Nitin Construction Ltd., Ahmedabad V. The Dy.CIT, Circle-5, Ahmedabad

ITA 1393/AHD/2015

• Counselvise Citation: [2018] 122 COUNSELVISE.COM (IT) 3913 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 4 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 03-10-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2006-2007
• Appeal Filed On: 18-05-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Proportionate interest; Commercial expediency
• Section: 14A

Judgement Text

, CH CHCH CH IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD L LL LOZJH OZJH OZJH OZJH OLHE OLHE OLHE OLHE VGEN VGEN VGEN VGEN] YS[KK ] YS[KK ] YS[KK ] YS[KK LNL; ,OA LNL; ,OA LNL; ,OA LNL; ,OA EK/KQFERK EK/KQFERK EK/KQFERK EK/KQFERK JKW; JKW;JKW; JKW;] U;KF;D ] U;KF;D ] U;KF;D ] U;KF;D LNL; DS LNL; DS LNL; DS LNL; DS LE{KA LE{KA LE{KA LE{KA BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND SMT MADHUMITA ROY, JUDICIAL MEMBER ITA NO.1393/AHD/2015 ( / ASSESSMENT YEAR : 2006-07) NITIN CONSTRUCTION LTD., 2 ND FLOOR, C. G. ROAD, NAVRANGPURA, AHMEDABAD-380 009. / VS. DCIT, CIRCLE 5, AHMEDABAD. ./ ./ PAN/GIR NO. : AAACN 5349 J ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : MS. ARTI N. SHAH, A.R. / RESPONDENT BY : SHRI MUDIT NAGPAL, SR. D.R. / DATE OF HEARING 13/07/2018 !'# / DATE OF PRONOUNCEMENT 03/10/2018 $% / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THIS IS AN APPEAL BY THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)-9, AHMEDABAD, VIDE APPEAL NO.CIT(A)-9/353/DCIT.CIR-5/14-15 DATED 27-03-2015 F OR THE ASSESSMENT YEAR (AY) 2006-07. 2. ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APP EAL: 1. THE LEARNED COMMISSIONER OF INCOME TAX, (APPEAL S)-9, AHMEDABAD HAS ERRED IN HOLDING THAT REOPENING OF AS SESSMENT IS ITA NO.1393/AHD/2015 NITIN CONSTRUCTION LTD VS. DCIT ASST.YEAR 2006-07 - 2 - VALID, AND ACCORDINGLY, CONFIRMED THAT THE ASSESSIN G OFFICER HAS VALIDLY ISSUED NOTICE U/S.148 OF THE I.T. ACT, 1961 . 2. THE LEARNED COMMISSIONER OF INCOME TAX, (APPEA LS)-9, AHMEDABAD HAS ERRED IN LAW AND ON FACTS OF THE CASE BY CONFIRMING THE FINDING OF THE ASSESSING OFFICER THA T THE BORROWED FUND HAS BEEN USED FOR NON-BUSINESS PURPOSE, AND AC CORDINGLY, HAS PARTLY CONFIRMED THE DISALLOWANCE MADE BY THE A SSESSING OFFICER OUT OF INTEREST PAYMENT. 3. YOUR APPELLANT PRAYS TO RESERVE THE RIGHT TO ADD, ALTER, AMEND AND/OR WITHDRAW ANY OF THE ABOVE GROUNDS OF APPEAL. 3. GROUND NO.1 WAS NOT PRESSED BY THE ASSESSEE. THE REFORE, SAME IS DISMISSED AS NOT PRESSED. 4. SECOND ISSUE RAISED BY ASSESSEE IN THIS APPEAL I S THAT LD CIT(A) ERRED IN CONFIRMING THE ORDER OF AO BY SUSTAINING T HE DISALLOWANCE OF INTEREST EXPENSES ON ACCOUNT OF DIVERSION OF BORROW ED FUND. 5. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A COMPANY AND ENGAGED IN THE BUSINESS OF CIVIL CONSTRUCTION. THE AO DURIN G THE ASSESSMENT PROCEEDINGS OBSERVED THAT THE ASSESSEE HAS INCURRED INTEREST EXPENDITURE OF RS.1,25,50,095/- ON THE BORROWED FUND OF RS.22, 74,15,650/- ONLY. THE AO FURTHER OBSERVED THAT THE ASSESSEE HAS GIVEN LOA NS AND ADVANCES AGGREGATING TO RS. 18,55,01,443/- WITHOUT CHARGING ANY INTEREST. ACCORDINGLY, THE AO PROPOSED TO MAKE THE DISALLOWAN CE OF RS. 79,53,527/- U/S 36(1)(III) OF THE ACT ON ACCOUNT OF DIVERSION OF FUND. ACCORDINGLY, THE AO SOUGHT AN EXPLANATION FROM THE ASSESSEE ON THE ISSUE AS DISCUSSED ABOVE. ITA NO.1393/AHD/2015 NITIN CONSTRUCTION LTD VS. DCIT ASST.YEAR 2006-07 - 3 - 5.1 THE ASSESSEE IN COMPLIANCE TO IT SUBMITTED THAT IT HAS GIVEN AN ADVANCE OF RS. 2,31,10,273/- ONLY FOR NON-BUSINESS PURPOSE. THUS, THE BALANCE AMOUNT OF RS.16,23,91,170/- WAS MADE FOR TH E PURPOSE OF THE BUSINESS. 5.2 HOWEVER, THE AO FURTHER OBSERVED THAT A SUM OF RS. 2,04,50,038/- OUT OF TOTAL LOAN AND ADVANCES OF RS.18,55,01,443/- REPRESENTS THE ADVANCE INCOME TAX WHICH NEEDS TO BE EXCLUDED FROM THE INTEREST FREE ADVANCED GIVEN BY THE ASSESSEE. ACCORDINGLY, THE A O WORKED OUT THE AMOUNT OF PROPORTIONATE INTEREST ON THE BALANCE AMO UNT OF RS.16,50,51,405/- (18,55,01,443 2,04,50,038) AND MADE THE DISALLOWANCE OF INTEREST EXPENSES FOR RS. 68,24,941 /- ONLY. THUS, THE AMOUNT DISALLOWED WAS ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 6. AGGRIEVED, ASSESSEE PREFERRED AN APPEAL TO LD CI T(A). THE ASSESSEE BEFORE THE LD CIT(A) SUBMITTED THAT IT HAS INTEREST FREE FUND OF RS. 22,40,82,631/- ONLY AS ON 31.03.2006. THE NECES SARY DETAILS OF THE OWN FUND OF THE ASSESSEE STANDS AS UNDER: (I) SHARE CAPITAL RS. 55,00,000/- (II) GENERAL RESERVE RS. 54,53,388/- (III) OPENING BALANCE ON P&L A/C RS. 1,66,31,18 2/- (IV) UNSECURED LOAN NON BEARING INTEREST RS.19,64 ,98,061/- RS.22,40,82,631/- IN VIEW OF ABOVE THE ASSESSEE SUBMITTED THAT ITS OW N FUND EXCEEDS THE AMOUNT OF LOANS AND ADVANCES AS DISCUSSED ABOVE. TH EREFORE, A ITA NO.1393/AHD/2015 NITIN CONSTRUCTION LTD VS. DCIT ASST.YEAR 2006-07 - 4 - PRESUMPTION CAN BE DRAWN THAT OWN FUND OF THE ASSES SEE HAS BEEN UTILIZED IN GIVEN SUCH LOANS AND ADVANCES. HOWEVER, THE LD C IT(A) ALLOWED RELIEF TO THE ASSESSEE IN PART BY OBSERVING AS UNDER: 3.4 I HAVE CAREFULLY CONSIDERED RIVAL SUBMISSIONS . I HAVE ALSO PERUSED VARIOUS EVIDENCES AND CASE LAWS RELIED UPON BY THE APPELLANT DURING THE APPELLATE PROCEEDINGS. AFTER CONSIDERING ALL THE FACTS AND SUBMISSION OF THE APPELLANT ALONG WITH THE REMAND R EPORT SUBMITTED BY THE ASSESSING OFFICER AND THE REJOINDER FILED BY TH E APPELLANT WRT THE REMAND REPORT I AM NOT CONVINCED FULLY WITH THE CON TENTION OF THE APPELLANT. THE APPELLANT HAS FAILED TO SUBSTANTIATE ITS CONTENTION, THAT THE ADVANCES GIVEN BY THE APPELLANT TO VARIOUS COMP ANIES AND PERSONS WERE OUT OF ITS BALANCE OF SURPLUS AVAILABLE WITH I T IN THE SHAPE OF OPENING BALANCE OF CAPITAL, RESERVES AND CAPITAL AN D UNSECURED LOANS RAISED BY IT. CONSIDERING THE FACT THAT THIS YEAR T HE APPELLANT HAS NOT BEEN INDULGED IN BUSINESS ACTIVITIES LIKE OTHER YEA RS HENCE THE LOGIC OF ADVANCING CAPITAL TO RELATED COMPANIES AND INDIVIDU AL IS NOT UNDERSTANDABLE HENCE NOT ACCEPTABLE. THE APPELLANT HAS ALSO FAILED MISERABLY TO BRING OUT COGENT EVIDENCE WRT ANY COMM ERCIAL EXPEDIENCY, WHICH COMPELLED THE APPELLANT TO, ADVANCE ITS CAPIT AL. THE CAPITAL OF APPELLANT IS MAINLY CONSISTS THE UNSECURED LOANS ON WHICH THE APPELLANT HAS BEEN PAYING INTEREST ON IT. THEREFORE IT IS APP ARENT THAT THE APPELLANT COMPANY HAS UTILIZED ITS CAPITAL BY WAY O F GIVING THESE ADVANCES TO ITS RELATED COMPANIES AND THE PERSONS I N WHICH THE DIRECTORS ARE MOSTLY INTERESTED, TO LOWER DOWN TAX IMPLICATIONS WHICH IS NOT ALLOWABLE. I HAVE CONSIDERED THE REMAND REPORT SENT BY THE ASSESSING OFFICER IN WHICH HE HAS RECOMMENDED AS UN DER: IT IS NOTICED THAT THE ASSESSEE CLAIMED LOAN TO CO MPANY IN WHICH DIRECTORS ARE INTEREST TO THE EXTENT OF RS. 1,65,85 ,781/- VIZ. TO HIRAL PIPES PVT. LTD. & SAVITA GOVIND ESTATE DEVELOPERS O F RS.13,12,756/- & RS. 1,52,73,031/- RESPECTIVELY. NO DETAILS WERE F URNISHED BY THE ASSESSEE TO PROVE THAT SUCH ADVANCES WERE GIVEN DUE TO BUSINESS EXPEDIENCY. AS FAR AS LOAN TO OTHERS AND ADVANCES O F RS.2,67,35,638/- AND ADVANCES RECOVERABLE IN CASH/KIND OR VALUE TO B E RECEIVED OF RS.8,27,38,807/- ARE CONCERNED, IT IS NOTICED THAT THE ASSESSEE HAS GIVEN LOANS TO INDIVIDUALS. HUFS AS WELL AS FIRMS. NO DETAILS WERE FURNISHED BY THE ASSESSEE, WHICH PROVES THAT SUCH A DVANCES WERE GIVEN DUE TO BUSINESS EXPEDIENCY. THE ASSESSEE COMPANY HA S NOWHERE ITA NO.1393/AHD/2015 NITIN CONSTRUCTION LTD VS. DCIT ASST.YEAR 2006-07 - 5 - PROVED THE BUSINESS EXPEDIENCY BETWEEN THE COMPANY AND ITS DIRECTORS, HUFS AND FIRMS. OUT OF THE ABOVE, THE A. O. HAS CONSIDERED THE CLAIM OF THE ASSESSEE WITH REGARD TO ADVANCE IN COME-TAX OF RS.2,04,50,038/- WHILE COMPUTING THE DISALLOWANCE I N RE-ASSESSMENT ORDER U/S.147 OF I.T. ACT. REGARDING ADVANCE OF RS. 5,89,42,697/- SHOWN AS DEPOSIT, IT IS SUBMITTED THAT IF THESE DEP OSITS WERE MADE BY THE ASSESSEE FOR OBTAINING CONTRACT WORK OR AS A SE CURITY WITH VARIOUS AGENCIES AND THE SAME WILL BE SUBSTANTIATE WITH DOC UMENTARY PROOF THEN THE SAME MAY BE CONSIDERED BY YOUR KIND OFFICE FOR WORKING OF INTEREST DISALLOWANCE, IF DEEMED FIT. 3.5. I HAVE ALSO CONSIDERED THE REMAND REPORT OF T HE ASSESSING OFFICER IN WHICH HE HAS REITERATED THAT THE APPELLANT COMPA NY HAS ADVANCED HUGE AMOUNTS RELATED COMPANIES IN WHICH THE DIRECTO RS ARE CLOSELY INTERESTED. IN ADDITION TO IT THE APPELLANT COMPANY HAS ALSO ADVANCED HUGE AMOUNTS TO THE PARTNERSHIP FIRM'S INDIVIDUALS AND HUF WHEREIN THE APPELLANT HAS FAILED TOTALLY TO BRING OUT ANY C LEAR AND COGENT EVIDENCE TO PROVE THAT THERE WERE FACTORS RELATING TO COMMERCIAL EXPEDIENCY DUE TO WHICH THE APPELLANT COMPANY FELT THE NEED TO ADVANCE SUCH A HUGE AMOUNTS WHICH NO PRUDENT BUSINESSMAN WI LL DO UNLESS UNTIL THERE ARE COMPELLING CIRCUMSTANCES. 3.6 IN MY CONSIDERED VIEW THE APPELLANT HAS FAILED TO BRING FACTUAL MATERIAL IN ITS SUBMISSION TO DISLODGE ADDITION U/S .36(1)(III). THE PLAIN READING OF SECTION 36(1)(III) SAYS:- '36(1) THE DEDUCTIONS PROVIDED FOR IN THE FOLLOWING CLAUSES SHALL BE ALLOWED IN RESPECT OF THE MATTERS DEALT WITH THEREIN, IN COMPUTING THE INCOME REFERRED TO INS ECTION28-( I ) AND (II) ****** (III) THE AMOUNT OF THE INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR THE PURPOSES OF THE BUSINESS OR PROFESSION:- PROVIDED THAT ANY AMOUNT OF THE INTEREST PAID, IN R ESPECT OF CAPITAL BORROWED FOR ACQUISITION OF AN ASSET FOR EXTENSION OF EXISTING BUSINESS OR PROFESSION (WHETHER CAPITALIZED IN THE BOOKS OF ACCOUNT OR NOT); FOR ANY PERIOD BEGINNING FROM THE DATE ON WHICH THE CAP ITAL WAS BORROWED FOR ACQUISITION OF THE ASSET TILL THE DATE ON WHICH SUCH ASSET WAS FIRST PUT TO USE, SHALL NOT BE ALLOWED AS DEDUC TION. EXPLANATION- RECURRING SUBSCRIPTIONS PAID PERIODICALLY BY SHAREH OLDERS, OR SUBSCRIBERS IN MUTUAL BENEFIT SOCIETIES WHICH FULFI LL SUCH CONDITIONS AS ITA NO.1393/AHD/2015 NITIN CONSTRUCTION LTD VS. DCIT ASST.YEAR 2006-07 - 6 - MAY BE PRESCRIBED, SHALL BE DEEMED TO BE CAPITAL BO RROWED WITHIN THE MEANING OF THIS CLAUSE.' THE SUB SECTION HAS THREE IMPORTANT WORDS OR PHRASE S THAT ARE CORE TO UNDERSTANDING OF THIS SECTION I.E. (I) INTEREST, (I I) BORROWED AND, (III) FOR THE PURPOSE OF BUSINESS OR PROFESSION. IN THE F OLLOWING PARAS WE WOULD ELUCIDATE THE MEANING OF THESE WITH REFERENCE TO THIS PARTICULAR SECTION. THE BURDEN OF PROVING, THAT THE MONEYS BOR ROWED HAS NOT BEEN UTILIZED FOR NON BUSINESS PURPOSE AND THE LEND ING HAS ALL INGREDIENTS OF 'COMMERCIAL EXPEDIENCY', IS ON THE A SSESSEE, THERE ARE VARIOUS CASE LAWS WHICH SUPPORTS THIS CONTENTION VI Z. CIT VS. COIMBATORE SALEM TRANSPORT P. ITD.61 ITR 480 (MAD), INDIAN METALS & FERRO ALLOYS LTD. VS. CIT,193 ITR 344 (ON), CIT V S ABHISHEK IND (P&H) 286 ITR 1, IN THE CASE OF R. DALMIA VS. CIT 133 ITR 169 (DEL.) THE HON'BLE HIGH COURT DECIDED THAT 'WHERE THE INTE REST PAID CONCERNS THE BORROWED MONEY FOR BUSINESS AS WELL AS NON BUSINESS PURPOSES, THE CLAIM MAY BE DISALLOWED IN ITS ENTIRE TY IF NO ADEQUATE MATERIAL IS ADDUCED BY THE ASSESSEE TO DETERMINE TH AT PORTION OF INTEREST WHICH PERTAINS TO BUSINESS PURPOSES'. IN V IEW OF POSITION OF LAW AS DISCUSSED SUPRA, THE CONTENTION OF THE A.O. IS UPHELD. AS NON CHARGING OF INTEREST ON INTEREST FREE ADVANCES CALL S FOR A REASON FOR DISALLOWANCE OF INTEREST IN VIEW OF SETTLED LAW IN FOLLOWING CASES. THE LAW ON THIS ISSUE IS SETTLED, AFTER THE HON'BLE SUPREME COURT JUDGMENT IN THE CASE OF S. A. BUILDERS LTD. V. CIT (APPEALS) [2007] 288 ITR 1 (SC), IN WHICH THE CONCEPT OF COMMERCIAL EXPEDIENCY' WAS USED. THUS, WHERE THE FUNDS OF THE BUSINESS A DIVER TED FOR INTEREST FREE LOANS THE MAIN CRITERIA FOR PERMISSIBILITY OF INTER EST ON THOSE FUNDS ARE BASED ON WHETHER IT WAS FOR COMMERCIAL EXPEDIENCY O R NOT. THE PHRASE 'COMMERCIAL EXPEDIENCY' HAS FOLLOWING IMPORTANT TRA ITS AS ESTABLISHED BY CASE LAWS CITED SUPRA: SUCH PURPOSE AS IS EXPECT ED BY THE ASSESSEE TO ADVANCE ITS BUSINESS INTEREST. MAY INCLUDE MEASU RES TAKEN FOR PRESERVATION, PROTECTION OR ADVANCEMENT OF ITS BUSI NESS INTERESTS. TO BE DISTINGUISHED FROM THE PERSONAL INTEREST OF I TS DIRECTORS OR PARTNERS, AS THE CASE MAY BE. THERE HAS TO BE A NEXUS BETWEEN THE ADVANCING OF FU NDS AND BUSINESS INTEREST OF THE ASSESSEE. SOME BUSINESS OBJECTIVE S HOULD BE SOUGHT TO HAVE BEEN ACHIEVED BY EXTENDING SUCH INTEREST FREE ADVANCES WHEN THE ASSESSEE FIRM/COMPANY ITSELF IS BORROWING FUNDS FOR RUNNING ITS BUSINESS. ITA NO.1393/AHD/2015 NITIN CONSTRUCTION LTD VS. DCIT ASST.YEAR 2006-07 - 7 - THE HON'BLE SUPREME COURT HAS ALSO DELVED INTO THE CASE WHERE THERE WOULD BE MIXED FUND AT THE DISPOSAL OF THE ASSESSEE . IT FURTHER CLARIFIES THAT UNDER SECTION 36(1)(III) THE ULTIMATE USE OF T HE FUND IS IMPORTANT. IT MAY NOT BE RELEVANT AS TO WHETHER THE ADVANCES H AVE BEEN EXTENDED OUT OF THE BORROWED FUNDS OR OUT OF MIXED FUNDS WHI CH INCLUDE BORROWED FUNDS. THE TEST TO BE APPLIED IN SUCH CASE S IS NOT THE SOURCE OF THE FUNDS BUT THE PURPOSE FOR WHICH THE ADVANCES ARE EXTENDED. THE ISSUE HAS BEEN DISCUSSED IN THE CASE PUNJAB STAINLE SS STEEL LTD. 324 ITR 396 (DELHI HIGH COURT), IN THIS CASE THE HON'BL E HIGH COURT HAS GIVEN A FINDING WHICH IS IN FAVOUR OF REVENUE AND H AS CLEARLY DISTINGUISHED MUNJAL SALES CORP VS CIT (SC) 298 ITR 298. IN FACT, THE AHMEDABAD BENCH OF ITAT HAS ALSO FOLLO WED THIS PRINCIPLE IN INAMULHAQ S. IRAKI VS. ADDL. CIT, RANGE-2, AHMED ABAD IN ITA NO. 243/AHD/2011 FOR A.Y. 2007-08 DATED 31.01.2012. IN THIS JUDGMENT THE HON'BLE ITAT HAS SQUARELY FOLLOWED HON'BLE DELHI HI GH COURT DECISION PUNJAB STAINLESS STEEL LTD. 324 ITR 396, T HE RELEVANT PARA (11) IS REPRODUCED BELOW FOR THE SAKE OF READY REFE RENCE. 'WE FIND THAT AS PER THIS JUDGMENT OF HON'BLE DELHI HIGH COURT, WHERE MIXED FUNDS ARE USED FOR THE PURPOSE OF GIVING INTE REST FREE ADVANCES, THE ONLY RELEVANT TEST IS AS TO WHETHER SUCH INTERE ST FREE ADVANCES ARE DUE TO COMMERCIAL EXPEDIENCY OR NOT. IN THE PRESENT CASE ALSO, THE FUNDS ARE MIXED FUNDS AND THE ASSESSEE COULD NOT ES TABLISH ANY COMMERCIAL EXPEDIENCY AND HENCE, IN OUR CONSIDERED OPINION, THIS ISSUE IS SQUARELY COVERED AGAINST THE ASSESSEE BY T HIS JUDGMENT OF HON'BLE DELHI HIGH COURT AND RESPECTFULLY FOLLOWING THE SAME, THIS ISSUE IS DECIDED AGAINST THE ASSESSEE'. IN THE CASE OF APPELLANT THE A.O. HAS ALSO OBSERVED THAT THE APPELLANT HAS FAILED TO PROVE ANY BUSINESS EXPEDIENCY AND HAS RIGHTLY HELD THAT FUNDS OF ASSESSEE HAVE BEEN DIVERTED TO NON BUSINES S ACTIVITIES. I AM OF THE OPINION THAT THE ASSESSEE HAS ALSO FAILED TO PR OVE THAT, THE INVESTMENT WAS OUT OF INTEREST FREE FUNDS. THE APPE LLANT HAS NOT BROUGHT ANY SUCH FACTOR IN MY KNOWLEDGE AT THE TIME OF APPE LLATE PROCEEDINGS. REGARDING ADVANCE OF RS.3,89,42,697/- SHOWN AS DEPO SIT, AS CLAIMED BY THE APPELLANT THAT THESE DEPOSITS WERE MADE BY THE APPELLANT FOR OBTAINING CONTRACT WORK OR AS A SECURITY WITH VARIO US AGENCIES , THE APPELLANT HAS FAILED TO ADDUCE ANY EVIDENCE WITH RE GARD TO THIS WITH ANY DOCUMENTARY PROOF. THEREFORE THIS CLAIM OF THE APPE LLANT IS NOT ACCEPTABLE. HOWEVER AS RECOMMENDED BY THE ASSESSING OFFICER IN HIS ITA NO.1393/AHD/2015 NITIN CONSTRUCTION LTD VS. DCIT ASST.YEAR 2006-07 - 8 - REMAND REPORT, I AM ALSO OF THE OPINION THAT THE AD VANCE INCOME TAX PAYMENT AMOUNTING TO RS.2,04,50,038/-SHOULD BE EXCL UDED FROM THE CALCULATION OF WORKING OF INTEREST OF THE BALANCE A MOUNT OF RS.16,50,51,405/-. ACCORDINGLY THE ASSESSING OFFICE R IS DIRECTED TO WORK OUT THE INTEREST ON THE BALANCE AMOUNT OF ADVANCES TOTALLING TO RS. 16,50,51,405/-. IN VIEW OF THIS, DISALLOWANCE OF IN TEREST U/S.36(1)(III) IS ORDERED TO BE CONFIRMED IN THE ABOVE-MENTIONED MANN ER ON THE TOTAL BALANCES OF ADVANCES OF RS.16,50,51,405/-. ACCORDIN GLY, THIS GROUND OF APPEAL IS PARTLY ALLOWED. BEING AGGRIEVED BY THE ORDER OF LD. CIT(A) ASSESSEE IS IN APPEAL BEFORE US. 7. THE LD. AR BEFORE US FILED A PAPER BOOK WHICH IS RUNNING FROM PAGES 1-102 AND DREW OUR ATTENTION ON ITS BALANCE S HEET AS ON 31 ST MARCH, 2006, WHICH IS PLACED ON PAGE 25 OF THE PAPER BOOK. ACCORDINGLY, THE LD AR OF THE ASSESSEE DEMONSTRATED THAT ITS OWN FUND E XCEEDS THE AMOUNT OF LOANS AND ADVANCES THEREFORE, NO DISALLOWANCE CAN B E MADE. 8. ON THE OTHER HAND, LD. DR RELIED ON THE ORDER OF AUTHORITIES BELOW. 9. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIALS AVAILABLE ON RECORD. IN THE INSTANT CASE, THE AO M ADE THE DISALLOWANCES OF THE INTEREST EXPENSES ON THE GROUND THAT THE BOR ROWED FUND HAS BEEN DIVERTED TO THE INTEREST FREE LOANS AND ADVANCES. H OWEVER, ON PERUSAL OF THE BALANCE SHEET, WE NOTE THAT OWN FUND INCLUDING NON-INTEREST BEARING OF THE ASSESSEE EXCEEDS THE AMOUNT OF LOANS AND ADV ANCES AS DETAILED UNDER: ITA NO.1393/AHD/2015 NITIN CONSTRUCTION LTD VS. DCIT ASST.YEAR 2006-07 - 9 - PARTICULARS SCHEDULE RS. CURRENT YEAR RS. 31.03.2006 CATION OF FUNDS: SHAREHOLDER'S FUND SHARE CAPITAL 1 55,00,000 RESERVES & SURPLUS 2 1,30,33,953 1,85,33,953 LOANS FUNDS SECURED LOANS 3 3,09,20,589 UNSECURED LOANS 4 19,64,98,061 22,74,18,650 24,59,52,603 TOTAL FROM THE ABOVE IT IS CLEAR THAT THE OWN FUND OF THE ASSESSEE EXCEEDS THE INTEREST FREE LOANS AND ADVANCES AS DISCUSSED IN TH E ASSESSMENT ORDER. IN SUCH FACTS AND CIRCUMSTANCES, A PRESUMPTION CAN BE DRAWN THAT THE INVESTMENT HAS BEEN MADE OUT OF THE OWNED FUNDS OF THE ASSESSEE. IN HOLDING SO, WE FIND SUPPORT AND GUIDANCE FROM THE J UDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 WHEREIN IT WAS HELD AS UNDE R:- THE PRINCIPLE THEREFORE WOULD BE THAT IF THERE ARE FUNDS AVAILABLE BOTH INTEREST-FREE AND OVERDRAFT AND/OR LOANS TAKEN, THE N A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE IN TEREST-FREE FUND GENERATED OR AVAILABLE WITH THE COMPANY, IF THE INT EREST-FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENTS. IN THIS CASE TH IS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL 9.1 SIMILARLY, WE ALSO RELY ON THE JUDGMENT OF THE HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS HDFC BANK LTD REPORTED IN 366 ITR 505 (BOM). THE RELEVANT EXTRACT OF THE ORDER IS REP RODUCED BELOW:- WHERE ASSESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN TAX-FRE E SECURITIES, IT WOULD ITA NO.1393/AHD/2015 NITIN CONSTRUCTION LTD VS. DCIT ASST.YEAR 2006-07 - 10 - HAVE TO BE PRESUMED THAT INVESTMENT MADE BY THE ASS ESSEE WOULD BE OUT OF THE INTEREST-FREE FUNDS AVAILABLE WITH ASSESSEE AND NO DISALLOWANCE WAS WARRANTED U/S 14A. 9.2 SIMILARLY, WE ALSO FIND SUPPORT FROM THE JUDGME NT OF HONBLE GUJARAT HIGH COURT IN THE CASE OF UTI BANK LTD. REP ORTED IN 32 TAXMANN.COM 370 WHERE THE HEADNOTE READS AS UNDER : IF THERE ARE SUFFICIENT INTEREST FREE FUNDS TO MEE T TAX FREE INVESTMENTS, THEY ARE PRESUMED TO BE MADE FROM INTEREST FREE FUN DS AND NOT LOANED FUNDS AND NO DISALLOWANCE CAN BE MADE UNDER SECTION 14A IN VIEW OF ABOVE PROPOSITION, WE HOLD THAT NO DISAL LOWANCE OF INTEREST EXPENSE CLAIMED BY THE ASSESSEE CAN BE MADE UNDER T HE PROVISION OF SECTION 36(1)(III) OF THE ACT ON ACCOUNT OF DIVERSI ON OF INTEREST BEARING FUND. HENCE, WE REVERSE THE ORDER OF AUTHORITIES BE LOW. THE AO IS DIRECTED TO DELETE THE ADDITION MADE BY HIM. HENCE THE GROUND OF APPEAL OF THE ASSESSEE IS ALLOWED . 10. IN THE RESULT, APPEAL OF THE ASSESSEE IS ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 03/10/2018 SD/- SD/- E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; E/KQFERK JKW; OLHE VGEN OLHE VGEN OLHE VGEN OLHE VGEN U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; U;KF;D LNL; YKS[KK LN YKS[KK LN YKS[KK LN YKS[KK LNL; L; L; L; (MADHUMITA ROY) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 03/10/2018 PRITI YADAV, SR.PS ITA NO.1393/AHD/2015 NITIN CONSTRUCTION LTD VS. DCIT ASST.YEAR 2006-07 - 11 - !'# $#! / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. & '( ) / CONCERNED CIT 4. ) () / THE CIT(A)-9. AHMEDABAD. 5. ,-. //'( , '(# , 12$&$ / DR, ITAT, AHMEDABAD. 6. .34 5 / GUARD FILE. % & / BY ORDER, , / //TRUE COPY// '/& () ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD