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TMI Blog2015 (11) TMI 1704X X X X Extracts X X X X X X X X Extracts X X X X ..... on P. Boaz (Accountant Member) For the Appellant : Neera Malhotra, CIT(DR) For the Respondent : Shesadri, CA ORDER Asha Vijayaraghavan (Judicial Member) This appeal by the Revenue is directed against the order dated 16.03.2015 of the CIT(Appeals)-III, Bangalore relating to assessment year 2011-12. 2. The assessee company is engaged in the business of financial services. It filed return of income for the AY 2010-11 declaring a total income of ₹ 4,12,01,740. The Assessing Officer passed an assessment order u/s. 143(3) of the Income-tax Act, 1961 ["the Act"] determining the taxable income at ₹ 19,87,60,915 by making the following additions:- a) Interest on loan ₹ 4,53,40,320 b) Disallowance u/s. 14A r.w. Rule 8D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of certain specific terms and conditions to demonstrate that the term loan sanctioned are not to be used for any purpose other than the sanctioned purpose. The CIT(A) held that the AO's finding of diversion of these loans for non-business purposes is not based on any verifiable factual basis as no specific violation of the terms of loan sanction has been pointed out. The CIT(A) observed that the finding of the AO that fixed deposits were made for non-business purposes is without any factual basis as the amount of ₹ 21.80 lakhs was placed as security/collateral with the lenders for the purpose of borrowing and letter from OBC has been filed in this regard. The CIT(A) observed that it was pointed out by the assessee that the fixed depos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionate interest attributable to the deposits is to be disallowed is not tenable or supported by the facts of the case. 5.7 As pointed out by the AR of the appellant the investment, FDs and Mutual fund have only resulted in interest of ₹ 2,66,17,276/-. Therefore no case has been made out that interest expenditure of ₹ 9,68,22,773/- which is primafacie disproportionate has been incurred on earning this amount. It is also to be mentioned that while at para 4.2 of the assessment order it has been stated that proportionate interest expenditure of ₹ 9,68,22,773/- in the computation of total income only an amount of ₹ 4,53,40,320/- has been disallowed and added back. This amount therefore stands deleted. As regards the in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 5% of Loan disbursed as cash collateral instead of 10%." 12. The ld. counsel for the assessee relied upon the decision of the Hon'ble Madras High Court in the case of Hotel Savera (supra) wherein has been held as follows;- "The Gujarat High Court held that where the material on record showed that the assessee had a common fund it cannot be predicated that the money lent came only out of borrowed funds. The learned author, Sampath Iyengar in his book Sampath Iyengar's Law of Income-ax,9th edition, at page 2349, observed as under: "For the same reason a presumption appears to be permissible that where the assessee has his own capital as also the borrowed funds, the former rather than latter to have been utilised for the non-business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle, therefore, would be that if there are funds available both interest-free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest-free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the Commissioner of Income-tax (Appeals) and the Income-tax A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 333 ITR 497 (Karn) allowed the assessee's appeal on this issue. 20. Aggrieved the department is in appeal and has raised ground No.3 as follows:- "3. On the facts and in the circumstances of the case the learned CIT(A) erred in law in directing the AO to not make any disallowance of bad debts without appreciating the fact that the requirements of section 36(2) are to be fulfilled by the assessee even in the case where a sum is written off the books of accounts as irrecoverable debt and the AO has to verify whether the debts has actually been written off from the books of account of the assessee." 21. The ld. DR relied upon the order of the Assessing Officer, while the ld. counsel for the assessee reiterated the submissions made before t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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