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TMI Blog2023 (8) TMI 427X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 14A, without properly appreciating the facts of the case and the material brought on record. 2. The Ld.CIT(A) has erred in law and on facts in deleting to disallowance of Rs. 1,54,69,412/- u/s 36(1)(iii) in respect of Advances to related parties, without properly appreciating the facts of the case and the material brought on record. 3. The Ld.CIT(A) has erred in law and on facts in deleting the disallowance of Rs. 13,10,618/- u/s 36(l)(iii) in respect of interest on capital assets, without properly appreciating the facts of the case and the material brought on record. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) ought to have upheld the order of the Assessing Officer. 5. It is, therefore, prayed that the order of the Ld. CIT(A) may be set aside and that of the Assessing Officer may be restored to the above extent. 6. The appellant craves leave to amend or alter any ground or add a new ground, which may be necessary. 4. As is evident from the above, there are primarily two issues raised in the present appeal ; * relating to disallowance of expenses pertaining to earning of exempt income as per section 14A of the Act and * disallowance of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 14A or under section 36(1)(iii) of the Act. Reliance was placed on the decision of Hon'ble Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd., 313 ITTR 340 (Bom) in this regard. The relevant finding of the ld.CIT(A) while deleting the disallowance of interest under section 14A amounting to Rs. 12,96,174/- at para 3.3-3.5 of the order is as under: 3.3. Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. It has been noticed that the identical issue has also been decided in appellant's own case in A. Y. 2010- 11 by the CIT(A) - VIII, Ahmedabad vide appeal No.CIT(A)- VIII/DCIT/Cir.4/32/2012-13 dated 30/01/2014 granting the partial relief to the appellant. Likewise, in A. Y. 2011-12 also, the identical issue has been decided by this office in Appeal No. CIT(A)-VIII/19/DC. Cir. 4/2014-15 and now CIT(A)-2/90/DC. Cir. 4/2014-15 dated 18/02/2016 giving the partial relief to the appellant. The relevant findings of the decision in A. Y. 2011-12 is reproduced hereunder:- "3.3. Decision: I have carefully considered the facts of the case, the assessment order and the written sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 09. It is noted that the investment in tax-exempt assets has been the same since 2002 - 03. There is a marginal increase of Rs. 5,680/- during the year in the new investment. The appellant has claimed that the investments have -been made out of own funds in earlier years and no interest-bearing funds have been used. My predecessor has deleted the addition on the same ground in A. Y. 2008 - 09. He has held that since the appellant had sufficient interest free funds no disallowance on account of interest can be made under section 14 A. The disallowance on account of administrative expenses has, however, been upheld by him. The facts are identical to that year as the investment is almost unchanged and there is only a marginal increase of a very small amount and, therefore, it would be judicially prudent to follow the decision of my predecessor. Further it is also noted that the appellant has received large interest free funds during the year which would be sufficient to make the small investment of Rs. 5680/-. therefore, no disallowance out of interest should be made for investment in tax-exempt assets on account of new investment made during the year. It is no disallowance out of int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st free advance from customers. The AO observed that it was the general reply which does not depict the real fund movement during the year and availability of interest free funds. 4.4. On the other side, the appellant had submitted that the AO did not took the cognizance of the orders of the Id. CIT(A) deleting the disallowance on the ground that the issue has not attained finality due to pendency of appeals at the instance of the department before the ITAT. Further submitted that the appellant had succeeded in all appeals preferred by the department on this issue either before the Hon'ble ITAT right from A. Y. 20001-02 to A.Y. 2008-09 or before the Hon'ble High Court for A.Y. 2003-04 made at the instance of the department. The appellant also brought on record the findings of the Hon'ble ITAT in the case of appellant for A. Y. 2007-08 and A. Y.2008-09 which have been reproduced in the preceding paras of this order. The appellant also submitted that the majority of the advances were made for the purpose of business and in view of the judgment of Hon'ble Supreme Court in the case of S. A. Builders (Supra) no disallowance could be made. It was also submitted that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration. Further, certain loans and advances were granted out of the interest free funds in the form of equity share capital, reserve and surplus, unsecured loans, advances from customers etc. totaling to Rs. 29,34,50,912/-. Thus, the interest free funds were much more than the interest free lendings granted in the year under consideration. The details of such lending and availability of interest free funds are noted on Page No. 2 to 4 of the assessment order. Further, the appellant has also made the explanation with regard to the interest free loans and advances granted and has contended that this issue is identically involved in assessment year 2010-11, whereby the disallowance of interest has been deleted. 2.5. Having considered the facts and submission, it is noticed that this issue was identically involved in the preceding years in appellant's own case, and after examining the facts and submission, the Id. CIT(A) in the appellate order No.CIT(A)- VIII/DCIT/Cir.4/32/2012-13 dated 30/01/2014, has deleted the disallowance with the following observations. The relevant findings are reproduced hereunder:- "3.3 Decision: I have carefully considered the facts of the case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to be deleted. Aviskar Travels 130665 The appellant has submitted that this advance represents opening balance both in A.Y. 2009-10 and 2010-11 and not disputed upto A.Y. 2008-09. Addition so made in A.Y. 2008-09 has since been deleted by the Ld. CIT (A) and affirmed by the ITAT. Since the advance was given in earlier year and no disallowance of interest was made in that year considering the availability of funds, no disallowance of interest can be made in the current year as well. The disallowance on this advance is therefore directed to be deleted. B. Sairam 20000 The appellant has submitted that this advance represents opening balance both in A.Y. 2009-10 and 2010-11 and not disputed upto A.Y. 2008-09. Addition so made in A.Y. 2008-09 has since been deleted by the Ld. CIT (A) and affirmed by the ITAT. Since the advance was given in earlier year and no disallowance of interest was made in that year considering the availability of funds, no disallowance of interest can be made in the current year as well. The disallowance on this advance is therefore directed to be deleted. Chola Advance 12011 The appellant has submitted that this advance represents opening balance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvanced out of the interest-free funds. The disallowance made by the AO on account of this advance is therefore directed to be deleted. M.M. Thakkar 1695000 The appellant has submitted that this advance represents opening balance both in A.Y. 2009-10 and 2010-11 and not disputed upto A.Y. 2008-09. Addition so made in A.Y. 2008-09 has since been deleted by the Ld. CIT (A) and affirmed by the ITAT. Since the advance was given in earlier year and no disallowance of interest was made in that year considering the availability of funds, no disallowance of interest can be made in the current year as well. The disallowance on this advance is therefore directed to be deleted. Reliance Gen Ins. Cop. Ltd. 1254979 The appellant has submitted that this was a business advance to the insurance company which is granting insurance on the vehicles sold by the appellant and is pending adjustment. This advance was given in A.Y. 2009- 10. The advance cannot be considered to be an advance without business motive. The appellant is apparently getting the insurance done from the party and it is in the nature of business transaction. Once there is a business expediency no disallowance of interest u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as submitted that this was a business advance and to a sister concern engaged in the same line of business in which appellant is engaged and having business relationship with the appellant. The contention of the appellant that this was a business advance is not acceptable as there is no business Link with the party. However the appellant has submitted a detailed account of all the transactions with the party. The account show that initially the appellant has borrowed from the party and there was a credit balance in the account however at the end of the year that is in the month of February the account was showing a debit balance. The appellant had advanced money to the party. The amount of Rs. 2.96 crores that has been given has been explained by the appellant as out of the interest-free funds. As discussed in the preceding para that the appellant had sufficient interest free funds. The appellant had received certain additional funds during the year out of share capital infusion and it has also received interest-free loan from Vishal Mehta amounting to Rs. 2.22 crores. In view of these facts it had sufficient interest free funds available with it. Considering The ratio laid down by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be considered as interest free fund available with the appellant. The contention of the appellant is factually correct and therefore, the disallowance on this entry cannot be made Vishal A. Mehta 1090937 The appellant has submitted that advance was given against the interest free funds received from him. The contention of the appellant is correct the party has given interest free loan to the appellant and therefore there is no question of charging any interest from the same party. It can at the most the return of loan or it can be adjusted in the same account. If both the entries advance and borrowing are adjusted there would be that borrowings this account. Accordingly no disallowance can be made. Total 40958304 In view of the above discussion the entire disallowance made by the AO on account of interest free advances is directed to be deleted. The ground of appeal is accordingly, allowed." 2.6. Further, during the year under consideration, it has been noticed that even the appellant had much more interest free funds in the year under consideration and there was increase in such interest free funds to the tune of Rs. 12,07,15,736/- which is much more than the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ground of appeal is allowed." 11. We have noted from the above that the ld.CIT(A) deleted the disallowance of interest u/s 14A of the Act noting the fact that own interest free funds of the assessee by way of share capital and Reserves amounted to Rs. 40,50,89,897/- which was far in excess of investments made of Rs. 2.029 crores and in earlier years identical disallowance was deleted finding sufficiency of own funds for making investment. 12. Similarly interest disallowed u/s 36(1)(iii) of the Act of Rs. 1,54,69,412/- was deleted noting sufficiency of own funds of Rs. 40.50 Crs for the advances of Rs. 15.14 Crs. He noted that while the own funds increased during the year by Rs. 11.16 Crs , the interest free advances increased during the year by Rs. 2.70 Crs. Ld.CIT(A) has followed his order for preceding year, i.e 2011-12 wherein identical disallowance of interest was deleted following Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd 313 ITR 340, noting sufficiency of own funds for making advances. 13. The disallowance of interest u/s 36(1)(iii) of the Act of Rs. 13,10,618/- on account of capital advances was deleted by the Ld.CIT(A) following the s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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