DCIT, C-I, Ludhiana V. M/s Kapsons Associates Investments (P) Ltd., Ludhiana

ITA 1434/CHANDI/2017

• Counselvise Citation: [2018] 119 COUNSELVISE.COM (IT) 0317 (ITAT-CHANDIGARH)
• Duration Of Justice: 1 year(s) 1 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-11-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 28-09-2017
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIPIN GUPTA
• Keywords: Business expenditure; Earning of tax free income; Question of law
• Section: 14A; 6

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL DIVISION BENCH, B, CHANDIGARH , ! . .., # $, %& BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER AND DR. B.R.R. KUMAR, ACCOUNTANT MEMBER ./ ITA NO. 1434/CHD/2017 / ASSESSMENT YEAR : 2013-14 THE DCIT, CIRCLE-1, LUDHIANA M/S KAPSONS ASSOCIATES INVESTMENTS (P) LIMITED, B-26, FOCAL POINT, LUDHIANA ./PAN NO: AAACK7243A / APPELLANT /RESPONDENT ! /ASSESSEE BY : SMT. CHANDERKANTA, SR.DR ' ! / REVENUE BY : SH. VIPIN GUPTA, CA # $ % /DATE OF HEARING : 23.08. 2018 &'() % / DATE OF PRONOUNCEMENT : 15.11.2018 %'/ ORDER PER SANJAY GARG, JUDICIAL MEMBER: THE PRESENT APPEAL HAS BEEN PREFERRED BY THE REVENU E AGAINST THE ORDER DATED 13.7.2017 OF THE COMMISSIONER OF INCOME TAX (APPEALS)-2, LUDHIANA [HEREINAFTER REFERRED TO AS CIT(A)]. 2. THE REVENUE IS AGGRIEVED BY THE ACTION OF THE CI T(A) IN RESTRICTING THE ADDITION TO RS. 16,53,617/- OUT OF THE ADDITIO N MADE BY THE ASSESSING OFFICER OF RS. 2,89,72,984/- U/S 14 A READ OF THE INCOME-TAX ACT, 1961 (IN SHORT 'THE ACT') READ WITH RULE 8D OF THE INCOME TA X RULES, 1962. ITA NO.1434/CHD/2017 M/S KAPSONS ASSOCIATES INVESTMENT (P) LIMITED, LUD HIANA 2 3. THE BRIEF FACTS RELEVANT TO THE ISSUE ARE THAT A SSESSING OFFICER NOTICED THAT THE ASSESSEE HAD EARNED TAX EXEMPT DIVIDEND IN COME OF RS. 67,05,197/- DURING THE YEAR. HE INVOKING THE PROVISIONS OF SECI TON14A READ WITH RULE 8D OF THE I.T. RULES MADE THE DISALLOWANCE OF RS. 2 ,89,72,984/- IN RESPECT OF EXPENDITURE INCURRED FOR EARNING OF TAX EXEMPT I NCOME.. 4. HOWEVER, IN APPEAL, THE LD. CIT(A) NOTED THAT TH E ASSESSEE WAS POSSESSED OF SUFFICIENT OWN FUNDS / INTEREST FREE F UNDS TO MEET THE INVESTMENTS WHEREUPON THE TAX EXEMPT DIVIDEND INCOM E WAS EARNED. HE, RELIED UPON THE DECISION OF THE JURISDICTIONAL HIGH COURT IN THE OWN CASE OF THE ASSESSEE TITLED AS CIT VS. KAPSONS ASSOCI ATES (2016) 381 ITR 204 (P&H), WHEREIN, IT HAS BEEN HELD THAT IF THE AS SESSEE HAS AVAILABILITY OF OWN SUFFICIENT FUNDS TO MAKE THE IN VESTMENT, THEN THE PRESUMPTION WOULD BE THAT INVESTMENT HAS BEEN MADE FROM OWN FUNDS AND NO DISALLOWANCE U/S 14A OF THE ACT WOULD BE ATT RACTED UNDER THOSE CIRCUMSTANCES. HE, THEREFORE, DELETED THE A DDITION IN RESPECT OF THE DISALLOWANCE OF INTEREST MADE BY THE ASSESSING OFFICER UNDER RULE 8D(2)(II) OF THE ACT. HOWEVER, SO FAR AS THE DISAL LOWANCE ON ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) WAS C ONCERNED, THE LD. CIT(A) SUSTAINED THE ADDITION SO MADE BY THE ASSESS ING OFFICER. BEING AGGRIEVED BY THE ABOVE ORDER OF THE CIT(A), T HE REVENUE THUS HAS COME IN APPEAL BEFORE US. 5. WE HAVE HEARD THE RIVAL CONTENTIONS AND HAVE ALS O GONE THROUGH THE RECORD. THERE IS NO REBUTTAL OF THE FACTUAL POSIT ION THAT THE ASSESSEE WAS POSSESSED OF OWN SUFFICIENT FUNDS TO MEET THE INVES TMENT IN QUESTION. HOWEVER, THE LD. DR CONTENDED THAT THE PROPOSITION LAID DOWN BY THE ITA NO.1434/CHD/2017 M/S KAPSONS ASSOCIATES INVESTMENT (P) LIMITED, LUD HIANA 3 HON'BLE JURISDICTIONAL HIGH COURT IN THE DECISION R ELIED UPON BY THE CIT(APPEALS) WHILE DELETING THE DISALLOWANCE WAS N O LONGER GOOD LAW. THE LD. DR POINTED OUT THAT THE PRESUMPTION THEORY HAD NOW BEEN OVERRULED BY THE HON'BLE APEX COURT IN ITS DECISION IN GROUP OF CASES WITH THE LEAD CASE BEING MAXOPP INVESTMENT LTD. VS . CIT (2018) 402 ITR 640 (SC), WHEREIN IN THE CONTEXT OF SECTION 14A , THE DECISION OF THE HON'BLE JURISDICTIONAL PUNJAB & HARYANA HIGH COURT IN THE CASE OF AVON CYCLES LTD. VS. CIT IN ITA NO.277 OF 2013 WAS ALSO UNDER CONSIDERATION WHEREIN THE HON'BLE JURISDICTIONAL HIGH COURT HAS U PHELD THE DISALLOWANCE OF INTEREST U/S 14A WHERE MIXED FUNDS WERE DEPLOYED BY THE ASSESSEE, AND THIS PROPOSITION HAS BEEN AFFIRME D BY THE HON'BLE APEX COURT. OUR ATTENTION WAS DRAWN TO PARA 42 OF THE OR DER OF THE HON'BLE APEX COURT IN THIS REGARD WHICH IS REPRODUCED AS UN DER: 40 CIVIL APPEAL NO. 1423 OF 2015 IS FILED BY M/S. AVON CYCLES LIMITED, LUDHIANA, WHEREIN THE AO HAD INVOKED SECTION 14 A OF THE ACT READ WITH RULE 8D OF THE RULES AND APPORTIONED THE EXPENDITURE. THE CIT(A) HAD SET ASIDE THE DISALLOWANCE, WHICH VIEW W AS UPTURNED BY THE ITAT IN THE FOLLOWING WORDS: '...ADMITTEDLY THE ASSESSEE HAD PAID TOTAL INTEREST OF RS.2.92 CRORES OUT OF WHICH INTEREST PAID ON TERM LOAN RAISED FOR SPECIFIC PURPOSE TOTALS TO RS.1.70 CRORES A ND BALANCE INTEREST PAID BY THE ASSESSEE IS RS.1.21 CROR ES. THE FUNDS UTILIZED BY THE ASSESSEE BEING MIXED FUNDS AND IN VIEW OF THE PROVISIONS OF RULE 8D(2)(II) OF THE INCOME TAX RULES THE DISALLOWANCE IS CONFIRMED AT RS.10,49,851/-, WE FIND NO MERIT IN THE AD HOC DISALLOWANCE MADE BY THE C IT (APPEALS) RS.5,00,000/-. CONSEQUENTLY, GROUND OF APPEAL RAISED BY THE REVENUE IS PARTLY ALLOWED AND GROUND RA ISED BY THE ASSESSEE IN CROSS-OBJECTION IS ALLOWED...'--- TAKING NOTE OF THE AFORESAID FINDING OF FACT, THE HI GH COURT HAS DISMISSED THE APPEAL OF THE ASSESSEE OBSERVING A S UNDER: 'IN THE PRESENT CASE, AFTER EXAMINING THE BALANCE-SHE ET OF THE ASSESSEE, A FINDING OF FACT HAS BEEN RECORDED TH AT THE FUNDS UTILIZED BY THE ASSESSEE BEING MIXED FUNDS, T HEREFORE, THE INTEREST PAID BY THE ASSESSEE IS ALSO AN INTERES T ON THE ITA NO.1434/CHD/2017 M/S KAPSONS ASSOCIATES INVESTMENT (P) LIMITED, LUD HIANA 4 INVESTMENTS MADE. SUCH BEING A FINDING OF FACT, WE DO NOT FIND THAT ANY SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATION OF THIS COURT. AFTER GOING THROUGH THE RECORDS AND APPLYING THE PRI NCIPLE OF APPORTIONMENT, WHICH IS HELD TO BE APPLICABLE IN SUCH C ASES, WE DO NOT FIND ANY MERIT IN CIVIL APPEAL NO. 1423 OF 201 5, WHICH IS ACCORDINGLY DISMISSED. 6. WE FIND THAT THE AFORESAID DECISION OF THE HON' BLE SUPREME COURT IN THE CASE OF AVON CYCLES LTD VS. CIT (SUPRA) WITH THE LEAD CASE BEING MAXOPPP INVESTMENT LTD VS. CIT (SUPRA) HAS COME INTO CONSIDERATION BEFORE THE COORDINATE BENCH OF THE TRIBUNAL IN THE CASE OF ACIT VS. JANAK GLOBAL RESOURCES PVT LTD ITA NO. 470/CHD/201 8 ORDER DATED 16.10.2018 (INCIDENTALLY CONSISTED OF BOTH OF US) , WHEREIN, THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE ALSO CONSIDE RING THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF HERO CYCLES VS. CIT 379 ITR 347 (SC) . THE RELEVANT PART OF THE ORDER OF THIS TRIB UNAL IN THE CASE OF ACIT VS. M/S JANAK GLOBAL RESOURCES PVT LTD. (SUPRA) IS REPRODUCED AS UNDER:- 9. WE HAVE CAREFULLY CONSIDERED THE CONTENTIONS OF BOTH THE PARTIES AND HAVE ALSO GONE THROUGH VARIOUS CASE LAWS REFERRED TO BEFORE US. THE ISSUE TO BE ADJUDICATED, AS NARROWED DOWN FROM THE ARGUMENTS MADE BEFORE US BY BOTH THE PARTIES, IS WHETHER IN RELATION TO DISALLOWANCE OF INTEREST MADE U/S.36(1) (III) OF THE ACT, THE PROPOSITION LAID DOWN BY THE HON'BL E JURISDICTIONAL HIGH COURT IN A NUMBER OF DECISIONS, THAT WHERE THE ASSESSEE HAD SUFFICIENT OWN INTEREST FREE FUNDS ALONG WITH INTEREST BEARING FUNDS AND HAD MAD E OR ADVANCED SUMS FOR NON BUSINESS PURPOSES WITHOUT CHARGING ANY INTEREST, THE PRESUMPTION THAT WOULD ARISE IS THAT THE INVESTMENT HAD BEEN MADE OUT OF INTERES T FREE FUNDS GENERATED OR AVAILABLE WITH THE ASSESSEE , IS STILL A GOOD LAW IN THE LIGHT OF THE DECISION OF TH E HON'BLE APEX COURT IN THE CASE OF HERO CYCLES LTD. (SUPRA). 10. WE ARE IN AGREEMENT WITH THE CONTENTION OF THE LD. COUNSEL FOR ASSESSEE. UNDOUBTEDLY, PROPOSITION OF L AW LAID DOWN BY COURTS HAVE TO BE READ IN THE CONTEXT OF THE FACTS BEFORE THEM AND THE ISSUE DEALT WITH BY T HEM. ITA NO.1434/CHD/2017 M/S KAPSONS ASSOCIATES INVESTMENT (P) LIMITED, LUD HIANA 5 RELIANCE SHOULD NOT BE PLACED ON A DECISION WITHOUT DISCUSSING HOW THE FACTUAL SITUATION FITS IN WITH T HE FACTUAL SITUATION OF THE DECISION ON WHICH RELIANCE IS PLACED. THE HONBLE HIGH COURT OF BOMBAY IN THE CAS E OF CIT VS SUDHIR, 214 ITR 154 (BOM) HAS OBSERVED THAT A CASE IS AN AUTHORITY FOR WHAT IT ACTUALLY DECIDES A ND NOT WHAT MAY COME TO FOLLOW FROM SOME OBSERVATION WHICH MAY FIND PLACE THEREIN. THE HONBLE HIGH COURT OBSE RVED AS UNDER: IT IS WELL-SETTLED THAT THE RATIO OF A DECISION AL ONE IS BINDING, BECAUSE A CASE IS ONLY AN AUTHORITY FOR WHAT IT ACTUALLY DECI DES AND NOT WHAT MAY COME TO FOLLOW FROM SOME OBSERVATIONS WHICH FIND PL ACE THEREIN. THE RATIO OF THE DECISION HAS TO BE DISTINGUISHED FROM PROPOS ITIONS ASSUMED BY THE COURT TO BE CORRECT FOR THE PURPOSE OF DISPOSING OF THE PARTICULAR CASE, BECAUSE IT IS THE RATIO AND NOT THE PROPOSITIONS WH ICH ARE RELEVANT AND BINDING. IT IS, THEREFORE, NOT PROPER TO REGARD EVE RY WORD, CLAUSE OR SENTENCE OCCURRING IN A JUDGMENT OF THE COURT AS CO NTAINING A FULL EXPOSITION OF THE LAW. JUDGMENTS OF THE COURTS SHOU LD NOT BE CONSTRUED AS STATUTES. THEY MUST BE READ AS A WHOLE AND OBSER VATIONS MADE THEREIN SHOULD BE CONSIDERED IN THE LIGHT OF THE FACTS AND CIRCUMSTANCES OF THAT CASE AND THE QUESTIONS BEFORE THE COURT. A DECISION OF THE COURT TAKES ITS COLOUR FROM THE QUESTIONS INVOLVED IN THE CASE IN W HICH IT IS RENDERED. IN THE CASE OF CIT VS SUN ENGINEERING WORKS PVT. LTD. 198 ITR 297(SC), THE HONBLE SUPREME COURT OBSERVED THAT JUDGEMENTS MUST BE READ AS A WHOLE AN D OBSERVATIONS IN JUDGEMENTS SHOULD BE CONSIDERED IN THE CONTEXT IN WHICH THEY ARE MADE AND IN THE LIGHT OF THE QUESTION THAT WERE BEFORE THE COURT: IT IS NEITHER DESIRABLE NOR PERMISSIBLE TO PICK OU T A WORD OR A SENTENCE FROM THE JUDGEMENT OF THE SUPREME COURT DIVORCED FROM THE CONTEXT OF THE QUESTION UNDER CONSIDERATION AND TREAT IT TO BE THE COMPLETE LAW DECLARED BY THE COURT. THE JUDGEMENT MUST BE READ AS A WHOLE AND THE OBSERVATION FROM THE JUDGEMENT HAVE TO BE CONSIDERED IN THE LIGHT OF THE QUESTIONS WHICH WERE BEFORE THE COURT.A DECISIO N OF THE SUPREME COURT TAKES ITS COLOUR FROM THE QUESTION INVOLVED IN THE CASE IN WHICH IT IS RENDER ED AND WHILE APPLYING THE DECISION TO A LATER CASE,COU RTS MUST CAREFULLY TRY TO ASCERTAIN THE TRUE PRINCIPLE LAID DOWN BY THE DECISION. 11. THE HONBLE APEX COURT IN THE CASE OF GOODYEAR INDIA LTD & ORS VS STATE OF HARYANA & ANOTHER AND STATE OF MAHARASHTRA & ANOTHER REPORTED IN 188 ITR 402(1991) HAVE HELD THAT A DECISION ON A QUESTION THAT HAS NOT BEEN ARGUED CANNOT BE TREATED AS A PRECEDEN T. THE HONBLE KERALA HIGH COURT IN THE CASE OF CIT VS K. RAMAKRISHNAN (1993) 202 ITR 997 HELD THAT A PRECEDE NT IS AN AUTHORITY ONLY FOR WHAT IT ACTUALLY DECIDES A ND NOT FOR WHAT MAY REMOTELY OR EVEN LOGICALLY FOLLOW FROM IT. ITA NO.1434/CHD/2017 M/S KAPSONS ASSOCIATES INVESTMENT (P) LIMITED, LUD HIANA 6 HAVING SAID SO WE FIND THAT IN THE CASE OF AVON CYCLES LTD. (SUPRA) THE ISSUE WAS RELATING TO DISALLOWANCE OF EXPENDITURE U/S 14A OF THE ACT. THE HON'BLE APEX COURT DEALING WITH THE BUNCH OF CASES RELATING TO SAID ISSUE, TOOK UP THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA) AS THE LEAD CASE AND PROCEE DED TO ANSWER THE QUESTION WHICH AROSE UNDER VARIOUS CIRCUMSTANCES BEFORE THEM THAT WHETHER THE INVESTME NT MADE IN SHARES AND STOCKS FOR THE PURPOSE OF RETAIN ING THE CONTROL OVER THE COMPANY OR AS STOCK-IN-TRADE A ND FROM WHICH EXEMPT INCOME BY WAY OF DIVIDEND WAS GENERATED WOULD ATTRACT THE PROVISIONS OF SECTION 1 4A OF THE ACT, CALLING FOR DISALLOWANCE OF EXPENDITURE IN CURRED IN RELATION TO EARNING THE SAID DIVIDEND INCOME AND THE QUESTION AROSE FOR THE REASON THAT IT WAS THE CONTE NTION OF THE ASSESSEE, WHICH HAD BEEN UPHELD BY VARIOUS H IGH COURTS, THAT THE DOMINANT PURPOSE FOR MAKING THE INVESTMENT IN THE SHARES NOT BEING EARNING OF DIVID END INCOME, IT CALLED FOR NO DISALLOWANCE OF EXPENDITUR E U/S 14A OF THE ACT. ANSWERING THIS QUESTION THE HON'BLE SUPREME COURT HELD THAT THE DOMINANT PURPOSE TEST W AS IRRELEVANT AND THE FACT REMAINING THAT THE EXEMPT INCOME HAD BEEN EARNED WHICH WAS ATTRIBUTABLE TO TH E DIVIDEND INCOME HAD TO BE DISALLOWED AND COULD NOT BE TREATED AS BUSINESS EXPENDITURE. THE HON'BLE APEX COURT REAFFIRMED THE THEORY OF APPORTIONMENT OF EXPENDITURE BETWEEN TAXABLE AND NON TAXABLE INCOME LAID DOWN BY IT IN THE CASE OF CIT VS. WALFORT SHAR E & STOCK BROKERS PVT. LTD., 326 ITR 1. AFTER HOLDING S O, THE HON'BLE APEX COURT DEALT WITH THE APPEAL FILED IN T HE CASE OF AVON CYCLES LTD. (SUPRA) AND TAKING NOTE TH AT THE FACT IN THAT CASE WAS THAT THE FUNDS UTILIZED B Y THE ASSESSEE WERE MIXED FUNDS, THE HON'BLE APEX COURT HELD THAT THE PRINCIPLE OF APPORTIONMENT WAS TO BE APPLIED AND, THEREFORE, DISMISSED THE APPEAL OF THE ASSESSEE. THE SAME IS EVIDENT FROM A BARE READING I N THE CASE OF MAXOPP INVESTMENT LTD. (SUPRA) AND MORE SPECIFICALLY PARA 42 OF THE SAID ORDER WHEREIN THE CASE OF AVON CYCLES LTD. (SUPRA) HAS BEEN DEALT WITH AND WHICH IS REPRODUCED AGAIN HEREUNDER: 40. CIVIL APPEAL NO. 1423 OF 2015 IS FILED BY M/S. AVO N CYCLES LIMITED, LUDHIANA, WHEREIN THE AO HAD INVOKED SECTI ON 14A OF THE ACT READ WITH RULE 8D OF THE RULES AND APPORTIONED THE EXPENDITURE. THE CIT(A) HAD SET ASIDE THE DISALLOWANCE, WHICH VI EW WAS UPTURNED BY THE ITAT IN THE FOLLOWING WORDS: '...ADMITTEDLY THE ASSESSEE HAD PAID TOTAL INTEREST OF RS.2.92 CRORES OUT OF WHICH INTEREST PAID ON TERM LOAN RAIS ED FOR SPECIFIC PURPOSE TOTALS TO RS.1.70 CRORES AND BALANCE INTERE ST PAID BY THE ASSESSEE IS RS.1.21 CRORES. THE FUNDS UTILIZED BY T HE ASSESSEE BEING MIXED FUNDS AND IN VIEW OF THE PROVISIONS OF RULE 8D(2)(II) OF THE INCOME TAX RULES THE DISALLOWANCE IS CONFIRM ED AT RS.10,49,851/-, WE FIND NO MERIT IN THE AD HOC DISA LLOWANCE ITA NO.1434/CHD/2017 M/S KAPSONS ASSOCIATES INVESTMENT (P) LIMITED, LUD HIANA 7 MADE BY THE CIT (APPEALS) RS.5,00,000/-. CONSEQUENT LY, GROUND OF APPEAL RAISED BY THE REVENUE IS PARTLY ALLOWED A ND GROUND RAISED BY THE ASSESSEE IN CROSS-OBJECTION IS ALLOWE D...' TAKING NOTE OF THE AFORESAID FINDING OF FACT, THE H IGH COURT HAS DISMISSED THE APPEAL OF THE ASSESSEE OBSERVING AS U NDER: 'IN THE PRESENT CASE, AFTER EXAMINING THE BALANCE-S HEET OF THE ASSESSEE, A FINDING OF FACT HAS BEEN RECORDED THAT THE FUNDS UTILIZED BY THE ASSESSEE BEING MIXED FUNDS, THEREFO RE, THE INTEREST PAID BY THE ASSESSEE IS ALSO AN INTEREST ON THE INV ESTMENTS MADE. SUCH BEING A FINDING OF FACT, WE DO NOT FIND THAT ANY SUBSTANTIAL QUESTION OF LAW ARISES FOR CONSIDERATIO N OF THIS COURT. AFTER GOING THROUGH THE RECORDS AND APPLYING THE PR INCIPLE OF APPORTIONMENT, WHICH IS HELD TO BE APPLICABLE IN SU CH CASES, WE DO NOT FIND ANY MERIT IN CIVIL APPEAL NO. 1423 OF 2 015, WHICH IS ACCORDINGLY DISMISSED. 12. IT IS EVIDENT FROM THE ABOVE THAT THE ISSUE BEF ORE THE HON'BLE APEX COURT WAS NOT WHETHER THE PRESUMPTION THEORY WOULD APPLY OR NOT WHERE THERE ARE MIXED FUN DS AND THE ASSESSEE HAD DEMONSTRATED AVAILABILITY OF SUFFICIENT OWN FUNDS FOR MAKING THE INVESTMENTS . N O DISCUSSION ON THIS ASPECT HAS ALSO BEEN DONE BY THE HON'BLE APEX COURT AND MERELY NOTING THAT THE ASSES SEE HAD UTILIZED MIXED FUNDS, THE HON'BLE APEX COURT HE LD THAT THE PRINCIPLE OF APPORTIONMENT WOULD APPLY. WITHOUT ANY DISCUSSION OR DELIBERATION ON THE PRESUMPTION THEORY, THE PROPOSITION LAID DOWN IN TH E CASE OF AVON CYCLES LTD. (SUPRA) BY THE HON'BLE APE X COURT HAS TO BE RESTRICTED TO THE EXTENT OF THE ISS UE BEFORE THE HON'BLE APEX COURT AND FACTS BEFORE IT A ND NOT BEYOND THAT. AND ON THAT BASIS THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF AVON CYCLES LT D. (SUPRA) CAN BE READ ONLY TO THE EXTENT OF UPHOLDING THE PRINCIPLE OF APPORTIONMENT OF EXPENSES INCURRED IN THE CONTEXT OF THE LIMITED FACT OF MIXED FUNDS AVAILABL E WITH ASSESSEE AND NO FURTHER. THE PROPOSITION LAID DOWN CANNOT BE STRETCHED EVEN LOGICALLY TO ADDRESS THE F ACT SITUATION WHERE SUFFICIENT OWN INTEREST FREE FUNDS ARE AVAILABLE WITH ASSESSEE, WHICH FACT WAS NOT THERE BEFORE THE HONBLE APEX COURT IN THE CASE OF AVON C YCLES (SUPRA), AND TO NEGATE THE PRESUMPTION THAT THE OWN FUNDS WERE USED FOR MAKING THE INVESTMENT, WHICH WA S NEITHER THE QUESTION RAISED BEFORE THE APEX COURT A ND THEREFORE NOT ADDRESSED BY IT ALSO. 13. GOING FURTHER FROM HERE WE FIND THAT THE PRESUMPTION THEOORY WAS UPHELD BY THE HON'BLE SUPREME COURT IN THE CASE OF HERO CYCLES PVT. LTD. (SUPRA) WHEREIN ON THE ISSUE OF DISALLOWANCE OF EXPENDITURE U/S.36(1)(III) OF THE ACT ON INTEREST F REE ADVANCE MADE TO DIRECTORS, THE HON'BLE APEX COURT H ELD ITA NO.1434/CHD/2017 M/S KAPSONS ASSOCIATES INVESTMENT (P) LIMITED, LUD HIANA 8 THAT IN VIEW OF THE FINDINGS OF FACT THAT THE ASSES SEE HAD SUFFICIENT CREDIT BALANCE IN ITS BANK ACCOUNT F OR MAKING THE IMPUGNED ADVANCES AND HAD SUFFICIENT OWN INTEREST FREE FUNDS, THE ASSESSEE COMPANY COULD IN ANY CASE UTILIZE THOSE FUNDS FOR GIVING ADVANCES TO ITS DIRECTORS. THE FINDINGS OF THE HON'BLE APEX COURT A T PARA 16 OF THIS ORDER TO THIS EFFECT ARE AS UNDER: 16. INSOFAR AS THE LOANS TO DIRECTORS ARE CONCERNED, IT COULD NOT BE DISPUTED BY THE REVENUE THAT THE ASSESSEE HAD A CREDIT BALANCE IN THE BANK ACCOUNT WHEN THE SAID ADVANCE OF RS.34 LAKHS WAS GIVEN. REMARKABLY, AS OBSERVED BY THE CIT(A) IN HIS ORDER, THE COMPANY HAD RESERVE/SURPLUS TO THE TUNE OF ALMOST RS.15 CRORES AND, THEREFORE, THE ASSESSEE COMPANY COULD IN ANY CASE, UTILISE THOSE FUNDS FOR GIVING ADVANCE TO ITS DIRECTORS. 14. IT IS EVIDENT FROM THE ABOVE THAT THE HON'BLE A PEX COURT HAD IN VERY CLEAR TERMS HELD THAT WHERE SUFFI CIENT OWN INTEREST FREE FUNDS ARE AVAILABLE WITH THE ASSE SSEE, THE PRESUMPTION ARISES THAT THE ASSESSEE HAD UTILIS ED THOSE FUNDS FOR THE PURPOSE OF MAKING INTEREST FREE NON BUSINESS ADVANCES. THUS IN VERY CLEAR TERMS THE HON 'BLE APEX COURT IN THE CASE OF HERO CYCLES PVT. LTD. (SU PRA) HAVE UPHELD HE PRESUMPTION THEORY. 15. CONSIDERING BOTH THE JUDGMENTS OF THE HON'BLE APEX COURT AND READING AND INTERPRETING THEM IN THE LIGHT OF FACTS AND THE ISSUE BEFORE THE HON'BLE APE X COURT WE FIND THAT THE JUDGMENTS COMPLIMENT EACH OTHER. IN THE CASE OF AVON CYCLES LTD. (SUPRA) THE HON'BLE APEX COURT HELD THAT IN THE FACT SITUATION WHERE MIXED FUNDS ARE UTILIZED BY THE ASSESSEE, THE DISALLOWANCE OF INTEREST TO THE EXTENT THE FUNDS AR E UTILIZED FOR THE PURPOSE OF NON BUSINESS ADVANCE IS WARRANTED. GOING FORWARD FROM THERE, THE PRESUMPTIO N THEORY WOULD COME INTO OPERATION IF IN THE CASE OF MIXED FUNDS, THE ASSESSEE IS ABLE TO DEMONSTRATE/ ESTAB LISH AVAILABILITY OF INTEREST FREE FUNDS EQUAL TO OR MO RE THAN INTEREST FREE NON BUSINESS ADVANCES/INVESTMENTS TH US RAISING THE PRESUMPTION THAT THE SAME HAVE BEEN MAD E OUT OF THE INTEREST FREE FUNDS OF THE ASSESSEE. 16. IN VIEW OF THE ABOVE, WE HOLD THAT THE DECISION OF THE HON'BLE APEX COURT IN THE CASE OF AVON CYCLES L TD. (SUPRA) DOES NOT DISPLACE THE PRESUMPTION THEORY WH ICH HAS BEEN UPHELD BY THE HON'BLE APEX COURT IN THE CA SE OF HERO CYCLES PVT. LTD. (SUPRA) AND THE SAME STILL HOLDS. IN VIEW OF THE ABOVE, SINCE THE LD.CIT(APPEA LS), WE FIND, HAS ALLOWED THE ASSESSEES APPEAL DELETING THE DISALLOWANCE OF INTEREST MADE ON FINDING THAT IT HA D SUFFICIENT OWN INTEREST FREE FUNDS FOR MAKING THE INVESTMENT, WHICH FACT HAS NOT BEEN CONTROVERTED BY THE ITA NO.1434/CHD/2017 M/S KAPSONS ASSOCIATES INVESTMENT (P) LIMITED, LUD HIANA 9 REVENUE, WE SEE NO REASON TO INTERFERE IN THE ORDER OF THE LD. CIT(APPEALS) AND THE GROUND RAISED BY THE REVENUE, THEREFORE, IS DISMISSED. 6. IN VIEW OF THIS AND FOR THE SAKE OF CONSISTENCY, FOLLOWING OUR ABOVE DECISION IN THE CASE OF ACIT VS. JANAK GLOBAL RES OURCES PVT LTD (SUPRA), WE DO NOT FIND ANY MERIT IN THE APPEAL OF THE REVENUE AND THE SAME IS ACCORDINGLY DISMISSED. IN THE RESULT, APPEAL OF THE REVENUE STANDS DISMISS ED. ORDER PRONOUNCED IN THE OPEN COURT ON 15.11.2018. SD/- SD/- DATED : 15.11.2018 .. '+ ,- .- / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. # / / CIT 4. # / ( )/ THE CIT(A) 5. -01 2 , % 2 , 34516 / DR, ITAT, CHANDIGARH 6. 15 7$ / GUARD FILE '+ # / BY ORDER, 8 ' / ASSISTANT REGISTRAR ( . . , # $ / B.R.R. KUMAR) %& / ACCOUNTANT MEMBER ( / SANJAY GARG ) / JUDICIAL MEMBER