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TMI Blog2015 (5) TMI 611X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh add, where the assessee has claimed or otherwise been allowed, as the Revenue was obliged to, deduction in respect of the impugned sum for A.Y. 2010-11, i.e., following the Revenue's stand of the amendment afore-stated being not retrospective, a modification to the assessment for that year shall, in consequence, follow - Decided in favour of assesse. Disallowance u/s.14A - Held that:- Assessee has before us raised a plea, relying on the decision by the tribunal in the case of AFL P. Ltd. vs. Asst. CIT [2013] 28 ITR (Trib) 263 (Mum), stating that where the entire borrowing by way of cash credit (account) stands absorbed in the relevant class of assets, i.e., those intended to be financed thereby, no disallowance u/s. 14A shall ensue. We find merit in the said argument. Where the borrowing under the cash credit account is within the drawing power (i.e., the amount that the assessee-borrower could validly draw or avail in terms of the relevant loan agreement), the presumption, both on facts and in law, would only be of the entire sum as having been utilized toward the intended business purpose/s, financing of inventory of stock-in-trade for example. The term loans are, in any c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as at the year-end drawn as per the terms of the borrowing agreement. This is precisely why, and also explains reference thereto, in section 43B(e). Further still, as the payment, to qualify for allowance, could be validly made by the date of furnishing the return of income u/s.139(1), the drawing power for the future dates may also be relevant in this regard. Surely, the DP should be on the basis of normative balances and not contrived, i.e., which is brought down only to exhibit a below par balance for a brief period, before assuming its' normal, higher balance. The matter is, accordingly, restored to the file of the A.O. for necessary verification and toward which the assessee shall extend cooperation to enable proper determination of the matter by the former, i.e., in accordance with the law, keeping in view its foregoing elucidation - Decided in favour of assesse by way of remand. - ITA No. 6982/Mum/2012, ITA No. 7146/Mum/2012 - - - Dated:- 8-5-2015 - Sanjay Arora, AM And Amit Shukla, JM,JJ. For the Appellant : Shri Vipul Shah For the Respondent : Shri Sachchidanand Dube ORDER Per Sanjay Arora, AM. These are cross appeals, i.e., by the Assessee and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wever, the decisions by the Hon'ble High Courts, as in the case of CIT vs. Virgin Creations (in ITA no. 302 of 2011 [G.A. No.3200 of 2011, dated 23.11.2011]) and CIT vs. Naresh Kumar [2014] 362 ITR 256 (Del) have since been delivered, holding the amendment to section 40(a)(ia) by Finance Act, 2010 as retrospective. Accordingly, the assessee succeeds. As a corollary, we may though add, where the assessee has claimed or otherwise been allowed, as the Revenue was obliged to, deduction in respect of the impugned sum for A.Y. 2010-11, i.e., following the Revenue's stand of the amendment afore-stated being not retrospective, a modification to the assessment for that year shall, in consequence, follow. We decide accordingly. 4. Ground No. 2 relates to the deduction u/s.14A, at ₹ 5,83,310/-. The assessee was observed to have made an investment in shares at ₹ 1,07,41,401/-, income from which does not form part of the total income. Indirect expenditure, by way of interest and administrative expenditure, had, however, been incurred, so that a disallowance in its respect, to the proportionate extent, would arise, and was accordingly made in terms of rule 8D(2)(ii) (at &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not find any infirmity in the orders by the authorities below. So, however, the assessee has before us raised a plea, relying on the decision by the tribunal in the case of AFL P. Ltd. vs. Asst. CIT [2013] 28 ITR (Trib) 263 (Mum), stating that where the entire borrowing by way of cash credit (account) stands absorbed in the relevant class of assets, i.e., those intended to be financed thereby, no disallowance u/s. 14A shall ensue. We find merit in the said argument. Where the borrowing under the cash credit account is within the drawing power (i.e., the amount that the assessee-borrower could validly draw or avail in terms of the relevant loan agreement), the presumption, both on facts and in law, would only be of the entire sum as having been utilized toward the intended business purpose/s, financing of inventory of stock-in-trade for example. The term loans are, in any case, towards specific/defined capital assets, so that, where purchased, the borrowings can only be considered as having been applied toward the same. The matter is, accordingly, restored back for necessary verification, and toward which the assessee shall extend all assistance and cooperation, only for its ow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt the assessee has in fact been able to do so, the A.O. has accepted the assessee's claim, as in the case of Happy Home and School for Blind (Rs.4,34,998/-) and Municipal Corporation of Greater Mumbai (Rs.21,90,581/-). Income, it is trite law, is to be assessed in the hands of the right person and for the right year (ref: ss. 4 5 r/w ss. 28 and 145 of the Income-tax Act, 1961; CIT v. British Paints India Ltd. (1991) 188 ITR 44 (SC); and ITO v. Ch. Atchaiah (1996) 218 ITR 239 (SC)). However, merely for the reason that the same stands offered as 'income' for a future year would not by itself establish the assessee's case of income having not accrued for the current year. And which would decidedly be the case where no taxable event has occurred during the year for which income stands offered to tax, being the following year in most cases. Accounting entry, it needs to be appreciated, does not create income, but only recognizes it, where it has inured. The whole premise of accounts is the true and fair statement of the assessee's affairs. As such, treatment in accounts, unsubstantiated by or de hors any activity or taxable event is by itself of no consequence, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall undertake the examination, and toward which the assessee shall extend all necessary and reasonable cooperation, while passing appeal effect giving order. We decide accordingly. Revenue's Appeal (in ITA No. 7146/Mum/2012) 8.1 Vide its two grounds, the Revenue impugns the deletion of disallowance of bank interest in the sum of ₹ 32,73,421/-, representing the interest on cash credit account with it's bank, Bank of India. The basis of the disallowance by the A.O., as a reading of his order would show, is the non-payment of the said sum, which stands credited by the assessee in its accounts to the relevant bank (cash credit) account, increasing the balance in the said (loan) account to that extent in-as-much as the liability to the bank on account of interest had not been reflected separately by the assessee in its accounts. Bank interest is a sum specified u/s.43B(e) and, accordingly, allowance in its respect would follow its payment, i.e., by actual discharge of liability. Even its conversion to loan/liability account shall not, as clarified by Explanation 3D thereto, amount to its payments. The deletion by the ld. CIT(A) is on the basis that the A.O., who h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Explanation 3D to section 43B, which clearly states of conversion of interest into borrowing to be not construed as a actual payment of interest. The controversy arises on account of non-appreciation of fact that the payment could well be caused by movement of funds as against per actual cash. Payments in modern business are received and made through credits and debits in the bank accounts of the payee and the payer. Where the bank borrowings at the enhanced amount, i.e., inclusive of the charge of interest, is within the drawing power, the bank is deemed to have extended advances (i.e., on principal account) to the assessee to that extent. As such, it is not a case of conversion of interest into bank borrowing but of the same being actually paid out of borrowed funds advanced by the bank. The drawing power is drawn by the bank at different intervals of the time on the basis of the financial information/statement/s furnished by the assessee, i.e., in pursuance to his obligation/s under the relevant loan agreement, only to confirm if the borrowed funds are within the prescribed limit/s, and utilised for the intended purposes. To exemplify, a cash credit account against hypotheca ..... X X X X Extracts X X X X X X X X Extracts X X X X
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