Nirma Credit & Capital Pvt.Ltd., Ahmedabad V. The ACIT.,Circle-5, Ahmedabad

ITA 1189/AHD/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9738 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2016
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 01-12-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 29-04-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Opportunity of being heard; Source of fund; Proportionate interest; Corroborative evidences
• Section: 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD .., , BEFORE SHRI S.S. GODARA, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER ./ I.T.A. NO.1189/AHD/2013 ( / ASSESSMENT YEAR : 2009-10) NIRMA CREDIT & CAPITAL PVT.LTD. NIRMA HOUSE ASHRAM ROAD AHMEDABAD-380 009 / VS. THE ACIT CIRCLE-5 AHMEDABAD-380 009 $ ./ ./ PAN/GIR NO. : AAACN 5351 J ( $' / APPELLANT ) .. ( ($' / RESPONDENT ) $') / APPELLANT BY : SHRI S.N. SOPARKAR, AR ($'*) / RESPONDENT BY : SHRI K.MADHUSUDAN, SR.DR +,*- / DATE OF HEARING 01/12/2016 ./0*- / DATE OF PRONOUNCEMENT 06 /12/2016 / O R D E R PER PRADIP KUMAR KEDIA, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX(APPEALS)-XI, AHMEDABAD [ CIT(A) IN SHORT] DATED 15/03/2013 PASSED FOR ASSESSMENT YEAR (AY) 2009-10. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL :- 1) IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE APPELL ANT COMPANYS CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) HAS GROSSLY ERRED IN POINTS OF LAW AND FACTS. ITA NO. 1189/AHD/2013 NIRMA CREDIT & CAPITAL PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 2 - 2) IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE APPELL ANT COMPANYS CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS0 HAS GROSSLY ERRED IN CONFIRMING DISALLOWANCE OF RS.3,92 ,77,661 U/S.14A OF THE INCOME-TAX ACT. 3) IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE APPELL ANT COMPANYS CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) HAS GROSSLY ERRED IN CONFIRMING CHARGING OF INTEREST U/S.234D O F INCOME-TAX ACT. 4) IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE APPELL ANTS CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) HAS GR OSSLY ERRED IN NOT ALLOWING CREDIT OF TDS RS.1,91,37,162. 5) IN LAW AND IN FACTS AND CIRCUMSTANCES OF THE APPELL ANT COMPANYS CASE, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEA LS) HAS GROSSLY ERRED IN DISMISSING APPELLANTS GROUND REGARDING WI THDRAWING INTEREST U/S.244A OF THE INCOME-TAX ACT. 2. THE ONLY SUBSTANTIVE GROUND IN THE APPEAL IS AG AINST THE DISALLOWANCE OF RS.3,92,77,661/- UNDER SECTION 14A OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'THE ACT'). 3. THE RELEVANT FACTS APROPOS TO THE ISSUE ARE THAT THE ASSESSEE- COMPANY IS STATED TO BE DEALING IN LOANS AND FINANC ING AS ITS BUSINESS. THE ASSESSEE-COMPANY IS REGISTERED AS A NON BANKING FINANCE CO. (NBFC) WITH RESERVE BANK OF INDIA. DURING THE RELEV ANT ASSESSMENT YEAR, THE ASSESSEE-COMPANY INCURRED INTEREST EXPENS ES TO THE TUNE OF RS.27,83,07,877/-. AS PER ITS FINANCIAL STATEMENT, THE ASSESSEE-COMPANY SIMULTANEOUSLY EARNED INTEREST INCOME OF RS.27,17,1 9,403/-. THE AO OBSERVED THAT THE ASSESSEE-COMPANY HOLDS INVESTMENT S OF RS.28,38,69,684/- AS ON 31/03/2009. THE DIVIDEND IN COME FROM SUCH INVESTMENTS ARE CLAIMED EXEMPT FROM TAXATION AND DO ES NOT FORM PART OF ITA NO. 1189/AHD/2013 NIRMA CREDIT & CAPITAL PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 3 - TOTAL INCOME OF THE ASSESSEE. THE ASSESSING OFFICE R (AO) ACCORDINGLY INVOKED SECTION 14A OF THE ACT AND DISALLOWED A SUM OF RS.3,92,77,661/- OUT OF AFORESAID INTEREST EXPENDITURE INCURRED HOLD ING THE SAME TO BE ATTRIBUTABLE TO AVERAGE INVESTMENTS GIVING RISE TO TAX FREE INCOME IN TERMS OF THE STATUTORY FORMULA PRESCRIBED UNDER RULE 8D O F THE INCOME TAX RULES, 1962. IN FIRST APPEAL AGAINST THE ORDER OF THE AO, THE CIT(A) UPHELD THE ACTION OF THE AO. 4. AGGRIEVED BY THE ORDER OF THE CIT(A), ASSESSEE I S IN APPEAL BEFORE THE TRIBUNAL. 5. THE LD. AR FOR THE ASSESSEE MR. S.N. SOPARKAR AT THE OUTSET SUBMITTED THAT THE ISSUE IS SQUARELY COVERED IN ASS ESSEES OWN CASE FOR AY 2008-09 IN ITA NO.980/AHD/2012, ORDER DATED 19/1 0/2016. THE LD.AR, ON FACTS, SUBMITTED THAT THE INTEREST INCOME EARNED BY THE ASSESSEE AT RS.27.17 CRORE ALMOST MATCHES THE INTER EST EXPENSES OF RS.27.83 CRORES AND THEREFORE THERE HARDLY REMAINS ANY INTEREST EXPENSES WHICH CALLS FOR PROPORTIONATE DISALLOWANCE UNDER RU LE 8D OF THE IT RULES. THE LD.AR FURTHER SUBMITTED IN FURTHERANCE THAT THE ASSESSEE HOLDS SUBSTANTIAL OWN RESOURCES AT ITS DISPOSAL WHI CH COVERS THE CORRESPONDING INVESTMENTS GIVING RISE TO TAX-FREE INCOME. HE THUS SUBMITTED THAT THERE IS NO WARRANT IN MAKING IMPUGN ED DISALLOWANCE UNDER SECTION 14A OF THE ACT. AS REGARDS OTHER GRO UNDS RAISED, THE LD.AR SUBMITTED THAT THEY ARE EITHER GENERAL IN NAT URE OR CONSEQUENTIAL IN ITA NO. 1189/AHD/2013 NIRMA CREDIT & CAPITAL PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 4 - NATURE AND THEREFORE DOES NOT CALL FOR ANY SPECIFIC DEBATE. AS REGARDS GROUND NO.4 TOWARDS NON GRANTING OF TDS CREDIT TO T HE ASSESSEE BY THE AO, IT WAS SUBMITTED THAT THE CIT(A) HAS ALREADY DI RECTED FOR REMEDIAL ACTION IN THE MATTER TO THE AO AND THEREFORE NO SU BSTANTIVE GRIEVANCE SURVIVES ON THE ISSUE. 6. THE LD.DR RELIED UPON THE ORDER OF THE CIT(A). 7. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE IS A NON BANKING FINANCE COMPANY AND I S IN THE BUSINESS OF FINANCING. THE ASSESSEE LENDS MONEY AND PROVIDES FI NANCIAL ASSISTANCE TO VARIOUS ENTERPRISES. IN THE LIGHT OF ARGUMENTS ADVA NCED ON BEHALF OF THE ASSESSEE, THE CORE ISSUE THAT ARISES FOR ADJUDICATI ON IS WHETHER CLAIM OF NET OFF OF INTEREST EXPENDITURE IS PERMISSIBLE AGAI NST INTEREST INCOME EARNED BY THE ASSESSEE BEFORE EMBARKING DISALLOWANC E UNDER SECTION 14A OF THE ACT. THE IMPUGNED QUESTION IS NOT AN ABSTRA CT LEGAL ISSUE AND THERE CANNOT BE ABSOLUTE PROPOSITION IN ALL CIRCUMS TANCES. IT ESSENTIALLY DEPENDS ON THE FACTS OF A GIVEN CASE. THUS, FACTS A RE PERTINENT TO ADJUDICATE THE ISSUE. WE NOTE IN CONTEXT THAT THE A SSESSEE HAS EARNED DIVIDEND INCOME OF RS.56,20,422/- WHICH IS EXEMPT U NDER SECTION 10(34) OF THE IT ACT. THE ASSESSEE HAS CLAIMED INTEREST EX PENSES OF RS.27,83,07,877/- WHEREAS ALSO DECLARED INTEREST IN COME OF RS.27,17,19,403/- TOWARDS INTEREST INCOME FOR THE R ELEVANT AY 2009-10. ITA NO. 1189/AHD/2013 NIRMA CREDIT & CAPITAL PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 5 - IT IS THE CASE OF THE ASSESSEE THAT INTEREST EXPENS ES HAVE BEEN INCURRED ON LOANS AND DEPOSITS OBTAINED BY IT AND INTEREST INCO ME HAS BEEN EARNED ON LOANS AND DEPOSITS GRANTED BY IT AND THUS INTEREST EXPENSES HAS NOTHING TO DO WITH THE INVESTMENTS MADE IN THE SHARES AND SECU RITIES FROM WHERE DIVIDEND INCOME HAS BEEN EARNED. COUPLED WITH THIS, IT WAS REPRESENTED THAT THE ASSESSEE HAS AMPLE OWN RESOURCES TO THE TU NE OF RS.26.46 CRORES AT ITS DISPOSAL. THE ASSESSEE SUBMITS THAT THE IDE NTICAL ISSUE IN THE SIMILAR FACTS CAME UP FOR ADJUDICATION BEFORE THE COORDINAT E BENCH OF THE TRIBUNAL IN ASSESSEES OWN CASE IN ITA NO.980/AHD/2 012 (SUPRA). 7.1 IT WOULD BE APT TO REPRODUCE THE RELEVANT EXTRA CTS OF THE ORDER OF THE TRIBUNAL HEREUNDER:- [2] TO ADJUDICATE ON THIS APPEAL, ONLY A FEW MATERI AL FACTS NEED TO BE TAKEN NOTE OF. THE ASSESSEE BEFORE US IS A COMPANY ENGAGE D IN THE BUSINESS OF FINANCING, AGRICULTURE PRODUCE AND TRADING ACTIVITI ES IN SHARES AND SECURITIES. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS, TH E ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS EARNED A DIVIDEND INCOME OF R S 25,26,127. WHEN THE ASSESSING OFFICER REQUIRED THE ASSESSEE TO SHOW CAU SE AS TO WHY PROPORTIONATE DISALLOWANCE NOT BE MADE UNDER SECTIO N 14A, IT WAS SUBMITTED BY THE ASSESSEE THAT THERE WAS NO OCCASION FOR ANY SUCH DISALLOWANCE AS THE ASSESSEE HAD NOT INCURRED ANY INTEREST EXPENSES. TH E ASSESSING OFFICER REJECTED THIS CLAIM ON THE GROUND THAT 'THE ASSESSE E HAS NOT PROVED THE NEXUS, NOR FILED THE SUPPORTING EVIDENCES, TO SHOW THAT IN TEREST EXPENDITURE IS INCURRED ONLY FOR EARNING TAXABLE INCOME'. HE THEN PROCEEDED TO MAKE THE DISALLOWANCE UNDER RULE 8D R.W.S 14A WHICH WORKED O UT TO RS 1,06,56,837. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE THE CIT(A) BUT WITHOUT ANY SUCCESS. THE ASSESSEE IS NOT SATISFIED AND IS IN FURTHER APPEAL, BEFORE US. [3] WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUS ED THE MATERIAL ON RECORD AND DULY CONSIDERED FACTS OF THE CASE IN THE LIGHT OF THE APPLICABLE LEGAL POSITION. ITA NO. 1189/AHD/2013 NIRMA CREDIT & CAPITAL PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 6 - [4] AS FAR AS INTEREST PAID BY THE ASSESSEE IS CONC ERNED, WE FIND THAT THE NET INTEREST PAYMENT BY THE ASSESSEE WAS ONLY RS 18.59 LAKHS, AND NOT RS 70.19 LAKHS AS ADOPTED BY THE ASSESSING OFFICER IN HIS CO MPUTATION, AS IS THE SETTLED LEGAL POSITION, INCLUDING BY PRECEDENTS IN THE CASE S OF MORGAN STANLEY INDIA SECURITIES LTD VS ACIT [(2011) 55 DTR 177 (MUM)] AN D DCIT VS TRADE APARTMENTS LTD (ITA NO. 1277/KOL/2011; ORDER DATED 30 TH MARCH 2012), WHAT IS TO BE TAKEN INTO ACCOUNT IS THE NET AMOUNT OF IN TEREST AND NOT THE GROSS AMOUNT, CLEARLY, THEREFORE, THE COMPUTATION OF DISA LLOWANCE IS VITIATED BY THIS FACTUAL ERROR. WE ALSO FIND THAT THE ASSESSEE HAD M ADE A SUO MOTU DISALLOWANCE UNDER SECTION 14 A FOR AN AMOUNT OF RS 50,000, IN COMPUTATION OF INCOME, AND THE BASIC CLAIM OF THE ASSESSEE IS T HAT SINCE THE ASSESSING OFFICER DID NOT FIND ANY FAULT IN THIS DISALLOWANCE , IT WAS NOT OPEN TO HIM TO INVOKE RULE 8D. THIS AMOUNT, AS NOTED BY THE CIT(A) AT PAGE 5, REPRESENTED PAYMENT MADE TO NIRMA MANAGEMENT SERVICES PVT LTD F OR 'HANDLING THE INVESTMENT IN SECURITIES'. WE HAVE FURTHER NOTED TH AT THE STAND OF THE ASSESSING OFFICER WAS THAT SINCE THERE WAS A HUGE I NTEREST PAYMENT AND SINCE 'THE ASSESSEE HAS NOT EXPLAINED OR PROVED THAT THE INVESTMENT WAS MADE OUT OF INTEREST FREE FUNDS ONLY', A PART OF THE INTEREST D ISALLOWANCE WAS TO ATTRIBUTED TO DIVIDEND INCOME. IT WOULD SHOW THAT, CONTRARY TO THE CLAIM OF THE ASSESSEE, THE ASSESSING OFFICER DID RAISE AN ISSUE ABOUT NOT ALLOCATING ANY PART OF INTEREST COSTS TO DIVIDEND INCOME WHICH CALLED INTO QUESTION NIL INTEREST ATTRIBUTION TO THE DIVIDEND EARNINGS. IT CANNOT, TH EREFORE, BE SAID THAT THE CLAIM OF THE ASSESSEE WAS NOT CHALLENGED OR DOUBTED BY THE ASSESSING OFFICER. CLEARLY, CONDITION PRECEDENT FOR INVOKING DISALLOWA NCE UNDER SECTION 14A(1), I.E. THE ASSESSING OFFICER 'HAVING REGARD TO THE AC COUNTS OF THE ASSESSEE' NOT BEING 'SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE ASSESSEE IN RESPECT OF SUCH EXPENDITURE IN RELATION TO INCOME WHICH DOES N OT FORM PART OF THE TOTAL INCOME UNDER THIS ACT', WAS FULFILLED. HERE IS AN A MOUNT, I.E. INTEREST, WHICH WAS DEBITED IN THE BOOKS OF ACCOUNTS BUT NO PART OF THE SAME WAS ALLOCATED TO DIVIDEND INCOME EVEN THOUGH, AS NOTED BY THE ASSESS ING OFFICER, 'INVESTMENT IN SHARES WERE SHOWN AT RS.17,69,60.241' AND 'THE A SSESSEE HAS NOT EXPLAINED OR PROVED THAT THE INVESTMENT WAS MADE OUT OF INTER EST FREE FUNDS ONLY'. THE NON ALLOCATION OF INTEREST COST WAS CHALLENGED BY T HE ASSESSING OFFICER, AND IT IS NOT EVEN THE CASE OF THE ASSESSEE THAT ANY PART OF THE INTEREST INCOME WAS OFFERED SUO MOTU BY THE ASSESSEE. THE MERE FACT THA T THE ASSESSEE HAD OFFERED SOME OTHER EXPENSES FOR DISALLOWANCE ON HIS OWN, AN D THAT DISALLOWANCE IS NOT FAULTED CANNOT AFFECT THE DISALLOWANCE IN RESPE CT OF A SPECIFIC HEAD I.E. INTEREST. AS A MATTER OF FACT THE EXPENSE WHICH WAS OFFERED FOR DISALLOWANCE WAS A SPECIFIC AND DIRECT EXPENSES AND, EVEN AFTER OTHER DISALLOWANCE UNDER ITA NO. 1189/AHD/2013 NIRMA CREDIT & CAPITAL PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 7 - RULE 8D FOR INDIRECT EXPENSES, IT IS TO BE ADDED AS A DIRECT EXPENSE ANYWAY AS REQUIRED BY THE RULE. THE EXTENDED DISCUSSIONS IN C IT(A)'S ORDER MAKE THIS ASPECT VERY CLEAR, UNDER THESE CIRCUMSTANCES, INVOK ING RULE 8D R.W.S 14A WAS FULLY JUSTIFIED FOR INVOKING DISALLOWANCE. AS FOR T HE DECISIONS CITED BEFORE US, THESE DECISIONS ARE EITHER DEALING WITH PRE RULE 8D SITUATION OR THE SITUATIONS IN WHICH THE ASSESSEE HAS NOT CALLED INTO QUESTION CORRECTNESS OF ALLOCATION OR OF NON ALLOCATION OF COSTS. THESE SITUATIONS ARE MA TERIALLY DIFFERENT. NOTHING, THEREFORE, TURNS ON THESE JUDICIAL PRECEDENTS. IN V IEW OF THESE DISCUSSIONS, WHILE WE UPHOLD THE DISALLOWANCE IN PRINCIPLE, WE D IRECT THE ASSESSING OFFICER TO ADOPT THE NET INTEREST PAYMENT AS AGAINST GROSS INTEREST PAYMENT IN COMPUTATION FOR THE PURPOSE OF DISALLOWANCE UNDER R ULE 8D. THE DISALLOWANCE IS PARTLY MODIFIED ACCORDINGLY. [5] IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. 7.2 IT WAS THUS CANVASSED THAT THE COORDINATE BENCH OF ITAT HAS HELD IN THE EARLIER YEAR IN ASSESSEES OWN CASE THAT THE ASSESSEE IS ENTITLED TO SET OFF OF INTEREST RECEIVED AGAINST THE INTEREST I NCURRED BY THE ASSESSEE AND ONLY SURPLUS INTEREST INCURRED IS SUSCEPTIBLE T O RULE 8D OF THE INCOME TAX RULES, 1962. THE REASONS FOR HOLDING SO BY THE CO-ORDINATE BENCH IS NOT FAR TO SEEK. THE SACROSANCT UNDERLYING PRINCIP LE TO ENABLE SUCH SET OFF IS THAT COST OF AVERAGE BORROWED FUNDS TO THE E XTENT OF CORRESPONDING INTEREST GENERATING FUNDS REQUIRES TO BE FIRST NULL IFIED AND ONLY DIFFERENTIAL BORROWED FUNDS OVER AND ABOVE CORRESPONDING FUNDS G ENERATING INTEREST INCOME CAN BE DEEMED TO HAVE BEEN DEPLOYED FOR INVE STMENTS AND OTHER PURPOSES. THERE CAN BE NO QUARREL TO SUCH UNDERLYI NG SALUTARY PRINCIPLE. THE INTEREST ON BORROWED FUNDS EQUIVALENT TO CORRES PONDING FUNDS GIVING RISE TO INTEREST INCOME NEEDS TO BE SET OFF AND MAY BE TREATED AS USED FOR GENERATING INTEREST INCOME. ITA NO. 1189/AHD/2013 NIRMA CREDIT & CAPITAL PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 8 - 7.3 HOWEVER, TO APPRECIATE THE ISSUE IN PERSPECTIVE , LET US ILLUSTRATE THE POINT BY WAY OF AN EXAMPLE. SUPPOSE THE ASSESSEE HO LDS BORROWED FUNDS OF SAY RS.100/- AND PAID INTEREST THEREON SAY RS.12 /-. THE ASSESSEE SIMULTANEOUSLY HAS GIVEN ADVANCE OF SAY RS.80/- WHE REFROM THE ASSESSEE HAS EARNED SAME INTEREST OF RS.12/- OWING TO HIGHER RATE. THE NET INTEREST EXPENDITURE INCURRED AFTER SET OFF THUS IS ZERO. HO WEVER, AS CAN BE SEEN, THE ASSESSEE HAS PLACED BALANCE SUM OF RS.20/- OUT OF BORROWED FUNDS FOR PURPOSES OTHER THAN IMPUGNED FINANCING. THE ASSESS EE THUS IS CLEARLY NOT ENTITLED TO SET OFF OF INTEREST EXPENDITURE IN RESP ECT OF REMAINING BORROWED FUNDS NOT DEPLOYED IN ACTIVITY GENERATING INTEREST INCOME. AS A CONSEQUENCE, THE ASSESSEE CANNOT ESCAPE THE CLUTCHE S OF SECTION 14A READ WITH RULE 8D IN RESPECT OF INTEREST COSTS INCURRED ON DIFFERENTIAL BORROWED FUNDS OF RS.20/- UNLESS HE IS ABLE TO DEMO NSTRATE THAT THE SURPLUS BORROWED FUNDS HAVE FOUND WAY IN SOME OTHER BUSINESS ACTIVITY IN COMMERCIAL SPIRIT. THUS, IN ESSENCE, IT IS THE B ORROWED FUNDS AND THE CORRESPONDING ADVANCE WHICH IS REQUIRED TO BE MATCH ED AND NOT MERE INTEREST COSTS AND INCOME ARISING THEREFROM. HOWEVE R, PERTINENT HERE TO SAY, ONCE AN ASSESSEE IS ABLE TO BROADLY SHOW THAT THE INTEREST FREE FUNDS AVAILABLE AT ITS DISPOSAL, OWN OR BORROWED, IS EQUI VALENT TO OR IN EXCESS OF INVESTMENT AND SOME OTHER NON- BUSINESS DEPLOYMENTS , THE PRESUMPTION OF USAGE OF INTEREST BEARING BORROWED FUNDS FOR BUS INESS ACTIVITIES WOULD OPERATE FAVOURABLY. HOWEVER, PRESUMPTION IN FAVOUR OF THE ASSESSEE WOULD BE AVAILABLE TAKING INTO CONSIDERATION TOTAL FUND POSITION AT A GIVEN ITA NO. 1189/AHD/2013 NIRMA CREDIT & CAPITAL PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 9 - POINT OF TIME. HENCE, THE ONUS RESTS ON THE ASSESSE E TO PRIMA FACIE DEMONSTRATE ITS CASE WITH REFERENCE TO THE OVERALL FUND POSITION. 7.4 IN THE LIGHT OF ABOVE, WE NOW EXAMINE THE FACTS OF THE PRESENT CASE. FINANCIAL YEAR 2008-09 RELEVANT TO ASSESSMENT YEAR 2009-10 IS UNDER SCRUTINY. ON PERUSAL OF FINANCIAL STATEMENT FOR TH E YEAR ENDING 2008-09 QUA 2007-08, WE NOTE THAT BORROWED FUNDS DURING THE YEA R HAS GONE UP BY NEARLY 47.48 CRORES. THE CORRESPONDING INVESTMEN T IN SHARES HAS GONE UP BY NEARLY RS. 10.70 CRORES AND REMAINING ADDITIO NAL BORROWED FUNDS APPEARS TO BE HAVE BEEN PARKED IN LOANS AND ADVANCE S DURING THE YEAR (RS. 10.33 CRORE) AND IN CASH AND BANK BALANCE (RS. 24.50 CRORES). THUS, APPARENTLY SOME PART OF FRESH BORROWED FUNDS APPEAR S TO HOLD PROXIMATE RELATIONSHIP WITH THE INCREASE IN THE INVESTMENTS. HOWEVER, WE SEEK TO CLARIFY THAT THE FUND FLOW AND TOTAL FACTS IN THIS REGARD ARE NOT AVAILABLE BEFORE US. 7.5 NEEDLESS TO SAY, THE ASSESSEE IS PRIVY TO FACTS CONCERNING OVERALL SOURCE OF FUNDS AT ITS DISPOSAL AND APPLICATION THE REOF AT A GIVEN POINT OF TIME. THUS, THE PRIMARY ONUS WOULD LIE WITH THE ASS ESSEE TO DEMONSTRATE THAT ITS CUMULATIVE OWN FUNDS TOGETHER WITH NON-INT EREST BEARING FUNDS ARE IN EXCESS OF CUMULATIVE INVESTMENTS (GIVING RIS E TO TAX-FREE INCOME) TOGETHER WITH OTHER FORM OF NON BUSINESS INVESTMENT S/ UTILISATIONS. ONCE THE PRIMARY ONUS IS DISCHARGED BY THE ASSESSEE, THE ONUS WILL SHIFT TO THE ITA NO. 1189/AHD/2013 NIRMA CREDIT & CAPITAL PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 10 - REVENUE TO DEMONSTRATE THE CAUSE FOR DISALLOWANCE U NDER RULE 8D. THE BENEFIT OF PRESUMPTION WOULD BE AVAILABLE TO THE AS SESSEE PROVIDED THE OVERALL NON INTEREST BEARING FUND POSITION EQUALS T O OR EXCEEDS INVESTMENT AND OTHER NON BUSINESS UTILIZATIONS IN AGGREGATE. T HUS, WHILE WE ARE IN PARITY WITH THE UNDERLYING PROPOSITION LAID DOWN IN ASSESSEES OWN CASE IN THE EARLIER YEAR IN ADMITTING SET OFF OF INTERES T EXPENDITURE, THE GOVERNING FACTS TO DETERMINE THE ISSUE NEEDS ELABOR ATION FROM ASSESSEE. THE PRESUMPTION OF INTEREST BEARING BORROWED FUND D EEMED TO BE UTILIZED FOR BUSINESS PURPOSES AND THUS OUT OF AMBIT OF SECT ION 14A WOULD OPERATE ONLY TO THE EXTENT OF INTEREST FREE FUNDS AVAILABLE TO MEET THE INVESTMENT AND OTHER NON BUSINESS ACTIVITIES IN AGGREGATE. THE PROPORTIONATE INTEREST ON THAT PORTION OF BORROWED FUNDS WHICH SEEKS TO CO VER THE SHORTFALL IN INVESTMENT WOULD THUS BE AMENABLE TO S. 14A READ WI TH RULE 8D(2)(II) OF THE IT RULES. THUS, IN ORDER TO EXAMINE THE RELEVAN T FACTS, IT WOULD BE EXPEDIENT TO REMIT THE ISSUE BACK TO THE FILE OF AO . THE AO SHALL GRANT REASONABLE OPPORTUNITY TO ENABLE THE ASSESSEE TO DE MONSTRATE WHETHER OWN FUNDS TOGETHER WITH INTEREST FREE FUNDS SURPASS ES CORRESPONDING INVESTMENTS IN SHARES ETC. AND OTHER NON BUSINESS I NVESTMENTS IN AGGREGATE. IN THE LIGHT OF ABOVE DISCUSSION, THE AS SESSING OFFICER IS DIRECTED TO EXAMINE THE ISSUE AFRESH IN ACCORDANCE WITH LAW AFTER GIVING PROPER OPPORTUNITY OF BEING HEARD. ITA NO. 1189/AHD/2013 NIRMA CREDIT & CAPITAL PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 11 - 8. IN CONCLUSION, THE ASSESSEE WOULD BE ENTITLED TO BENEFIT OF SET OFF OF INTEREST ON AO BEING SATISFIED THAT THE ASSESSEE IS HOLDING SUFFICIENT OWN FUNDS TOGETHER WITH OTHER INTEREST-FREE BORROWED FU NDS AND OTHER RECEIPTS AT ITS COMMAND WHICH ARE SUFFICIENT TO COVER THE CO RRESPONDING INVESTMENTS AND OTHER NON-BUSINESS UTILIZATION OF F UNDS. THE DISALLOWANCE OF INTEREST, IF ANY, WOULD THUS BE RES TRICTED IN PROPORTION TO THE SHORTFALL IN OWN FUNDS AND NON INTEREST BEARING FUND IN CUMULATIVE QUA AGGREGATE OF INVESTMENTS AND OTHER PERSONAL OR NON BUSINESS UTILIZATIONS AS NOTED ABOVE. 9. THE MATTER IS REMANDED BACK TO THE FILE OF AO F OR DECIDING THE ISSUE AFRESH IN TERMS OF DIRECTIONS NOTED ABOVE. 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWE D FOR STATISTICAL PURPOSES. THIS ORDER PRONOUNCED IN OPEN COURT ON 06 /12/2016 SD/- SD/- (..) ( ) ( S.S. GODARA ) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT M EMBER AHMEDABAD; DATED 06/ 12 /2016 4..+,.+../ T.C. NAIR, SR. PS ITA NO. 1189/AHD/2013 NIRMA CREDIT & CAPITAL PVT.LTD. VS. ACIT ASST.YEAR 2009-10 - 12 - !'#$%$' / COPY OF THE ORDER FORWARDED TO : 1. $' / THE APPELLANT 2. ($' / THE RESPONDENT. 3. 567- 8- / CONCERNED CIT 4. 8- ( ) / THE CIT(A)-XI, AHMEDABAD 5. 9:-+67 , 670 , 5 / DR, ITAT, AHMEDABAD 6. <, / GUARD FILE. / BY ORDER, (9-- //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION ..02/05.12.2016 (DICTATION-PAD 1 3+12PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 02/05.12.2016 3. OTHER MEMBER 4. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR.P. S./P.S.. 5. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE THE D ICTATING MEMBER FOR PRONOUNCEMENT 6. DATE ON WHICH THE FAIR ORDER COMES BACK TO THE SR.P .S./P.S.6.12.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 6.12.16 8. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK ... 9. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT RE GISTRAR FOR SIGNATURE ON THE ORDER.. 10. DATE OF DESPATCH OF THE ORDER