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TMI Blog2015 (9) TMI 544X X X X Extracts X X X X X X X X Extracts X X X X ..... ond prescribed due date - Held that:- As observed that different high courts while considering identical nature of dispute have held that employees contribution to PF and ESI, if, have been remitted to govt. account within the due date of filing of return u/s 139(1), the same will be an allowable deduction. See CIT Vs. Nipso Polyfabriks Ltd.[2012 (11) TMI 592 - HIMACHAL PRADESH HIGH COURT] and CIT Vs. Ghatge Patil Transport Ltd. [2014 (10) TMI 402 - BOMBAY HIGH COURT] - Decided in favour of assessee. Disallowance of interest expenditure u/s 36(1)(iii) - CIT(A) delted the addition - Held that:- It is well settled principle of law that unless a nexus is established between borrowed funds and the investment made for earning exempt income, no disallowance could be made on notional basis. In the present case, there is no dispute to the fact that borrowed funds were for specific purpose. It is not the case of the department that assessee during the year has not lent any money to its customers. That being the case, it cannot be said that borrowed funds were utilized for non-business purpose. Unless the department establishes a nexus between investment made and the borrowal of funds, no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isallowance u/s 14A read with rule 8D(2)(iii) to 0.5% of the average value of investment which was worked out to ₹ 73,76,416. Being aggrieved of such disallowance, assessee preferred appeal before CIT(A). 4. Though, in course of hearing before ld. CIT(A), assessee contended that provisions of Rule 8D cannot be applied in a mechanical way and unless there is nexus between the expenditure incurred and investment made no disallowance can be made, but, ld. CIT(A) did not find merit in such submissions of assessee. Ld. CIT(A) following the decision of ITAT, Hyderabad in assessee s own case for AY 2009-10, held that disallowance to be made under Rule 8D(2)(ii) does not require establishment of any nexus between the expenditure and the investments made for earning exempt income. Accordingly, she confirmed the disallowance of ₹ 73,76,416. 5. We have heard both the parties and perused the materials on record. Ld. counsels for both the parties agreed before us that the issue in dispute is squarely covered by the decision of the ITAT in assessee s own case for AY 2009-10. On perusal of the order dated 10/10/2014 in ITA No. 1653/Hyd/12 of the coordinate bench, it is seen, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dded back to the income of assessee for the year under consideration. 9. Assessee challenging the disallowance before CIT(A) contended that as employees contribution had been paid before due date of filing of return u/s 139(1), no disallowance of the amount can be made. In this connection, he relied upon a number of decisions of High Court as well as ITAT. Ld. CIT(A) after considering the submissions of the assessee in the light of the judicial precedents placed before her observed, after omission of the second proviso to section 43B of the Act by the Finance Act, 2003 with retrospective effect, any contribution made by employees towards PF and ESI, if remitted to the Govt. account before due date of filing of return u/s 139(1), will be an allowable deduction. Accordingly, she deleted the addition made by AO. 10. We have heard the parties and perused the materials on record. As could be seen, the only ground for disallowance by AO is, assessee has not remitted a part of the employees contribution to ESI within the prescribed due date as provide u/s 36(1)(va). However, it is to be observed that different high courts while considering identical nature of dispute have held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that bank loans were for specific purpose and as per the conditions attached to the said loans, assessee was not permitted to utilize borrowed funds for any activity other than making disbursement to the borrowers. In support of such contention, assessee brought to the notice of CIT(A) terms and conditions imposed by the banks while advancing loan. 14. Ld. CIT(A) observed that as per the financial statements of assessee, it was having sufficient reserves and surplus to make investment in mutual funds. Relying upon a decision of the Hon ble Bombay High Court in case of CIT Vs. Reliance Utilities and Power Ltd., 313 ITR 340, ld. CIT(A) observed that when assessee was having own interest free funds, which is sufficient to take care of the investments made in mutual funds during the year, it has to be presumed that such investments were made out of the interest free funds and the borrowed funds were utilized for the purpose for which it was advanced by the bank. Accordingly, she deleted the addition made by AO on account of disallowance u/s 36(1)(iii). 15. We have heard the parties and perused the materials on record. As could be seen from the materials on record, there is no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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