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TMI Blog2021 (3) TMI 668X X X X Extracts X X X X X X X X Extracts X X X X ..... iance Utility and Powers Ltd.[ 2009 (1) TMI 4 - BOMBAY HIGH COURT] we are of the opinion that in the facts of this case, no proportionate disallowance based on the AO s reasoning cannot be accepted and therefore we confirm the order of Ld. CIT(A) and dismiss the ground No. 3 raised by the Revenue. Addition on account of an advance to subsidiaries from borrowed funds - HELD THAT:- As decided in own case [ 2008 (1) TMI 426 - ITAT CALCUTTA-D] from the annual accounts of the sister concern, it is evident that no loan was given to any of the directors or to any firm/company in which such director was interested. In fact, it was reported by the auditors of that the recipient company that it did not advance any sum to any -of its director or any other firm /company in which such director if interested. Having said this and, relying on the decision of S.A. Builders Ltd [ 2006 (12) TMI 82 - SUPREME COURT] we are agree with the AR that the advance in question was towards equity and given from time to time out of pure commercial expediency and to protect its own financial interest. Even otherwise, we note that the advances given by the assessee company from time to time was against ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; 11.35 crores from which tax free dividend income was earned. Thereafter that the AO noted that the assessee s total investment in shares is 12% of the borrowed funds, therefore he disallowed proportionate interest @ 12% of the total interest paid and disallowed ₹ 90,58,372/-. 4. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who was pleased to delete the same. 5. Aggrieved the Revenue is before us. 6. We have heard both the parties and perused the records. At the outset, it was brought to our notice that similar issue cropped up before this Tribunal in earlier years and this issue is covered in favour of the assessee by order dated 25.01.2008 in ITA Nos. 724 725/Kol/2007 for AY 2002-03 2003-04; and assessment order dated 22.12.2006 for AY 2001-02. The Ld. A.R. of the assessee Shri A.K. Gupta brought to our notice that the assessee has not earned any exempt income therefore no disallowance u/s 14A of the Income Tax Act, 1961 (hereinafter referred to as the Act) is legally permitted and for that proposition he relied on the decision of Hon ble Delhi High Court in Chem Invest Ltd. vs. CIT reported in 378 ITR 33 (Del). The Ld. A.R drew our attentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see reiterated the same contention. The AO did not accept the same by noting that in the immediate preceding assessment, the interest free advance were given out of borrowed funds and he observed that the assessee had utilized only 26% of the borrowed and cash credit facility funds of ₹ 93,34,32,584/- by way of giving interest free advances to its subsidiary company on which the assessee had paid interest of ₹ 7,54,86,434/- on the entire borrowed fund. Accordingly, proportionate interest on interest free advances was computed by AO at ₹ 1,96,26,473/- being 26% of the total interest paid on borrowed and cash credit account and this amount was disallowed. 9. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who was pleased to delete the same. 10. Aggrieved the revenue is before us. 11. We have heard both the parties and perused the records. At the outset, the Ld. A.R of the assessee submitted that this issue is also covered in favour of the assessee by the Tribunal s order for AY 2002-03 and AY 2003-04 which is discernible from paper book pg nos. 10 to 15 and 17 respectively. We note that the Ld. CIT(A) has noted that the advance were out of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... established that the payment was made from the mixed accounts and the assessee had sufficient funds, then it is to be presumed that the payment was made out of assessee s own fund and that the borrowed capital was not siphoned out. In fact the Jurisdictional High Court has held that even if the overdraft account had a debit balance, the earlier conclusion should not have been different. In coming to this conclusion, the Hon ble High Court had relied on a plethora of decisions held by the same Court earlier, such as, in 132 ITR 219, 135 ITR 698, 147 ITR 392 161 ITR 820. It was argued by the AR that the advances were made out of mixed bank accounts where the receipts out of current sales were credited. The AR had also submitted that apart from showing the years in which the advances were made, which were earlier to the previous year relevant to the assessment year under appeal it was submitted that such advances were made out of own funds. In fact the Revenue never raised this issue in the past while holding that the opening balance has been funded out of the borrowed funds and that too without any analysis and ignoring the principles laid down by the Hon ble High Court. Hence, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be compelled to maximize its profit. The Income tax Authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter before their own point of view but that of a prudent businessman. According to the Hon ble Court, one should see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency from the point of view whether the amount was advanced for earning profits. According to the AR, the assessee company had advanced the money out of borrowed funds but from its own sources for which no interest was claimed as a deduction. Even assuming but not admitting that a part of the advance against the share capital was made out of borrowed funds, it is beyond doubt that such introduction of funds were made out of commercial expediency and following the decision of the Supreme Court, no disallowance out of the interest claim should be called for. 23. At this point, the Hon ble Bench had directed the AR to prove that the advance was made as a measure of commercial expediency, since, in the said decision, the Hon ble Supreme Court had also said that it is not the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, it is noted that the assessee company had, in fact, introduced the funds to its subsidiary company from time to time according to its requirements. Moreover, the assesses company held approximately 88% shares of the said subsidiary company. The amount invested by the assesses company till 31st March, 2002 was ₹ 11.35 crores. It is also noted that from the annual accounts of the subsidiary company that till 31st March, 2002 (page 39 of the Paper Book) the financial figures were as under : Position of mobilization and deployment of funds (Amount in ₹ 000) Total liabilities 687.062 Total Assets 687.062 Sources of Funds Paid up Capital 128,500 Advance against issue of shares 198,150 Reserve surplus 15,273 Secured loans 314,944 Applications of Funds Net Fixed Assets 453.626 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to a conclusion that part of the total advances was funded out of borrowed capital and ignoring the decision of jurisdictional Calcutta High Court in the case BIL (supra). 31. Having considered all these factors, we are of the view, that the disallowance made by the A.O had no reasonable basis and should be deleted in full. 12. Since the Revenue could not point out any change in facts or law on this issue from that of the AY 2002-03, we are inclined to follow the order of Tribunal in assessee s own case for AY 2002-03 and 2003-04, so we confirm the action of Ld. CIT(A) and dismiss the ground no.2 raised by the Revenue. 13. Ground no. 3 is against the action of Ld. CIT(A) in deleting the addition made by the AO amounting to ₹ 8,98,027/- on account of advertisement expenses. 14. Brief facts of the case as noted by the AO is that despite requesting the assessee to furnish details of expenditure of advertisement in a format prescribed in the notice u/s 142(1) of the Act, the assessee only furnished details in respect of the Agra and Udaipur unit, but no details have been furnished in respect of Jaipur Unit. According to AO, the assessee has debited ₹ 89, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal expenses, medi-claim insurance, uniform expenses, recruitment expenses, employees relation expenses. According to AO, recruitment expenses at Trident, Jaipur was claimed at ₹ 2,42,245/- and employees relation expenses at Trident, Jaipur at ₹ 1,85,650/- and ₹ 1,92,592/- at Trident, Udaipur have been included under this head. The aforesaid expenses according to AO do not relate to Staff Welfare. According to AO, in the earlier assessment years, expenses on account of festival gift, Diwali sweets, etc. had been shown by the assessee as incurred on Staff Welfare which had been disallowed as not being related to Staff welfare of the assessee-company. For this assessment year also, the assessee had claimed such expenses which are again disallowable. Therefore, ₹ 6,20,487/- was disallowed out of the purported staff welfare expenses and added back to the total income of the year. 21. Aggrieved the assessee preferred an appeal before the Ld. CIT(A) who deleted the addition by holding as under: 7.3.1. These amounts pertain to employee meals on duty, medical expenses, medical insurance, uniform expenses, recruitment expenses, employees relation- these are ..... X X X X Extracts X X X X X X X X Extracts X X X X
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