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TMI Blog2013 (9) TMI 597X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure was not genuine - No fallacy in the view taken by the ld.CIT(A) that merely because the assessee had maintained cash balances at its several branches being in angadia business should not be a cause of disallowance of interest on borrowed funds – Decided against the Revenue. - IT(ss)A No (s). 69/Ahd/2009, 70/Ahd/2009, 71/Ahd/2009, 72/Ahd/2009, 73/Ahd/2009, 74/Ahd/2009 - - - Dated:- 31-5-2012 - Shri Mukul Kr. Shrawat And Shri T. R. Meena,JJ. For the Petitioner : Shri BKS Pandya, CIT-DR For the Respondent : Shri P. M. Mehta ORDER Per Shri Mukul Kr. Shrawat, Judicial Member :- These six appeals filed by the Assessee pertaining to AYs 2001- 02 to 2006-07 are against the consolidated order of the Ld.CIT(A)-II, Ahmedabad dated 02/07/2009. The substantive ground which is argued before us is Ground No.4; reproduced below from the lead Assessment Year, i.e. Assessment Year 2001-02. Rest of the grounds are either in supportive or in argumentative in nature. 4. The Ld.CIT(A) has erred in law and on facts in deletion of disallowance of interest expenditure of Rs.13,81,799/- in the absence of justification by the assessee to establish nexus between the bor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ug cash balance was maintained at various branches totalling to Rs.2,02,58,291/-. He has issued a show-cause to give reply that the borrowed funds have been diverted to create huge cash balance and bank balance which was not required for business purposes. So, why not interest expenditure claimed was to be disallowed. As per AO, the requirement of cash was hardly Rs.2,000/- per day in the regular course of business. On the other hand, the assessee has claimed that about Rs.3 lacs upto Rs.4 lacs was required at the branches which was necessary for the running of angadia business. It was explained to AO that the assessee is running 20 branches and necessary cash is required to be maintained. In support, the assessee has provided the branch-wise position of cash balance to the AO. As against that, the AO wanted certain details to establish that in fact branch-wise cash was maintained and that it was required for the running of the business. The AO s main allegation was that the interest was paid to partners on their contribution which was the borrowed funds for the assessee, but those borrowed funds on which interest was paid was not utilized for the purpose of the business but mainly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ,37,190 -47,46,198 25,90,992 1,72,55,874 2000-01 88,33,057 -38,22,876 50,10,181 1,90,26,722 2001-02 1,06,73,115 -36,65,218 70,07,897 2,16,05,984 2002-03 1,26,25,631 -39,06,165 87,19,466 1,70,47,377 2003-04 1,48,52,300 -25,17,501 1,23,34,799 1,98,79,670 2004-05 1,88,19,289 4,11,297 1,92,30,586 1,92,88,702 2005-06 1,74,31,138 -11,99,257 1,62,31,881 1,51,92,632 2006-07 2,07,03,959 9,51,337 2,16,55,296 2,52,47,653 Finally appellant submitted that looking to the nature of services provided, reasons for keeping cash in hand, reasonable amount of cash considering number of branches, substantiated capital of partners which covers cash In hand receipt of income in cash, disallowance of interest was not justified requested to delete the same. 4.1. After considering the facts of the case and the business necessity of the assessee, ld.CIT(A) has held as under:- 4. I have considered the facts ad submissions. I agree with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 733/Ahd/2008 (v) M/s.Patel Somabhai Maganlal Co. 4296 to4300/Ahd/2007 7. We have heard both the sides at some length. We have also perused the orders of the authorities below in the light of the compilation filed. At the outset, it is worth to mention that on identical facts in the case of an angadia business-man, ITAT D Bench Ahmedabad vide an order dated 30/06/2011 titled as Asst.CIT vs. M/s.Patel Ambalal Hargovandas Co. in ITA No.573/Ahd/2009 along with CO No.59/Ahd/2009 for A.Y.2005-06, has held as follows:- 6. We have heard the parties. There is no case for interference in the order of ld.CIT(A). Interest paid on borrowed funds can be disallowed only when borrowed funds are used for non-business purposes. The assessee has shown to the Authorised Officers that cash balance is required to be kept in the line of his business. The nature of business shown by the assessee is transfer of parcels and cash from one place to another. If for certain unavoidable circumstances like delay in transportation on account of cancellation of trains or other problems not in the control of the assessee, the assessee was not able to make delivery of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the business by the assessee is an illegal business and there should be separate working of the profit of the legal/illegal, cannot be accepted. 7.2. We have been informed that one of the decisions of ITAT C Bench Ahmedabad in ITA Nos.4296, 4297, 4298, 4299 4300/Ahd/2007 for AYs 2001-02 to 2005-06 pronounced in the case of DCIT vs. M/s.Patel Somabhai Maganlal Co. order dated 18/09/2009, has held as under:- 8. We have heard the rival submissions and perused the orders of the lower authorities and the materials available on record. The short issue involved in this ground of appeal is that interest expenditure on amount borrowed were disallowed on the ground that amount borrowed were kept as cash with the assessee and the same was in the opinion of the Learned Assessing Officer not utilized for the business purposes of the assessee. The Learned Commissioner of Income Tax (Appeals) deleted the disallowance observing that assessee s business was also consisting of transfer of money. Due to this business, the assessee was required to have sufficient cash always so that it can make payment of amount on due date. Thus, in the opinion of the Learned Commissioner of Income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t objected by the AO that claim of expenditure was not genuine. The question of reasonableness of an expenditure is a subjective matter which is to be determined by the assessee who is running a business and it is not expected from the AO to step into the issues of a business-man. A business man is required to judge about the requirement of the cash in his line of business. The business need and the business purpose depends upon the circumstances of each case. As far as the decisions cited by ld.DR are concerned, both are not akin to the facts and circumstances of the present appeals. In the case of Inamulhaq S.Iraki vs. Addl.CIT (supra), there was a finding that the assessee had mixed funds and could not establish any commercial expediency. Some of the funds were given for interest-free advances, hence the disallowance was confirmed. Likewise, DR has placed reliance on Punjab Stainless Steel Industries vs. CIT(supra), but the fact were that the interest-free advances were extended out of borrowed funds. Those interest-free advances were not made out of credit balance available with the assessee, therefore, a proportionate disallowance of interest was upheld. We therefore hold that ..... X X X X Extracts X X X X X X X X Extracts X X X X
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