TaxTMI 
TaxTMI 
2022 (8) TMI 944
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....icer in disallowing Rs. 13,36,622/- u/s. 36(1)(iii) of the Act by computing proportionate interest expenditure incurred on borrowed capital corresponding to interest free advance of Rs. 4,59,25,000/- given to J Chandrakant & Co. 2. The Learned Commissioner of Income-tax (Appeals)-2, Rajkot failed to appreciate that the appellant had adequate pool of interest free funds by way of share capital and reserves, which were far in excess of impugned interest free advance. 3. The Learned Commissioner of Income-tax (Appeal)-2, Rajkot failed to appreciate that the order of the Hon'ble Tribunal in assessee's own case for earlier years relied upon by the Commissioner (Appeals) were different than that of in the year under consideration. 4. The....
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....cogently brought out that the assessee has advanced interest free advances to related party. The quantum business transactions does not justify such huge security deposit via-a-vis business turnover with a related party u/s 40AC(2)(b). These advances were about 11.7 times the average yearly transaction with that party. The assessee has paid about Rs.1.54 Crores interest to other parties on the short term loan taken from them and that the assessee not explained the nature of impugned interest free advance despite specific query by the AO thereby not establishing the business expediency of such advance. The pleas of the assessee that the advance was made out of interest free surplus funds and that interest free advances are normal as co....
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....he counsel for the assessee submitted that the fact situation prevailing the earlier years does not apply to this assessment year and hence no disallowance is called for on this account. The counsel for the assessee drew our attention to page 46 of the paper book (assessment order for assessment year 2012-13) and submitted that in the earlier assessment year, the disallowance came to be sustained on the basis that interest free surplus funds (as on 31-03-2012) were fully used up in stocks and investments, and hence the AO held that no interest free funds were left to be available for giving interest free advances by the assessee. However, the fact situation in the present assessment year under consideration i.e. assessment year 2014-15 is d....
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....e into consideration their application towards assets, stocks and investments (amounting Rs. 19.02 crores) so as to be able to advance a sum of Rs. 4.59 crores as interest free advances to M/s Chandrakant and Co. The Gujarat High Court in numerous decisions has consistently taken the position that if interest-free funds are available with the assessee exceed the investments made in funds yielding exempt income, then no disallowance is called for under the Act. In the case of Hitachi Home and Life Solutions (I) Ltd.[2014] 41 taxmann.com 540 (Gujarat), the Gujarat High Court held that where assessee's interest free funds exceeded investment made for earning exempted dividend income, disallowance under section 14A was not justified. Again,....
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....0] 118 taxmann.com 429 (Ahmedabad - ITAT), held that where assessee had Rs. 305 crores in its share capital and reserves against which it had made investment of Rs. 32.73 crores, since interest free fund available with assessee was far more than investment, no interest expenditure could be disallowed. In the case of Reliance Utilities & Power Ltd.[2009] 178 Taxman 135 (Bombay), it was observed that in terms of balance-sheet there was an availability of Rs. 398.19 crores including Rs. 180 crores of share capital. Therefore, 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 interest-free funds generated or available with company, provided said fu....