DCIT, Circle -5 Kolkata, Kolkata V. M/s Sunny Trexim (P) Ltd., Kolkata

ITA 881/KOL/2012

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 87646 (ITAT-KOLKATA)
• Duration Of Justice: 2 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 29-01-2015
• Appeal Filed By: Department
• Bench Allotted: C
• Assessment Year: 2008-2009
• Appeal Filed On: 05-06-2012
• Court: TRIBUNAL
• Department Lawyers: S M SURANA
• Assessee Lawyers: K L KANAK
• Keywords: Capital asset; Business income; Proportionate interest; Question of law; Assessment record; Capital expenditure
• Section: 143(3); 14A; 37

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: KOLKATA [BEFORE SHRI N. K. SAINI, AM & SHRI MAHAVIR SINGH, JM ] I.T.A NO. 544 /KOL/201 2 I . T . A NO.881/KOL/2012 ASSESSMENT YEAR : 200 8 - 0 9 SUNNY TREXIM PVT. LTD. V S. DY. COMMISSIONER OF INCOME - TAX 204, A.J.C. BOSE ROAD, KOLKATA 17 CIRCLE - 5, KOLKATA (PAN NO. AADCS 6026 Q ) DCIT, CIRCLE - 5, KOLKATA VS. SUNNY TREXIM (P) LTD., P - 7, CHOWRINGHEE, SQUARE, KOL - 69 33/1 N.S. ROAD, K OLKATA - 01 ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 2 2 .01.2015 DATE OF PRONOUNCEMENT: 29 .01.2015 FOR THE APPELLANT: SHRI S. M. SURANA , ADVOCATE FOR THE RESPONDENT: SHRI K.L. KANAK, J CIT , SR - DR ORDER PER SHRI MAHAVIR SINGH, JM : TH E S E CROSS - APPEAL S BY ASSESSEE AND BY R EVENUE ARE ARISING OUT OF ORDER OF CIT (A) - VI , KOLKATA IN APPEAL NO. 9 4 / CIT(A) - VI/CIR - 5 / 10 - 11 /KOL DATED 16 . 0 2 .201 2 . ASSESSMENT W AS FRAMED BY DCIT, CIRCLE - 5. KOLKATA U/S. 143(3) OF THE INCOME - TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT ) FOR AY 200 8 - 0 9 VIDE HIS ORDER DATED 30 . 1 2 .20 1 0 . 2. THE ONLY COMMON ISSUE IN TH E S E CROSS - APPEAL S OF ASSESSEE AND REVENUE IS AGAINST THE ORDER OF CIT(A) PARTLY CONFIRMING THE ACTION OF AO IN DISALLOWANCE OF PROPORTIONATE INTEREST ON LOAN FUNDS HOLDING THE SAME FOR NON - BUSINESS INVESTMENT AND PARTLY DELETING THE DISALLOWANCE. FOR THIS, ASSESSEE RAISED FOLLOWING GROUND : 1. FOR THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. COMMISSIONER OF INCOME - TAX (A PPEALS) ERRED IN CONFIRMING DISALLOWANCE OF A SUM OF RS.15,53,566/ - AS PROPORTIONATE INTEREST ON LOAN FUND PERTAINING TO NON - BUSINESS INVESTMENT. 2 ITA NO. 544 & 881 /K/201 2 SUNNY TREXIM PVT. LTD. , AY 2008 - 0 9 FOR THIS, R EVENUE RAISED FOLLOWING GROUND: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, LD. CIT(A) ERRED IN LAW IN RESTRICTING THE DISALLOWANCE OF INTEREST TO RS.15,53,566/ - AS PROPORTIONATE INTEREST EXPENDITURE ON THE BASIS OF INVESTMENT IN THE CAPITAL ASSET AND TOTAL ASSET OF THE BUSINESS WITHOUT CONSIDERING THE FACT THAT INTEREST ON CWIP IS NOT AN AL LOWABLE EXPENDITURE. 3. BRIEF FACTS RELATING TO THIS COMMON ISSUE ARE THAT THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED FROM THE AUDITED ACCOUNTS THAT THE ASSESSEE HAS PAID AN ADVANCE FOR PURCHASE OF ASSETS BEING OFFICE SPACE A ND GODOWN AMOUNTING TO RS.4,33,47,169/ - . ACCORDING TO AO THE ASSESSEE IS ENGAGED IN THE BUSINESS OF TRADING AND EXPORT OF RAW COTTON. THIS ADVANCE WAS CARRIED FORWARD FROM FY 2006 - 07. ACCORDING TO THE PARTICULARS FILED BY THE ASSESSEE BEFORE THE AO, THE AO NOTED THAT ACTUALLY IT IS CAPITAL WORK - IN - PROGRESS (CWIP IN SHORT) AND NOT ADVANCE FOR INVESTMENT. IN VIEW OF THESE FACTS, THE AO AFTER AVERAGING ASSESSEE S CAPITAL AND LOAN FUNDS MADE DISALLOWANCE OF INTEREST PERTAINING TO CWIP AT RS.33,34,700/ - BY OBSER VING AS UNDER: - FROM THE ACCOUNTS IT APPEARS THAT THE AVERAGE OWN CAPITAL DURING THE YEAR WAS RS.189,05 LAKHS AND THE AVERAGE LOAN FUND WAS RS.3445.29 LAKHS. THE ASSESSEE HAS NO SEPARATE RESERVE OR FUND FOR INVESTMENT IN FIXED ASSET. THUS IT IS CLEAR THAT THE ASSESSEE HAS USED THE LOAN FUND TO PAY FOR PURCHASE OF OFFICE SPACE AND OTHER BUSINESS SPACE. SO EVEN IF IT IS CONSIDERED THAT THE ASSESSEE HAD INVESTED ABOUT RS.100 LAKHS, SINCE IT HAS FIXED ASSETS ETC ALSO, THEN THE ASSESSEE NEED FURTHER RS.333.47 L AKHS FOR THE INVESTMENT IN THE CWIP. ASSESSEE HAS DEBITED INTEREST OF RS.2,09,74,464/ - . ON AN AVERAGE NO BANK PROVIDE LOAN BELOW RS.10% PER ANNUM. ACCORDINGLY ON RS.333.47 LAKHS THE INTEREST FOR ONE YEAR COMES TO RS.33,34,700/ - . THEREFORE, IT HAS BEEN CONS IDER4ED THAT INTEREST PORTION OF RS.33,34,700/ - PERTAINS TO THE CWIP OR OTHERWISE NON - BUSINESS INVESTMENT BY THE ASSESSEE. THE SAME HAS BEEN DISALLOWED AND ADDED BACK TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED, ASSESSEE PREFERRED APPEAL BEFORE CIT(A). 4. THE CIT(A) PARTLY CONFIRMED THE DISALLOWANCE OF INTEREST HOLDING THE SAME FOR THE PURCHASE OF ASSETS AMOUNTING TO RS.15,53,566/ - AND DELETED THE BALANCE, BY HOLDING AS UNDER: - 4. I HAVE DULY CONSIDERED THE OBSERVATIONS OF THE ASSESSING OFFICER IN THE ASSESSMENT ORDER AND SUBMISSIONS OF THE APPELLANT. THE APPELLANT HAS SUBMITTED THAT AN AMOUNT OF RS.1,69,77,903/ - WAS GIVEN TO THE SUPPLIERS AND AN AMOUNT OF RS.2,63,69,466/ - WAS GIVEN AS AN ADVANCE FOR INVESTMENTS FOR PURCHASE OF ASSETS. THE APPEL LANT HAS FILED THE DETAILS OF THE ADVANCES TO SUPPLIERS AND ADVANCE FOR INVESTMENTS DURING THE ASSESSMENT YEAR. THE APPELLANT HAS SUBMITTED THAT IT HAS NOT RAISED ANY LOAN SPECIFICALLY FOR GIVING THE ADVANCE FOR INVESTMENTS. THE APPELLANT HAS A CAPITAL OF RS.32,28,800/ - AND RESERVE & SURPLUS OF RS.2,18,02,918/ - AS ON 31.003.2008. THE CAPITAL WAS RS.20,28, 800/ - AND RESERVE AND 3 ITA NO. 544 & 881 /K/201 2 SUNNY TREXIM PVT. LTD. , AY 2008 - 0 9 SURPLUS OF RS.1,07,50,619/ - AS ON 31.03.2007. THE AVERAGE OWNED CAPITAL DURING THE YEAR WAS RS.189.05 LAKHS AS MENTIONED BY THE ASSES SING OFFICER IN THE ASSESSMENT ORDER. THE APPELLANT IS HAVING LOANS OF RS.33.09 CRORES AS ON 31.03.2008 AND RS.35.81 CRORES AS ON 31.03.2007. THE APPELLANT HAS PAID AN INTEREST OF RS.2,09,74,464/ - ON UNSECURED LOANS AND AN AMOUNT OF RS.55,04,337/ - AS BANK COMMISSION AND CHARGES AND ALSO BILL DISCOUNTING CHARGES AMOUNTING TO RS.1,33,11,598/ - AS PER SCHEDULE - 21 OF THE ANNUAL REPORT. THE APPELLANT HAS BEEN PAYING INTEREST ON THE LOANS. THE APPELLANT HAS MADE INVESTMENTS ON WHICH THE INTEREST PAID IS REQUIRED T O BE CAPITALIZED AND THE EXPENSES WHICH ARE CAPITAL IN NATURE ARE NOT ALLOWED AS BUSINESS EXPENSE U/S 37 OF THE INCOME - TAX ACT, 1961. THERE IS NO SEPARATE CAPITAL ACCOUNT FROM WHICH IT CAN BE HELD THAT FUNDS HAVE BEEN INVESTED OUT OF ITS OWN RESOURCES. IT IS A COMMON ACCOUNT. THE LOAN MAY BE TAKEN FOR A SPECIFIC PURPOSE. BUT AFTER THE RETURN OF THE SAME, IT MAY NOT GO IN THE REPAYMENT OF SUCH LOANS WHILE IT MAY BE INVESTED AS AN ADVANCE FOR PURCHASING OF CAPITAL ASSETS. SO, THE FUNDS HAVE BEEN INVESTED FROM COMMON KITTY. 5. THE ASSESSEE HAS RELIED UPON SOME CASES DURING THE APPELLATE PROCEEDINGS. ALL THE SAID CASES PERTAIN TO INTEREST FREE ADVANCE GIVEN TO THE SISTER CONCERN FOR BUSINESS PURPOSES. THE AVERAGE OWNED CAPITAL DURING THE YEAR WAS RSS.1899.05 LA KHS AND THE AMOUNT GIVEN TO THE SUPPLIER AS AN ADVANCE FOR INVESTMENTS FOR PURCHASE OF ASSETS WAS RS.2,63,69,266/ - - AS CALCULATED BY THE ASSESSEE FILED DURING THE APPELLATE PROCEEDINGS. THE INTEREST EXPENDITURE RELATING TO THE INVESTMENT IN THE ASSESSEE WH ICH HAS NOT BEEN UTILISED FOR THE PURPOSE OF BUSINESS CAN BE CALCULATED IN THE FOLLOWING 3 (THREE) METHODS: - I) THE INTEREST MAY BE CALCULATED @ 10% ON THE INVESTMENTS WHICH HAVE NOT BEEN UTILISED FOR THE PURPOSE OF BUSINESS. THE INVESTMENTS ARE RS.2,63,69,2 66/ - AND THE INTEREST EXPENDITURE @ 10% AMOUNTS TO RS.26,36,927/ - . II) THE INTEREST EXPENSES CAN BE CALCULATED BY TAKING THE RATIO OF INVESTMENT IN THE CAPITAL ASSETS (UNUSED) AND TOTAL ASSE T S OF THE BUSINESS IN THE BALANCE SHEET. THE CAPITAL ASSETS (UNUSED) A MOUNTS TO RS.2,63,69,266/ - AND TH E TOTAL ASSETS AMOUNTS TO RS.35,60,07,544/ - . THE TOTAL INTEREST AND FINANCE CHARGES PAID AMOUNTS TO RS.2,09,74,466/ - . THE PROPORTIONATE EXPENDITURE IS CALCULATED AS GIVEN BELOW: - 2,63,69,266 X 2,09, 74,466 = RS.15,53,566/ - 35,60,07,544 III) TAKING OUT THE NET AMOUNT OF LOAN MADE BY SUBTRACTING OWN CAPITAL OUT OF THE CAPITAL ASSETS (UNUSED) AND ON AN AVERAGE BASIS INTEREST TO BE CHARGED @ 10%. THE NET AMOUNT CONSIDERED TO BE TAKEN ON LOAN AMOUNTS TO RS.74,64,266 (2,63,69,266 1,89,05,000) AND THE INTEREST @ 10% ON THE SAME AMOUNT TO RS.7,46,427/ - . 6. IN THE ABOVE THREE CIRCUMSTANCES THE METHOD OF PROPORTION IS THE APPROPRIATE, FAIR AND REASONABLE SINCE THE MONEY IN ALL BUSINESS AS SETS AND TRANSACTIONS IS INVESTED FROM COMMON KITTY. THE INTEREST ALSO IS LEVIED ON THE BORROWED FUNDS USED DIRECTLY OR INDIRECTLY THROUGH THE COMMON KITTY. THEREFORE THE AMOUNT OF RS.15,53,566/ - IS DISALLOWED AS PROPORTIONATE INTEREST EXPENDITURE INCURRED BY THE APPELLANT FOR THE PURPOSE OF PURCHASE OF ASSETS WHICH WERE NOT UTILISED FOR THE BUSINESS PURPOSES DURING THE YEAR. THEREFORE, THE AMOUNT OF RS.15,53,566/ - IS HELD TO BE DISALLOWED OUT OF THE EXPENSES IN THE FORM OF INTEREST AND FINANCE CHARGES CLAI MED BY THE ASSESSEE AS PER SCHEDULE - 21. AGGRIEVED, REVENUE AS WELL AS ASSESSEE BOTH CAME IN SECOND APPEAL BEFORE TRIBUNAL . 4 ITA NO. 544 & 881 /K/201 2 SUNNY TREXIM PVT. LTD. , AY 2008 - 0 9 5. WE HAVE HEARD RIVAL CONTENTIONS AND GOING THROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. THE ASSESSEE EXPLAINED THAT THE ADVAN CE GIVEN FOR INVESTMENT IN PURCHASE OF DIFFERENT ASSETS, THE OPENING BALANCE AS ON 01 - 04 - 2007 WHICH IS RS.95,67,071/ - AND CLOSING BALANCE AS ON 31 - 03 - 2008 IS RS.2,63,69,266/ - . ACCORDING TO HIM, THE RESULTANT INCREASE IN INVESTMENT IN PURCHASE OF ASSETS IS ONLY R S. 1,68,02,195/ - AS DETAILED HEREUNDER: - NAME OF THE PARTY OPENING ADDITION CLOSING BENGAL PARK CHAMBERS HOUSING DEVELOPMENT LTD. 534630.00 1005103.00 1539733 CALCUTTA MUMBAI TRUCK TERMINAL 1491001.00 NIL 1491001 MERLINE PROJECT LTD 1100000.00 1915000.00 3015000 S M NAHATA HUF 100000.00 NIL 100000 SURYA MANSIONS (P) LTD 1700001.00 5313450.00 7013451 TIRUPATI HOMES (P) LTD 4641439.00 8568642.00 13210081 9567071.00 16802195.00 26369266 WE FIND FROM THE FACTS BEFORE US AND AS AVAILABLE IN THE ASSESSMENT RECORDS THAT THE ASSESSEE HAS NOT RAISED ANY LOAN DURING THE YEAR AND PARTICULARLY FOR THIS ADVANCE FOR INVESTMENT MADE IN DIFFERENT ASSETS, LIKE OFFICE SPACE AND GODOWN. THE ASSESSEE HAS A CAPITAL OF RS.3 2,28,800/ - AND RESERVE AND SURPLUS OF RS.2,18,02,918/ - AS ON 31 - 03 - 2008. AS ON 31 - 03 - 2007, THE CAPITAL WAS AT RS.20,28,800/ - AND RESERVED AND SU RPLUS WAS AT RS.1,07,50,619/ - . THE CIT(A) AND THE AO HAS ONLY AVERAGED THE INVESTMENT WITHOUT RECORDING ANY FIND ING THAT THE INVESTMENT IS MADE OUT OF LOAN FUNDS OR OWN FUNDS. THE ASSESSEE CATEGORICALLY NOW BEFORE US CONTENDED THAT THE ENTIRE INVESTMENT IN PURCHASE OF OFFICE SPACE AND GODOWN IS OUT OF OWN FUNDS AND THERE IS NO ELEMENT OF BORROWED FUNDS INVESTED IN T HE SAME. THE CIT(A) HAS GIVEN A GENERAL PROPOSITION THAT, THE LOAN MAY BE TAKEN FOR A SPECIFIC PURPOSE. BUT AFTER THE RETURN OF THE SAME, IT MAY NOT GO IN THE REPAYMENT OF SUCH LOANS WHILE IT MAY BE INVESTED AS AN ADVANCE FOR PURCHASING OF CAPITAL ASSETS. SO, THE FUNDS HAVE BEEN INVESTED FROM COMMON KITTY. THIS GENERAL PROPOSITION OF CIT(A) HAS NOTHING TO DO WITH THE FACTS OF THE PRESENT CASE. UNLESS AND UNTIL IS SPECIFIC NEXUS OF THE INVESTMENT IN PURCHASE OF OFFICE SPACE AND GODOWN IS SHOWN OUT OF BORRO WED FUNDS, NO INTEREST CAN BE DISALLOWED. EVEN OTHERWISE, THE ASSESSEE HAS SUFFICIENT OWN CAPITAL FUNDS AND RESERVE & SURPLUS , AND THERE IS CLEAR - CUT 5 ITA NO. 544 & 881 /K/201 2 SUNNY TREXIM PVT. LTD. , AY 2008 - 0 9 REDUCTION IN THE CAPITAL AND RESERVE AND SURPLUS FROM AY 2007 - 08 TO AY 2008 - 09 (THE PRESENT ASSESSMENT YEA R) FOR MAKING THIS INVESTMENT . AS RELIED ON BY THE LD. COUNSEL FOR ASSESSEE IN THE CASE OF CIT V. HDFC BANK LTD. (2014) 366 ITR 505 (BOM) HELD AS UNDER: - 4. WE DO NOT AGREE. IN THE CASE AT HAND, AS RECORDED BY THE ITAT, UNDISPUTEDLY THE ASSESSEE'S OWN FUN DS AND OTHER NON - INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX FREE SECURITIES. THE ITAT THEREFORE HELD THAT THERE WAS NO BASIS FOR DEEMING THAT THE ASSESSEE HAD USED THE BORROWED FUNDS FOR INVESTMENT IN TAX FREE SECURITIES. ON THIS FACTUAL ASPECT, THE ITAT DID NOT FIND ANY MERIT IN THE CONTENTION RAISED BY THE REVENUE AND THEREFORE, ACCORDINGLY ANSWERED THE QUESTION IN FAVOUR OF THE ASSESSEE. ON GOING THROUGH THE ORDER OF THE CIT (APPEALS) DATED 28TH MARCH 2005 AS WELL AS THE IMPUGNE D ORDER, WE DO NOT FIND THAT THE CIT (APPEALS) OR THE ITAT ERRED IN HOLDING IN FAVOUR OF THE ASSESSEE. IN THIS REGARD, THE SUBMISSION OF MR MISTRY, THE LEARNED SENIOR COUNSEL APPEARING ON BEHALF OF THE ASSESSEE, THAT THIS ISSUE IS SQUARELY COVERED BY A JUD GMENT OF THIS COURT IN THE CASE OF COMMISSIONER OF INCOME TAX V/S RELIANCE UTILITIES AND POWER LTD., REPORTED IN (2009) 313 ITR 340 (BOM) IS WELL FOUNDED. THE FACTS OF THAT CASE WERE THAT THE ASSESSEE VIZ. M/S RELIANCE UTILITIES AND POWER LTD. HAD INVESTED CERTAIN AMOUNTS IN RELIANCE GAS LTD. AND RELIANCE STRATEGIC INVESTMENTS LTD. IT WAS THE CASE OF THE ASSESSEE THAT THEY THEMSELVES WERE IN THE BUSINESS OF GENERATION OF POWER AND THEY HAD EARNED REGULAR BUSINESS INCOME THEREFROM. THE INVESTMENTS MADE BY TH E ASSESSEE IN M/S RELIANCE GAS LTD. AND M/S RELIANCE STRATEGIC INVESTMENTS LTD. WERE DONE OUT OF THEIR OWN FUNDS AND WERE IN THE REGULAR COURSE OF BUSINESS AND THEREFORE NO PART OF THE INTEREST COULD BE DISALLOWED. IT WAS ALSO POINTED OUT THAT THE ASSESSEE HAD BORROWED RS.43.62 CRORES BY WAY OF ISSUE OF DEBENTURES AND THE SAID AMOUNT WAS UTILISED AS CAPITAL EXPENDITURE AND INTER - CORPORATE DEPOSIT. IT WAS THE ASSESSEE'S SUBMISSION THAT NO PART OF THE INTEREST BEARING FUNDS (VIZ. ISSUE OF DEBENTURES) HAD GONE INTO MAKING INVESTMENTS IN THE SAID TWO COMPANIES. IT WAS POINTED OUT THAT THE INCOME FROM THE OPERATIONS OF THE ASSESSEE WAS RS.313.53 CRORES AND WITH THE AVAILABILITY OF OTHER INTEREST FREE FUNDS WITH THE ASSESSEE THE AMOUNT AVAILABLE FOR INVESTMENTS OU T OF ITS OWN FUNDS WERE TO THE TUNE OF RS.398.19 CRORES. IN VIEW THEREOF, IT WAS SUBMITTED THAT FROM THE ANALYSIS OF THE BALANCE - SHEET, THE ASSESSEE HAD ENOUGH INTEREST FREE FUNDS AT ITS DISPOSAL FOR MAKING THE INVESTMENTS. THE CIT (APPEALS) ON EXAMINING T HE SAID MATERIAL, AGREED WITH THE CONTENTION OF THE ASSESSEE AND ACCORDINGLY DELETED THE ADDITION MADE BY THE ASSESSING OFFICER AND DIRECTED HIM TO ALLOW THE SAME UNDER THE PROVISIONS OF THE INCOME TAX ACT, 1961. THE REVENUE BEING AGGRIEVED BY THE ORDER PR EFERRED AN APPEAL BEFORE THE ITAT WHO UPHELD THE ORDER OF THE CIT (APPEALS) AND DISMISSED THE APPEAL OF THE REVENUE. FROM THE ORDER OF THE ITAT, THE REVENUE APPROACHED THIS COURT BY WAY OF AN APPEAL. AFTER EXAMINING THE ENTIRE FACTUAL MATRIX OF THE MATTER AND THE LAW ON THE SUBJECT, THIS COURT HELD AS UNDER: - IF THERE BE INTEREST - FREE FUNDS AVAILABLE TO AN ASSESSEE SUFFICIENT TO MEET ITS INVESTMENTS AND AT THE SAME TIME THE ASSESSEE HAD RAISED A LOAN IT CAN BE PRESUMED THAT THE INVESTMENTS WERE FROM THE INTEREST - FREE FUNDS AVAILABLE. IN OUR OPINION, THE SUPREME COURT IN EAST INDIA PHARMACEUTICAL WORKS LTD. V. CIT (1997) 224 ITR 627 HAD THE OCCASION TO CONSIDER THE DECISION OF THE CALCUTTA HIGH COURT IN WOOLCOMBERS OF INDIA LTD. (1982) 134 ITR 219 WHERE A SIMILAR ISSUE HAD ARISEN. BEFORE THE SUPREME COURT IT WAS ARGUED THAT IT SHOULD HAVE BEEN PRESUMED THAT IN ESSENCE AND TRUE CHARACTER THE TAXES WERE PAID OUT OF THE PROFITS OF THE RELEVANT YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BU SINESS AND IN THESE CIRCUMSTANCES THE APPELLANT WAS ENTITLED TO CLAIM THE DEDUCTIONS. THE SUPREME COURT NOTED THAT THE ARGUMENT HAD CONSIDERABLE FORCE, BUT CONSIDERING THE FACT THAT THE CONTENTION HAD NOT BEEN 6 ITA NO. 544 & 881 /K/201 2 SUNNY TREXIM PVT. LTD. , AY 2008 - 0 9 ADVANCED EARLIER IT DID NOT REQUIRE TO BE ANSW ERED. IT THEN NOTED THAT IN WOOLCOMBERS OF INDIA LTD.'S CASE (1982) 134 ITR 219 THE CALCUTTA HIGH COURT HAD COME TO THE CONCLUSION THAT THE PROFITS WERE SUFFICIENT TO MEET THE ADVANCE TAX LIABILITY AND THE PROFITS WERE DEPOSITED IN THE OVER DRAFT ACCOUNT O F THE ASSESSEE AND IN SUCH A CASE IT SHOULD BE PRESUMED THAT THE TAXES WERE PAID OUT OF THE PROFITS OF THE YEAR AND NOT OUT OF THE OVERDRAFT ACCOUNT FOR THE RUNNING OF THE BUSINESS. IT NOTED THAT TO RAISE THE PRESUMPTION, THERE WAS SUFFICIENT MATERIAL AND THE ASSESSEE HAD URGED THE CONTENTION BEFORE THE HIGH COURT. THE PRINCIPLE, THEREFORE, WOULD BE THAT IF THERE WERE FUNDS AVAILABLE BOTH INTEREST - FREE AND OVER DRAFT AND/OR LOANS TAKEN, THEN A PRESUMPTION WOULD ARISE THAT INVESTMENTS WOULD BE OUT OF THE INT EREST - FREE FUNDS GENERATED OR AVAILABLE WITH THE COMPANY IF THE INTEREST - FREE FUNDS WERE SUFFICIENT TO MEET THE INVESTMENT. IN THIS CASE THIS PRESUMPTION IS ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE COMMISSIONER OF INCOME - TAX (APPEALS) AND TH E INCOME - TAX APPELLATE TRIBUNAL. (EMPHASIS SUPPLIED) 5. WE FIND THAT THE FACTS OF THE PRESENT CASE ARE SQUARELY COVERED BY THE JUDGMENT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA). THE FINDING OF FACT GIVEN BY THE ITAT IN THE PRESENT CASE IS THAT THE ASSESSEE'S OWN FUNDS AND OTHER NON - INTEREST BEARING FUNDS WERE MORE THAN THE INVESTMENT IN THE TAX - FREE SECURITIES. THIS FACTUAL POSITION IS NOT ONE THAT IS DISPUTED. IN THE PRESENT CASE, UNDISPUTEDLY THE ASSESSEE'S CAPITAL, PROFIT RESERVES, SURP LUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN THE TAX - FREE SECURITIES. IN VIEW OF THIS FACTUAL POSITION, AS PER THE JUDGMENT OF THIS COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. (SUPRA), IT WOULD HAVE TO BE PRESUMED THAT THE INVESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST - FREE FUNDS AVAILABLE WITH THE ASSESSEE. WE THEREFORE, ARE UNABLE TO AGREE WITH THE SUBMISSION OF MR SURESH KUMAR THAT THE TRIBUNAL HAD ERRED IN DISMISSING THE APPEAL OF THE REVENUE ON THIS GROUN D. WE DO NOT FIND THAT QUESTION (A) GIVES RISE TO ANY SUBSTANTIAL QUESTION OF LAW AND IS THEREFORE REJECTED. 6. SIMILARLY, HON'BLE P & H HIGH COURT IN THE CASE OF CIT VS. HERO CYCLES LTD. (2010) 323 ITR 518 (P&H) WHEREIN THIS CONTROVERSY HAS BEEN SET AT REST VIDE PARA 3 AND 4 AS UNDER: LEARNED COUNSEL FOR THE APPELLANT RELIES UPON SECTION 14A(2) AND RULE 8D(1)9B) TO SUBMIT THAT EVEN WHERE THE ASSESSEE CLAIMED THAT NO EXPENDITURE HAD BEEN INCURRED, THE CORRECTNESS OF SUCH CLAIM COULD BE GONE INTO BY THE ASSESSING OFFICER AND IN THE PRESENT CASE, THE CLAIM OF THE ASSESSEE THAT NO EXPENDITURE WAS INCURRED WAS FOUND TO BE NOT ACCEPTABLE BY THE ASSESSING OFFICER AND THUS DISALLOWANCE WAS JUSTIFIED. WE ARE UNABLE TO ACCEPT THE SUBMISSION. IN VIEW OF THE FIN DING REPRODUCED ABOVE, IT IS CLEAR THAT THE EXPENDITURE ON INTEREST WAS SET OFF AGAINST THE INCOME FROM INTEREST AND THE INVESTMENT IN THE SHARE AND FUNDS WERE OUT OF THE DIVIDEND PROCEEDS. IN VIEW OF THIS FINDING OF FACT, DISALLOWANCE UNDER SECTION 14A W AS NOT SUSTAINABLE. WHETHER, IN A GIVEN SITUATION, ANY EXPENDITURE WAS INCURRED WHICH WAS TO BE DISALLOWED, IS A QUESTION OF FACT. THE CONTENTION OF THE REVENUE THAT DIRECTLY OR INDIRECTLY SOME EXPENDITURE IS ALWAYS INCURRED WHICH MUST BE DISALLOWED UNDER SECTION 14A AND THE IMPACT OF EXPENDITURE SO INCURRED CANNOT BE ALLOWED TO BE SET OFF AGAINST THE BUSINESS INCOME WHICH MAY NULLIFY THE MANDATE OF SECTION 14A, CANNOT BE ACCEPTED. DISALLOWANCE UNDER SECTION 14A REQUIRES FINDING OF INCURRING OF EXPENDITURE WHERE IT IS FOUND THAT FOR EARNING EXEMPTED INCOME NO EXPENDITURE HAS BEEN INCURRED, DISALLOWANCE UNDER SECTION 14A CANNOT STAND. IN THE PRESENT CASE, FINDING ON THIS ASPECT, AGAINST THE REVENUE, IS NOT SHOWN TO BE PERVERSE. CONSEQUENTLY, DISALLOWANCE IS N OT PERMISSIBLE. WE 7 ITA NO. 544 & 881 /K/201 2 SUNNY TREXIM PVT. LTD. , AY 2008 - 0 9 HAVE TAKEN THIS VIEW EARLIER ALSO IN 1. 1. A. NO. 504 OF 2008 IN CIT V. WINSOME TEXTILE INDUSTRIES LTD. [2009] 319 ITR 204 (P&H), (DECIDED ON AUGUST 25, 2009), WHEREIN IT WAS OBSERVED AS UNDER (PAGE 207): 'THE CONTENTION RAISED ON BEHALF OF THE REVENUE IS THAT EVEN IF THE ASSESSEE HAD MADE INVESTMENT IN SHARES OUT OF ITS OWN FUNDS, THE ASSESSEE HAD TAKEN LOANS ON WHICH INTEREST WAS PAID AND ALL THE MONEY AVAILABLE WITH THE ASSESSEE WAS IN COMMON KITTY, AS H ELD BY THIS COURT IN CIT V. ABHISHEK INDUSTRIES LTD. [2006] 286 ITR 1 AND, THEREFORE, DISALLOWANCE UNDER SECTION 14A WAS JUSTIFIED. WE DO NOT FIND ANY MERIT IN THIS SUBMISSION. THE JUDGMENT OF THIS COURT IN ABHISHEK INDUSTRIES LTD. [2006] 286 ITR 1 WAS O N THE ISSUE OF ALLOWABILITY OF INTEREST PAID ON LOANS GIVEN TO SISTER CONCERNS, WITHOUT INTEREST. IT WAS HELD THAT DEDUCTION FOR INTEREST WAS PERMISSIBLE WHEN LOAN WAS TAKEN FOR BUSINESS PURPOSE AND NOT FOR DIVERTING THE SAME TO SISTER CONCERN WITHOUT HAVI NG NEXUS WITH THE BUSINESS. OBSERVATIONS MADE THEREIN HAVE TO BE READ IN THAT CONTEXT. IN THE PRESENT CASE, ADMITTEDLY, THE ASSESSEE DID NOT MAKE ANY CLAIM FOR EXEMPTION. IN SUCH A SITUATION, SECTION 14A COULD HAVE NO APPLICATION.' 7. IN VIEW OF THE ABOV E FACTS AND PROPOSITION OF LAW LAID DOWN BY HON BLE BOMBAY HIGH COURT IN THE CASE OF HDFC BANK LTD. SUPRA & HON'BLE P & H HIGH COURT IN THE CASE OF HERO CYCLES LTD. SUPRA , THERE IS A CLEAR CASE OF THE ASSESSEE THAT IT HAVE SUFFICIENT OWN FUNDS FOR MAKING I NVESTMENT IN PURCHASE OF OFFICE SPACE AND GODOWN. FURTHER, DESPITE THE FACT THAT COMPLETE BOOKS OF ACCOUNT AND OTHER DETAILS WERE PRODUCED BEFORE THE AO, HE COULD NOT ESTABLISH NEXUS OF INTEREST BEARING FUNDS WITH THAT OF INVESTMENT IN OFFICE SPACE AND GODOWN. IN SUCH CIRCUMSTANCES, WE DELETE THE BALANCE ADDITION CONFIRMED BY CIT(A) AND THIS ISSUE OF ASSESSEE S APPEAL IS ALLOWED AND THE ISSUE OF REVENUE S APPEAL IS DISMISSED. 8 . IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED AND THAT OF REVENUE S IS DISMISSED . 9 . ORDER IS PRONOUNCED IN THE OPEN COURT ON 2 9 . 0 1 . 2 0 1 5 . S D / - S D / - ( N. K. SAINI ) (MAHAVIR SINGH) ACCOUNTANT MEMBER J UDICIAL MEMBER DATED: 2 9 T H JANUARY , 201 5 JD.(SR.P.S.) 8 ITA NO. 544 & 881 /K/201 2 SUNNY TREXIM PVT. LTD. , AY 2008 - 0 9 - COPY OF THE ORDER FORWARDED TO: 1 . ASSESSEE SUNNY TREXIM PVT. LTD., 204, A.J.C. BOSE ROAD, KOLKATA - 17 2 / RE VE N UE JCIT, CIRCLE - 5, KOLKATA 3 . ( )/ THE CIT (A), KOLKATA 4. 5. / CIT KOLKATA / DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, / BY ORDER, /ASSTT. REGISTRAR .