TaxTMI 
TaxTMI 
2017 (7) TMI 175
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....of property at Bharat Diamond Bourse, Mumbai (for short 'BDB') Rs. 17,59,299/- 2. Disallowance u/s 36(1)(iii) of interest relatable to interest free loan advanced to subsidiary company. Rs. 45,78,389/- 3. Disallowance u/s 14A. Rs. 10,28,567/- Total Rs. 73,66,255/- , assessed the income of the assessee at Rs. 7,02,50,334/-. 2. The assessee being aggrieved filed an appeal with the CIT(A), who vide his order dated 05.01.2011 sustained the disallowance of Rs. 17,59,299/- (supra), and thus partly allowed the appeal of the assessee. The order of the CIT(A) upholding the disallowance of Rs. 17,59,299/- in the quantum appeal was accepted by the assessee, and the same thus attained finality. 3. That the A.O on the basis of penalty proceedings which were initiated u/s 271(1)(c) at the time of framing of the assessment, issued show-cause notice to the assessee, calling upon it to explain as to why penalty u/s 271(1)(c) for furnishing of inaccurate particulars of income as regards the interest on borrowed capital of Rs. 17,59,299/- (supra), which addition had been upheld by the CIT(A), may not be imposed. The assessee during the course of the penalty proceedings, vide his ....
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....ional High Court so passed in the case of Reliance Utilities and Power Limited (supra) and submitted that as it had substantial interest free funds which were sufficient enough to justify the investment in property at 'BDB', as well as the interest free advance so given to its subsidiary, which therein aggregated to Rs. 7.31 crore, therefore in light of availability of substantial interest free funds, which could safely be related to the investment made in the property at 'BDB', no penalty u/s 271(1)(c) as regards said disallowance u/s 36(1)(iii) could be imposed in its hands. The assessee in addition to its submissions made before the AO, further in order to fortify its contention as regards availability of substantial interest free funds with it, therein submitted before the CIT(A) that at the end of the year under consideration, it had shareholder funds including share capital and reserves and surplus to the tune of Rs. 72.19 crore, as against the corresponding figure of Rs. 67.85 crore of the preceding year, which factual position could be gathered beyond any scope of doubt from a perusal of the balance sheet. The CIT(A) however being of the view that as the assessee by not car....
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....ably be related to the investment made by the assessee towards purchase of property at 'BDB'. It was thus submitted by the Ld. A.R that in light of the aforesaid factual background, no penalty u/s 271(1)(c) was liable to be imposed. The Ld. A.R placing reliance on the judgment of the Hon'ble Bombay High Court in the case of CIT VS Reliance Utilities and Power Limited (2009) 313 ITR 340 (Bom), therein averred that the said judgment of the Hon'ble Jurisdictional High Court, which seized the issue under consideration, was though brought to the notice of both the AO and the CIT(A), however neither of said lower authorities had taken cognizance of the same. The Ld. A.R in order to fortify his contention therein took us to the relevant pages of the 'APB', which clearly revealed that the assessee in support of his aforesaid claim had relied on the judgment of the Hon'ble Jurisdictional High Court in the case of Reliance Utilities and Power Limited (Supra) before the lower authorities. That on the other hand the Ld. Departmental Representative (for short 'D.R') heavily relied on the orders of the lower authorities and therein submitted that the order of CIT(A) may be upheld. 6. We have he....
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....he taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business and in these circumstances the appellant was entitled to claim the deductions. The Supreme Court noted that the argument had considerable force, but considering the fact that the contention had not been advanced earlier it did not require to be answered. It then noted that in Woolcomber's case (supra) the Calcutta High Court had come to the conclusion that the profits were sufficient to meet the advance tax liability and the profits were deposited in the overdraft account of the assessee and in such a case it should be presumed that the taxes were paid out of the profits of the year and not out of the overdraft account for the running of the business. It noted that to raise the presumption, there was sufficient material and the assessee had urged the contention before the High Court. The principle therefore would be that if there are funds available both interest free and overdraft and/or loans taken, then a presumption would arise that investments would be out of the interest free fund generated or available with the company, if the interest free funds we....
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....aryana High Court in the case of : Power drugs Ltd. (supra) and Vardhman Polytex Ltd. (supra), are found to be distinguishable on facts, as both of the said cases before the Hon'ble High Court were on the issue of disallowance made u/s 36(1)(iii) of the 'Act', in light of the facts involved in the said respective cases, and not as regards the issue of maintainability of penalty imposed u/s 271(1)(c) as regards a disallowance made u/s 36(1)(iii), which is the issue involved in the present case before us. 8. We are of the considered view that in light of the facts of the present case as they so remain, the assessee had prima facie demonstrated before us the factum of availability of substantial interest free funds, as well as the profits/surplus generated during the year, which as claimed by the Ld. A.R was lying available with the assessee, from which the investment towards the purchase of property at 'BDB' could be justifiably explained. It was thus averred by the Ld. A.R that in the backdrop of the aforesaid facts, as no part of the interest bearing funds available with the assessee could be related to the making of such investment, and in light of the availability of sufficient ....