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TMI Blog2015 (11) TMI 1067X X X X Extracts X X X X X X X X Extracts X X X X ..... advances to certain parties, where as it has availed interest bearing loans and was paying interest. The assessee submitted that the interest free advances were given to purchase shares. However, the AO noticed that the said advances have been returned back. Hence, the AO took the view that the explanation about purchase of shares is unreliable and accordingly disallowed a sum of Rs. 28.86 lakhs out of interest expenditure. It was confirmed by Ld CIT(A) and hence the assessee took the matter to the ITAT. The Tribunal, vide its order dated 20-12-2013 passed in ITA No.720/M/2013, restored the matter to the file of Ld CIT(A). In the set aside proceedings, the Ld CIT(A) held that the decision rendered by the Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd (313 ITR 340) is not applicable to the facts of the instant case and accordingly confirmed the addition again. 4. We heard the parties on this issue and perused the record. At the time of hearing, the Ld A.R invited our attention to pages 102 to 106 of the paper book wherein the details of utilization of loans taken by the assessee are given. The Ld A.R submitted that the unsecured loans have been fully utili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to delete the disallowance made out of interest expenditure. 6. We shall now take up the appeal filed for assessment year 2010-11, wherein following issues are agitated:- (a) Disallowance of interest u/s 36(1)(iii) (b) Disallowance made u/s 14A of the Act. 7. In this year also, the assessing officer noticed that the assessee has paid interest expenditure of Rs. 48,92,738/- on the unsecured loans taken by it. The AO examined about the utilization of loan and took the view that the interest to the extent of Rs. 43,72,880/- is related to the business of purchase of shares. However, the AO noticed that the assessee has given interest free advances to the tune of Rs. 1.90 crores. The AO computed interest on the above said interest free advances under product method and the same worked out to Rs. 40,04,575/- and the same was disallowed. The Ld CIT(A) confirmed the same. 8. We heard the parties on this issue and perused the record. During the year under consideration also, the assessee has furnished the details of utilization of loans in pages 47 to 49 of the paper book. A perusal of the same shows that the assessee has used major portion of the loans for purchasing shares and givin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tiated by any error law apparent on the face of the record. Accordingly, the Ld A.R prayed that the shares held as stock in trade should be excluded for computing the disallowance u/s 14A of the Act. 11. On the contrary, the Ld D.R placed strong reliance on the order of Ld CIT(A) on this issue. 12. We heard the parties and perused the record. We notice that the Hon'ble Karnataka High Court has clearly held in the case of CCI Ltd (supra) that the shares held as stock in trade should be excluded for the purpose of computing disallowance u/s 14A of the Act, since they can not be said to be the "investment" made for the purpose of earning dividend income. In the case of India Advantage Securities Ltd (supra), the Hon'ble Bombay High Court has noticed that the CIT(A) took into account the words of the Rule and found that the figures as derived by the Assessing officer cannot be taken into consideration. The Ld CIT(A) had observed that, one can at best disallow the expenses which are incurred for earning dividend income and for that purpose, the figures under the head "Investment" could be taken and some charges apportioned for the purpose of computing expenses. We further notice that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee took the matter to the ITAT. The Tribunal, vide its order dated 20-12-2013 passed in ITA No.720/M/2013, restored the matter to the file of Ld CIT(A). In the set aside proceedings, the Ld CIT(A) held that the decision rendered by the Hon'ble Bombay High Court in the case of Reliance Utilities & Power Ltd (313 ITR 340) is not applicable to the facts of the instant case and accordingly confirmed the addition again. 4. We heard the parties on this issue and perused the record. At the time of hearing, the Ld A.R invited our attention to pages 102 to 106 of the paper book wherein the details of utilization of loans taken by the assessee are given. The Ld A.R submitted that the unsecured loans have been fully utilized for the purposes of business only. It was further submitted that the assessee has also availed interest free unsecured loans from M/s MW infra holding Pvt Ltd to the tune of Rs. 7.60 crores; from M/s Triveni Management consultancy services Ltd to the tune of Rs. 31 lakhs and from M/s Global Absolute Research Pvt Ltd to the tune of Rs. 20.00 lakhs. He submitted the above said interest free funds along with interest free own funds have been used for giving interest fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The AO examined about the utilization of loan and took the view that the interest to the extent of Rs. 43,72,880/- is related to the business of purchase of shares. However, the AO noticed that the assessee has given interest free advances to the tune of Rs. 1.90 crores. The AO computed interest on the above said interest free advances under product method and the same worked out to Rs. 40,04,575/-. The AO disallowed Rs. 40,04,575/- out of interest expenditure and the same was confirmed by Ld CIT(A). 8. We heard the parties on this issue and perused the record. In this year also, the assessee has furnished the details of utilization of loans in pages 47 to 49 of the paper book. A perusal of the same shows that the assessee has used major portion of the loans for purchasing shares and giving interest bearing advances. With regard to the interest free advances of Rs. 1.90 crores given by the assessee, we notice that the assessee is having following funds as explained in page 112 of the paper book. Own Funds in the form of Share holders' fund Less accumulated losses 109.97 lakhs Interest free unsecured loans:- Hydragen Infrastructures Pvt Ltd 50.00 Sofkit Educom Pvt Ltd 400.0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held by the Tribunal by following the decision of Hon'ble Karnataka High Court rendered in the case of CCI Ltd (supra). The order of the Tribunal was found by Hon'ble High Court of Bombay to be neither perverse nor vitiated by any error law apparent on the face of the record. In view of the above, the Ld A.R prayed that the shares held as stock in trade should be excluded for computing the disallowance u/s 14A of the Act. 11. On the contrary, the Ld D.R placed strong reliance on the order of Ld CIT(A) on this issue. 12. We heard the parties and perused the record. We notice that the Hon'ble Karnataka High Court has held in the case of CCI Ltd (supra) that the shares held as stock in trade should be excluded for the purpose of computing disallowance u/s 14A of the Act, since they cannot be said to be "investment" made for the purpose of earning dividend income. In the case of India Advantage Securities Ltd (supra), the Hon'ble Bombay High Court has noticed that the CIT(A) took into account the words of the Rule and found that the figures as derived by the Assessing officer cannot be taken into consideration. The Ld CIT(A) had observed that, one can at best disallow the expenses wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit amount also, the dividend amount works out to around 6% only. Though the interest expenditure claimed by the assessee was Rs. 48.92 lakhs, the details of interest payments and utilization of loan funds given in page 47 of the paper book would show that the interest paid to M/s Mangal Keshav Capital Ltd and M/s Mangal Keshav securities Ltd aggregating to Rs. 36.32 lakhs alone was related to the purchase of shares. The remaining loans have been used to give advances to others. We may at this stage notice that the co-ordinate bench of Tribunal has held in the case of DCIT Vs. Damani Estates & Finance Pvt Ltd (ITA No.3029/Mum/2012 dated 17.07.2013) that the interest expenditure to the extent of 20% may be apportioned towards the dividend income, by considering the facts prevailing in that case. However, in the instant case, we are of the view that there is no requirement to apportion any interest expenditure towards dividend income in view of the negligible amount of dividend income vis-à-vis the sale value/profit of stock in trade. 15. In view of the foregoing discussions, we are of the view that there is no requirement to disallow interest on both merits as well as on leg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rked out the interest under product method at Rs. 5.80 lakhs and disallowed the same. The Ld CIT(A) also confirmed the same. 18. However, the contention of the assessee is that the interest free funds available with the assessee in the form of share holders funds (Rs.1.30 crores) and interest free trade advances (Rs.17.94 crores) received by it is in far excess of the above said amount of Rs. 1.90 crores. Further, the above said amount of Rs. 1.90 crores have been received back in instalments from April, 2010 onwards and the entire outstanding balance has been received back by June, 2010. Hence we find merit in the contentions of the assessee that there is no requirement of disallowing part of interest expenditure, since the interest free funds are sufficient to cover up the above said advances. Further, we notice from the working of interest given in the assessment order that the assessing officer has worked out interest only on debit balances and he did not consider the availability of credit balances on some other days. In our view, the approach of the AO would give distorted working of interest. In any case, since the assessee was possessing sufficient amount of interest free ..... X X X X Extracts X X X X X X X X Extracts X X X X
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