DCIT (LTU- 1), New Delhi V. M/s. Caparo Engineering India Pvt. Ltd., New Delhi

ITA 444/DEL/2015

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 5453 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 3 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-05-2018
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: I
• Assessment Year: 2008-2009
• Appeal Filed On: 22-01-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; International transaction; Earning of tax free income
• Section: 14A; 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES : I-1 : NEW DELHI BEFORE SHRI R.S. SYAL, VICE PRESIDENT AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO.444/DEL/2015 ASSESSMENT YEAR : 2008-09 DCIT (LTU-1), NBCC PLAZA, PUSHP VIHAR, NEW DELHI. VS. CAPARO ENGINEERING INDIA PVT. LTD., 5 TH FLOOR, RAJENDRA BHAWAN, 210, DDU MARG, NEW DELHI. PAN: AABCC7862N (APPELLANT) (RESPONDENT) ASSESSEE BY : NONE DEPARTMENT BY : SHRI KUMAR PRANAV, SR. DR DATE OF HEARING : 01.05.2018 DATE OF PRONOUNCEMENT : 02.05.2018 ORDER PER R.S. SYAL, VP: THIS APPEAL FILED BY THE REVENUE ARISES OUT OF THE ORDER PASSED BY THE CIT(A) ON 12.09.2014 IN RELATION TO THE ASSESSMENT YEAR 2008-09. ITA NO.444/DEL/2015 2 2. THE FIRST GROUND IS AGAINST ALLOWING RELIEF OF RS.83,79,551/- IN RESPECT OF ADDITION ON ACCOUNT OF TRANSFER PRICING ADJUSTMENT. 3. BRIEFLY STATED, THE FACTS OF THIS GROUND ARE THA T THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF SHEE T METAL COMPONENTS AND WELD ASSEMBLIES, METAL FASTENERS, ALUMINUM FOUNDRY, FORGING AND TOOL ROOM. INTERNATIONAL TRANSACTIONS OF PURCHASE OF CA PITAL GOODS, SALE OF FINISHED GOODS, COMMISSION ON SALES AND REIMBURSEME NT OF EXPENSES, ALL TOTALING, RS.5.26 CRORE, WERE DECLARED IN FORM NO.3 CEB. THE ASSESSING OFFICER (A.O.) MADE REFERENCE TO THE TRANSFER PRICI NG OFFICER (TPO) FOR DETERMINING THE ARMS LENGTH PRICE (ALP) OF THE INT ERNATIONAL TRANSACTIONS. THE TPO DID NOT DISPUTE THE ALP OF ANY TRANSACTION EXCEPT COMMISSION PAYMENT OF RS.1,11,72,735/-. IN SUPPORT OF PAYMENT OF COMMISSION TO M/S BULL MOOSE TUBE, ITS ASSOCIATED ENTERPRISE (AE), AT THE ALP, THE ASSESSEE STATED THAT IT ENTERED INTO AN AGREEMENT FOR AVAILI NG EXPERT SERVICES OF ITS AE AND COMMISSION WAS PAID AS PER THE TERMS OF THE AGREEMENT. IN ORDER TO DEMONSTRATE THAT THIS INTERNATIONAL TRANSACTION WAS AT ALP, THE ASSESSEE APPLIED PROFIT SPLIT METHOD (PSM) AS THE MOST APPRO PRIATE METHOD. IN THE ABSENCE OF ANY SUBSTANTIATION OF THE ALP OF THE INT ERNATIONAL TRANSACTION OF ITA NO.444/DEL/2015 3 PAYMENT OF COMMISSION UNDER THIS METHOD, THE TPO OB SERVED THAT NO SALES WERE MADE THROUGH THE AE FOR WHICH THE ALLEGED COMM ISSION WAS PAID. THE ASSESSEE WAS FOUND TO HAVE MADE FIXED PAYMENT O F US $ 31,500 PER MONTH IN PERFORMANCE OF ITS AGREEMENT. THE TPO OPI NED THAT NO TANGIBLE AND CONCRETE BENEFIT WAS REAPED BY THE ASSESSEE. I N HIS OPINION, NO INDEPENDENT PARTY WOULD GET INTO SUCH AN AGREEMENT WHERE IT WOULD INCUR COST ON PROVISION OF NO SERVICES. HE, THEREFORE, H ELD THAT THE ASSESSEE MADE PAYMENT OF RS.1.11 CRORE FOR NO INTRA-GROUP SERVICE S. THE ALP OF THIS INTERNATIONAL TRANSACTION WAS TAKEN AT NIL ON APPLI CATION OF COMPARABLE UNCONTROLLED PRICE (CUP) METHOD. THAT IS HOW, THE TRANSFER PRICING ADJUSTMENT OF RS.1.11 CRORE WAS PROPOSED. THE ASSES SING OFFICER MADE THIS ADDITION. 4. THE ASSESSEE CHALLENGED SUCH ADDITION BEFORE THE LD. CIT(A). PLACING BEFORE THE LD. CIT(A), A COPY OF THE AGREEMENT WIT H THE AE, IT WAS ARGUED THAT AS PER THE TERMS OF THE AGREEMENT, THE AE WAS TO CREATE MARKET FOR THE ASSESSEE IN THE UNITED STATES, FOR WHICH IT WAS TO BE PAID COMMISSION @ 2% OF THE FOB VALUE OF THE SALES MADE TO THE CUSTOMERS IN THE US. IF THE AE DID NOT SUCCEED IN ITS EFFORTS, THE ASSESSEE WAS TO PAY US $31,500 PER ITA NO.444/DEL/2015 4 MONTH, BEING, THE ESTIMATED EXPENDITURE INCURRED BY THE AE IN PERFORMANCE OF THE SERVICES PERFORMED. THE ASSESSEE ALSO FURNIS HED BEFORE THE LD. FIRST APPELLATE AUTHORITY THE DETAILS OF EXPENDITURE INCU RRED BY THE AE; AND COPY OF BILLS OF EXPENDITURE INCURRED BY THE AE. IT WAS ARGUED THAT ITS AE HIRED THREE MARKETING PROFESSIONALS, I.E., MR. DHANANJAY MASLEKAR, MR. RICHARD CRAMB AND MR. NAVJOT SINGH EXCLUSIVELY FOR THE ASSE SSEES OPERATIONS. COPIES OF APPOINTMENT LETTERS OF THESE PROFESSIONAL S WERE ALSO FILED. THE LD. CIT(A), AFTER NOTING ALL THE RELEVANT FACTS, HELD THAT 75% OF THE PAYMENT MADE TO THE AE FOR INTRA-GROUP SERVICES SHOULD BE A LLOWED AS DEDUCTION. AS A RESULT OF THAT, DISALLOWANCE ON ACCOUNT OF INT RA-GROUP SERVICES WAS RESTRICTED TO RS.27,93,184/-, THEREBY ALLOWING RELI EF OF RS.83,79,551/-. THE REVENUE IS AGGRIEVED BEFORE THE TRIBUNAL AGAINST SU CH RELIEF. 5. WE HAVE HEARD THE LD. DR AND PERUSED THE RELEVAN T MATERIAL ON RECORD. THERE IS NO APPEARANCE FROM THE SIDE OF TH E ASSESSEE DESPITE NOTICE. AS SUCH, WE ARE PROCEEDING TO DISPOSE OFF THE APPEA L EX PARTE QUA THE ASSESSEE. IT IS OBSERVED THAT THE TPO DETERMINED NI L ALP OF THE INTERNATIONAL TRANSACTION OF `PAYMENT OF COMMISSION ON THE PREMISE THAT NO SERVICES WERE RECEIVED. THE LD. CIT(A), ON APPR ECIATION OF CERTAIN ITA NO.444/DEL/2015 5 EVIDENCE FILED BEFORE HIM, CAME TO HOLD THAT 75% OF THE COMMISSION PAID SHOULD BE ALLOWED AS DEDUCTION. NO BASIS, WORTH THE NAME, CAN BE TRACED FROM THE IMPUGNED ORDER FOR ALLOWING DEDUCTION AT 7 5% OF THE TOTAL COMMISSION PAYMENT. HOW THIS PERCENTAGE HAS BEEN DE TERMINED IS ANYBODYS GUESS. 6. IN SO FAR AS THE USE BY THE TPO OF THE `BENEFIT TEST FOR DETERMINING THE ALP OF SUCH SERVICES AT NIL IS CONCERNED, IT IS FOUND THAT THE HONBLE PUNJAB & HARYANA HIGH COURT IN KNORR-BREMSE INDIA P. LTD. VS. ACIT (2016)380 ITR 307 (P&H) HAS HELD THAT THE QUESTION WHETHER A TRANSACTION IS AT AN ARMS LENGTH PRICE OR NOT IS NOT DEPENDENT ON WHETHER THE TRANSACTION RESULTS IN AN INCREASE IN THE ASSESSEE S PROFIT. A VIEW TO THE CONTRARY WOULD THEN RAISE A QUESTION AS TO THE EXTE NT OF PROFITABILITY NECESSARY FOR AN ASSESSEE TO ESTABLISH THAT THE TRA NSACTION WAS AT AN ARMS LENGTH PRICE. A FURTHER QUESTION THAT MAY ARISE IS WHETHER THE ARMS LENGTH PRICE IS TO BE DETERMINED IN PROPORTION TO THE EXTE NT OF PROFIT. THUS, WHILE PROFIT MAY REFLECT UPON THE GENUINENESS OF AN ASSES SEES CLAIM, IT IS NOT DETERMINATIVE OF THE SAME. IT WENT ON TO HOLD THAT BUSINESS DECISIONS ARE AT TIMES GOOD AND PROFITABLE AND AT TIMES BAD AND UNPR OFITABLE. BUSINESS ITA NO.444/DEL/2015 6 DECISIONS MAY AND, IN FACT, OFTEN DO, RESULT IN A L OSS. THE QUESTION WHETHER THE DECISION WAS COMMERCIALLY SOUND OR NOT IS NOT R ELEVANT. THE ONLY QUESTION IS WHETHER THE TRANSACTION WAS ENTERED INT O BONA FIDE OR NOT OR WHETHER IT WAS SHAM AND ONLY FOR THE PURPOSE OF DIV ERTING THE PROFITS. 7. REVERTING TO THE FACTS OF THE EXTANT CASE, IT IS ESTABLISHED BEYOND DOUBT THAT THREE EMPLOYEES WERE FOUND TO HAVE BEEN SPECIF ICALLY DEPLOYED BY THE AE FOR THE BUSINESS OPERATIONS OF THE ASSESSEE, WHI CH DECIPHERS THAT THE INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSES SEE WITH ITS AE WAS GENUINE AND BONA FIDE . 8. IT IS MANIFEST THAT THE TPO APPLIED THE CUP METH OD FOR DETERMINING THE ALP OF THE INTERNATIONAL TRANSACTION. WHILE APP LYING THE CUP METHOD, IT WAS OBLIGATORY UPON HIM TO BRING ON RECORD SOME COMPARABLE UNCONTROLLED INSTANCE AS PER THE MANDATE OF RULE 10 B(1)(A)(I). NOT EVEN A SINGLE COMPARABLE INSTANCE HAS BEEN BROUGHT ON RECO RD TO FACILITATE A COMPARISON BETWEEN THE PRICE FOR THE SERVICES BY TH E ASSESSEE VIS--VIS THAT PAID BY OTHER COMPARABLES IN SIMILAR UNCONTROLLED CIRCUMSTANCES. IT IS FURTHER FOUND THAT THE ASSESSEE HAS ALSO NOT SUBSTA NTIATED THE ALP UNDER THE ITA NO.444/DEL/2015 7 PSM AS CLAIMED BY IT, AS HAS BEEN RECORDED BY THE A UTHORITIES BELOW. WE, THEREFORE, ALSO DISAPPROVE THE BENCHMARKING BY THE ASSESSEE OF THE INTERNATIONAL TRANSACTION OF PAYMENT OF COMMISSION. 9. THAT APART, IT IS NOTICED THAT THE ACTION OF THE TPO IN DETERMINING NIL ALP OF THE INTERNATIONAL TRANSACTION ON THE GROUND THAT NO BENEFIT ACCRUED TO THE ASSESSEE AND THEN THE AO MAKING ADDITION SIM PLY ON THE BASIS OF RECOMMENDATION OF THE TPO, IS NOT IN ACCORDANCE WIT H THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN CIT V. CUSHMAN & WAKEFIELD (INDIA) (P.) LTD. (2014) 367 ITR 730 (DEL ), IN WHICH IT HAS BEEN HELD THAT THE AUTHORITY OF THE TPO IS LIMITED TO CONDUCTING T RANSFER PRICING ANALYSIS FOR DETERMINING THE ALP OF AN INTERNATIONAL TRANSAC TION AND NOT TO DECIDE IF SUCH SERVICE EXISTS OR BENEFITS DID ACCRUE TO THE A SSESSEE. SUCH LATER ASPECTS HAVE BEEN HELD TO BE FALLING IN THE EXCLUSIVE DOMAI N OF THE AO. IN THAT CASE, IT WAS OBSERVED THAT THE E-MAILS CONSIDERED BY TRIB UNAL FROM MR. BRAGANZA AND MR. CHOUDHARY DEALT WITH SPECIFIC INTERACTION A ND RELATED TO BENEFITS OBTAINED BY ASSESSEE, PROVIDING A SUFFICIENT BASIS TO HOLD THAT BENEFIT ACCRUED TO ASSESSEE. AS THE DETAILS OF SPECIFIC AC TIVITIES FOR WHICH COST WAS INCURRED BY BOTH AES (FOR ACTIVITIES OF MR. BRAGANZ A AND MR. CHOUDHARY), ITA NO.444/DEL/2015 8 AND ATTENDANT BENEFITS TO ASSESSEE WERE NOT CONSIDE RED, THE HON'BLE HIGH COURT REMANDED THE MATTER TO FILE OF CONCERNED AO F OR AN ALP ASSESSMENT BY TPO, FOLLOWED BY AO'S ASSESSMENT ORDER IN ACCORD ANCE WITH LAW CONSIDERING THE DEDUCTIBILITY OR OTHERWISE AS PER S ECTION 37(1) OF THE ACT. 10. WHEN WE COME BACK TO THE FACTS OF THE INSTANT C ASE, IT TURNS OUT THAT THE TPO PROPOSED THE TRANSFER PRICING ADJUSTMENT EQ UAL TO THE STATED VALUE OF THE INTERNATIONAL TRANSACTION AT RS.1.11 CRORE A ND ODD, INTER ALIA , BY HOLDING THAT NO BENEFIT WAS RECEIVED BY THE ASSESSE E AND HENCE NO PAYMENT ON THIS SCORE WAS WARRANTED. THE AO IN HIS ORDER HA S TAKEN THE ALP OF THE INTERNATIONAL TRANSACTION AT NIL ON THE BASIS OF SU CH RECOMMENDATION OF THE TPO WITHOUT CARRYING OUT ANY INDEPENDENT INVESTIGAT ION FOR THE DEDUCTIBILITY OR OTHERWISE OF SUCH PAYMENT IN TERMS OF SECTION 37(1) OF THE ACT. THIS ADDITION HAS BEEN MADE BY THE AO IN HIS O RDER WITHOUT INVOKING SECTION 37(1) OF THE ACT. AS PER THE RATIO DECIDENDI OF CUSHMAN & WAKEFIELD INDIA (P.) LTD. (SUPRA) , THE TPO WAS REQUIRED TO SIMPLY DETERMINE THE ALP OF THE INTERNATIONAL TRANSACTION, UNCONCERNED WITH THE FACT, IF ANY BENEFIT ACCRUED TO THE ASSESSEE AND TH EREAFTER, IT WAS FOR THE AO TO DECIDE THE DEDUCTIBILITY OF THIS AMOUNT U/S 37(1 ) OF THE ACT. AS THE TPO ITA NO.444/DEL/2015 9 IN THE INSTANT CASE INITIALLY DETERMINED NIL ALP BY HOLDING THAT NO BENEFIT ACCRUED TO THE ASSESSEE ETC. AND THE AO MADE THE AD DITION WITHOUT EXAMINING THE APPLICABILITY OF SECTION 37(1) OF THE ACT, WE FIND THE ACTIONS OF THE AO/TPO RUNNING IN CONTRADICTION WITH THE RATIO LAID DOWN IN CUSHMAN & WAKEFIELD (SUPRA) . IN THESE CIRCUMSTANCES, WE SET ASIDE THE IMPUGNED ORDER ON THIS SCORE AND SEND THE MATTER TO THE FILE OF AO/TPO FOR DECIDING IT IN CONFORMITY WITH THE ABOVE DISCUSSION AND THE LAW LAID DOWN BY THE HON'BLE JURISDICTIONAL HIGH COURT IN THE AFO RENOTED CASE. NEEDLESS TO SAY, THE ASSESSEE WILL BE ALLOWED A REASONABLE O PPORTUNITY OF HEARING IN SUCH PROCEEDINGS. 11. THE NEXT GROUND RAISED BY THE REVENUE IN ITS AP PEAL IS AGAINST RESTRICTING THE DISALLOWANCE U/S 14A TO RS.5,60,984 /-. 12. THE FACTS APROPOS THIS ISSUE ARE THAT THE ASSES SEE EARNED EXEMPT DIVIDEND INCOME OF RS.20,11,752/-. NO DISALLOWANCE WAS OFFERED U/S 14A. ON BEING CALLED UPON TO EXPLAIN THE REASONS, THE AS SESSEE SUBMITTED THAT THE DIVIDEND INCOME WAS EARNED FROM MUTUAL FUNDS. A RE QUEST WAS MADE THAT RS.20,000/- MAY BE DISALLOWED U/S 14A. AFTER RECOR DING SATISFACTION, THE ITA NO.444/DEL/2015 10 ASSESSING OFFICER INVOKED THE PROVISIONS OF RULE 8D TO MAKE DISALLOWANCE OF RS.51,47,448/-, COMPRISING OF INTEREST COMPONEN T UNDER RULE 8D(2)(II) AT RS.45,86,464/- AND % OF THE AVERAGE VALUE OF IN VESTMENTS AS PER RULE 8D(2)(III) AT RS.5,60,984/-. THE LD. CIT(A) SUSTAI NED THE ADDITION OF RS.5,60,984/- AND DELETED THE REMAINING AMOUNT OF R S.45,86,464/-. THE REVENUE IS AGGRIEVED AGAINST THE RELIEF ALLOWED IN THE FIRST APPEAL. 13. WE HAVE HEARD THE LD. DR AND PERUSED THE RELEVA NT MATERIAL ON RECORD. BEFORE DEALING WITH THIS CONTENTION, IT IS WORTHWHILE TO MENTION THAT AS PER PAGE 8 OF THE IMPUGNED ORDER, THE VALUE OF INVESTMENTS MADE BY THE ASSESSEE AT THE END OF THE YEAR STOOD AT RS. 18 .59 CRORE. FURTHER, THE ASSESSEES PAID UP SHARE CAPITAL AT THE END OF THE YEAR WAS TO THE TUNE OF RS.399.71 CRORE, WHICH IS MANY TIMES HIGHER THAN T HE AMOUNT OF INVESTMENT YIELDING EXEMPT INCOME. 14. SECTION 36(1)(III) PROVIDES FOR DEDUCTION O F INTEREST OF THE AMOUNT OF INTEREST PAID IN RESPECT OF CAPITAL BORROWED FOR TH E PURPOSE OF BUSINESS OR PROFESSION. THE ESSENCE OF THIS PROVISION IS THAT THE INTEREST SHOULD BE ALLOWED SO LONG AS THE CAPITAL BORROWED, ON WHICH S UCH INTEREST IS PAID, IS ITA NO.444/DEL/2015 11 USED FOR THE PURPOSE OF BUSINESS OR PROFESSION. IF , HOWEVER, AN ASSESSEE IS HAVING ITS OWN INTEREST FREE SURPLUS FUNDS AND SUCH FUNDS ARE UTILISED AS INTEREST FREE ADVANCES EVEN FOR A NON-BUSINESS PURP OSE, THERE CANNOT BE ANY DISALLOWANCE OF INTEREST PAID ON INTEREST BEARING L OANS. THE HON'BLE BOMBAY HIGH COURT IN CIT VS. RELIANCE UTILITIES AND POWER LTD. (2009) 313 ITR 340 (BOM) , HAS HELD THAT WHERE AN ASSESSEE POSSESSED SUFFICI ENT INTEREST FREE FUNDS OF ITS OWN WHICH WERE GENERATED IN THE COURSE OF RELEVANT FINANCIAL YEAR, APART FROM SUBSTANTIAL SHAREHOLDERS FUNDS, PRESUMPTION STANDS ESTABLISHED THAT THE INVESTMENTS IN SISTER C ONCERNS WERE MADE BY THE ASSESSEE OUT OF INTEREST FREE FUNDS AND, THEREFORE, NO PART OF INTEREST ON BORROWINGS CAN BE DISALLOWED ON THE BASIS THAT THE INVESTMENTS WERE MADE OUT OF INTEREST BEARING FUNDS. IN THAT CASE, THE AO RECORDED A FINDING THAT A SUM OF RS.213 CRORE WAS INVESTED BY THE ASSESSEE OU T OF ITS OWN FUNDS AND RS.1.74 CRORE OUT OF BORROWED FUNDS. ACCORDINGLY, D ISALLOWANCE OF INTEREST WAS MADE TO THE TUNE OF RS.2.40 CRORE. THE ASSESSEE ARGUED THAT NO PART OF INTEREST BEARING FUNDS HAD GONE INTO INVESTMENT IN THOSE TWO COMPANIES IN RESPECT OF WHICH THE AO MADE DISALLOWANCE OF INTERE ST. IT WAS ALSO ARGUED THAT INCOME FROM OPERATIONS OF THE COMPANY WAS RS.4 18.04 CRORE AND THE ITA NO.444/DEL/2015 12 ASSESSEE HAD ALSO RAISED CAPITAL OF RS.7.90 CRORE, APART FROM RECEIVING INTEREST FREE DEPOSIT OF RS.10.03 CRORE. THE ASSES SEE SUBMITTED BEFORE THE FIRST APPELLATE AUTHORITY THAT THE BALANCE-SHEET OF THE ASSESSEE ADEQUATELY DEPICTED THAT THERE WERE ENOUGH INTEREST FREE FUNDS AT ITS DISPOSAL FOR MAKING INVESTMENT. THE LD. CIT(A) GOT CONVINCED WIT H THE ASSESSEES SUBMISSIONS AND DELETED THE ADDITION. BEFORE THE TR IBUNAL, IT WAS CONTENDED ON BEHALF OF THE REVENUE THAT THE SHAREHOLDERS FUN D WAS UTILIZED FOR THE PURCHASE OF ITS ASSETS AND HENCE THE ASSESSEE WAS L EFT WITH NO RESERVE OR OWN FUNDS FOR MAKING INVESTMENT IN THE SISTER CONCE RN. THUS, IT WAS ARGUED THAT THE BORROWED FUNDS HAD BEEN UTILIZED FOR THE P URPOSE OF MAKING INVESTMENT IN THE SISTER CONCERN AND THE DISALLOWAN CE OF INTEREST WAS RIGHTLY CALLED FOR. THE TRIBUNAL, ON APPRECIATION OF FACTS, RECORDED A FINDING THAT THE ASSESSEE HAD SUFFICIENT FUNDS OF ITS OWN FOR MA KING INVESTMENT WITHOUT USING THE INTEREST BEARING FUNDS. ACCORDINGLY, THE ORDER OF CIT(A) WAS UPHELD. WHEN THE MATTER CAME UP BEFORE THE HONBLE HIGH COURT, IT WAS CONTENDED BY THE DEPARTMENT THAT THE SHAREHOLDERS FUNDS STOOD UTILIZED IN THE PURCHASE OF FIXED ASSETS AND HENCE COULD NOT BE CONSTRUED AS AVAILABLE FOR INVESTMENT IN SISTER CONCERN. REPELLING THIS C ONTENTION, THE HONBLE ITA NO.444/DEL/2015 13 HIGH COURT OBSERVED THAT : IN OUR OPINION, THE VERY BASIS ON WHICH THE REVENUE HAD SOUGHT TO CONTEND OR ARGUE THEIR CASE T HAT THE SHAREHOLDERS FUND TO THE TUNE OF OVER RS.172 CRORE WAS UTILIZED FOR THE PURPOSE OF FIXED ASSETS IN TERMS OF THE BALANCE-SHEET AS ON MARCH 31 , 1999, IS FALLACIOUS. IN UPHOLDING THE ORDER OF THE TRIBUNAL, THE HONBLE HIGH COURT HELD THAT: IF THERE BE INTEREST FREE FUNDS AVAILABLE TO AN ASS ESSEE SUFFICIENT TO MEET ITS INVESTMENT AND AT THE SAME TIME THE ASSESSEE HAD RA ISED A LOAN, IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTERES T FREE FUNDS AVAILABLE . THEREAFTER, THE JUDGMENT OF THE HONBLE SUPREME COU RT IN THE CASE OF EAST INDIA PHARMACEUTICAL WORKS LTD. VS. CIT (1997) 224 ITR 627 (SC) AND ALSO THE JUDGMENT OF THE HONBLE CALCUTTA HIGH COUR T IN WOOLCOMBERS OF INDIA LTD. VS. CIT (1981) 134 ITR 219 (CAL) WERE CONSIDERED. IT WAS FINALLY CONCLUDED THAT: THE PRINCIPLE, THEREFORE, WOULD BE THAT IF THERE A RE FUNDS AVAILABLE BOTH INTEREST FREE AND OVERDRAFT AN D/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT THE INVESTMENTS WOULD BE OUT OF INTEREST FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY, IF T HE INTEREST FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT . CONSEQUENTLY THE INTEREST WAS HELD TO BE DEDUCTIBLE IN FULL. ITA NO.444/DEL/2015 14 15. FROM THE ABOVE JUDGMENT, IT IS MANIFEST THAT THERE CAN BE NO PRESUMPTION THAT THE SHAREHOLDERS FUND OF A COMPAN Y WAS UTILIZED FOR PURCHASE OF FIXED ASSETS. IF AN ASSESSEE HAS INTERE ST FREE FUNDS AS WELL AS INTEREST BEARING FUNDS AT ITS DISPOSAL, THEN THE PR ESUMPTION WOULD BE THAT INVESTMENTS WERE MADE FROM INTEREST FREE FUNDS AT I TS DISPOSAL. SIMILAR VIEW HAS BEEN TAKEN BY THE HON'BLE DEHI HIGH COURT IN CIT VS. TIN BOX COMPANY (2003) 260 ITR 637 (DEL) , HOLDING THAT WHEN THE CAPITAL AND INTEREST FREE UNSECURED LOAN WITH THE ASSESSEE FAR EXCEEDED THE INTEREST FREE LOAN ADVANCED TO THE SISTER CONCERN, DISALLOWANCE O F PART OF INTEREST OUT OF TOTAL INTEREST PAID BY THE ASSESSEE TO THE BANK, WA S NOT JUSTIFIED. 16. APPLYING THE ABOVE PROPOSITION IN THE CONTEX T OF SECTION 14A, THE HON'BLE KARNATAKA HIGH COURT IN CIT & ANR VS. MICROLABS (2016) 383 ITR 490 (KAR) HAS HELD THAT WHEN INVESTMENTS ARE MADE FROM COMMON POOL AND NON-INTEREST BEARING FUNDS ARE MORE THAN THE INVEST MENT IN TAX FREE SECURITIES, NO DISALLOWANCE OF INTEREST EXPENDITURE U/S 14A CAN BE MADE. THIS VIEW HAS BEEN TAKEN BY FOLLOWING THE JUDGMENT OF THE HON'BLE BOMBAY HIGH COURT IN CIT VS. HDFC BANK LTD. (2014) 366 ITR 515 (BOM) . IT IS FURTHER OBSERVED THAT THIS ISSUE IS NO MOR E RES INTEGRA IN VIEW ITA NO.444/DEL/2015 15 OF THE RECENT JUDGMENT DELIVERED BY THE HON'BLE SUP REME COURT IN GODREJ & BOYCE MANUFACTURING COMPANY LTD. VS. DCIT (2017) 394 ITR 449 (SC), IN WHICH IT HAS BEEN HELD THAT WHEN INTEREST FREE F UNDS IN THE FORM OF SHARE CAPITAL AND RESERVES ARE MORE THAN INVESTMENT, THEN NO DISALLOWANCE OF INTEREST CAN BE MADE U/S 14A. 17. WHEN WE TURN TO THE FACTS OF THE INSTANT CAS E, WE FIND THAT INVESTMENTS IN THE UNITS AT THE END OF THE YEAR STOOD AT RS.18. 59 CRORE WITH THE CORRESPONDING OPENING FIGURE AT RS.3.84 CRORE AS AG AINST THE AMOUNT OF SHAREHOLDERS FUND AT RS.399.71 CRORE AT THE CLOSE OF THE YEAR AND RS.161.91 CRORE AT THE BEGINNING OF THE YEAR. THIS PROVES TH AT THE AMOUNT OF INVESTMENT IN THE UNITS ETC., YIELDING EXEMPT INCOM E, IS MUCH LESS THAN THE AMOUNT OF SHAREHOLDERS FUNDS. RESPECTFULLY FOLLOWI NG THE ABOVE PRECEDENT, WE UPHOLD THE IMPUGNED ORDER IN DELETING THE DISALL OWANCE OF INTEREST U/S 14A AT RS.45,86,464/-, AGAINST WHICH THE REVENUE HA S PREFERRED THIS GRIEVANCE BEFORE THE TRIBUNAL. THIS GROUND IS NOT ALLOWED. ITA NO.444/DEL/2015 16 18. THE ONLY OTHER ISSUE RAISED IN THIS APPEAL IS A GAINST THE DELETION OF ADDITION OF RS.48,460/- MADE BY THE ASSESSING OFFIC ER ON ACCOUNT OF DISALLOWANCE OF CLAIM OF DEPRECIATION @ 60% ON UPS AS AGAINST 15%. 19. BRIEFLY STATED, THE FACTS OF THIS GROUND ARE TH AT THE ASSESSEE PURCHASED UPS WORTH RS.1,39,428/- AND CLAIMED DEPRECIATION AT 60% AMOUNTING TO RS.68,358/-. THE ASSESSING OFFICER RESTRICTED THE RATE OF DEPRECIATION TO 15%, THEREBY MAKING DISALLOWANCE OF RS.48,460/-. THE LD. CIT(A) DELETED THE ADDITION ON THIS SCORE. 20. WE HAVE HEARD THE LD. DR AND PERUSED THE MATERI AL ON RECORD. WE FIND THAT THE ISSUE OF ALLOWING DEPRECIATION AT HIG HER RATE ON COMPUTER PERIPHERALS IS NO MORE RES INTEGRA IN VIEW OF THE JUDGMENT OF THE HON'BLE DELHI HIGH COURT IN CIT VS. BSES YAMUNA POWERS LTD. 2010 TIOL-636- HC-DEL-IT AND THE SPECIAL BENCH ORDER OF THE ITAT IN DCIT VS. DATA CRAFT INDIA LTD. (2010) 133 TTJ (MUM) (SB) 37. IN THESE DECISIONS, THE ENTITLEMENT TO THE HIGHER RATE OF DEPRECIATION ON C OMPUTER PERIPHERALS HAS BEEN LAID DOWN BY DECIDING THE ISSUE IN FAVOUR OF T HE ASSESSEE. WE, THEREFORE, UPHOLD THE IMPUGNED ORDER IN HOLDING THA T DEPRECIATION ON THE ITA NO.444/DEL/2015 17 COMPUTER UPS BE ALLOWED AT THE HIGHER RATE AS CLAIM ED BY THE ASSESSEE. 21. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. THE ORDER PRONOUNCED IN THE OPEN COURT ON 02.05.201 8. SD/- SD/- [LALIET KUMAR] [R.S. SYAL] JUDICIAL MEMBER VICE PRESIDENT DATED, 02 ND MAY, 2018. DK COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR, ITAT AR, ITAT, NEW DELHI.