TaxTMI 
TaxTMI 
TaxTMI 
2020 (9) TMI 756
X X X X Extracts X X X X
X X X X Extracts X X X X
....he learned CIT(A) has erred both in law and on the facts of the case in confirming the disallowance of estimated interest expenses of Rs. 25,98,8647-u/s.36(1)( ii) of the Act. 4. Both the lower authorities have passed the orders without properly appreciating the facts and they further erred in grossly ignoring various submissions, explanations and information submitted by the appellant from time to time which ought to have been considered before passing the impugned order. This action of the lower authorities is in clear breach of law and Principles of Natural Justice and therefore deserves to be quashed. 5. The learned CIT(A) has erred in law and on the facts of the case in confirming action of the ld. AO in levying interest u/s.234A/B/C of the Act." 3. The first issue raised by the assessee is that the Ld. CIT-A erred in confirming the disallowance for the sum of Rs. 2,08,324/- under section 36(1)(va) r.w.s. 2(24)(x) of the Act. 4. The facts in brief are that the assessee is a Private Limited Company and engaged in the business of Manufacturing of Ferrous and Non-Ferrous Metal. On perusal of the Form 3CD report the AO observed that the assessee has either made late payments....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s ESI should not be disallowed if the sum is paid before the due date of filing the return of Income as specified under section 139 of the Act. 7. However the Ld. CIT(A) disregarded the contention of the assessee by observing that the assessee did not pay the sum of employee contribution towards ESIC on/before the due date in accordance with the provisions of section 36(1)(va) of the Act. Being aggrieved by the order of the Ld. CIT-A, the assessee is an appeal before us. 8. The Ld. AR for the assessee before us filed a paper running from pages 1 to 98 and agreed that the judgment of Hon'ble Gujarat High Court in the case CIT v/s Gujarat State Road Transport Corporation reported in 366 ITR 170 is squarely applicable in his case wherein it was held that if the payment of employee contribution towards ESI/PF is paid after the due date of the relevant Acts then the sum which has been paid after due date should be disallowed as per the provision of section 36(1)(va) of the Act. 9. However the issue whether the due date is to be considered from the payment of salary or the month for which salary is due has not been considered by the authorities below while disallowing the sum of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....iven the interest free loan to its subsidiaries amounting to Rs. 7,16,59,975/-and on the other hand it has also claimed interest expenditure in its books account for the sum of Rs. 2,10,55,848/- on the funds borrowed by it. The AO also found that there was no information furnished by the assessee suggesting that the funds was given to the subsidiaries either from own funds or from borrowed funds (i.e. interest bearing funds). 13.1 The AO also found that there was no information furnished by the assessee suggesting that the interest free loans were provided for the purpose of the business. Accordingly, the AO in the absence of any submission/clarification, made the proportionate disallowance under section 36(1)(iii) of the Act by observing as under: (B) Amount of expenditure by way of interest debited in the P & L A/c. 21055848 Opening Value Closing Value (A) Average borrowed fund 440852455 448613112 444732783.5 (C ) Average of advance in Balance Sheet 38124247 71659975 54892111 II (B) X (C)/(A) 259886 4 13.2 The AO thus disallowed the proportionat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ee has average "interest free funds" of Rs. 8,39, 74,092/- as at 31.03.15 (as is evident from Annexure "B") i.e. almost 1.53 times. ♦ In view of the substantial interest free funds, the presumption shall be that the assessee has utilized "interest free funds" for making underlying the "interest free advances" and hence, no disallowance is called for in respect of interest on borrowed funds. Reliance is placed on followings: * CIT v. Reliance Industries Ltd. 410 ITR 466 (SC); * CIT v. Torrent Power Ltd. 363 ITR 474 (Guj.); * CIT v. Suzlon Energy Ltd. 354 ITR 630 (Guj.); * CIT v. Gujarat Power Corporation Ltd. 352 ITR 583 (Guj.); * CIT v. Reliance Utilities & Power Ltd. 313 ITR 340 (Bom.); * Munjal Sales Corporation v. CIT 298 ITR 298 (SC); * CIT v. Hitachi Home & Life Solutions (I). Ltd. [2014] 41 taxmann.com 540 (Guj.); ♦ In view of substantial interest free funds, the impugned disallowance made u/s 36(1)(ii) of the Act is unjustified." 16. On the other hand, the Ld. DR vehemently supported the order of the authorities below. 17. We have heard the rival contentions of both the parties and perused the materials available on record. The issue in the in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed to the non-interest bearing advances should be disallowed. 17.3 However, the amount of capital including reserve available to the assessee, shall be presumed to have been utilized in advancing such interest free advance. In holding so we draw support from the judgment of Hon'ble Punjab and Haryana High court in case of CIT v. Max India Ltd. reported in 80 Taxmann.com 98 where it was held as under:- 5. With regard to the first issue qua disallowance of interest expenditure under section 36(1)(iii) of the Act, admittedly, the assessee company had given interest free loans and advances amounting to Rs. 2297.83 lacs upto the end of the relevant year including Rs. 704 lacs during the relevant year to its three subsidiary companies. The Assessing officer did not make any disallowance in respect of expenditure incurred on borrowed funds under section 36(1)(iii) of the Act in relation to interest free loans and advances given to the said three subsidiary companies in the earlier years. After perusing the cash flow statement of the assessee company for the assessment year in question, the Tribunal observed that the assessee company had received substantial proceeds from preferenti....