TaxTMI 
TaxTMI 
TaxTMI 
2019 (6) TMI 539
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....fter referred to as "the Act") dated 28/12/2016 relevant to Assessment Year (AY) 2013-14. 2. The assessee has raised the following grounds of appeal:- 1. That the learned CIT(A), Gandhinagar has erred in law and on the facts in passing appellate order dt.17/04/2017 and in partly allowing the appeal of appellant. 2. That the learned CIT(A) has erred and made observations (Para 4.3, pg.5) that the appellant has utilized higher interest bearing loan for earning lower interest, the learned CIT(A) has also state that the appellant should not have got disbursed loan from Bank of Baroda when it was not in need of any fund. It is pertinent to mention here that the terms of sanction letter of Bank are not gone through by the learned CIT(A) and ....
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....r book submitted to CIT(A) made before the AO vide dt. 23/12/2016 wherein appellant has justified that - "to save on cost of interest we have advanced the amounts available idle with the firm at 12% pa and thus saved on interest cost." Thus the clear intention was to save interest cost and not to divert the funds. Thus the observations of learned CIT(A) that the business funds were diverted are bad in law and in the facts. 5. The appellant craves leave to add, alter/amend withdraw/modify any of the above grounds till the appeal is finally heard and decided. 3. The interconnected issue raised by the assessee is that the Ld. CIT (A) erred in confirming the addition in part made by the AO on account of diversion of funds for a non-business ....
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....20,24,894 12,89,965 2. Ramesh D.Patel 8,04,493 10,12,320 3. Ajay P.Thadhani 20,52,526 25,82,276 4. Devang Baldevbhai Patel 2,58,904 3,90,945 Total interest disallowed 52,75,506 And added to total income as no such Interest alleged to have been Charged is reflected in the audited Accounts." The AO accordingly added the sum of Rs. 52,75,506/- to the total income of the assessee. The aggrieved assessee preferred an appeal before the Ld. CIT (A). 5. The assessee before the ld. CIT(A) submitted that the interest expenses were shown as part of the stock in trade and accordingly the same was credited as closing stock in trade. Thus in the result, there was no effect on the profi....
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....s. Assessee has claimed since beginning that firm has given advances out of its own funds (ie. Ideal funds), which is misinterpreted by the Ld. AO and assumed that advances were made out of borrowed funds as free of cost. Further, from balance sheet of the appellant it amply clear that appellant firm has enough own funds of Rs. 15,09,83,384/- during the relevant year to make advance of Rs. 7,74,74,750/-. Judicial pronouncements In support of the contention of the firm, appellant has placed reliance on various judicial pronouncements of the courts which are in favour of the Assessee. Assessee places reliance on the decision of the Hon'ble jurisdictional Gujarat High Court in the case of Gujarat Narmada Valley Fertilizers Co.Ltd. Vs. ACIT....
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....s . CIT [52 Taxmann 334, (Gujarat-HC) (2004)], where it was held that there was no material on record indicating that there was diversion of interest bearing funds as interest free advances, assessee's claim for deduction under section 36(1)(iii) was to be allowed, full citation of the aforesaid decision is given below for your Honours' ready reference. In support of above contention, the assessee, further relies on the ruling of the G.R. Agencies v. ITO (2003) 79 TTJ (Luck) 416, where it was held that most of the advances are prior to the borrowings and, therefore, it cannot be said that borrowed funds have been diverted to interest-free advances, full citation of the aforesaid decision is given below for your Honours' ready reference. R....
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....ers out of its fund. In holding so, we find support and guidance from the judgment of Hon'ble Bombay High Court in the case of Reliance Utilities and Power Ltd. reported in 313 ITR 340 wherein it was held as under:- "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 were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the CIT(A) and Tribunal". Similarly, we also rely on the judgment of the Hon'ble Bombay High Court in the case of CIT vs. HDFC Ba....