is not justified for making the disallowance of ₹ 31,57,4401- out of interest expenses in view of the following facts and circumstances of the case :- i. It was submitted before the Ld. AO that the appellant has not given the said advance out of the interest bearing borrowings but the said interest free advance was given out of appellant's own funds/interest free borrowings. The appellant had also filed a detailed chart showing the direct source of the said advanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he AO deserves to be deleted. I order accordingly. Hence, the above grounds of appeal are allowed. 5. After hearing both the parties and on a perusal of the findings given in the impugned order as well as the material referred to before us at the time of hearing, we find that it is an undisputed fact that the assessee had interest free funds available with it at the time when advances were given which ranged between ₹ 38.60 crores to ₹ 39.21 crores right from assessment year 2009-10 to 2011-12. On the other hand, amount advanced to the related parties/sister concerns was only ₹ 8.24 crores which far exceeded the interest free funds available with the assessee, as has been incorporated in the foregoing paragraphs. Once that is so, then the ratio laid down by the Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd. (supra), as relied upon by the ld. Counsel for the assessee before us, gets squarely applicable. Accordingly, the order of the ld. CIT (A) in deleting the disallowance of interest is upheld and hence ground No.1 raised by the Revenue is dismissed. 6. So far as issue relating to ground No.2 is concerned, it relate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 29,781 Remuneration to Employees 4,32,000 Office Expenses 8,918 Total 13,00,528 Out of the said expenditure, it was submitted that the expenses like Director s meeting fees, registration filing fees; auditor s remuneration; and office expenses cannot be held to be related to earning of exempt income and only remuneration given to employees given at the best can be held to be relatable to the earning of exempt income, therefore, assessee had worked out the disallowance at ₹ 2,33,444/. Apart from that, strong reliance was placed on the decision of the Hon'ble Delhi High Court in the case of Maxopp Investment Limited, 347 ITR 272. 9. The ld. CIT (A), after considering the entire submissions and also facts and material on record, deleted the disallowance made by the Assessing Officer. 10. After considering the submissions made by both the parties, we find that the main dispute is with regard to the disallowance of indirect expenditure made under rule 8D(2)(iii) which as per the assessee is ₹ 2,33,444/- as against ₹ 22,38,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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