TaxTMI 
TaxTMI 
2011 (2) TMI 1419
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....and circumstances of the case and in law, the Ld. CIT(A) erred in deleting the disallowance of interest of Rs. 63,03,433/- without appreciating the fact that the immediate source of investment are borrowed funds and balance sheet position is deceptive in this regard." Grounds of appeal of assessee are as follows: "1. The CIT(A) erred in upholding the disallowance of interest of Rs. 21,79,536/- made by AO on investment in shares of Rs. 23,42,55,539/- out of business income without appreciating the fact that the appellant had surplus interest free funds available with it and hence no interest is attributable towards investment in shares." "2. The CIT(A) erred in not considering the additional ground raised by the appellant without assigning any reasons. The additional ground raised was as under:- The AO erred in disallowing the claim of differed tax liability of Rs. 2,51,74,574/- while computing book profit u/s. 115JB ignoring the fact that the company was compulsorily required to provide for deferred tax liability as per Accounting Standard 22. The AO further made addition in respect of Wealth-tax provision of Rs. 28,282/- even though as per....
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....10,91,194/-. On appeal by the assessee the CIT(A) deleted the addition made by the Assessing Officer by observing that the addition has been made by Assessing Officer by following the orders of assessment in assessee's own case for the earlier years. He found that there was no change in the facts as it prevailed in the earlier years and the present assessment year. Since the issue was already decided in favour of the assessee by ITAT in the earlier assessment years, the CIT(A) deleted the addition made by Assessing Officer. 5. Against the order of the CIT(A) the revenue has preferred ground No.(a) before the Tribunal. 6. The Assessing Officer also noticed that the assessee had invested a sum of Rs. 39,19,47,398/- in the shares of various companies quoted and unquoted. On these shares dividend of Rs. 67,389/- was received and offered to tax under the head income from other sources. The Assessing Officer noticed that the assessee was paying interest on its borrowings and in these circumstances was of the view that borrowed funds on which interest was paid have been utilized for making investment in share which was not the business of the assessee. He, therefore, proposed to mak....
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....ssessment in the earlier year. 7. The AO however held that interest of Rs. 84,82,979/- cannot be allowed as deduction under section 36(1)(iii) of the Act and added the same to the business income of the Assessee. The AO however, accepted the alternative plea by the assessee, to treat the interest expense of Rs. 84,82,979/- as expenditure incurred in earning dividend u/s.57 of the Act. 8. Before CIT(A) the assessee submitted that it was engaged in the business of running hotels and real estate development. It has made investments in shares of other group companies which were held as investment. These investments existed and are being made every year right from assessment year 1990-91 onwards. The Assessee borrowed funds for business, interest on which has all along been claimed as business expenditure u/s. 36(1)(iii) of the Act. The claim of interest on such borrowed funds was allowed in all assessment years upto assessment year 1995-96. However, in assessment year 1996-97, the AO held that interest on borrowed funds for investment in shares was eligible for deduction u/s. 57 and not u/s. 36(1)(iii) as claimed by the Assessee. Starting from assessment year 1996-97 every year c....
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.... Assessee to prove that funds borrowed has been used for the purpose of business. He held that the Assessee in this Assessment year has not been able to establish that no amount of borrowed fund has been used for making investment in shares. Therefore, the presumption of the AO that borrowed funds have been used for making investment in shares is not unfounded. In the circumstances, the addition made by the AO was upheld in principle. However, the CIT(A) found that the AO has made the disallowance both in respect of investment made in earlier years as well as investment made during the year. As investment made in earlier years has already been held to be out of own/interest free funds, no disallowance on account of such investment was called for. However, in respect of investment made during the year, he held that proportionate amount of interest is not allowable as deduction u/s. 36(1)(iii). The CIT(A) found that out of total disallowance of Rs. 84,82,979/-, Rs. 63,03,433/- relates to investment made in earlier years whereas Rs. 21,79,536/- relates to investment made during the year. Accordingly, the addition made by the AO was restricted to Rs. 21,79,536/- subject to verification....
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....9,74,762 1995-96 11,82,85,718 28,78,99,129 97,44,066 1996-97 5,64,66,568 24,31,86,629 11,22,302 The perusal of orders relating to assessment year 1991-92 to 1994-95 reveal that no part of interest expenses claimed as deduction were disallowed in any of the years under consideration. The total investment in shares as on 31.3.1996 is Rs. 5,87,43,389/- with opening balance of Rs. 5,76,21,087/-. In effect the assesee company has invested Rs. 11,22,302/- in shares of sister/group companies during the year under consideration. The year wise details of summary of sources of investments and its applications (in each year) is as under:- A.Y 1992-93 1993-94 1994-95 1995-96 1996-97 SOURCES Interest bearing fund (1,54,83,948) 1,16,18,064 12,06,57,613 (11,82,85,718) 5,64,66,568 Non interest bearing funds 6,66,65,522 14,50,39,965 19,58,41,249 28,78,99,129 24,31,86,629 Total 5,11,77,574 15,66,58,029 31,64,98,862 16,96,13,411 29,96,53,197 APPLICATION &n....
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....d, which is presumed to have been advanced out of interest free funds as sufficient interest free funds are available with the assessee. No nexus has been brought on record by the revenue to show that the assessee has utilized its interest bearing funds to make such advances. In the absence of such nexus and following the ratio of the Hon'ble Delhi High Court in the case Tin Box Co.(cited supra) and several Benches of the Tribunal, we hold that no disallowance on the investment in shares of companies is warranted in the facts of the present case. The first ground of appeal raised by the assesee is allowed." 13. This order of the Tribunal has been followed in Assessment Year 97-98 in ITA No.4976&4760/M/01 order dated 24/7/2006, in assessment year 1998-99 in ITA No.1322/M/03 order dated 7/5/2008 and ITA No.1915/M/03 order dated 29/10/06, in A.Y 1999-2000 in ITA No.1661/M/03 order dated 7/5/2008, in A.Y 2000-01 and 2001-02 in ITA Nos. 3187& 3188/M/05 order dated 14/10/2004 and ITA Nos. 3237& 3238/M/05 order dated 5/6/07, for A.Y.2002-03 in ITA 4001/M/06 order dated 19/11/2008. Copies of the said orders were filed and are placed on record. 14. In this assessment year, the CIT(A) ....
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.... in the case of Reliance Utilities Pvt. Ltd. (supra) is to analyze the availability of interest free funds. In this case the CIT(A) has himself given a finding that the interest free funds available with the assessee was much more than investment made in the shares during the previous year. Once a finding to this effect is given then a presumption would arise that investments were made out of interest free funds available with the company. It cannot be accepted that in such a situation still the burden is on the assessee to show that interest free advances were used for the purpose of making investment in shares. We, therefore, do not find any merits in the submission made by the ld. D.R. Respectfully following the orders of the Tribunal in the earlier assessment years, we uphold disallowance deleted by the CIT(A) and further hold that the additions sustained by the CIT(A) should be deleted. Thus Ground No.(b) raised by the revenue is dismissed while Ground No.1 raised by the assessee is allowed. 17. As far as Ground No.(a) raised by the revenue in its appeal is concerned the theory of availability of funds would hold good for this ground also. Admittedly, the above said interes....
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.... Grounds of appeal by the assessee reads as follows: "The CIT(A) erred in upholding the disallowance of interest of Rs. 45,29,265/- made by AO on investment in shares of Rs. 23,42,55,539/- out of business income without appreciating the fact that the appellant had surplus interest free funds available with it and hence no interet is attributable towards investment in shares." 21. The facts and circumstances under which the above grounds of appeal arise for consideration are identical to Ground No.(b) in ITA No.4855/M/07 and Ground No.1 in ITA No.4823/M/07. In this assessment year the Assessing Officer made the disallowance of interest as was done in the earlier assessment year but also made reference to section 14A of the Act. The CIT(A) sustained a part of the disallowance for the following reasons: "I have considered the submission of the A.R, the facts on record and have carefully perused the decisions relied upon by the appellant. In order to examine the availability of interest free fund vis-à-vis investment made, the appellant was asked to produce date-wise availability of interest free fund and the investments made during the year. The detai....
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....est relating to these investments is required to be disallowed during this year also. Therefore, disallowance of interest on borrowed funds to the extent of investments made in the immediately proceedings assessment year which also continue as investments during the year is upheld. The appellant has submitted a calculation of inerest disallowed by the AO which also submitted in course of assessment. As per the calculation, out of total disallowance of Rs. 95,61,006/-, Rs. 45,29,265/- relates to investments made in the immediately preceding assessment year. The balance disallowance relates to investments made up to assessment year 2002-03 and investments made during the year under consideration. As it has already been held that no disallowance is called for in respect of investment made up to assessment year 2002-03 and in respect of investments made during the year, the addition of Rs. 95,61,006/- is restricted to Rs. 45,29,625/- and the appellant gets relief of Rs. 50,31,741/- which is in respect of addition upto assessment year 2002-03 and addition made during the year. The AO is further directed to verify the calculation of interest which has been filed in course of appeal and s....
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....er: "The CIT(A) erred in upholding the disallowance of interest of Rs. 52,02,010/- made by AO on investment in shares of Rs. 22,61,46,306/- out of business income without appreciating the fact that the appellant had surplus interest free funds available with it and hence no interest is attributable towards investment in shares." 25. The facts and circumstances under which these appeals arise are identical to the facts as it existed in A.Y.2004-05. The finding of the CIT(A) in this assessment year are also identical to the finding in A.Y.2004-05. While deciding the appeals of the assessee and revenue for A.Y. 2004-05 we have already deleted the addition sustained by the CIT(A) and upheld the order of the CIT(A) deleting the disallowance made by the Assessing Officer. For the reasons stated therein we allow the appeal of the assessee and dismiss the appeal by the revenue. ITA NO.1831/MUM/2010 & ITA NO.1006/MUM/2010: 26. ITA No.1631/M/2010 is an appeal by the revenue while ITA No.1006/M/2010 is an appeal by the assessee. Both these appeals are directed against the order dated 8/12/2009 of CIT(A) -40 Mumbai relating to assessment year 2006-07. The grounds of ....