9911796707
TMI Blog2017 (2) TMI 1452X X X X Extracts X X X X X X X X Extracts X X X X ..... orrowed funds have been diverted for non business purposes. 1.1. It was proved before the lower authorities that the assessee had sufficient capital and interest-free funds. No nexus has been proved; by the Ld. AO, that borrowed funds have been utilized for interest free advances. 1.2. The Ld. CIT (A) did not consider the cases cited before him. 2. The addition of Rs. 11,60,840/- may please be deleted or in the alternative restricted to reasonable figure. 3. The Ld. CIT(A) has erred in maintaining the addition of Rs. 86,346/- being the undervaluation of stock. The same may be deleted or in the alternative the AO may be directed to reduce the income in the subsequent year. 1. Ground no. 1 and 2 relate to confirmation of disallowance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree funds advances were given was not found acceptable. 1.3. Being, aggrieved the assessee filed this appeal before the Tribunal. The Ld. A.R. submitted that the observation of the AO is not correct on the facts of the case. The Ld. A.R. submitted a table demonstrating that the assessee has substantial interest-free funds of Rs. 34,42,80,122/- (consisting of partners capital of Rs. 11,10,75,722/- and loans & deposit from relatives of Rs. 5,46,41,437/-) as against the interest bearing funds of Rs. 10,74,96,222/-. The Ld. A.R. has filed a table depicting the details of funds utilization of interest-free funds and interest bearing funds, which is supported by the copy of balance sheet appearing at page No 18 to 19 of Paper Book. According to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mption 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. 1.3.3. The Ld. A.R. also placed reliance on the judgement of Hon`ble Supreme Court in the case of S. A. Builders vs. CIT (2007) (288 ITR 1) (SC) wherein it was held that where the assessee has made investment out of mixed funds for the commercial expediency then no disallowance could be made under section 36 (1) (iii) of the Act. 1.3.4. The Ld. A.R. further placed reliance on following judgement in the case of CIT vs. Hero Cycle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee that it had sufficient non-interest bearing funds to the tune of Rs. 34.42 crores as per balance sheet as on 31.03.2010 as against interest bearing funds offered at Rs. 10.74 crores. Hence, interest-free funds of Rs. 34.52 crores have been utilised for giving interest-free advances to aforesaid above parties on which no interest was charged. Thus interest-free advance were given out of interest-free funds available with the assessee during the year for which sufficient interest-free funds were available. Therefore, we are of the view that the Ld. A.O. has failed to establish that interest free advances to above stated four parties were out of interest bearing funds. The Ld. A.R. has, also placed reliance on the judgement of Hon`ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re, 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, 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. 11,60,840/- made by the AO is deleted. Accordingly ground no. 1 and 2 of appeal is therefore, allowed.
2. Ground No.3 was not pressed, therefore, same is dismissed.
3. In the result, the appeal of the assessee stands partly allowed.
The order pronounced in the open Court on 28.02.2017. X X X X Extracts X X X X X X X X Extracts X X X X
|
