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TMI Blog2017 (3) TMI 1808X X X X Extracts X X X X X X X X Extracts X X X X ..... e deleted or in the alternative restricted to reasonable figure. 2. The Ld. CIT(A) has erred in maintaining the addition of Rs. 6,76,266/- under section 41(1) by observing that confirmation is not filed. The addition is bad-in-law and deserve to be deleted. 3. The Ld. CIT (A) erred in maintaining the disallowance of Rs. 1,83,889/- u/s. 14A . The addition may please be deleted. 1. Ground no. 1 relate to confirmation of disallowance of interest of Rs. 22,58,779/-. 1.1. Succinctly, facts as culled out from the orders of lower authorities are that the assessee derives income from trading of soya oil. F.P., tuar, Mustard and cottonseeds. The assessee has filed return of income on 30.09.2010 declaring total income of Rs. 73,29,800/-. The AO found that the assessee has advanced interest bearing funds to some of persons from which either no interest is charged or the same is charged at lesser rate whereas the assessee has paid interest @ 12% on loan taken. The AO therefore, worked out disallowance of interest as detailed below: - Name of the Concern Period In days Amount Interest @ 12% Intt. Charged @ 9% Less Intt. Charged 1.Manoj Traders Shri Ganganagar 365 Days 25,0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r submitted that above facts of the case shows that advances to above persons as mentioned in assessment order from whom interest was not charged was given out of interest-free funds available with it. 1.3.1. The Ld. A.R. place reliance on the judgement of Hon`ble Bombay High Court in the case of CIT vs. Reliance Utilities & Power Ltd. (2009) 313 ITR 340(Bom) wherein it was held that if there are fund available both interest free and interest bearing, then a presumption would arise that investment were out of interest free funds generated or available with the assessee. If the interest-free funds were sufficient to meet the investment no disallowance of interest paid on borrowed funds would be necessary. Once such presumption is established claim of interest was allowable. 1.3.2. The Ld. A.R. further placed reliance on following judgement in the case of CIT vs. Hero Cycles Ltd. (2010) 323 ITR 518 (P&H) wherein it was held that no disallowance out of interest payment is permissible if AO does not establish nexus between the expenditure incurred and income generated. The Ld. A.R. submitted that in the present case the AO has failed to establish that the assessee had diverted intere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were available at the disposal of the assessee. Therefore, presumption would go in favour of the assessee that the interest free funds were given out of interest free funds available at the disposal of the assessee as per balance sheet of the assessee. We further rely on the decision of Hon`ble Punjab & Haryana High Court in the case of CIT vs. Hero Cycles Ltd. (2010) 323 ITR 518(P&H) wherein it was held that no disallowance out of interest payment is permissible if AO does not establish nexus between the expenditure incurred and income generated. Therefore, by applying the ratio as laid down by the Hon'ble Bombay High Court in in the case of CIT vs. Reliance Utilities & Power Ltd. (2009) 178 Taxman 135 (Bom) and the decision of CIT vs. Hero Cycles Ltd. (2010) 323 ITR 518 (P&H) and other judgements as cited above and decision in the case of M/s Narendra Industries ITA No. 644/IND/2015 dated 28.2.2017 of I.T.A.T., Indore, we are of the considered opinion that no disallowance of interest is warranted in this case. In view of these facts and circumstances, the disallowance of interest of Rs. 22,58,779/- made by the AO is deleted. Accordingly ground no. 1 of appeal is therefore, allow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the said liability has been settled during the year 2015 and as such therefore, there was no cessation of liabilities. Accordingly, the addition was made by the AO deserve to be deleted. 2.4 The Ld. DR supported the orders of the lower authorities. 2.5 We have considered the facts, rival submissions and perused the material available on record. We find that the provision of Section 41(1)(a) provides that where the assessee had obtained, whether in case in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by him shall be deemed to be profits chargeable to tax. Thus, the Section contemplates that by obtaining any benefit by an amount either in cash or in any other manner whatsoever, whether benefit by way of remission or cessation and it should be of a particular amount obtained by him. Thus, obtaining benefit by virtue of remission or cessation is sine-quo-non for the application of Section unless such liability is written off in books of accounts by unilateral act of the assessee. We find that the liability of Rs. 6,76,266/- in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch he is earning his share income from the firm and has shown share of profit of Rs. 36,647/- from Shree Krishna Commercial Co. and profit of Rs. 35,16,810/- from Shree Venkateshwar Cotton Co. and profit of Rs. 21,61,009/- from Chhaganlal Kishanlal and Co. This share income from the firms does not form the part of income chargeable to tax. Therefore, the AO referred the provision of Section 14A asking to show cause as to why disallowance u/s 14A should not be made. However, the assessee has replied that there was no income which is not chargeable to tax in the case of assessee. Therefore, no disallowance u/s 14A are required. However, the AO applied to the decision in the case of Daga Capital Investment Company and observed that disallowance u/s 14A is called for irrespective of fact, whether the assessee has exempted income during the year or not. According to the AO, the Sub-Rule (iii) of Rule 8D says that if no expenditure is incurred, the disallowance @ 0.5% is to be made on average investment. Accordingly, the AO calculated the disallowance of Rs. 1,83,889/- by 0.5 % of average investment made in the various firms at Rs. 3,67,77,862/- (Rs. 4,58,464/- from Krishna Commercial Co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eld. 3.5. We have considered the facts, rival submissions and perused the material available on record. We find that the assessee has earned substantial exempt income in the form of share from partnership firm of Rs. 57,14,466/- ( from Shree Krishna Commercial Co. of Rs. 36,647/-, from Shree Venkateshwar Cotton Co. of Rs. 35,16,810/- and from Chhaganlal Kishanlal & Co. of Rs. 21,61,009/-) as against which the assessee had a closing balance of Rs. 5,48,19,993 as on 31.10.2010 in the balance sheet. We further find that the assessee has incurred investment expenditure in her proprietory concern at Rs. 1.66 crores and also bank charges of Rs. 6.53 lakhs besides, and establishment as well as telephone expenses etc. The assessee is a partner in the aforesaid firm. In view of these circumstances, we are of the view that it may be impossible that the assessee had not incurred any expenditure to earn exempt income which is not chargeable to the tax in the case of assessee. This view of our is also supported by the decision in the case of Citycorp. Finance (India) Ltd. (2007) 108 ITD 471(Mumbai) wherein it was held as "it is difficult to accept the hypothesis that one can earn substantial d ..... X X X X Extracts X X X X X X X X Extracts X X X X
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