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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 ..... esumption is that own funds have been used for the purpose of making the advances/investments, calling for no disallowance of interest whether u/s 14A or under section 36(1)(iii) of the Act. See Reliance Industries Ltd. [ 2019 (1) TMI 757 - SUPREME COURT ] Assessee appeal allowed. - SMT. ANNAPURNA GUPTA, ACCOUNTANT MEMBER AND SMT. MADHUMITA ROY, JUDICIAL MEMBER, JUDICIAL MEMBER For the Appellant : None For the Respondent : Ms. Anam Benish, Sr.DR ORDER PER ANNAPURNA GUPTA, ACCOUNTANT MEMBER Present appeal has been filed by the Revenue against order passed by the ld. Commissioner of Income-Tax(A)-2, Ahmedabad [hereinafter referred to as ld.CIT(A) ] dated 28.4.2016under section 250(6) of the Income Tax Act, 1961 ( the Act for short) pertaining to Asst. Year 2012-13. 2. None has come present on behalf of the assessee throughout the course of hearing before us, despite notices being served through ld.DR s office on two occasions. It is clear that the assessee has chosen to remain unrepresented before us. Therefore, it was decided to proceed with adjudicating the present appeal ex parte. 3. The effective grounds of appeal raised by the Revenue are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urred allegedly for non- business purpose, the same pertained to advances made to related parties covered under section 40A(2)(b) of the Act on which no interest was charged by the assessee as under: i) Advances to Prem Call Cabs P. Ltd. of Rs. 72,00,000/- ii) Other related concerns shown under the head long term loan advances, which were related parties covered under section 40A(2)(b) of the Act of Rs. 14,42,44,816/- The AO worked out average advances so given and applying rate of interest at 12% thereon had worked out the disallowance of interest at Rs. 1,54,69,412/- under section 36(1)(iii) of the Act. 7. Further, the disallowance of interest of Rs. 13,10,618/- under section 36(1)(iii) of the Act pertained to advances made for capital asset amounting to Rs. 1,09,21,815/-. 8. All the disallowances made pertaining to the interest disallowed under section 14A of the Act and interest disallowed under section 36(1)(iii) of the Act, as noted above, were deleted by the ld.CIT(A) following his order passed in earlier years, primarily noting that the assessee had sufficient interest free funds for the purpose of making investments/advances, and the presumption therefore, w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment in shares of Infinity Drive Pvt. Ltd. and Infinium India Limited were since 2002-03. Further, no new investments have been made in the year under consideration. Thus, no interest bearing funds had been diverted for earning the exempt income during the year under consideration. The appellant also relied upon the decision of Id.CIT(A) - VIII, Ahmedabad in appellant's own case in A. Y. 2010-11 in Appeal No.CIT(A)-VIII/DCIT/Cir.4/32/2012-13 dated 30/01/2014, whereby the disallowance made under Rule 8D(2)(ii) was deleted, but the disallowance of the administrative expenditures under Rule 8D(2)(iii) have been confirmed. For ready reference, the decision of the Id. CIT(A) is reproduced as under:- 4.3 Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The appellant has submitted that the investment has been made at the time of inception of the company and on similar basis the disallowance made for AY 2008 - 09 has been deleted by CIT(A) and no further appeal has been made by the Department in ITAT. In the order for assessment year 2009 - 10 was passed ex parte and the disallowance has been uphe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 's own case in A. Y. 2010-11 and the fact that the availability of the funds for making the investment in the preceding year of much more than the investment and also respectfully following the decisions / judgments of various courts as relied upon by the appellant, the disallowance in respect of interest under Rule 8D(2)(ii) is found not correct, and hence the same is deleted. 9. The findings of the ld. CIT(A) deleting the disallowance of interest under section 36(1)(iii) of the Act of Rs. 1,54,69,412/- on account of advance made to related parties, at para 4.3-4.6 of the order is as under: 4.3 I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made the disallowance of interest u/s. 36(l)(iii) in respect of interest free advances granted to the parties on their average balance and such disallowance was worked out at Rs. 1,54,69,412/-. The AO observed that in absence of any evidence proving nexus that the surplus funds available with the assessee was utilised for advance for the purpose of interest free advances, the claim of the assessee was not found acceptable. The AO did not accept the con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly in A. Y. 2011-12 in appellant's own case 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. Relevant extract of the decision is reproduced as under:- 2.3. Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made the disallowance of interest u/s. 36(l)(iii) of the I.T. Act, 1961 on the interest free loans and advances granted to the associated parties by working out the interest at the rate of 12% on the total loans and advances at Rs. 5,43,41,363/-. The AO observed that the appellant has not been able to establish that the advances have been made only to the related or associated parties for a definite business purpose and also from interest free funds. It was also submitted that the appellant has paid the interest on the borrowings taken. This issue has also been raised in the preceding years assessment. 2.4. The appellant has submitted that during the year it has made the fresh interest free advances only of Rs. 69,37,998/-. In fact, on the majority of the loans, it has charged the interest and interest income of Rs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rt indicating individual advance and the reason as to why the interest disallowance was not called for. After considering all the facts and circumstances it would be appropriate to discuss each advance separately for the sake of clarity and understanding. The discussion is as under: - Name of the party Amount Discussion NSI Advances 3534000 The appellant has submitted that advance has been given to associate concern promoted by the appellant company and therefore it was a business advance. The appellant has explained that it has made a joint- venture with GNFC for doing the business in the software line. The contention of the appellant that this was a business advance is not acceptable as there is no business Link with the party. 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een 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. Harshadbhai 25151 The appellant has submitted that this amount has been disallowed on account of wrong grouping. Considering the fact that it is on account of wrong grouping and also considering the availability of sufficient interest-free fund with the appellant no disallowance should be made on account of this advance. Lalibhai 11500 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted upto A.Y. 2008- 09. The advance cannot be considered to be an advance without business motive. The appellant is apparently hiring of vehicles from the party and it is in the nature of business transaction. Once there is a business expediency no disallowance of interest under section 36 can be made. The disallowance is accordingly directed to be deleted on this issue. Sanghvi Finance 350000 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. Suresh Mohanlal Lakhiani 500000 The appellant has submitted that this advance represents opening balance both in A.Y. 2009-10 and 2010-11 and not disputed upto A. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption would be that the amount has been advanced out of the interest-free funds. The disallowance made by the AO on account of this advance is therefore directed to be deleted. Infinium India Ltd Naroda (30000) The appellant has submitted that this was not an advance but a liability and therefore, need to 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. Infinium Communications 2034432 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. Rio Motors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear 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 interest free lendings at Rs. 69,37,998/-. Thus, considering the appellant's submission and following the order of the Id. CIT(A) in appellant's own case discussed above and various binding decisions and judgments cited above, the disallowance of interest made by the AO is found not correct and hence the same is deleted. 2.7. The ground of appeal is accordingly allowed. 10. Finding of the ld.CIT(A) deleting the disallowance of interest amounting to Rs. 13,10,618/-, on account of advances made for capital work-in-progress, at para 5.3- 5.4 of the order is as under: 5.3. Decision: I have carefully considered the facts of the case, the assessment order and the written submission of the appellant. The AO has made the disallowance of interest u/s. 36(1)(iii) of the I. T. Act of Rs. 13,10,618/- in respect of capital advances of Rs. 1,09,21,815/- stating that the interest bearing borrowings have been utilised for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 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 same reasoning of availability of sufficient own funds for making the advances. 14. This finding of fact by the Ld.CIT(A) of availability of sufficient own funds for making investments/advances has not been controverted by the Revenue before us. Also, it is settled law that where sufficient own funds are available, presumption is that own funds have been used for the purpose of making the advances/investments, calling for no disallowance of interest whether under section 14A or under section 36(1)(iii) of the Act. The Hon ble apex court in the case of Commissioner of Income Tax (LTU) vs Reliance Industries Ltd. C.A No. 37 of 2019 Others dated 23- 03-19 has settled the law in this regard. 15. In view of the above, we see no reason to interfere in the order of the ld.CIT(A) deleting the disallowance of interest under section 14A amounting to Rs. 13,84,018/-; disallowance of interest under section 36(1)(iii) amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X
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