TaxTMI 
TaxTMI 
2017 (5) TMI 245
X X X X Extracts X X X X
X X X X Extracts X X X X
....at the CIT(A) has misinterpreted the provisions of Section 36(1)(iii) while rejecting the contention of the assessee that there is no need to prove the business expediency of granting loan in case no claim of interest is made in respect of the said loans. 3. The appellant craves leave to add, amend or alter any of the grounds of appeal." 3. From the aforesaid grounds, it is gathered that the only grievance of the assessee in this appeal relates to the confirmation of disallowance of Rs. 13,89,951/- made by the AO on account of interest expenses u/s 36(1)(iii) of the Income-tax Act, 1961 (hereinafter referred to as 'the Act'). 4. Facts of the case in brief are that the assessee filed its return of income on 22.09.2012 declaring a loss of Rs. 8,96,782/-. Later on, the case was selected for scrutiny. During the course of assessment proceedings, the AO noticed that the assessee had debited expenses in the profit and loss account amounting to Rs. 84,12,080/- on account of finance cost which included bank guarantee charges amounting to Rs. 35,15,008/- and the interest paid comes to Rs. 48,97,072/- on the working capital. The AO also noticed that the assessee had given shor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....High Court in the case of Reliance Utilities & Power Ltd. 313 ITR 340 and HDFC. Bank Ltd. 366 ITR 505 and that of Hon'ble Punjab & Haryana High Court, in the case of Bright Enterprises In ITA No.224 of 2013 and Kapsons Associates in ITA No. 354 of 2013. 21.5 Further, it is a settled law that assessee is free to use its own funds the way it wants and the Revenue cannot compel the assessee to do or perform in a particular manner, It is also a settled law when own funds are more than the funds utilized towards interest free advances there cannot be any disallowance towards interest paid. As regards AO's allegation that these loans and advances were not given out of business purpose, it is once again clarified that in the absence of any interest 'bearing funds used, for the purpose of granting these loans, there was no claim of interest made by the assessee in this regard. No disallowance of an expenses which has not been claimed can be made. In a scenario where the interest free advances are given out of interest free funds, there is no need for assessee to prove the business expediency. 21.6 Our aforesaid submissions is supported by a recent dec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ree funds which mainly consists of its owned funds and secondly the borrowed funds. In first kind of funds i.e. owned funds, there is no question of any interest expenditure. However, in second kind of funds, i.e. borrowed funds, there are interest expenditure, for which the onus is on the assessee to prove that since these funds were borrowed for business purposes, the interest expenditure is allowable. 25. Once, it is established that for a given situation, the assessee has not borrowed any money, for that matter, putting it reverse, the assessee has used his owned funds or interest free funds, there is no question of proving that the funds so taken from owned or interest free funds are used for business purposes. There being no claim of any interest expenditure, no question of deduction to be allowed under section 36(1)(iii) of the Act arises. 26. Once it is presumed that the lending as in the present case is made out of owned funds, assessee need not show the business expediency for the same. An assessee or for that matter any person is free to use his own funds the way he wants. In the present case, on the proposition laid down by the Jurisdictional High Cour....
X X X X Extracts X X X X
X X X X Extracts X X X X
....th by the Commissioner of Income-fax (Appeals) and the Income-tax Appellate Tribunal." (emphasis supplied) 5. We find that the facts- of the-present case are squarely covered by the judgment in the case of Reliance Utilities and Power Ltd. (supra). The finding of fact given by the ITAT in the present case is that the Assessee's own funds and other non-interest bearing funds were more than the Investment in the tax-free securities. This factual position is not one that is disputed. In the present case, undisputedly the Assessee's capital, profit reserves, surplus and current account deposits were higher than the investment in the tax-free securities. In view of this factual position, as per the judgment of this Court in the case of Reliance Utilities and Power Ltd. (supra), it would have to be presumed that the investment made by the Assessee would be out of the Interest-free funds .available with the Assessee. We therefore, are unable to agree with the submission of Mr. Suresh Kumar that the Tribunal had erred in dismissing the Appeal of the Revenue on this ground. We do not find that question (A) gives rise to any substantial question of law and is theref....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tal aspect" permeates in different assessment years. In arriving at this conclusion, this court referred to an Interesting passage from Hoystead v. Commissioner of Taxation (1926) AC 155 (PC) wherein it was said (page 328 of 193 ITR): "Parties are not permitted to begin fresh litigation because of new views they may entertain of the law of the case, or new versions which they present as to what should be a proper apprehension by the court of the legal result either of the construction of the documents or the weight of certain circumstances. If this were permitted, litigation would have no end, except when legal ingenuity is exhausted. It is a principle of law that this cannot be permitted and there is abundant authority reiterating that principle. Thirdly, the same principle- namely, that of a setting to rest rights of litigants, applies to the case where a point, fundamental to the decision, taken or assumed by the plaintiff and, traversable by the defendant, has not been transversed. In that case also a defendant is bound by the judgment, although it may be true enough that subsequent light or ingenuity might suggest some traverse which had not been taken." 30. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....edly for the purposes, totally unrelated to the business of the assessee. Therefore, the prorata interest disallowed by the AO u/s 37(1) of the Act was correct and the interest expenditure was also not allowable as per Section 36(1)(iii) of the Act. 7. The reliance was placed on the following case laws: S.A. Builders Ltd. Vs CIT 288 ITR 1 (SC) CIT Vs Dalmia Cement (Bharat) Ltd. (2002) 254 ITR 377 (Del.) Addl. CIT Vs Tulips Star Hotels Ltd. 338 ITR 482 (Del.) CIT Vs J.K. Synthetics Ltd. 200 Taxman 101 (Del.) Cornerstone Exports (P) Ltd. 67 Taxmann.com 345 (Guj.) 8. Now the assessee is in appeal. The ld. Counsel for the assessee reiterated the submission made before the authorities below and further submitted that the assessee debited an amount of Rs. 48,97,072/- to its profits and loss account on account of interest which comprises of two parts, Rs. 24,36,323/- on working capital loan from bank which had been directly used by the assessee for the business purpose and Rs. 24,60,749/- paid in respect of the unsecured loan of Rs. 5,06,36,314/- from M/s Sudha Apparels Ltd.. The said loan was received by the assessee during the year unde....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 12.04.2016 10. In his rival submissions the ld. DR strongly supported the orders of the authorities below and reiterated the observation made by the ld. CIT(A) in the impugned order. 11. I have considered the submissions of both the parties and carefully gone through the material available on the record. In the present case, it is an admitted fact that the assessee paid interest amounting to Rs. 48,92,072/- which comprises of two parts i.e. Rs. 24,36,353/- on the working capital loan from the bank which had been directly used for the business purpose and Rs. 24,60,749/- paid in respect of unsecured loans of Rs. 5,06,36,314/- received from M/s Sudha Apparels Ltd. which was utilized in the fixed deposits on which the assessee earned interest amounting to Rs. 39,73,387/-. Therefore, the expenditure relating to the interest paid was directly linked with the business of the assessee, so no disallowance could have been made u/s 37 of the Act as interest expenses incurred during the year had direct nexus with the income of the assessee and was fully allowable as per the provisions of Section 36(1)(iii) of the Act. In the present case, the AO disallowed a sum of Rs. 13,89,951/- out ....