TMI Blog2018 (10) TMI 1093X X X X Extracts X X X X X X X X Extracts X X X X ..... Disallowance of expenses u/s 14A - assessee had contended that the investment had been made out of sale of mutual funds held in the preceding year - Held that:- As demonstrated through the schedule of investment forming part of the balance sheet showing none of the old investments of ₹ 8.5 crores appearing in the investments of the current year which show new investments of ₹ 2.60 crores. Thus we find that the assessee had clearly demonstrated the attribution of the source of the investment in the mutual funds to be out of non interest bearing sources. There was no occasion at all to invoke the provisions of section 14A and made disallowance of interest under the same. The disallowance, therefore, made is directed to be deleted. - Decided in favour of assessee. Disallowance of expenses for purchase of diesel u/s 40A(3) - payment made in cash exceeding the specified limit - Held that:- in the present case the assessee has filed evidence to establish the genuineness of the expenditure and also the business expediency for making the payment in cash, by filing copies of accounts of both the parties one from whom diesel was purchased in regular course and the other in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t proceedings, the Assessing Officer noticed that the assessee had made the following capital advances:- (a) Capital work in progress amounting to ₹ 31,22,096/- (b) Advance for purchase of machinery to M/s Chakan Engineering Pvt. Ltd. amounting to ₹ 6,25,000/-. 4. The assessee was asked to show whether interest pertaining to the same had been capitalized or not and if not why the said interest be not disallowed and capitalized. In response, the assessee submitted that the capital work in progress pertained to payments/ expenses on installation of Enterprises Resource Planning (ERP) Navision, for which the assessee had not availed any term loan in any year. As for the advance of ₹ 6,25,000/- given to Chakan Engineering Co. Pvt. Ltd., it was submitted that the same had been given for purchase of Boarding Machine which was received in the next year, on 17.05.2008, and that the said advances had been made out of current account of the Waluj Unit of the assessee at Aurangabad, where no interest was paid on any working capital facility or for making the said advance. The Assessing Officer was not satisfied with the reply of the assessee and held that since the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the Hon'ble Punjab Haryana High Court in support of this proposition in the case of Gurudas Garg Vs. CIT(A), Bathinda (2015) 63 Taxman 289 and CIT Vs. Kapsons Associates (2016) 381 ITR 204. 7. The Ld. DR, on the other hand, relied upon the order of the CIT(Appeals). 8. We have heard the rival contentions and after perusing the order of the Ld.CIT(Appeals) we find merit in the contentions raised by Ld. counsel for assessee. The fact of availability of own interest free funds in the form of profits for the year amounting to ₹ 4.85 crores, share capital amounting to ₹ 1.3 crores and reserves surplus amounting to ₹ 20.39 crores, has remained undisputed and uncontroverted by the Revenue. The investment in capital work-in-progress and advance for machinery on account of which interest has been disallowed applying the provisions of section 36(1(iii) on account of diversion of interest bearing funds for the purpose of making these investments amounts to ₹ 37.5 lacs (Rs.31.22 lacs + ₹ 6.25 lacs) respectively. Clearly therefore, there were enough own funds available with the assessee for making impugned investment. Further the proposit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d after giving credit for the amount already disallowed by the assessee of ₹ 1,36,000/-, the balance amount of ₹ 3,98,008/- was disallowed and added to the income of the assessee. 11. Before the Ld.CIT(Appeals), the assessee raised several contentions, as reproduced in para 3.1 of the order, which briefly put were to the effect that the assessee had suomoto disallowed administrative expenses of ₹ 1,36,000/-,being part of salary and telephone expenses of one of its employee for maintaining portfolio of its investments, that no interest expense was disallowable since net interest had been earned by the assessee, the interest paid in any case related to term loans and specific purpose loans and no part of borrowed funds were used for making the investment, that the investment had been made out of sale of mutual funds and that the assessee had sufficient own funds in the form of profits for the year for making the impugned investments . The submissions of the assessee did not find favour with the Ld.CIT(Appeals) who held that the requisite conditions for invoking the provisions of section 14A were found applicable in the facts of the case and, therefore, the disall ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nor has the same been controverted by the Revenue. Further we find that the Hon'ble Jurisdictional High Court in the case of Max Industries (supra) and the Hon ble Gujarat High Court in the case of Sintex Industries(supra) has held that where sufficient own funds are available, no disallowance on account of interest is warranted u/s 14A of the Act. We have also noted that SLP against the order of the Hon ble Gujrat High Court has been dismissed by the apex court. In view of the same, we find merit in the contention of the assessee that no disallowance of interest, in the present case, was warranted on account of sufficient own funds available with the assessee which could be attributed to the making of impugned investments in the present case. Further, we find that the assessee had contended that the investment had been made out of sale of mutual funds held in the preceding year. It was pointed out by the Ld. counsel for assessee that mutual funds held in the preceding year amounted to ₹ 8.50 crores which had been sold and invested in mutual funds in the impugned year to the extent of ₹ 2.60 crores. The same was demonstrated through the schedule of investment formin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as regularly purchased and from whom purchases were made due to urgency and payment made in cash thereof, was filed. It was stated that the payments in cash had been made due to urgency in business and the genuineness and identity of the parties not being doubted ,no disallowance u/s 40A(3) was warranted. Reliance was placed on a number of judicial decisions in this regard. Ld.CIT(A) was not convinced with the contention of the assessee and therefore upheld the disallowance made stating that the assessee had failed to substantiate the expenditure and the relevant clause of Rule 6DD whereunder the same was permissible. The relevant findings of the CIT(A) at para 4.2 of the order is as under: 4.2 I have carefully considered the facts of the case, the basis of the disallowance made by the Assessing Officer and arguments of the AR and find that a disallowance of ₹ 5,79,063/- has been made by the Assessing Officer u/s 40A(3) of the IT Act. The disallowance was made on the ground that cash payments have been made exceeding ₹ 20,000/- in contravention to the provisions of sec 40A(3) of the IT Act. The appellant has failed to furnish any evidence to prove that payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nging out business exigency for making the payment in cash will therefore not be excluded for the purpose of grant of immunity from the rigours of disallowance u/s 40A(3),merely because it finds no place in the list in Rule 6DD of the Income Tax Rules,1962. 21. Having said so, we find that in the present case the assessee has filed evidence to establish the genuineness of the expenditure and also the business expediency for making the payment in cash, by filing copies of accounts of both the parties one from whom diesel was purchased in regular course and the other in urgent situations only making payment to him in cash on demand. The Revenue has not controverted the said facts. Therefore the genuineness of the expenditure and also the business expediency for making the payment in cash stands established. In this factual background and in view of the proposition of law laid down by courts as above, no disallowance u/s 40A(3) was warranted ,merely for the reason that the assessees situation did not fall in that listed in Rule 6DD of the Income Tax Rules,1962. The disallowance so made of ₹ 5,79,063/- is therefore deleted. Ground of appeal No1 is allowed. 22. Ground No.1( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total expense incurred of ₹ 8,74,832/ was reasonable considering the fact that the assessee had failed to establish nexus between the expenditure incurred and business purpose of travel undertaken. 27. After considering the rival contentions we find merit in the contention of the Ld.Counsel for the assessee. The fact that the travelling was undertaken by the directors of the assessee company was established by the assessee filing details and copy of account of travelling expenses. The revenue has not controverted the said fact. Further the fact that the assessee has made considerable export sales in the immediately succeeding years of ₹ 32 lacs and ₹ 1.42 crores has also remained uncontroverted. Therefore there is no reason for attributing any personal/non business usage in the said expenses when the entire travel has been undertaken by the directors of the company resulting in visible increase in sales in the succeeding year. The disallowance upheld by the CIT(A) to the extent of ₹ 87,000/- is purely adhoc without any basis, and is therefore deleted. Ground of appeal No.1(d) therefore stands allowed. 28. In the result, the appeal of the assessee is a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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