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TMI Blog2017 (11) TMI 1306X X X X Extracts X X X X X X X X Extracts X X X X ..... the business of dealing in shares and advancing loan. The Assessing Officer noted that the assessee had advanced interest free loan to its related concerns, M/s Gagan Infra Energy Ltd. and M/s Venktesh Diamonds Pvt. Ltd. The Assessing Officer, held that the assessee has taken huge unsecured loans, on which it is paying interest amounting to Rs. 1,47,93,296/- during the year and on the other hand it has given interest free loan to its sister concerns. In response to the show cause notice issued by the AO, the assessee submitted that so far as advance given to M/s Gagan Infra Energy Ltd. is conserned, it was given in the assessment year 2010-11 and the amount has been received back during the year under consideration and the same issue had arisen in the immediately preceding year also, for which detailed reply was filed and the same submission was reiterated again before the Assessing Officer. So far as fresh amount given during the year, it was submitted that the loan given were only to the extent of Rs. 8.60 crores which included interest of Rs. 1.33 crores and thus, net increase in the loan was only to the extent of Rs. 7.27 crores. The increase was mainly for the funds received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the above borrowings made during the year. In other words, current year's borrowings were not used for advancing this amount. In respect of old amount given to Gagan Sponge Iron Limited we submit that the said advance was given in the month of October/November 2009 as per copy of account enclosed. A bare look at the balance sheet of FY 2009-10 would show that the borrowings as at 31.3.2009 and 31.3.2010 are at Rs. 40.51 crores and 41.73 crores. Thus there was only a marginal increase of Rs. 1.22 crores in the borrowings during that year. We are filing a chart showing the balances outstanding in all the loans accounts as at 31/3/2009 and 31/3/2010.Copies of ledger account of all the lenders are also enclosed. A perusal of these account would show that the fresh amount were received only in the month of May 2009 - Rs. 43 lacs, July 2009 Rs. 30.77 lacs and Rs. 14 lacs in the month of March 2010. Thus no money was received in the month of October/November 2009 in which month the appellant has advanced the impugned amounts. Hence it is clearly proved that no borrowings of the FY 2009-10 were used in advancing this loan. The second objection of the AO was that the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven if it is assumed that the impugned advance was given out of mixed funds (although the appellant has proved otherwise), it is seen from the above table that the appellant had its own funds of more than 38 crores at the beginning/end of the year. These funds were far in excess of the amount advanced aggregating to Rs. 8.24 crores. It is settled law that where the own 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 Rs. 31,57,4401- out of interest expenses in view of the following facts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t free loan. The interest was paid on loans borrowed for the purposes of business. No diversion of such amount to interest free loan was pointed out by the AO. In view of the above discussion, the appellant has clearly proved that no borrowings on which interest was paid were used or diverted. Hence the disallowance made by the 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 Rs. 38.60 crores to Rs. 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 Rs. 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. (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation & 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 Rs. 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 Rs. 2,33,444/- as against Rs. 22,38,302/- made by the Assessing Officer. So far as disallowance of interest is concerned, by and large the figure of disallowance remains the same, as both the Assessing Officer and the assessee have computed disallowance at Rs. 1,04,28,292/. Thus, only dispute is with regard to quantum of disallowance of indirect expenditure. From the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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