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TMI Blog2014 (2) TMI 893X X X X Extracts X X X X X X X X Extracts X X X X ..... unds - the order of the CIT(A) confirmed – Decided against Revenue. Deletion of interest expenditure made u/s 36 of the Act – Held that:- The decision in The Commissioner of Income Tax Versus Reliance Utilities & Power Ltd [2009 (1) TMI 4 - HIGH COURT BOMBAY] followed - a global position of the availability of funds has to be examined and after sufficiency of non-interest bearing funds is established then only claim can be allowed and directed the AO to take this decision also in consideration - none of the lower authorities have found that on global examination of availability of interest free funds with the assessee was not sufficient for advancing interest free advance to the subsidiaries - the disallowance of interest again was not warranted – thus, the disallowance of interest expenditure of both the years is set aside – Decided against Revenue. - ITA No.2403,2404/Ahd/2012 & CO No. 240,241/Ahd/2012 - - - Dated:- 17-1-2014 - N.S. SAINI AND KUL BHARAT, JJ. For the Appellant : Shri O P Batheja, Sr.DR For the Respondents : Shri S N Soparkar Shri P M Mehta, AR ORDER :- PER : N S Saini These are the appeals filed by the Revenue and Cross-Objections by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 05-06. 4. On appeal, the Ld. CIT(A) restricted the disallowance made u/s 14A of the Act for administrative expenses of Rs.9,416/- in Assessment Year 2004-05 and Rs 8,348/- in the Assessment Year 2005-06 and deleted the disallowance of interest expenditure of Rs 1,45,537/- in Assessment Year 2004-05 and Rs 5,04,777/- in Assessment Year 2005-06 on the ground that the Assessing officer has not established the nexus between the interest bearing funds and the investment made by the assessee in the shares of the company from whom the assessee earned exempt dividend income, by relying on the decision of Delhi Bench of the Tribunal in the case of Maruti Udyog Limited Vs. DCIT, 92 ITD 119 (Delhi) and ACIT Vs. Eicher Limited 101 ITD 369. 5. The Ld. DR relied on the decision of the Hon ble Calcutta High Court in the case of Dhanuka Sons Vs. CIT (2011) 12 taxmann.com 227 (Cal.) wherein it was held that the assessee has to show by production of materials that shares were acquired from funds available in his hands at relevant point of time without taking benefit of any loan. He further relied on the decision of the Mumbai Bench of the Tribunal in the case of Kalpataru Construction Overseas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the Assessing Officer observed that the assessee has utilized interest bearing funds for making investment and made proportionate disallowance of interest expenditure of Rs 1,45,537/- in Assessment Year 2004-05 and Rs 5,04,777/- in Assessment Year 2005-06 on the ground that the assessee has made investment of Rs 27.48 lakhs in Assessment Year 2004-05 and Rs 153.86 lakhs in Assessment Year 2005-06 and has earned exempt dividend income. On appeal, the disallowance made was deleted by the CIT(A) by following the decision of the Bombay High Court in CIT Vs. Reliance Utilities Power Limited, 313 ITR 340 and the decision of the Ahmedabad Bench of the Tribunal in the case of ACIT Vs. Hippolin Limited in ITA No. 4257/Ahd/2007 which was confirmed by Hon ble Gujarat High Court in Tax Appeal No. 870 of 2010, order dated 25.07.2011. The Hon ble Gujarat High Court observed that it was undisputed fact that the appellant had substantial share capital and reserves and therefore, it cannot be said that the investments in shares were made out of interest bearing funds. In the instant case also, we find that in the Assessment Year 2004-05, the assessee had substantial interest free fund in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Income Tax Act. In the Cross Objection filed by the assessee, the assessee is against the confirmation of addition of Rs.17,29,660/- out of the total addition made on account of interest expenditure u/s.36 of the IT Act in the Assessment Year 2004-05 and confirmation of addition of Rs.6,64,835/- in Assessment Year 2005-06 out of the total addition made on account of interest expenditure u/s.36 of the IT Act. 10. The Assessing Officer observed that in Assessment Year 2004-05, the assessee had made interest free advance of Rs 416.32 lakhs to its wholly owned subsidiary company Accord Healthcare, UK and has paid interest expenditure of Rs 1172.82 lakhs. Similarly, he observed that in the Assessment Year 2005-06, the assessee has made interest free advance to its wholly owned subsidiary company Accord Healthcare, UK of Rs 576.65 lakhs, to Accord Healthcare, NZ Limited of Rs 13.36 lakhs and to Accord Healthcare Limited, Brasil of Rs 20.28 lakhs, totaling to Rs 610.29 lakhs. The assessee has also made interest payment of Rs 997.78 lakhs. Therefore, the Assessing Officer made proportionate disallowance of interest expenditure of Rs 33,87,881/- in Assessment Year 2004-05 and Rs 13, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of interest expenditure. Thus, the Assessing Officer exceeded his jurisdiction and therefore, it was his prayer that the entire disallowance of interest expenditure was to be deleted. 14. On the other hand, the Ld. DR supported the order of the CIT(A). After hearing rival submissions and perusing the orders of the lower authorities and material available on record, we find that the Assessing officer has made proportionate disallowance of interest expenditure of Rs 38,87,881/- in Assessment Year 2004-05 and Rs 13,98,459/- in Assessment Year 2005-06 on interest free advance of Rs 416.32 lakhs in Assessment Year 2004-05 and Rs 610.29 lakhs in Assessment Year 2005-06 given by the assessee to its wholly owned subsidiaries. The matter was restored back by the Tribunal to the file of the Assessing Officer in first round of the proceedings vide order dated22.10.2010 to examine whether the interest free advance had a nexus with the business of the assessee or the assessee had sufficient interest free funds available with it to give interest free advances and if so found, no disallowance for interest expenditure was called for. In the set aside proceedings, the Assessing Officer again mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that the advance free loan of Rs.4,00,95,000/- has been given to a wholly owned subsidiary company. The ground of the Revenue is accordingly treated as allowed but for statistical purposes. 16. In pursuance thereof the AO passed fresh orders on 28.12.2011 for both the years wherein he disallowed interest of Rs.38,87,881/- for Assessment Year 2004-05 and Rs.13,38,459/- for Assessment Year 2005-06 on the ground that assessee failed to establish that there was no nexus between interest bearing borrowed funds and advance given to wholly owned subsidiary companies. Learned CIT(A) observed that in Assessment Year 2004-05 interest expenses of Rs.11.73 crores includes interest on term loan on 6.51 crores similarly in Assessment Year 2005-06 also the total interest includes interest on term loans and the same has to be excluded from the total interest because the term loan is used the by the assesse for specific purpose such as purchase of plant and machinery etc. and accordingly directed for deletion of interest of Rs.21,58,221/- in the Assessment Year 2004-05 and Rs.7,33,624/- in the Assessment Year 2005-06. 17. Further, learned CIT(A) observed that bank statement of Corporation Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X
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