INVOLUTE ENGINEERING PVT. LTD.,NEW DELHI V. DCIT, CIRCLE- 12(2), NEW DELHI

ITA 6884/DEL/2019

AI Insights

In this case, Involute Engineering Pvt. Ltd. appealed against the order of the Commissioner of Income-tax (Appeals)-22, New Delhi, which had arisen from the order passed by the Deputy Commissioner of Income Tax, Circle-12(2), New Delhi. The primary issues in the appeal included the disallowance of bad debts, prior period expenses, and additions made under section 2(22)(e) of the Income Tax Act, 1961 concerning deemed dividends. The Tribunal examined the submissions, evidence, and the legal provisions applicable, ultimately deciding in favor of the appellant on all contested grounds.

• Counselvise Citation: [2025] 140 COUNSELVISE.COM (IT) 396656 (ITAT-DELHI)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-05-2025
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2013-2014
• Other Referred Cases: Commissioner of Income Tax, Delhi Vs. Shri Ram Pistons and Rings Ltd., Commissioner of Income Tax Vs. M/s Vishnu Industrial Gases P. Ltd., Smt. Taraulata Shyam v CIT, Commissioner of Income Tax Vs. Modi Rubber Ltd.
• Laws Referred To: Income Tax Act, 1961
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: OM PRAKASH
• Assessee Lawyers: SANJAY ARORA
• Keywords: Proportionate interest; Additional evidence; Bad and doubtful debts; Deemed dividend; Commercial expediency; TDS
• Section: 143(3); 271(1)(c); 2(22)(e)

Judgement Text

" IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES: C : NEW DELHI BEFORE SHRI S. RIFAUR RAHMAN, ACCOUNTANT MEMBER AND SHRI ANUBHAV SHARMA, JUDICIAL MEMBER ITA No.6884/Del/2019 Assessment Year: 2013-14 Involute Engineering Pvt. Ltd., E-30, Anand Niketan, Basement, New Delhi – 110 001. PAN: AAACS2041N Vs DCIT, Circle-12(2), New Delhi. (Appellant) (Respondent) Assessee by : Shri Sanjay Arora, CA; Ms Pallavi Sharma, CA & Shri Jeetan Nagpal, CA Revenue by : Shri Om Prakash, Sr. DR Date of Hearing : 01.05.2025 Date of Pronouncement : 29.05.2025 ORDER PER ANUBHAV SHARMA, JM: This appeal is preferred by the Assessee against the order dated 31.05.2019 of the Commissioner of Income-tax (Appeals)-22, New Delhi (hereinafter referred to as the Ld. First Appellate Authority or ‘the Ld. FAA’, for short) in Appeal No.208/18-19/CIT(A)-22, New Delhi arising out of the appeal before it against the order dated 18.03.2016, passed u/s 143(3) of the Income Tax Act, 1961 (hereinafter referred to as ‘the Act’) by the DCIT, Circle- 12(2), New Delhi (hereinafter referred to as the Ld. AO). ITAs No.6884/Del/2019 2 2. Heard and perused the records. The submissions of both sides were to the extent of their respective cases below the ld. Tax authorities. The Ground No. 1 is general in nature and ground no. 8 and 9 are consequential so needs no separate adjudication. 3. Ground No. 2; The same arises out of the disallowance on account of unclaimed balances written off. During the FY 2012-13, relevant to the impugned assessment year, the Appellant had written off Rs. 4,03,865/- in its books of accounts, under the three heads of accounts: Sl. No. Particulars Amount 1. Unclaimed balances written off 56,182/- 2. Miscellaneous balances written off 1,13,927/- 3. Bad debts 2,24,588/- 3.1 The case of assessee is that copies of ledger accounts of the above accounting heads were submitted with the Ld. AO vide submission dated 18/19.02.2016 and are placed at pages 201-205/PB. The amounts, written off under the first two heads of accounts, were on account of certain advances made to a some suppliers and an employee which had become unrecoverable whereas the amount written off under the head Bad Debts is on account of sales made in earlier years for which proceeds became unrecoverable. As with regard to the ITAs No.6884/Del/2019 3 Unclaimed balances written off. The assessee claims that ledger account of Unclaimed Balances Written off, shows that out of total expenditure of Rs. 56,182, the substantial amount of Rs. 38,648/- is a written off on account of one J. B. Bhutala, who was an employee of the Appellant and was given a salary in earlier years. However, as the same has become unrecoverable, the amount has been written off in the impugned year. Miscellaneous balances written off pertain to certain amounts, which were advanced to various parties during preceding years, but as they have been outstanding for many years, and had become unrecoverable, being barred by limitation, the Appellant had written them off during the impugned year. Bad debts written off, during the impugned year, of Rs. 2,24,588/- was receivable from one Vinod Tomar, which could not be recovered from him. The Assessee explains that this was on account of Sales made to Vinod Tomar several years back and the amount could not be recovered from him. 3.2 The Ld. CIT(A) at paras 6.2 to 6.4/pg.9-10 of the impugned order has given his findings which are reproduced hereinbelow: “Finding: 6.2 I have carefully examined the submission of the Ld. AR and finding of the AO. The appellant has written off balances under the following heads: Sl. No. Particulars Amount 1. Unclaimed balances written off 56,182/- 2. Miscellaneous balances written off 1,13,927/- 3. Bad debts 2,24,588/- 6.3 The AO has disallowed balances written off on the pretext that the appellant has failed to establish that these amounts were booked in the ITAs No.6884/Del/2019 4 income of preceding years. In appeal the Ld. AR submitted that amounts, written off under the first two heads of accounts, were on account of certain advances made to a few suppliers and an employee, whereas the amount written off under the head ‘Bad Debts’ is on account of sales made in earlier years for which proceeds became unrecoverable. 6.4 I have carefully examined the finding of the AO and submission of the Ld. AR. Except the explanation, no documentary evidences to substantiate that the amount of Rs.4,03,865/- written off as bad debts was actually offered to tax in any of the preceding years. No material has been brought on record to controvert the finding of the AO. As both the conditions envisaged u/s 36(1)(vii) and 36(2) have not been fulfilled, the said amount of Rs.4,03,865/- cannot be allowed. Hence, this ground of appeal is Dismissed. 6.4 I have carefully examined the finding of the AO and submission of the Ld. AR. Except the explanation, no documentary evidences to substantiate that the amount of Rs.4,03,865/- written off as bad debts was actually offered to tax in any of the preceding years. No material has been brought on record to controvert the finding of the AO. As both the conditions envisaged u/s 36(1)(vii) and 36(2) have not been fulfilled, the said amount of Rs.4,03,865/- cannot be allowed. Hence, this ground of appeal is Dismissed.” 3.3 The ld. AR has relied the extract of audited financial statements for the year ending 31.03.2012 reflecting the amount of Rs. 38,648 due from J B Bhutala and Ledger account of Vinod Tomar. Ld. Tax authorities have made disallowance for reason of failure of assessee to show that that the amount involved had actually been offered for taxation and there is no dispute with regard to the fact that the said amount had actually been written off in the books of account. In case of the sales made to Vinod Tomar had been recorded in income of the Appellant and offered to tax in an earlier year and the amount ITAs No.6884/Del/2019 5 recoverable had been actually written off as bad debts. Ld. AR sufficiently establishes that that the amount, which has been written off as bad debts in the impugned year, was standing in the debit of the ledger account under the group ‘Receivable’. Therefore, in light of the aforesaid, the disallowance of Rs. 4,03,865 deserves to be deleted. 4. Ground No. 3. The same arises out of the disallowance on account of prior period expenses. The Ld. AO had disallowed Rs. 1,32,957/- on account of prior period adjustments made during the impugned year which has been upheld by the Ld. CIT(A). The Hon’ble CIT(A)’s findings are at para 7.4/pg. 13 of the impugned order. The same read as under: 7.4 I have carefully considered the submissions of the Appellant. The Appellant has submitted that it is following the mercantile system of accounting on a consistent basis and such accounting system enables an entity to rectify its accounting or mathematical errors committed in the previous years. I do not find any force in the argument of the Ld. AR. Prior period expenses are not allowable therefore, I agree with the finding of the AO. The addition of Rs.1,32,957/- is confirmed. Hence, the ground of appeal is dismissed. 4.1 During the impugned year, the Appellant had accounted for certain prior period adjustments. Ld. AR claims that these were primarily on account of errors/ omissions that pertained to preceding years and which came to notice during the relevant year. Now there is no dispute that such expenses are completely in connection with the business operations of the Appellant and same relate to travelling advance of Mr. Baldev Jadega of Rs. 62,310/-, Salary ITAs No.6884/Del/2019 6 payable of Rs. 18,804/- and amount receivable from Sumer Rs. 31,657/-. The relevant vouchers in support of the above are filed before the Ld. CIT(A) alongwith application for additional evidences which stood admitted under Rule 46A of the Income Tax Rules. Now when there was no change in the rate of tax for the two concerned assessment years so as to result in any benefit to the Appellant, such expenses which are otherwise not doubted deserved to be allowed. The Hon’ble Jurisdictional Delhi High Court in the case of Commissioner of Income Tax, Delhi Vs. Shri Ram Pistons and Rings Ltd. [2008] 174 Taxman 147 (Delhi), held the following: “There was no doubt in that the assessee had incurred expenditure. The only dispute was regarding the date on which the liability had crystallized. It appeared that there was no change in the rate of tax for the assessment year 1983-84. The question, therefore, was only with regard to the year of deduction and it was a pity that all the authorities had to expend so much time and energy only to determine the year of taxability of the amount. Therefore, the Tribunal was not correct, in law, in disallowing sales incentive claimed by the assessee.” 4.2 Similar is the proposition of law as settled by the Hon’ble Jurisdictional Delhi High Court in the case of Commissioner of Income Tax Vs. M/s Vishnu Industrial Gases P. Ltd. [ITR No. 229/1988], where it held as follows; “Where the department had not disputed that the expenditure was deductible in principle but was only disputing the year in which the deduction could be allowed HELD, castigating the department, that as the tax rates were the same in both years, the department should not fritter away its energies in raising questions as to the year of deductibility/taxability.” 4.3 In light of the above submissions and the judicial pronouncements, the disallowance of Rs. 132,957 deserves to be deleted. The ground is allowed. ITAs No.6884/Del/2019 7 5. Ground No. 4. The ground arises out of the addition made on account of advance received on sale of land. The Ld. AO had added back Rs. 6,50,000 on account of advance received for sale of land. As for the year under consideration, the Appellant has shown Rs. 6,50,000 under the head ‘Other Current Liabilities’, which was examined by the ld. AO. The case of assessee is that during previous year, the Appellant had entered into an agreement with three parties for sale of the land and such amount of Rs. 6,50,000 was received as advance amount through banking channels. The name of the parties and the amount received from them on account of advance is mentioned in the table below – Sl. No. Name of the party Amount 1. Mr. Ramesh Chand Rana 1,62,500 2. Mr. Amarjeet Singh 1,62,500 3. Mr. Ashok Bajaj 3,25,000 5.1 However, the agreement could not be executed on account of some dispute between the Appellant and the parties. On account of such dispute only, the Appellant had not paid back the amount of advance. However, the liability on account of such advances continues to remain payable. However, the Ld. AO has held that the liability of Rs. 6,50,000 is no more payable and accordingly, added the same to the Appellant’s income. The Ld. CIT(A) has also upheld the action of the Ld. AO. Now before us the Ld. AR has submitted that during the FY 2020-21, the amount of Rs. 5,87,470 (Rs. 6,50,000 – Rs. 62,530) has been ITAs No.6884/Del/2019 8 offered by it to tax. The sum of Rs. 62,530 had been returned to one of the parties on the instructions from Mr. Ashok Bajaj during FY 2013-14. Copy of ledger account for FY 2013-14 and extract of audited financial statements for FY 2020-21, reflecting the amount of Rs. 5,87,470 offered under Other Income were filed at time of hearing. Thus the ground deserves to be allowed for statistical purposes by giving ld. AO to verify the facts as stated now before us. 6. Ground No. 5: The ground arises out of the disallowance u/s 2(22)(e) of the Act. Ld. CIT(A) has upheld the addition of Rs. 25,00,000 made by the Ld. AO by invoking section 2(22)(e) of the Act and treating the amounts received by the Appellant from one Sara Industrial Estate Ltd as deemed dividend. In this regard, we find that Ld. AO and ld.CIT(A) have made following observations:- “10.3 Finding of the AO: “It can be seen from the above that the assessee has made a general submission and nothing specific with regard to the particular facts of the case has been substantiated. Even though specifically confronted, the assessee has not come forward as to how in the specific facts of the case the provisions of section 2(22) (e) were not applicable. It is noticed from the share holding pattern of the assessee company filed vide letter dated 07,03.2016 that Ms. Shruti Dhawan and Ms. Sonai Dhawan were holding less than 41% shares of the assessee company as on 01.04.2012 and as on 31.03.2013, Hence, the provisions of section 2(22)(e) of the Act are considered to be not applicable in respect of the advances given to these two share holders. Further, the assessee has received substantial advances during the year from M/s Sara Industrial Estate Ltd. and shareholding pattern of M/s Sara Industrial Estate Ltd. (SIEL) has also been filed vide letter dated 07.03.2016 which shows that the assessee company was holding 40% of shares of the said company as on 01.04.2012 as well as on 31.03.2013 . It ITAs No.6884/Del/2019 9 is also noticed from the share holding pattern that M/s Sara Industrial Estate Ltd. is not a company in which the public are substantial interested. In view of these facts, provisions of section 2(22)(e) of the Act, in respect of the advances received by the assessee company from M/s SIEL. Still the assesee has not offered any specific explanation as to why amount of advances received by the assessee company from M/s SIEL be not brought to tax under the provisions of seciton2(22) (e) of the Act. Having considered the facts of the case it is apparent and hence it is held that provisions of section 2(22)(e) are clearly applicable in this case and advances received by the assesee, company during the year from M/s SIEL are being brought to tax accordingly. It is noticed from the ledger of M/s SIEL filed by the assessee vide letter dated 29.02.2016 that the assessee had already to pay an amount of Rs. 38,19,573/- as on 01.04.2012, besides this during the year the assessee company had received advances as per following details during the year from M/s SIEL Date Amount Received (Rs.) 21.05.12 1,00,000 13.06.12 2,00,000 13.06.12 1,00,000 25.07.12 1,50,000 07.08.12 5,00,000 14.08.12 8,00,000 24.01.13 1,00,000 25.02.13 1,50,000 02.03.13 1,50,000 Total 25,00,000 It is further noticed form the ledger that the assesee company had to pay M/s SIEL as on 31.03.2013 at Rs.41,72,315/- In this way, the assessee company had taken advances of Rs. 25,00,000/- during the year under assessment. Further, as mentioned above the assesee company was share holder of 40% of M/s SIEL as on 01.04,2012 and as on 31.03.2013. Accordingly, addition of Rs. 25,00,000/- is made in the hands of the asseseee company under the provisions of section 2(22)(e) of the Act. ITAs No.6884/Del/2019 10 This gives an addition of Rs. 25,00,000/-. I am satisfied that the assessee has furnished inaccurate particulars of income and therefore, penalty proceedings u/s 271(1)(c) of the Act are initiated separately. ” Finding (by CIT(A)): 10.4 I have considered the above finding of the AO and submissions of the appellant. The submission filed by the appellant is general. The applicability of provision of section 2(22)(e) has not been disputed by the appellant in its submission and in argument also. During the impugned year, the appellant has received Rs.25,00,000/- from M/s Sara Industrial Estate Ltd. (SIEL) in which the appellant company has 40% of shareholding. The provision of section 2(22)(e) is very specific and applicable to the facts of the case. The appellant is beneficial owner of shares of SIEL. The SIEL is a company in which public are not substantially interested. The payment has been made by way of advance or loan to the shareholder i.e. appellant. Therefore, in view of express provision under the Act, I am in agreement with the AO that the provision of section 2(22)(e) is clearly applicable in the case of appellant. 10.5 In view of the aforesaid discussion I do not find any infirmity in the order of the AO. The addition of Rs. 25,00,000/- u/s 2(22)(e) is confirmed. Hence this ground of the appellant is Dismissed. 6.1 The case of Appellant is that a lessee of SIEL and has a running account with the said company. It has to pay lease rentals and maintenance charges to SIEL. Besides it has advanced sums in the past as well as current financial year to SIEL for business purposes since it owns substantial equity in SIEL. The said sums are returned by SIEL to the Appellant on periodic basis. A copy of the ledger account of SIEL in the books of Appellant is also filed before the authorities below and copy of same is made available at pages 122-126/PB. The same establish that the Appellant has a running account with SIEL and Rs. 570,228 was payable by Appellant to SIEL on account of rent and services. That ITAs No.6884/Del/2019 11 the Appellant paid Rs. 28,43,356 to SIEL on account of rent and services plus short term advances in ordinary course of business for the day to day fund requirements of SIEL. As appeallant has substantional business interest in SIEL, such advances are ultimately for the benefit of assessee only. That the Appellant received back Rs. 26,43,758 from SEIL against short term advances. There appears substance in the contention of the Ld. AR that AO cherry picked certain sums refunded by SIEL to the Appellant added them up to arrive at a figure of Rs. 25 lacs and treated the same as deemed dividend by invoking provisions of section 2(22)(e) of the Act without appreciating the facts placed before him which conclusively prove that the deeming provisions of section 2(22)(e) of the Act are not applicable in the present case. Ld. AR contests the observations of ld. CIT(A) “that the applicability of provisions of section 2(22)(e) has not been disputed by the Appellant in its submissions.” The fact of the matter is that the very ground before the Hon’ble CIT(A) was: 7. That on the facts and circumstances of the case and in law, the Ld. AO has erred in making an addition of Rs. 25,00,000/- u/s 2(22)(e) on account of deemed dividend in complete disregard of the fact that the conditions for attracting section 2(22)(e) were not violated at any stage and explanations and facts were duly furnished before him which have been either been ignored or not appreciated in correct perspective. 6.2 Thus where Appellant advances money to SIEL and amount received from SIEL is only the repayment of such money advanced. Ld. Tax authorities have not at all examined the issue as to if loan has not have been advanced by the company in the ordinary course of its business and failing which addition u/s ITAs No.6884/Del/2019 12 2(22)(e) of the Act could not have been made. Reliance can be placed on decision of Hon’ble Supreme Court in Smt. Taraulata Shyam v CIT (1977) 108 ITR 345 (SC). Therefore, in light of the above the addition of Rs. 25,00,000/- made by the Ld. AO u/s 2(22)(e) of the Act deserves to be deleted. 7. Ground No. 6; The issue arises out of the disallowance on account of repairs and maintenance. During the impugned year, the Appellant had incurred Rs. 59,68,031 towards repairs and maintenance expenses. In the impugned order, the ld. AO has alleged the same to be of capital nature and disallowed the same. 7.1 The Ld. CIT(A) also upheld the action of the Ld. AO by holding that nothing has been brought on record by the Appellant to controvert the finding of the Ld. AO. The case of assessee is that during the impugned year, it had completed construction of its new building, Building C-4, constructed a factory shed for a building ‘Shot Blast Facility’. During the impugned year only, the Appellant has conducted repairs and maintenance of its administrative office situated at 5, Pritam Road, Dehradun. The total cost which was incurred by the Appellant for the construction of building, factory shed and the repairs and maintenance of the administrative office, was booked by it under a common ledger, namely ‘Building Construction’ (ledger account placed is placed at at pages 111-115/PB). At the beginning of the year, when the construction of building C-4 was completed, the amount attributable to its construction i.e., ITAs No.6884/Del/2019 13 Rs.1,04,55,959 was capitalized and transferred to Building account and the balance amount of Rs. 41,10,938, which was expended for repairs of the administrative office, was transferred to repairs account. The same is evident from the ledger account of repairs and maintenance and Building C-4, placed at pages 133-134/PB & 117/PB respectively. Further, copies of bills pertaining to repairs and maintenance expenditure as incurred by the Appellant during the year under consideration were also submitted before the Ld. AO and Ld. CIT(A) as well, and are placed at pages 146-184/PB before us. 7.2 Thus the amount transferred to repairs and maintenance account is the amount that is attributable to repairs work conducted at the administrative office. The building of administrative office has been taken on rent by the Appellant and as per the lease agreement, the repairs, maintenance and upkeep of the building is the responsibility of the lessee, i.e., the Appellant. Thus where the building in which the Appellant maintains its administrative office had been completely dilapidated and needed extensive repairs so as to make it habitable office space for the employees to comfortably work therein. So for such maintenance and upkeep of the building, expenses on repairs if stand incurred. Such expenditure were necessary for the purpose of carrying on the business of the Appellant. The expenditure thus cannot be considred to be of capital nature. The ground deserves to be sustained. ITAs No.6884/Del/2019 14 8. Ground No. 7: The issue arises out of the disallowance of interest expenditure. During the impugned year, the Appellant has granted interest-free loan amounting to Rs. 3,10,39,031/- to Planet Herbs Life Sciences Private Limited [hereinafter referred to as ‘PHL’], which is one of its sister concerns. Ld. AO alleged that such loan has been granted by the Appellant out of its interest-bearing funds. He further alleged that the Appellant has claimed complete interest expenditure as a deduction and has not charged interest on amount advanced to PHL. And therefore, Ld. AO worked out a proportionate disallowance of Rs. 16,46,219/- on account of interest expenditure. The ld. CIT(A) upheld the disallowance by holding as under– “12.6 In view of the above discussion and legal precedents has cited above, it is evident that the appellant is claiming interest expense on borrowed fund and giving interest free advances out of same to group concern to avoid taxable profit. These transactions are have been undertaken without any business purpose or commercial expediency. The appellant has failed to satisfy the conditions attached for claiming of interest u/s 36(1)(iii) and the capital borrowed by the appellant is not for the purposes of business or profession. Therefore, I am in agreement with the reasoning given by the AO for making disallowance. The proportionate disallowance of interest of Rs.16,46,219/- made by the AO is confirmed. Ground No. 9 is dismissed” 8.1 The case of assessee is that during the impugned year, it had sufficient own funds for making the advance of Rs. 3,10,39,031 to PHL. Further that Appellant holds 47.06 of the equity in PHL and has substantial stake in the said company. PHL had been making consistent losses in the past and even in financial year 2012-13 has made a loss of Rs. 2.5 crores. Thus the advance was ITAs No.6884/Del/2019 15 made for purely “ for the purpose of business” . There was no necessity for the Appellant to divert any part of its borrowings for the aforesaid purpose. The owned funds comprised of not only share capital and free reserves available with the Appellant at the beginning of the year, but also the interest free borrowings made by the Appellant during the year from its related parties and thirdly the profits made by the Appellant during the impugned year. As would be evident from the following, the latter two by themselves were more than Rs. 3,10,39,031 advanced by the Appellant to PHL. Share Capital = Rs. 2,25,63,000 Accumulated Profits = Rs. 12,57,81,054 Owned funds at the end of the year = Rs. 14,83,44,054 Profits earned during the year before tax = Rs. 1,34,44,529 Interest free loans and advances availed during the year  Sara Sae Private Limited = Rs. 49,44,824  Varco Sara India Private Limited = Rs. 1,08,50,000  Sh. Chandra Kumar (Director) = Rs. 2,42,60,962 Rs. 4,00,55,786 8.2 Considering both the profit before tax and the interest-free borrowings, the Appellant evidently had Rs. 5,35,00,315/-, which is more than the amount of 3,10,39,031 being the interest-free loan extended to PHL. The Appellant was having mixed pool of funds comprising own funds and loan funds. In such a situation where the one to one nexus between the borrowed funds and the loan advanced to PHL was not established by the Ld. AO, the loan to PHL had tobe ITAs No.6884/Del/2019 16 held as having come out of the Appellant’s own funds. The Ld. AO. did not make any attempt to establish any linkage between the borrowed funds and the advance of Rs. 3,10,39,031 made by the Appellant to PHL during the year, and grossly erred in holding that the amount of Rs. 94,22,129/- incurred by the Appellant towards interest expenditure has been paid on the borrowings out of which the Appellant has or could possibly have advanced interest-free loan. The Ld. AO has not gone into the nature of borrowings on which interest has been paid. Ld. AR has provide the details of interest expenditure, which are tabulated hereunder: S. No. Particulars Amount (in Rs.) 1. Punjab National Bank 43,041/- 2. Income Tax 67,303/- 3. Service Tax 13,629/- 4. Sharu Steels Pvt. Ltd. 9,48,000/- 5. TDS on salary 62/- 6. Sara Investments 75,18,839/- 7. Car Loan (aggregate) 6,25,591/- 8. Interest expenses (Mumbai office) 1,41,642/- 9. Other borrowing cost 64,022/- Total 94,22,129/- 8.3 Thus the purpose of the borrowings/liability on which interest has been paid by the Appellant has not been gone into by the Ld. AO or by ld. CIT(A). It is a well-settled principle that if an assessee has both owned and borrowed funds; and sufficient owned funds are available to advance interest free loans, the same shall be presumed to have been given out of the owned funds rather ITAs No.6884/Del/2019 17 than the borrowed funds, as has been held in Hon’ble Jurisdictional Delhi High Court decision in the case of Commissioner of Income Tax Vs. Modi Rubber Ltd. [2015] 378 ITR 128 (Delhi). Accordingly, the disallowance of Rs. 16,46,219 made by the Ld. AO on account of proportionate interest expenditure deserves to be deleted. 9. As a sequel to determination of grounds in favour of the assessee the appeals is allowed. The impugned additions shall stand deleted with consequential effects. Order pronounced in the open court on 29.05.2025. Sd/- Sd/- (S. RIFAUR RAHMAN) (ANUBHAV SHARMA) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 29th May, 2025. dk Copy forwarded to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR Asstt. Registrar, ITAT, New Delhi "