TaxTMI 
TaxTMI 
2014 (5) TMI 115
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....p; 3. The Ld. CIT(A) erred in not considering the fact that share capital and free reserves of the appellant in the current assessment year as well as in the assessment year when the investments were made was always much higher than investments made; hence, appellant having not used any borrowed funds for investment, no interest is disallowable. 4. Ld. CIT(A) also erred in not considering the fact that investment held by the appellant are investments in private limited company and a cooperative bank. Capital gain arising thereon is liable to be taxed and hence investments held by the appellant are not liable to the provisions of Section 14A of Income Tax Act. 5. Ld. CIT(A) erred in not considering various decisions of Hon'ble ITAT as cited before Ld. CIT(A). 6. Ld. CIT(A) failed to appreciate that appellant has not incurred any expense for earning of the dividend and without considering the fact erred in confirming the disallowance under Rule 8D(2)....
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....e free reserves and surplus funds available with it based on the figures in the balance-sheet. The assessee had not shown that the amounts used for investments were kept in some other bank account and it was these amounts which were used for the purposes of investments shares. He held that once the funds are not separate and the same interest bearing funds are being used for investments as well as business, then, the provisions of Rule 14A would definitely apply. He therefore confirmed the disallowance so made by the AO. 5. Before us, at the outset, the learned A.R. of the assessee relied upon an authority of the Hon'ble Bombay High Court styled as 'CIT v. Reliance Utilities & Power Ltd.' [2009] 313 ITR 340/178 Taxman 135 wherein the Hon'ble Bombay High Court has held that if there are funds available, both interest free and overdraft/loans taken, then 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. On the other hand, the contention of the learned D.R. has been tha....
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....e but if the investment/ expenditure is made in anticipation of availability of own funds and the own funds are available to the assessee within a very short period of time, then under such circumstances disallowance cannot be made on the entire loan amount but a very reasonable proportionate disallowance can be made and even in certain cases can be ignored due to the shortness of the period between the date of advancement/expenditure and date of availability of own funds. It can be observed by the Assessing Officer from the Balance Sheet as to whether sufficient own funds were available to the assessee during the financial year or the interest free funds were generated during the course of the year even if the assessee could not prove the availability of own funds on the particular date of investment/advancement/expenditure. 8. The ld. AR of the assessee has relied upon the following reproduced Chart to show that the assessee was having its own sufficient funds for investments. Particulars A.Y.05-06 A.Y.06-07 A.Y.07-08 A.Y.08-09 A.Y.09-10 1 Investments held 7,20,10,000 7,20,10,000 7,37,10,000 7,37,10,000 7,37,10,000 2 Capital & Free Reserve 19,27,34,088 ....
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....10,000/-. Its capital and free reserves were of Rs.19.27crores, secured loans were of Rs.6.06 crores and unsecured loans were of Rs.10.00 lakhs. Interest paid to the bank was of Rs.49.93 lakhs. Thus, substantial investment had been made in AY 2005-06, secured borrowings had increased during this year by Rs.64.00 lakhs and unsecured loans had decreased by Rs.5.00 lakhs. Thus, net accretion in borrowings was only Rs.59.00 lakhs. Fresh investment made during that year was of Rs.720.00 lakhs. He stressed that from the above, it was clear that the assessee had not utilized borrowed funds for making investments. Incremental borrowings of Rs.59.00 lakhs has been used for the purpose of business as the assessee borrowed funds from banks for its export under PCL limit as well as bill discounting limit. In AY 2006-07, investment continued to be the same. However, its secured borrowings fell down to Rs.4.32 crores during the year. In assessment year 2007-08, investment increased to Rs.737.10 lakhs. Thus, a fresh investment of Rs.17.00 lakhs over its capital and free reserves increased to Rs.22.10 crores. Secured loans were increased to Rs.799.25 lakhs and unsecured loans were of Rs.10,000/-. ....