The DCIT, Circle-4, Ahmedabad V. Gujarat State Financial Services Ltd., Ahmedabad

ITA 1676/AHD/2013

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 9753 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 5 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-12-2016
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 10-11-2016
• Assessment Year: 2001-2002
• Appeal Filed On: 07-06-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Earning of tax free income; Commercial expediency
• Section: 143(3); 14A

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH, AHMEDABAD , , BEFORE SHRI RAJPAL YADAV, JUDICIAL MEMBER AND SHRI PRADIP KUMAR KEDIA, ACCOUNTANT MEMBER SL. NOS ITA NO(S) / COS ASSESSMENT YEAR (S) APPEAL(S)/CO BY APPELLANT VS. RESPONDENT APPELLANT RESPONDENT 1. 1676/AHD/2013 2001-02 DCIT CIR-4 AHMEDABAD GUJARAT STATE FINANCIAL SERVICES LTD. 3 RD FLOOR, B WING KHANIJ BHAVAN VASTRAPUR AHMEDABAD-380 052 PAN: AAACG 5581 B 2. 1677/AHD/2013 2002-03 -DO- -DO- ASSESSEE 3. 1678/AHD/2013 2004-05 -DO- -DO- ASSESSEE 4. 1727/AHD/2013 2001-02 GUJARAT STATE FINANCIAL LTD., AHD THE ACIT CIR-4 AHMEDABAD 5. CO 206/AHD/13 (IN ITA 1677/AHD/13) 2002-03 -DO- ASSESSEE DCIT CIR-4 AHMEDABAD 6. CO 207/AHD/13 (IN ITA 1678/AHD/13) 2004-05 -DO- ASSESSEE -DO- REVENUE BY : MR. JAMES KURIAN, DR ASSESSEE BY : MR. SANJAY R.SHAH, AR !' / DATE OF HEARING 10/11/2016 #$%&!' / DATE OF PRONOUNCEMENT 06/12/2016 / O R D E R PER PRADIP KUMAR KEDIA, AM: THE PRESENT APPEALS HAVE BEEN FILED BY THE R EVENUE AGAINST THE SEPARATE ORDERS OF THE COMMISSIONER OF INCOME TAX ( APPEALS) [CIT(A) ITA NOS.167 6,1677 & 1678/AHD/2013 (BY REVENUE) ITA NO.1727 AND CO NOS.206 & 207/AHD/13 (BY ASSESSE E) DCIT VS. GUJARAT STATE FINANCIAL SERVICES LTD. - 2 - IN SHORT] IN RELATION TO ASSESSMENT YEARS (AYS) 200 1-02, 2002-03 & 2004-05 ALL IDENTICALLY DATED 26/03/2013. THE AS SESSEE HAS ALSO FILED CROSS-APPEAL IN AY 2001-02 AGAINST THE AFORESAID OR DER OF THE CIT(A) DATED 26/03/2013 AND ALSO FILED CROSS-OBJECTION IN RELATION TO AYS 2002- 03 & 2004-05 IN APPEAL FILED BY THE REVENUE. 2. IN THE COURSE OF HEARING, WE WERE TOLD BY THE LD .AR FOR THE ASSESSEE THAT COMMON ISSUE OF DISALLOWANCE UNDER SE CTION 14AOF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS 'T HE ACT') IS INVOLVED IN ALL THESE THREE YEARS. AS THE FACTS ARE BROADLY SI MILAR IN ALL THESE THREE YEARS FOR THE SAME ASSESSEE AND THE ISSUE INVOLVED IS COMMON, ALL THE THREE APPEALS OF THE REVENUE AND CROSS-APPEAL AND T HE CROSS OBJECTIONS OF THE ASSESSEE ARE DISPOSED OF TOGETHER FOR THE SA KE OF CONVENIENCE. 3. FOR THE PURPOSE OF ADJUDICATION OF THE ISSUE INV OLVED, WE SHALL FIRST TAKE UP CROSS-APPEALS IN ITA NO.1676/AHD/2013 (BY R EVENUE) AND 1727/AHD/2013 (BY ASSESSEE) IN RELATION TO AY 2001- 02 AS A LEAD YEAR. THE REVENUE IS AGGRIEVED BY PARTIAL RELIEF GIVEN BY THE CIT(A) IN CONNECTION WITH PROPORTIONATE DISALLOWANCE OF INTER EST UNDER SECTION 14A OF THE ACT BY THE ASSESSING OFFICER (AO). THE ASSE SSEE IS ALSO AGGRIEVED BY THE ACTION OF THE CIT(A) IN SUSTAINING THE OTHER PART OF THE DISALLOWANCE. THE RELEVANT GROUND OF THE REVENUES APPEAL READS AS UNDER:- ITA NOS.167 6,1677 & 1678/AHD/2013 (BY REVENUE) ITA NO.1727 AND CO NOS.206 & 207/AHD/13 (BY ASSESSE E) DCIT VS. GUJARAT STATE FINANCIAL SERVICES LTD. - 3 - 1. THE LD.CIT(A) HAS ERRED IN LAW AND ON FACTS IN RESTRICTING THE DISALLOWANCE OF RS.2.38 CRORES OUT OF 5.32 CRORES M ADE U/S.14A ON ACCOUNT OF INTEREST WITHOUT CONTROVERTING THE JUDIC IAL DECISIONS RELIED UPON BY THE A.O. AND NOT CONSIDERING THE DEC ISION OF DELHI HIGH COURT IN THE CASE OF MOXOPP INVESTMENT LTD. (3 47 ITR 272) 3.1. LIKEWISE, THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE READ UNDER:- YOUR APPELLANT BEING AGGRIEVED BY THE ORDER PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS)-VIII, AHMEDABA D, (HEREINAFTER REFERRED TO 'LEARNED CIT(A)'), PRESENTS THIS APPEAL AGAINST THE SAME ON THE FOLLOWING GROUNDS OF APPEAL, WHICH ARE WITHOUT PREJ UDICE TO EACH OTHER: 1. THE ORDER PASSED BY THE LEARNED CIT(A) IS ERRONE OUS AND CONTRARY TO THE PROVISIONS OF LAW & FACTS OF THE CASE AND THEREFORE NEEDS TO BE SUITABLY MODIFIED. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS I N PARTLY UPHOLDING DISALLOWANCE UNDER SECTION 14A OF THE ACT BY CONSID ERING INVESTMENT OF RS. 23.28 CRORES TO HAVE BEEN MADE BY APPELLANT OUT OF BORROWED FUNDS IN ABSENCE OF ANY EVIDENCE CORROBORATING SUCH A FINDIN G. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2.1 THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN HOLDING THAT INVESTMENT OF RS. 23.28 CRORES WAS MADE OUT OF BORROWED FUNDS DES PITE THE FACT THAT THE APPELLANT HAD SUFFICIENT OWN FUNDS WHICH SIGNIFICAN TLY EXCEEDED INVESTMENT IN EXEMPT INCOME YIELDING SECURITIES. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2.2 THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN UPHOLDING THE PRESUMPTION RAISED BY THE A.O. THAT OWN FUNDS OF TH E APPELLANT WERE INVESTED IN GROSS BLOCK OF FIXED ASSETS TO THE EXTENT OF RS. 55.04 CRORES. IT IS SUBMITTED THAT SUCH PRESUMPTION RAISED BY THE A.O. IS CONTRAR Y TO FACTS AND LEGAL POSITION AND THE PROVISIONS OF SECTION 14A OF THE A CT. IT IS SUBMITTED THAT IT BE SO HELD NOW. 2.3 THE LEARNED CIT(A) ERRED IN LAW IN NOT CONSIDER ING THE CONTENTION OF THE APPELLANT THAT WHEN THERE IS NO NET INTEREST OUT GO AND THERE IS NET RECEIPT OF ITA NOS.167 6,1677 & 1678/AHD/2013 (BY REVENUE) ITA NO.1727 AND CO NOS.206 & 207/AHD/13 (BY ASSESSE E) DCIT VS. GUJARAT STATE FINANCIAL SERVICES LTD. - 4 - INTEREST INCOME, NO INTEREST EXPENDITURE CAN BE SAI D TO HAVE BEEN INCURRED FOR PURPOSE OF EARNING EXEMPT INCOME AND HENCE NO DISAL LOWANCE UNDER SECTION 14A OF THE ACT TOWARDS INTEREST EXPENSES COULD HAVE BEEN MADE. IT IS SUBMITTED THAT IT BE SO HELD NOW. YOUR APPELLANT PRAYS FOR LEAVE TO ADD, ALTER AND/OR AMEND ALL OR ANY OF THE GROUNDS BEFORE THE FINAL HEARING OF APPEAL. 4. BRIEFLY STATED, RELEVANT FACTS ARE THAT THE ASSE SSEE IS STATED TO BE A GOVERNMENT COMPANY IN WHICH 100% SHARES ARE OWNED B Y STATE GOVERNMENT OF GUJARAT. DURING THE YEAR UNDER CONSI DERATION, THE ASSESSEE HAS EARNED INCOME EXEMPT UNDER SECTION 10( 23)(G) OF RS.57,68,972/- AND DIVIDEND INCOME OF RS.4,81,45,54 3/-. THE ASSESSMENT WAS MADE UNDER SECTION 143(3) OF THE ACT DATED 16/02/2004 WHERE THE AO INTER ALIA WORKED OUT A PROPORTIONATE DISALLOWANCE IN RESPECT OF INTEREST EXPENDITURE OF RS.6,05,74,812/- BY INVOKING SECTION 14A OF THE ACT. THE AFORESAID DISALLOWANCE MADE BY THE AO WAS CHALLENGED BY THE ASSESSEE IN APPEAL BEFORE THE CIT (A). THE CIT(A) DELETED THE AFORESAID PROPORTIONATE DISALLOWANCE OF RS.6,05,74,812/- IN RESPECT OF INTEREST EXPENDITURE. AGAINST THE ORDER OF THE CIT(A), THE REVENUE PREFERRED THE APPEAL BEFORE THE ITAT. THE COORDINATE BENCH OF ITAT (AHMEDABAD A BENCH) VIDE ITS ORDER DATED IN ITA NO.229/AHD/2005 AND ITA NO.403/AHD/2005 FOR AY 200 1-02 DATED 10/07/2009 SET ASIDE THE PROPORTIONATE DISALLOWANCE OF INTEREST EXPENDITURE UNDER SECTION 14A OF THE ACT FOR FRESH ADJUDICATION IN THE LIGHT OF DECISION OF THE SPECIAL BENCH IN THE CASE OF ITO VS. DAGA CAPITAL ITA NOS.167 6,1677 & 1678/AHD/2013 (BY REVENUE) ITA NO.1727 AND CO NOS.206 & 207/AHD/13 (BY ASSESSE E) DCIT VS. GUJARAT STATE FINANCIAL SERVICES LTD. - 5 - MANAGEMENT PVT.LTD. 312 ITR (AT) 01. AS A SEQUE L THERETO, THE AO VIDE ORDER UNDER SECTION 143(3) R.W.S.254 OF THE A CT DATED 16/09/2011 RE-WORKED THE PROPORTIONATE DISALLOWANCE AT RS.5,32 ,32,158/- UNDER SECTION 14A OF THE ACT AND ADDED THE SAME TO THE TO TAL INCOME OF THE ASSESSEE. 5. IN APPEAL BEFORE THE CIT(A) AGAINST THE AFORESAI D ORDER, THE CIT(A) RESTRICTED THE DISALLOWANCE TO RS.2.38 CRORE S OUT OF RS.5.32 CRORES MADE BY THE AO. THE REVENUE IS AGGRIEVED BY THE PARTIAL RELIEF IN THE SECOND ROUND OF PROCEEDINGS BEFORE THE CIT(A). LIKEWISE, THE ASSESSEE IS ALSO AGGRIEVED BY THE CONFIRMATION OF T HE PARTIAL DISALLOWANCE BY THE CIT(A). 6. IN SUPPORT OF ITS APPEAL, THE LD.DR RELIED UPON THE ORDER OF THE ORDER OF THE AO. 7. THE LD.AR FOR THE ASSESSEE REITERATED ITS SUBMIS SIONS MADE BEFORE THE CIT(A) AND SUBMITTED THAT THE ASSESSEE IS A NON -BANKING FINANCE COMPANY AND IS IN THE BUSINESS OF FINANCING. THE A SSESSEE LENDS MONEY AND PROVIDES FINANCIAL ASSISTANCE TO VARIOUS ENTERP RISES. THE LOANS/FINANCIAL ASSISTANCE PROVIDED BY THE ASSESSEE -COMPANY IS DOMINANT ACTIVITY IN THE FORM OF SHORT TERM INTER-CORPORATE DEPOSITS. THE INCOME FROM SUCH BUSINESS WHICH IS IN THE FORM OF INTEREST IS OFFERED TO TAX BY THE ITA NOS.167 6,1677 & 1678/AHD/2013 (BY REVENUE) ITA NO.1727 AND CO NOS.206 & 207/AHD/13 (BY ASSESSE E) DCIT VS. GUJARAT STATE FINANCIAL SERVICES LTD. - 6 - ASSESSEE. IN ORDER TO FUND SUCH LOANS AND TO PROVI DE FINANCIAL ASSISTANCE, THE ASSESSEE BORROWS MONEY IN THE FORM OF INTER-COR PORATE DEPOSITS. THUS THE BORROWINGS ARE WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF FINANCIAL BUSINESS OF THE ASSESSEE AND IS NOT AT AL L RELATABLE TO INVESTMENT IN TAX-FREE SECURITIES. 7.1. IT WAS STATED ON BEHALF OF THE ASSESSEE THAT DURING THE YEAR UNDER CONSIDERATION, AN AMOUNT OF RS.68.36 CRORES ARE HE LD AS INVESTMENT FROM WHERE TAXABLE INCOME DOES NOT ACCRUE. AS AGAINST T HIS, THE ASSESSEE IS HOLDING OF INTEREST-FREE FUND OF RS.100.12 CRROES A T ITS DISPOSAL. THE LD.AR FURTHER SUBMITTED THAT THE AO ASSUMED THAT OW N FUNDS OF THE ASSESSEE HAVE BEEN DIVERTED IN THE FIXED ASSETS OF RS.55.04 CORRES. THE AO ALSO ASSUMED THAT A PART OF FUNDS HAVE BEEN APPL IED TOWARDS BANK BALANCE PEGGED AT RS.28.31 CRORES AND TOWARDS AMOUN T ADVANCED TO EMPLOYEES RS.38.22 CRORES. THE LD.AR FOR THE ASSES SEE THUS SUBMITTED THAT THE AO ASSUMED THAT THE ASSESSEE-COMPANY IS HA VING ONLY RS. 16.38CRORES AT THE DISPOSAL OF THE ASSESSEE TO INVE ST IN THE COMPANIES WHERE NO TAXABLE INCOME IS GENERATED. THE AO ACCOR DINGLY CAME TO A CONCLUSION THAT THE ASSESSEE HAS MADE INVESTMENT TO THE EXTENT OF RS.51.88 CRORES AGAINST TOTAL INVESTMENT OF RS.68.3 6 CRORES OUT OF INTEREST-BEARING FUNDS. THE AO ACCORDINGLY REWORK ED THE PROPORTIONATE DISALLOWANCE AT RS.5.32 CRORES OUT OF INTEREST EXPE NDITURE INCURRED RS.28.65 CRORES. THE LD.AR THEREAFTER SUBMITTED T HAT THE CIT(A) ON THE ITA NOS.167 6,1677 & 1678/AHD/2013 (BY REVENUE) ITA NO.1727 AND CO NOS.206 & 207/AHD/13 (BY ASSESSE E) DCIT VS. GUJARAT STATE FINANCIAL SERVICES LTD. - 7 - OTHER HAND ACCEPTED THE ASSUMPTION MADE BY THE AO W ITH REGARD TO INVESTMENT OF OWN FUNDS IN FIXED ASSETS. H THUS EN DORSED THE FINDINGS OF AO THAT OWN FUNDS HAVE BEEN DIVERTED TOWARDS INV ESTMENT OF FIXED ASSETS. HOWEVER, THE CIT(A) FOUND MERIT IN THE CONT ENTION OF THE ASSESSEE THAT NO PART OF THE OWN FUNDS CAN BE DEEMED TO HAVE BEEN INVESTED OR KEPT IN BANK BALANCE OR ADVANCE TO THE EMPLOYEES. THE CIT(A) ACCORDINGLY RESTRICTED THE DISALLOWANCE TO BE RE-WO RKED ON THE PREMISE OF PRESUMPTION THAT OWN FUNDS ARE INVESTED IN FIXED AS SETS. THEREFORE, ONLY REMAINING OWN FUNDS EXCLUDING AMOUNT ALLOCABLE TOWA RDS FIXED ASSETS, ARE AVAILABLE FOR INVESTMENT FOR CORRESPONDING TAX- FREE INVESTMENT. THE CIT(A) CONFIRMED THE PROPORTIONATE DISALLOWANCE OF INTEREST ON BORROWED FUNDS IN AFORESAID TERMS. 7.2. THE LD.AR HAVING NARRATED THE FACTS AS NOTED ABOVE ADVERTED OUR ATTENTION TO THE FINANCIAL STATEMENT OF THE ASSESSE E-COMPANY AS ON 31/03/2001 AND SUBMITTED THAT THE ASSESSEE IS HAVIN G INTEREST-FREE OWN FUNDS OF RS.100.12 CRORES WHEREAS THE CORRESPONDING INVESTMENT MADE IN THE TAX-FREE INSTRUMENTS IS TO THE TUNE OF RS.68.36 CRORES ONLY. THUS, THE INTEREST-FREE OWN FUNDS OF THE ASSESSEE IS FAR IN E XCESS OF THE INVESTMENT IN THE TAX-FREE INSTRUMENTS. 7.3. IN VIEW OF THE FACTUAL POSITION, IT WAS EXHOR TED BY THE LD.AR THAT THE CASE OF THE ASSESSEE IS SQUARELY COVERED BY THE DECISION OF THE ITA NOS.167 6,1677 & 1678/AHD/2013 (BY REVENUE) ITA NO.1727 AND CO NOS.206 & 207/AHD/13 (BY ASSESSE E) DCIT VS. GUJARAT STATE FINANCIAL SERVICES LTD. - 8 - HONBLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE U TILITIES & POWER LTD. (2009) 313 ITR 340 (BOM) WHERE IT WAS HELD THA T A PRESUMPTION CAN BE DRAWN THAT INVESTMENT FOR NON-BUSINESS PURPOSES HAD COME OUT OF OWN FUNDS. FOR THE AFORESAID PROPOSITION, THE LD.AR A LSO RELIED UPON THE DECISION OF THE HONBLE JURISDICTIONAL HIGH COURT I N THE CASE OF CIT VS. UTI BANK LTD. (2013) 32 TAXMANN.370 (GUJ.); IN THE CASE OF CIT VS. ANJANI SYNTHETICS LTD. IN TAX APPEAL NO.2096 OF 201 0 ORDER DATED 22/11/2011; CIT VS. LUBY SUBMERSIBLES IN TAX APPEA L NO.868 OF 2010 ORDER DATED 25/07/2007 AND CIT VS. GUJARAT INDUSTRI AL INVESTMENT CORPORATION LTD. IN TAX APPEAL NO.492 OF 2012 ORDER DATED 21/02/2003. THE LD.AR HARPED THAT IT IS AN ESTABLISHED FACT THA T ASSESSEE HAS SUFFICIENT OWN FUNDS DURING RELEVANT YEAR WHICH EXC EEDS INVESTMENT IN TAX FREE INCOME YIELDING SECURITIES AND THUS IT HAS TO BE PRESUMED THAT OWN FUNDS HAVE BEEN INVESTED IN TAX FREE INCOME YIE LDING SECURITIES UNLESS CONTRARY IS ESTABLISHED ON FACTS AND EVIDENC ES THEREON IS BROUGHT ON RECORD. THE LD.AR ACCORDINGLY SUBMITTED THAT PRESUMPTION BY THE CIT(A) THAT OWN FUNDS HAVE BEEN INVESTED IN FIXED A SSETS IS WITHOUT ANY CORROBORATION AND IS BASED ON CONJECTURES AND SURMI SES AND SEEMS WITHOUT ANY LEGAL FOUNDATION. 7.4. THE LD.AR ACCORDINGLY PLEADED THAT IN VIEW OF THE SUFFICIENT INTEREST-FREE FUNDS AVAILABLE AT THE DISPOSAL OF TH E COMPANY IN EXCESS OF INVESTMENTS YIELD TAX-FREE INCOME, NO PRESUMPTION I S REQUIRED TO BE ITA NOS.167 6,1677 & 1678/AHD/2013 (BY REVENUE) ITA NO.1727 AND CO NOS.206 & 207/AHD/13 (BY ASSESSE E) DCIT VS. GUJARAT STATE FINANCIAL SERVICES LTD. - 9 - DRAWN AGAINST THE ASSESSEE. HE ACCORDINGLY PLEADED THAT NO DISALLOWANCE IS CALLED FOR UNDER SECTION 14A OF THE ACT. 8. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE MATERIAL AVAILABLE ON RECORD AND GONE THROUGH THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE JUDGMENT RELIED UPON BY THE PARTIES. THE REVENUE AS WELL AS ASSESSEE HAVE RAISED QUESTIONS ON THE SCOPE OF S ECTION 14A OF THE ACT IN THE FACTS OF THE CASE. THE AO ON ONE HAND CLAIM S THAT INTEREST-FREE OWN FUNDS ARE ATTRIBUTABLE TO DEPLOYMENT IN FIXED A SSETS, BANK BALANCE, ADVANCE TO EMPLOYEES AND THEREFORE ONLY SURPLUS OWN FUNDS IS ELIGIBLE FOR EXEMPTION FROM THE PURVIEW OF SECTION 14A OF TH E ACT, THE ASSESSEE ON THE OTHER HAND, SUBMITS THAT IN THE RELEVANT AS SESSMENT YEARS THE PRESUMPTION WOULD ARISE IN FAVOUR OF ASSESSEE THAT INTEREST-FREE FUNDS HAVE BEEN DEPLOYED TOWARDS TAX-FREE INVESTMENTS FOR THE PURPOSE OF APPORTIONMENT OF THE INTEREST EXPENDITURE. IT IS PERTINENT TO NOTE HERE THAT WHILE THE ASSESSEE IS HOLDING BOTH INTEREST-FR EE FUNDS AND INTEREST- BEARING FUNDS, THE INTEREST-FREE FUNDS ARE CLAIMED TO BE FAR IN EXCESS OF CORRESPONDING INVESTMENT IN SECURITIES GIVING RISE TO TAX-FREE INCOME. THIS STATEMENT OF FACT HAS BEEN ASSERTED BY THE AS SESSEE BEFORE THE LOWER AUTHORITIES WITHOUT ANY REBUTTAL THEREOF. WE ALSO NOTE THAT THERE IS NO EVIDENCE ON RECORD TO SHOW THAT SHARE CAPITAL, RESE RVES, ETC. WERE INVESTED IN FIXED ASSETS OR BANK BALANCE OR ADVANC E TO THE EMPLOYEES, ETC. AS THE CASE MAY BE. HENCE ON THE FACE OF CL AIM OF AVAILABILITY OF ITA NOS.167 6,1677 & 1678/AHD/2013 (BY REVENUE) ITA NO.1727 AND CO NOS.206 & 207/AHD/13 (BY ASSESSE E) DCIT VS. GUJARAT STATE FINANCIAL SERVICES LTD. - 10 - INTEREST FREE FUNDS AT THE DISPOSAL OF THE ASSESSEE IN EXCESS OF CORRESPONDING INVESTMENTS TOGETHER WITH OTHER DEPLO YMENTS LACKING COMMERCIAL EXPEDIENCY, THE AO CANNOT IPSO FACTO PRE SUME UTILIZATION OF INTEREST BEARING FUNDS TOWARDS NON BUSINESS PURPOSE S. IN THESE FACTS, WE OBSERVE THAT THE DECISION OF THE HONBLE BOMBAY HIG H COURT IN THE CASE OF RELIANCE UTILITIES & POWER LTD.(SUPRA) IS QUITE RELEVANT. THE HONBLE HIGH COURT OBSERVED THEREIN THAT IF THERE BE INTERE ST-FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS A ND AT THE SAME TIME THE ASSESSEE HAS RAISED A LOAN, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE OUT OF INTEREST-FREE FUNDS AVAILABLE. THUS, A PRE SUMPTION WOULD ARISE IN FAVOUR OF ASSESSEE WHERE INTEREST-FREE FUNDS AVAILA BLE AT THE DISPOSAL OF THE ASSESSEE IN SUBSTITUTION OF REQUIREMENT OF THE FACTUAL EVIDENCE. SIMILAR PROPOSITION HAS BEEN RESTATED BY THE HONBL E JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. UTI BANK LTD. (2013) 3 2 TAXMANN.370 (GUJ.); SLP FILED BY THE REVENUE AGAINST WHICH HAS BEEN DISMISSED. IT IS ALSO PERTINENT TO SAY THAT FOR ATTRACTING SECTION 1 4A OF THE ACT THERE HAS TO BE A PROXIMATE CAUSE FOR DISALLOWANCE WHICH WAS DIR ECT OR INDIRECT RELATIONSHIP WITH THE TAX-FREE INCOME. THE ASSESSE E IN THE INSTANT CASE HAS CROSSED THE TEST OF PROXIMATE CAUSE IN THE SENS E THAT THE INTEREST-FREE OWN FUNDS AT THE DISBURSAL OF THE ASSESSEE ARE ADMI TTEDLY IN EXCESS OF THE INVESTMENTS IN SECURITIES GIVING RISE TO THE INCOME WHICH IS NOT INCLUDIBLE IN THE TOTAL INCOME. THUS, THE ACTION OF THE AO IN MAKING PROPORTIONATE DISALLOWANCE OF INTEREST EXPENSES QUA THE INVESTMENTS IN SECURITIES ITA NOS.167 6,1677 & 1678/AHD/2013 (BY REVENUE) ITA NO.1727 AND CO NOS.206 & 207/AHD/13 (BY ASSESSE E) DCIT VS. GUJARAT STATE FINANCIAL SERVICES LTD. - 11 - CANNOT BE APPROVED WHERE ASSESSEE IS FOUND TO HAVE SUFFICIENT INTEREST- FREE FUNDS TO MEET ITS CORRESPONDING INVESTMENTS YI ELDING EXEMPT INCOME TOGETHER WITH OTHER NON BUSINESS DEPLOYMENTS. IN SU CH A SCENARIO, A PRESUMPTION WOULD ORDINARILY ARISE THAT SUCH INVEST MENTS WERE MADE FROM INTEREST-FREE FUNDS AND NOT FROM LOANED FUNDS. THIS APART, WE ALSO SIMULTANEOUSLY NOTE THAT THE ASSESSEE HAS EARNED TA XABLE INTEREST INCOME TO THE TUNE OF RS.33.37 CRORES ON FUNDS DEPLOYED AS AGAINST INTEREST EXPENDITURE OF RS.27.03 CRORES. THUS, APPARENTLY, T HE FUNDS BORROWED HAVE BEEN UTILIZED WITH COMMERCIAL SPIRIT. INTEREST EXPENDITURE WHICH IS SOUGHT TO BE SUBJECTED TO PROPORTIONATE DISALLOWANC E GETS NULLIFIED BY THE CORRESPONDING INTEREST INCOME. NO RATIONALE HAS BEE N PROVIDED BY THE REVENUE IN NOT GRANTING CREDIT FOR THE INTEREST INC OME AGAINST THE INTEREST PAYMENT FOR THE PURPOSE OF COMPUTATION OF DISALLOWA NCE UNDER SECTION 14A OF THE ACT. HENCE, IN THE TOTALITY OF THE CIRC UMSTANCES, WE DO NOT FIND ANY TANGIBLE BASIS TO SUPPORT THE ORDER OF THE AO. WE NOTE THAT THE CIT(A) HAS ENDORSED THE PRESUMPTION OF THE AO THAT OWN FUNDS HAVE BEEN INVESTED IN FIXED ASSETS AND THEREFORE TO THE EXTENT OF THE VALUE OF FIXED ASSETS, PRESUMPTION HAS BEEN DRAWN AGAINST TH E ASSESSEE FOR INVESTMENT OF THE INTEREST-FREE FUNDS TOWARDS INVES TMENT IN SECURITIES. SUCH PRESUMPTION APPEARS TO BE MARRED BY CONJECTURE S AND SURMISES. THERE IS NO DEFINITE BASIS FOR SUCH PRESUMPTION. C OUPLED WITH THIS, ONE HAS TO SEE THE AVAILABLE FUNDS AND APPLICATION THER EOF HOLISTICALLY IN THE LIGHT OF DECISION IN THE CASE OF RELIANCE UTILITIES & POWER LTD.(SUPRA). ITA NOS.167 6,1677 & 1678/AHD/2013 (BY REVENUE) ITA NO.1727 AND CO NOS.206 & 207/AHD/13 (BY ASSESSE E) DCIT VS. GUJARAT STATE FINANCIAL SERVICES LTD. - 12 - THUS, WE FIND MERITS IN THE APPEAL OF THE ASSESSEE. WE HAVE ALSO TAKEN A NOTE OF THE DECISION RENDERED BY THE HONBLE DELHI HIGH COURT IN THE CASE OF MOXOPP INVESTMENT LTD. (347 ITR 272) RELIE D UPON BY THE AO OF ITS GROUND. WE DO NOT FIND ANYTHING IN THE AFOR ESAID DECISION WHICH RUNS CONTRARY TO THE DECISION OF HONBLE BOMBAY HIG H COURT IN RELIANCE UTILITIES & POWER LTD.(SUPRA) SUPPORTS THE CASE OF THE REVENUE. ON THE OTHER HAND, LONG LINE OF JUDICIAL PRECEDENTS NOTED ABOVE SQUARELY COVERS THE CASE OF THE ASSESSEE. THUS, WE HOLD THE APPEAL OF THE REVENUE IS WITHOUT ANY MERIT. 9. IN THE RESULT, APPEAL OF THE REVENUE IN ITA NO.1 676/AHD/2013 FOR AY 2001-02 IS DISMISSED, WHEREAS ASSESSEES CROSS-A PPEAL IN ITA NO.1727/AHD/2013 FOR AY 2001-02 IS ALLOWED. REVENUES APPEAL IN ITA NO.1677/AHD/2013 FOR AY 200 2-03, ASSESSEES CO NO.206/AHD/2013 FOR AY 2002-03, REVE NUES APPEAL IN ITA NO.1678/AHD/2013 FOR AY 2004-05 AND ASSESSEE S CO NO.207/AHD/2013 FOR AY 2004-05. 10. BOTH SIDES CONTENTED THAT IDENTICAL ISSUE IS IN VOLVED IN ALL THESE APPEALS AND CROSS-OBJECTIONS FOR OTHER ASSESSMENT Y EARS OF THE SAME ASSESSEE. THE FACTS INVOLVED ARE ALSO BROADLY SIMIL AR TO THAT OF AY 2001- 02 DEALT WITH HEREINABOVE. ITA NOS.167 6,1677 & 1678/AHD/2013 (BY REVENUE) ITA NO.1727 AND CO NOS.206 & 207/AHD/13 (BY ASSESSE E) DCIT VS. GUJARAT STATE FINANCIAL SERVICES LTD. - 13 - 11. IN VIEW OF THE SIMILARITY OF FACTS GOVERNING TH E COMMON ISSUE INVOLVED, OUR VIEW IN ITA NO.1676/AHD/2013 AND CROS S-APPEAL THEREIN ABOVE SHALL APPLY MUTATIS MUTANDIS TO ALL THE REMAINING APPEALS AND CROSS OBJECTIONS CAPTIONED ABOVE. AS A CONSEQUENCE, THE DISALLOWANCE MADE UNDER SECTION 14A BY THE REVENUE IS NOT SUSTAINABLE AND THUS STANDS VACATED. 12. IN THE RESULT, ALL THE APPEALS OF THE REVENUE ARE DISMISSED AND CROSS-APPEAL AND CROSS-OBJECTIONS OF THE ASSESS EE FOR ALL THE CAPTIONED ASSESSMENT YEARS IN APPEAL ARE ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 06/12/2016 SD/- SD/- () ( ) (RAJPAL YADAV) ( PRADIP KUMAR KEDIA ) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 06/ 12 /2016 ,..,.../ T.C. NAIR, SR. PS ITA NOS.167 6,1677 & 1678/AHD/2013 (BY REVENUE) ITA NO.1727 AND CO NOS.206 & 207/AHD/13 (BY ASSESSE E) DCIT VS. GUJARAT STATE FINANCIAL SERVICES LTD. - 14 - ! / COPY OF THE ORDER FORWARDED TO : 1. ./0 / THE APPELLANT 2. 1/0 / THE RESPONDENT. 3. 234' 5' / CONCERNED CIT 4. 5' ( . ) / THE CIT(A)-VIII, AHMEDABAD 5. 678'34 , ..34& , .2 / DR, ITAT, AHMEDABAD 6. 8: / GUARD FILE. / BY ORDER, 16'' //TRUE COPY// / ( DY./ASSTT.REGISTRAR) , / ITAT, AHMEDABAD 1. DATE OF DICTATION .. 28.11.16 (DICTATION-PAD 30 PAGES ATTACHED AT THE END OF THIS APPEAL-FILE) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER 28.11.16 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.06.12.16 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 06.12.16 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