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TMI Blog2014 (11) TMI 218X X X X Extracts X X X X X X X X Extracts X X X X ..... available by keeping in view the future needs which may arise in the course of business - merely as because the assessee had sufficient own funds on the date of the borrowings it cannot be concluded that borrowings were not for the purpose of business - the disallowance of interest of ₹ 10,71,797/- upheld by the CIT(A) is not sustainable – Decided in favour of assessee. - ITA No. 2325/Ahd/2012, ITA No. 2608/Ahd/2012 - - - Dated:- 31-10-2014 - Shri G. C. Gupta And Shri N. S. Saini,JJ. For the Petitioner : Shri S. N. Soparkar, AR For the Respondent : Shri V. K. Singh, Sr DR ORDER Per Shri N. S. Saini, Accountant Member: These are the cross appeals filed by the assessee and Revenue against the order of the Commissioner of Income-tax (Appeals)-XVI, Ahmedabad dated 08.08.2012 for AY 2008-09. 2. The Ground No.1 in assessee s appeal is directed against the order of the CIT(A) in confirming the disallowance u/s 14A of ₹ 1,73,586/-. 3. The Assessing Officer observed that the assessee has earned dividend income of ₹ 1,20,952/- which was exempt from tax. According to the Assessing Officer, appropriate disallowance u/s 14A was to be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sulted interest at lower rate than the rate of interest paid to the relatives/family members of the partners of the firm. This shows that the assessee has given extra benefit to the relative/family members of the partners of the firm. The Assessing Officer by observing that the rate of interest on bank deposits varies from 7% to 7.5% as against which the interest paid on unsecured loans at the rate of 14%, made disallowance of ₹ 1,40,01,748/- u/s 36(1)(iii) on account of excess interest paid. 10. On appeal, the CIT(A) restricted the disallowance of interest to ₹ 10,71,797/-, after analyzing the availability of funds with the assessee and the funds utilized by the assessee in its business. The findings of the CIT(A) are as under:- 3.2 I have carefully considered the aforesaid finding of my predecessor. The finding given is reasonable enough and given by considering the legitimate need of the borrowed funds and utilization thereof. It is pertinent to be noted here that the Assessing Officer had not properly examined the case. He has disallowed the interest expenses which were far in excess than the interest paid to the relatives and family members of the partners o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions were for ₹ 17,92,789/-. The assessee was thus having own funds of ₹ 7,61,87,166/-. The assessee had made the payment of ₹ 1,93,77,310/-. The assessee was having more than sufficient funds to discharge the liability of payment of ₹ 1,93,77,310/-. Therefore, there was no necessity to raise funds of ₹ 25,00,000/- on 15.03.2008 from the related persons. The same was the position as on 15.03.2008 when again a deposit of ₹ 25,00,000/- was taken. As against the opening balance of ₹ 5,93,09,856/- as on 15.03.2008 and collection of ₹ 17,12,464/-, the payment of ₹ 2,02,79,052/- was made. The assessee was having more than sufficient funds to discharge the liability of payment of ₹ 2,02,79,052/-. Therefore, there was no necessity to raise funds of ₹ 25,00,000/- on 15.03.2008 from the related persons. The borrowings of ₹ 50,00,000/- was thus not for the business purpose and interest payment @ 14% is disallowable u/s 36(1)(iii) of the Act on the deposits of ₹ 25,00,000/- for eighteen days and on the deposits of ₹ 25,00,000/- for seventeen days. The relevant disallowable interest works out to ₹ 33,561/- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on said dates. Therefore, there was no necessity to raise borrowed funds from the related persons as shown in column No. 3. The borrowings were thus not required for the business purpose and interest payment @ 14% is disallowable u/s 36(1)(iii) of the Act on the deposits of ₹ 1,38,20,000/- for days mentioned in column No. 4. The relevant disallowable interest works out to ₹ 9,79,034/-).as per working given in column No. 5. 3.3 In view of the discussion in clauses (b), (c), (d) and (e) of para-3.2, 1 am of the opinion that the borrowed funds from the related persons were not required as the assessee was having more than sufficient funds for discharging the liabilities of payments on the date of raising borrowed funds and thus the interest was disallowable u/s 36(1)(iii) of the Act. The quantum of such disallowable interest works out to ₹ 10,71,797/- (Rs.33,561/-+Rs.59,202/-+Rs.9,79,0347-). The disallowance of interest is thus restricted/confirmed to the extent of ₹ 10,71,797/- and rest of the disallowance is deleted. The second ground of appeal is accordingly partly allowed. 11. Being aggrieved by the above order of the CIT(A), both the parties are in appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... venue in the order of the CIT(A) and keeping in view the fact that no fresh investment in FDR was made during the year under consideration and keeping in view the fact that no disallowance of interest on borrowed capital was sustained in the case of the assessee in the immediately preceding assessment year on account of its making investments in FDRs, we do not find any merit in this ground of appeal of the Revenue. 17. Further, in respect of the retention of disallowance of interest of ₹ 10,71,797/-, we find that the CIT(A) upheld the disallowance on his findings that borrowed funds were not required for immediate business needs. In our considered view, the need of business is to be judged from the point of view of businessmen. The assessee is having business turnover of over 211 Crores during the year under consideration. The amount which the assessee may need for his business may not be available always to the assessee. Therefore, the assessee has to avail the loan amount when it is available by keeping in view the future needs which may arise in the course of business. Therefore, merely as because the assessee had sufficient own funds on the date of the borrowings it c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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