P.G. Foils Ltd., Ahmedabad V. The Addl. CIT, Range-5, Ahmedabad

ITA 912/AHD/2015

• Counselvise Citation: [2018] 112 COUNSELVISE.COM (IT) 5763 (ITAT-AHMEDABAD)
• Duration Of Justice: 3 year(s) 7 month(s) 26 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2011-2012
• Appeal Filed On: 15-04-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S K DEV
• Keywords: Capital asset; Depreciation; Earning of tax free income; Proportionate interest; Onus to prove; Rule 8D
• Section: 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH, AHMEDABAD BEFORE SHRI WASEEM AHMED, ACCOUNTANT MEMBER AND MS. MADHUMITA ROY, JUDICIAL MEMBER ./ITA NO. 912/AHD/2015 ( / ASSESSMENT YEAR : 2011-12) P.G. FOILS LTD. 6, NEPTUNE TOWER, ASHRAM ROAD AHMEDABAD / VS. THE ADDL.CIT RANGE-5, AHMEDABAD ./ ./ PAN/GIR NO. : AAACP 9274 C ( / APPELLANT ) .. ( / RESPONDENT ) / APPELLANT BY : SHRI GAURAV NAHTA, AR / RESPONDENT BY : SHRI S.K. DEV, SR.DR / DATE OF HEARING 05/11/2018 !'# / DATE OF PRONOUNCEMENT 11/12/2018 / O R D E R PER WASEEM AHMED, ACCOUNTANT MEMBER: THE CAPTIONED APPEAL HAS BEEN FILED AT THE INSTANCE OF THE ASSESSEE AGAINST THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS)9, AHMEDABAD [CIT(A) IN SHORT] VIDE APPEAL NO.CIT(A) X I/375/ADDL.CIT R.5/2013-14 DATED 01.01.2015 ARISING IN THE ASSESS MENT ORDER PASSED UNDER S.143(3) OF THE INCOME TAX ACT, 1961(HEREINA FTER REFERRED TO AS 'THE ACT') DATED 30.01.2014 RELEVANT TO ASSESSMENT YEAR (AY) 2011- 12. 2. THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL:- ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 2 - 1. THE LD.CIT APPEALS 9 AHMEDABAD HAS ERRED IN LAW AND ON FACTS IN PASSING APPELLATE ORDER DATED 01.01.2015 F OR AY 2011- 12 IN THE CASE OF APP BY PARTIALLY CONFIRMING THE A DDITION MADE BY AO UNDER SECTION 14A. 2. THE LD.CIT APPEALS HAS ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS.3,75,084/- OUT OF INTEREST ON AM OUNT INVESTED IN CAPITAL WORK-IN-PROGRESS. 3. THE LD CIT APPEALS HAS ERRED IN LAW AND ON FACTS IN CONFIRMING DISALLOWANCE OF RS.6,49,147/- MADE OUT OF INTEREST ON AMOUNT INVESTED IN FLAT AT MUMBAI. 3. THE FIRST ISSUE RAISED BY THE ASSESSEE IS THAT THE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE MADE BY THE AO U/S 14A OF THE ACT R.W.R.8D OF INCOME TAX RULES, 1962. 4. BRIEFLY STATED FACTS ARE THAT THE ASSESSEE IS A LIMITED COMPANY AND ENGAGED IN THE BUSINESS OF MANUFACTURING, LAMINATIO N, AND TRADING OF ALUMINUM FOILS/WIRE RODS/INGOTS. 4.1. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATI ON HAS SHOWN A DIVIDEND INCOME OF RS. 10,26,283/- WHICH WAS CLAIME D AS EXEMPT U/S 10(34) OF THE ACT. THE ASSESSEE IN ITS BALANCE SHE ET AS ON 31/03/2011 HAS ALSO SHOWN AN INVESTMENT OF RS. 2,74,77,021/-. 4.2. THE ASSESSEE DURING THE YEAR UNDER CONSIDERATI ON HAS ALSO CLAIMED THE INTEREST EXPENSES OF RS. 1,83,86,113/- EXCLUDIN G INTEREST ON THE TERM LOAN AND BANK CHARGES IN ITS PROFIT & LOSS ACCOUNT. ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 3 - 4.3. HOWEVER, THE ASSESSEE HAS NOT MADE ANY DISALLO WANCE OF THE EXPENSES IN RELATION TO DIVIDEND INCOME UNDER THE P ROVISIONS OF SECTION 14A R.W.R. 8D OF IT RULES, 1962. ON A QUESTION BY T HE AO, THE ASSESSEE VIDE LETTER DATED 18/09/2013 SUBMITTED THAT ITS FUN D EXCEEDS THE AMOUNT OF INVESTMENT. THEREFORE, THERE CANNOT BE ANY DISA LLOWANCE OF EXPENSES U/S.14A R.W.R. 8D OF THE IT RULES. 4.4. HOWEVER, THE AO DISAGREED WITH THE SUBMISSION OF THE ASSESSEE AND INVOKED THE PROVISIONS OF SECTION 14A R.W.R.8D FOR MAKING DISALLOWANCE AS DETAILED UNDER:- SL.NO. PARTICULARS UNDER RULE AMOUNT(RS.) 1. DRUG EXPENSES 8D(2)(I) 4,42,517/- 2. INTEREST EXPENSES 8D(2)(II) 22,47,916/- 3. ADMINISTRATIVE EXPENSES 8D(2)(III) 8,40,874/- TOTAL 33,31,307/- 4.5. THE ABOVE DISALLOWANCE WAS WORKED OUT UNDER TH E PROVISIONS OF SECTION 14A R.W.R.8D OF THE ACT I.T.RULES AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 5. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE LD .CIT(A). 6. THE ASSESSEE BEFORE THE LD. CIT(A) SUBMITTED THA T ITS FUNDS EXCEED THE AMOUNT OF INVESTMENT. THEREFORE THERE CANNOT BE ANY DISALLOWANCE U/S 14A R.W.R.8D OF THE IT RULES. ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 4 - 6.1. THE ASSESSEE ALSO CLAIMED THAT IT HAD ERRED INTEREST INCOME OF RS.1,23,08,123/- WHICH NEEDS TO BE ADJUSTED AGAINST THE INTEREST EXPENSES BEFORE MAKING THE DISALLOWANCE U/S.14A R.W.R. 8D OF IT RULES. THERE WAS AN INTEREST-FREE DEPOSIT OF RS. 4.25 CRORES REC EIVED FROM CONSOLIDATED SECURITIES LIMITED IN ADDITION TO THE SHARE CAPITAL AND RESERVE. THUS, IT IS EVIDENT THAT THERE WAS SUFFICIENT FUND AVAILABLE WI TH THE ASSESSEE FOR INVESTING IN THE SECURITIES. 7. THERE WAS INTEREST EXPENSE ON THE LOANS TAKEN FR OM THE BANK. THE ENTIRE BORROWED FUND WAS USED FOR THE PURPOSE OF BU SINESS. AS SUCH, THERE WAS NO BORROWED FUND INVESTED IN THE SECURITI ES AS DISCUSSED ABOVE. THEREFORE, THERE CANNOT BE ANY DISALLOWANCE OF INTE REST EXPENSES. 8. THE LD. CIT(A) AFTER CONSIDERING THE SUBMISSION OF THE ASSESSEE, DELETED THE ADDITION MADE BY THE AO IN PART BY OBSE RVING AS UNDER:- 3.3. AFTER CONSIDERING ALL THE DETAILS AN D FACTS IT IS NOTED THAT THOUGH THE APPELLANT HAD SUFFICIENT SHARE CAPITAL AND SUBSTANTIAL AMOUNT AND THE PROFITS DURING THE YEAR, IT HAD NOT GIVEN ANY DETAILS TO PROVE THAT THE AMOUNT HAS BEEN INVESTED OUT OF THE INTEREST-FREE FUNDS AVAILABLE WITH IT. IT HAS GIVEN A GENERAL SUBMISSI ON STATING THAT SINCE THE INTEREST-FREE FUNDS WERE SUFFICIENT IT SHOULD BE PRESUMED THAT THE INVE STMENT IS OUT OF THOSE FUNDS. THE SUBMISSION CANNOT BE ACCEPTED AS IT IS THE CLAIM OF THE APPELLANT TO SAY THAT THE INVESTMENT IS OUT OF THE INTEREST-FREE FUND AND THEREFORE, THE ON US IS ON THE APPELLANT TO PROVE THE SAME. TO PROVE ITS CLAIM THE APPELLANT HAS TO DEMONSTRATE SP ECIFIC NEXUS BETWEEN THE SHARES PURCHASED AND THE INTEREST FREE FUND INVESTED WHICH IT HAS NO T DONE. THEREFORE, THE CONTENTION OF THE APPELLANT THAT IT HAS DEMONSTRATED THAT THE INVESTM ENT WAS OUT OF INTEREST FREE FUNDS IS NOT ACCEPTABLE. IT HAS ALSO NOT GIVEN ANY SPECIFIC NEX US SUCH AS THE ENTRIES IN THE BANK ACCOUNT OR THE DTES OF INVESTMENT TO SHOW THAT CERTAIN INTE REST FREE FUNDS WHICH WERE AVAILABLE AT THAT POINT OF TIME HAS BEEN INVESTED IN THE CASE OF TX E XEMPT ASSETS. THE ONUS TO PROVE THAT IT HAS NOT INCURRED ANY EXPENDITURE IS ON THE APPELLANT AS IT IS THE CLAIM MADE BY IT AND THE ONUS THEREFORE, WOULD BE ON THE APPELLANT. THE RELIANCE IS PLACED ON THE RECENT DECISION OF ITAT PANAJI BENCH IN THE CASE OF JOE MARCELINHO MATHIAS 143 ITD 132AND HERCULES HOIST LTD. 35 TAXMAN.COM 592, MUMBAI ITT. THE ONUS HAS NOT BEEN SATISFACTORILY DISCHARGED. IT IS ALSO NOTED THAT THE APPELLANT HAS MADE ALL HE INVESTMENT IN TAX-EXEMPT ASSETS THROUGH THE CURRENT- ACCOUNT IN IDBI BANK AND THE FUNDS UTILISED THERE F ROM ARE NO DOUBT INTEREST-BEARING. THE ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 5 - APPELLANT HAS NOT SHOWN ANY EXPENDITURE FOR INTERES T UNDER SECTION 14A ON ITS OWN. THEREFORE, THE APPELLANTS CONTENTION REGARDING NON -INCURRING OF ANY INTEREST EXPENDITURE IS NOT ACCEPTED. IN THESE CIRCUMSTANCES IT IS HEREBY HELD THAT HAVING REGARD TO THE ACCOUNTS OF THE APPELLANT, I AM NOT SATISFIED WITH THE CORRECTN ESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF NO EXPENDITURE IN RELATION TO INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT. THE APPELLANT HAS IN FACT NOT KEPT ANY D ETAILED ACCOUNT OR ANY SYSTEMATIC OR LOGICAL ACCOUNT TO PROVE ITS CLAIM THAT IT IS NOT INCURRED ANY INTEREST EXPENDITURE IN PURCHASE OF TAX EXEMPT ASSETS. SIMILARLY, AS REGARDS THE ADMINISTRATIVE EXPENDITU RE, IT IS NOTED THAT THE APPELLANT HAS NOT KEPT ANY ACCOUNT OR RECORD TO SHOW THAT NO ADMI NISTRATIVE EXPENDITURE HAS BEEN INCURRED FOR THE PURPOSE OF EARNING EXEMPT INCOME OR MAINTAI NING THE TAX EXEMPT INVESTMENT. THE ONUS TO PROVE THAT IT HAS NOT INCURRED ANY EXPENDIT URE IS ON THE APPELLANT AS IT IS THE CLAIM MADE BY IT AND THE ONUS THEREFORE, WOULD BE ON THE APPELLANT. THE RELIANCE IS PLACED ON THE RECENT DECISION OF ITAT PANAJI BENCH IN THE CASE OF JOE MARCELINHO MATHIAS 143 ITD 132 AND HERCULES HOIST LTD 35 TAXMAN.COM 592, MUMBAI IT AT. FURTHER, THE GENERAL LOGIC, THAT IT IS NOT POSSIBLE THAT NO EXPENDITURE MIGHT HAVE B EEN INCURRED FOR EARNING THE DIVIDEND INCOME, IS APPLICABLE IN THE CASE OF THE APPELLANT. SOME ADMINISTRATIVE ACTION SUCH AS THE REVIEW OF INVESTMENT OR MONITORING OF THE ACTIVITIE S OF THE COMPANIES IN WHICH THE APPELLANT COMPANY HAS MADE SUBSTANTIAL INVESTMENT MIGHT HAVE BEEN DONE BY THE DIRECTOR OF THE APPELLANT COMPANIES AND THE SUPPORTING EMPLOYEES MU ST HAVE DONE SOME ACTIVITY BY SPENDING SOME TIME ON THE ISSUE. THEREFORE, THE SALARY PAID BY THE APPELLANT COMPANY TO THOSE EMPLOYEES AND THE DIRECTORS HAVE NOT BEEN UTILISED EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS OF THE COMPANY. A PART OF IT CAN ALWAYS BE ATTRIBU TED TO THE EARNING OF DIVIDEND WHICH IS EXEMPT FROM TAX. THEREFORE, IN THESE CIRCUMSTANCES ALSO HAVING REGARD TO THE ACCOUNTS OF THE APPELLANT, I AM NOT SATISFIED WITH THE CORRECTNESS OF THE CLAIM OF THE APPELLANT IN RESPECT OF NO ADMINISTRATIVE EXPENDITURE IN RELATION TO INCOME WH ICH DOES NOT FORM PART OF THE TOTAL INCOME UNDER THIS ACT THAT IS THE DIVIDEND INCOME SHOWN BY THE APPELLANT. WITHOUT PREJUDICE TO ABOVE DISCUSSION, IT HAS ALSO BEEN HELD BY HONBLE ITAT KOLKATA IN THE CASE OF CHAMPION COMMERCIAL COMPANY LIMITED REPORTED IN 139 ITD 108 THAT WHEN THE ASSESSEE OFFERS A DISALLOWANCE UNDER SECTION 14A, PROVISIONS OF SECTION 14A(2), READ WITH RULE 8D CANNOT BE INVOKED UNLESS ASSESSIN G OFFICER IS SATISFIED ABOUT THE INCORRECTNESS OF THE DISALLOWANCE SO OFFERED, BUT W HEN ASSESSEE DOES NOT OFFER ANY DISALLOWANCE UNDER SECTION 14A BY CLAIMING THAT THE RE WAS NO EXPENDITURE INCURRED TO EARN EXEMPT INCOME, PROVISION OR SECTION 14A(2), READ WI TH RULE 8D COULD BE INVOKED WITHOUT THERE BEING ANY NEED TO EXPRESS SATISFACTION ABOUT THE CORRECTNESS OF SUCH A CLAIM. IN THE PRESENT CASE, THE APPELLANT HAS NOT OFFERED ANY DIS ALLOWANCE UNDER SECTION 14A AND CLAIMED THAT THERE WAS NO EXPENDITURE INCURRED TO EARN EXEM PT INCOME, THE PROVISIONS OF RULE 8D CAN BE STRAIGHTAWAY APPLIED BY FOLLOWING THE ABOVE JUDG EMENT OF HONBLE ITAT. SINCE THE APPELLANT HAS NOT MADE ANY DISALLOWANCE UNDER SECTI ON 14A IN THE RETURN OF INCOME, IN VIEW OF THIS JUDGEMENT ALSO THE APPLICATION OF RULE 8D B Y THE AO IS UPHELD. THEREFORE, AFTER HAVING HELD THAT THE ACCOUNTS OF THE APPELLANT IN RESPECT OF EXPENDITURE INCURRED FOR EARNING THE INCOME WHICH D OES NOT FORM PART OF THE TOTAL INCOME ARE NOT CORRECT, THE EXPENDITURE INCURRED WILL HAVE TO BE WORKED OUT BY APPLYING THE PROVISIONS OF RULE 8D. IT IS NOTED THAT THE AO HAS APPLIED RU LE 8D FOR WORKING OUT THE DISALLOWANCE. ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 6 - ACCORDINGLY, THE APPLICATION OF RULE 8D BY THE AO FOR MAKING THE DISALLOWANCE UNDER SECTION 14A IS UPHELD. THE APPELLANT HAS ALSO PLACED RELIANCE ON VARIOUS JUDGMENTS WHICH HAVE BEEN REPRODUCED AND MENTIONED AT THE RELEVANT PAGE WHERE THE SUBMISSION OF THE APPELLANT HAS BEEN GIVEN. HOWEVER AFTER GOING THROUGH THE VARIOU S JUDGMENTS IT IS NOTED THAT NONE OF THE JUDGEMENT IS APPLICABLE TO THE APPELLANTS CASE AS THE FACTS IN THOSE CASES WERE DIFFERENT FROM THAT OF THE APPELLANT. NOW THE CLAIM OF THE APPELLANT REGARDING HOW MUCH INTEREST IS TO BE TAKEN FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A IS TO BE EXAMINED. THE APPELLANT HAS CLAIMED THAT OUT OF THE TOTAL EXPENDITURE OF INTEREST THERE ARE SEVERAL INTEREST EXPENDITURES WHICH ARE DIRECT IN NATURE AND CANNOT BE ATTRIBUTED TO THE IN VESTMENT MADE BY THE APPELLANT IN TAX- EXEMPT ASSETS. THESE EXPENDITURES ARE SPECIFIC IN NATURE AND ARE RELATED TO THE FUNDS UTILISED FOR A SPECIFIC PURPOSE. IN ORDER TO UNDERSTAND THE SITUATION THE DETAILS GIVEN BY THE APPELLANT REGARDING VARIOUS EXPENDITURE OF INTEREST AND THEIR NATURE ARE REPRODUCED HEREUNDER:- XXXXXXX XXXXXXX IT HAS BEEN SUBMITTED BY THE APPELLANT THAT INTERE ST ON EXCISE DUTY, SERVICE TAX AND SALES TAX MENTIONED AT SERIAL NUMBER 9,10,11 SHOULD NOT BE TAKEN INTO ACCOUNT AS IT IS NOT RELATED TO INVESTMENT IN SHARES AND MUTUAL FUNDS AN D IT IS NOT ON ACCOUNT OF ANY FUNDS BORROWED BY THE APPELLANT. THE SUBMISSION OF THE A PPELLANT IS ACCEPTABLE AND ACCORDINGLY THESE INTEREST ARE DIRECTED TO BE EXCLUDED FROM THE INTEREST FOR THE PURPOSE OF THE 8D. THE APPELLANT HAS SUBMITTED THAT INTEREST ON TERM LOAN MENTIONED AT SERIAL NUMBER 4 IS PAID TO BANK FOR LOAN OBTAINED AND CAPITAL ASSET . SINCE THIS INTEREST HAS BEE INCURRED FOR A SPECIFIC PURPOSE AND THEREFORE IT SHOULD NOT BE CON SIDERED FOR INVESTMENT. THE CLAIM OF THE APPELLANT IS ACCEPTABLE AS THE TERM LOAN IS DIRECTL Y RELATED TO CAPITAL ASSETS AND THE BANKERS DIRECTLY GIVE THE FUND IS TO THE SELLER OF THE CAPI TAL ASSET THEREFORE, THERE IS NO POSSIBILITY OF USING THESE FUNDS FOR MAKING THE INVESTMENT IN TAX- EXEMPT ASSETS. ACCORDINGLY, THIS INTEREST IS TO BE EXCLUDED FOR THE PURPOSE OF CALCULATION F DIS ALLOWANCE UNDER SECTION 14A. THE INTEREST PAID FOR PURCHASE OF RAW MATERIAL, PA ID TO BANK FOR OBTAINING LC FOR DISCOUNTING OF BILLS RAISED TO SALE PARTY, INTEREST PAID TO BANK OF BARODA, BANK OF INDIA, HSBC MAURITIUS, STATE BANK OF INDIA FOR BUYERS CRED IT ARE ALSO DIRECTLY RELATED TO PURCHASE OF RAW MATERIAL AND OBTAINING BUYERS CREDIT ETC. THE SUBMISSION OF THE APPELLANT THAT THERE IS NO POSSIBILITY OF USING THESE FUNDS OTHERWISE FOR T HE PURPOSE OF MAKING INVESTMENT IS ACCEPTABLE AND THEREFORE, THESE ITEMS OF EXPENDITUR E (SR.NO.1,2, 3,7,8) ARE ALSO DIRECTED TO BE EXCLUDED. THE INTEREST AT SERIAL NUMBER 5 AND 6 ARE INTEREST PAYMENT TO SBBJ PIPALIA KALAN AND RAIPUR. IT HAS BEEN EXPLAINED BY THE APPELLANT THAT AS THESE INTEREST ARE ON THE FUNDS BORROWED WHICH ARE USED FOR MEETING THE ROUTINE EXP ENSES AT THE BRANCHES OF THE APPELLANT AT THESE STATIONS. THE INTEREST HAS BEEN INCURRED AS AN OVERDRAFT FACILITY WAS TAKE AGAINST THE FDRS. FURTHER THE FUNDS IN THESE ACCOUNTS HAVE ALS O BEEN TRANSFERRED FROM THE APPELLANTS ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 7 - MAIN ACCOUNT IN IDBI BANK. THEREFORE, IN VIEW OF T HESE FACTS THE SUBMISSION OF THE APPELLANT IS ACCEPTABLE AND THESE ITEMS OF EXPENDITURE ON INT EREST SHOULD ALSO BE EXCLUDED FROM RULE 8D. THE INTEREST ON IDBI WHICH IS MENTIONED THAT SERIA L NUMBER 4 IS IN THE GENERAL NATURE AND THE FUNDS WERE USED FOR DAY TO DAY WORKING OF T HE COMPANY. ACCORDINGLY THIS INTEREST SHOULD BE TAKEN FOR THE PURPOSE OF DISALLOWANCE UND ER SECTION 14A READ WITH RULE 8D. THE SUBMISSION OF THE APPELLANT IN THIS RESPECT IS ACCE PTABLE. ACCORDINGLY AFTER EXAMINING THE OVERALL POSITION OF VARIOUS INTEREST ONLY THE INTER EST AT ITEM NUMBER 4 OF THE ABOVE TABLE IS TO BE TAKEN AS TOTAL INTEREST EXPENDITURE FOR THE PURP OSE OF CALCULATION OF INTEREST DISALLOWANCE BY APPLYING RULE 8D. AFTER DETERMINING WHICH INTEREST EXPENDITURE IS TO BE TAKEN THE CLAIM OF THE APPELLANT REGARDING NETTING OF INTEREST INCOME WITH THE EXPEN DITURE IS TO BE FURTHER EXAMINED. IT IS A SETTLED PRINCIPLE OF LAW THAT THE INTEREST INCOME A ND EXPENDITURE CAN BE ADJUSTED OR NETTED OF ONLY IN CASE WHERE THE EXPENDITURE AS WELL AS INTER EST IS RELATED TO THE BUSINESS. IN OTHER WORDS THERE SHOULD BE A NEXUS BETWEEN THE INCOME AN D THE EXPENDITURE. THE APPELLANT HAS GIVEN DETAILS OF INTEREST INCOME EARNED BY IT DURIN G THE YEAR, WHICH IS REPRODUCED HEREUNDER:- 1 INTEREST RECEIV ED FROM CUSTOMERS 4690836 RECEIVED FROM CUSTOMERS ON EXTENDING CREDIT PERIOD OR DISCOUNTING LC. 2 INTEREST RECEIVED ON BANK FDR 6313325 INTEREST ON FDR WHICH WERE OBTAINED IN EARLIER YEARS AND USED FOR OVERDRAFT FACILITY. 3 INTEREST ON I.T. REFUND 951489 4 INTEREST ON SECURITY DEPOSIT OF POWER BILL 352473 TOTAL 12308123 IT IS NOTED FROM THE ABOVE TABLE THAT INTEREST RECE IVED ON BANK FDR HAS NO NEXUS WITH THE INTEREST EXPENDITURE MADE BY THE APPELLANT AND THER EFORE THE SAME CANNOT BE CONSIDERED FOR THE PURPOSE OF SETTING OFF OR REDUCING THE SAME FRO M THE INTEREST EXPENDITURE. THE INTEREST RECEIVED FROM CUSTOMERS IS THE INTEREST WHICH IS RE CEIVED FOR EXTENDING THE CREDIT PERIOD OR DISCOUNTING OF LC. THE APPELLANT HAS EXPLAINED THA T THIS INTEREST HAS BEEN CHARGED FROM THE CUSTOMERS AS IT HAS EXTENDED THE CREDIT PERIOD OF P AYMENT TO AGAINST SALES MADE TO VARIOUS CUSTOMERS. THE FUNDS RECEIVED ON ACCOUNT OF SALES ARE DIRECTLY DEPOSITED IN IDBI ACCOUNT AND THE INTEREST EXPENDITURE INCURRED FROM THAT ACC OUNT WOULD BE REDUCED IT THE APPELLANT RECEIVED THE PAYMENT IN TIME THEREFORE THERE IS A D IRECT NEXUS WITH THE INTEREST PAID ON IDBI BANK AND THE INTEREST RECEIVED FROM CUSTOMERS. THE SUBMISSION OF THE APPELLANT IS ACCEPTABLE AS THERE IS A DIRECT NEXUS BETWEEN THE INTEREST REC EIVED FROM CUSTOMERS AND THE INTEREST PAID BY THE APPELLANT TO IDBI ON GENERAL BORROWINGS. AC CORDINGLY THE CLAIM OF THE APPELLANT REGARDING NETTING OF THE EXPENDITURE IS ACCEPTED ON LY TO THIS EXTENT. ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 8 - THEREFORE, TO SUM UP THE INTEREST EXPENDITURE WHICH IS TO BE TAKEN FOR THE PURPOSE OF RULE 8D FOR MAKING THE DISALLOWANCE UNDER SECTION 1 4A WOULD BE (RS.1,66,42,585 RS.59,94,798) 10647787 ONLY. THE SECOND CLAIM OF THE APPELLANT IS THAT OUT OF T HE TOTAL INVESTMENT THAT HAS BEEN CONSIDERED BY THE AO FOR MAKING THE DISALLOWANCE UN DER SECTION 14A CERTAIN DEBT FUNDS ARE ALSO THERE WHICH DOES NOT YIELD IN TAX EXEMPT INCOM E. THE APPELLANT HAS SUBMITTED THAT THE INVESTMENT IN SUCH DEBT FUNDS WAS RS.11 CRORES. IT IS NOTED THAT APPELLANT HAD NOT MADE THIS CLAIM BEFORE THE AO. IT WOULD THEREFORE BE PROPER THAT THE CLAIM OF THE APPELLANT IS VERIFIED BY THE AO BEFORE GIVING EFFECT TO THE ORDER. IN CA SE THE CLAIM OF THE APPELLANT THAT THE DEBT FUNDS ARE GIVING TAXABLE INCOME THE TOTAL INVESTMEN T IN SUCH FUNDS SHOULD BE REDUCED FROM THE INVESTMENT TO BE CONSIDERED FOR DISALLOWANCE UN DER SECTION 14A. THE AO IS DIRECTED TO VERIFY THE QUANTUM OF INVESTMENT IN SUCH DEBT FUNDS AND ALSO THE FACT THAT THE INCOME RECEIVED FROM THESE FUNDS WAS TAXABLE. IN CASE THE INCOME I S TAXABLE THE INVESTMENT IN SUCH DEBT FUNDS SHOULD BE EXCLUDED. IN VIEW OF THE ABOVE MENTIONED DISCUSSION THE DISA LLOWANCE MADE BY THE AO UNDER SECTION 14A BY APPLYING THE PROVISIONS OF RULE 8D I S DIRECTED TO BE WORKED OUT AFTER TAKING THE INTEREST EXPENDITURE AS INDICATED IN THE P[RECE DING DISCUSSION AND THE FIGURES OF INVESTMENT AFTER EXCLUDING THE DEBT FUNDS (SUBJECT TO VERIFICATION). THE AO IS DIRECTED ACCORDINGLY. THE GROUND OF APPEAL IS THEREFORE, PA RTLY ALLOWED. 9. BEING AGGRIEVED BY THE ORDER OF THE LD.CIT(A), T HE ASSESSEE IS IN APPEAL BEFORE US. 10. THE LD.AR BEFORE US FILED A PAPER-BOOK RUNNING FROM PAGES 1 TO 4 AND REITERATED THE SUBMISSIONS AS MADE BEFORE THE A UTHORITIES BELOW. 10.1 ON THE OTHER HAND, THE LD. DR VEHEMENTLY SUPPO RTED THE ORDERS OF THE AUTHORITIES BELOW. 11. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORDS. THE ASSESSEE IN THE CASE ON H AND HAS EARNED DIVIDEND INCOME WHICH WAS CLAIMED AS EXEMPT UNDER S ECTION 10(34) OF ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 9 - THE ACT. HOWEVER, THE ASSESSEE HAS NOT MADE ANY DIS ALLOWANCE OF THE EXPENSES INCURRED IN RELATION TO SUCH DIVIDEND INCO ME. ACCORDINGLY THE AO INVOKED THE PROVISIONS OF RULE 8D R.W.S 14A OF T HE ACT AND MADE THE DISALLOWANCES AS UNDER: SR. NO. PARTICULARS AMOUNT (RS.) 1 DIRECT EXPENSES UNDER RULE 8D(2)(I) 2,42, 517/ - 2 INTEREST EXPENSES UNDER RULE 8D(2)(II) 22,47,916 /- 3 ADMINISTRATIVE EXPENSES UNDER RULE 8D(2)(III) 8,40,874/- 11.1. AS REGARDS THE DIRECT EXPENSES WE NOTE TH AT THE ASSESSEE HAS NOT MADE ANY ARGUMENT EITHER BEFORE THE AO OR THE LD. C IT(A). WE ALSO NOTE THAT THE LEARNED COUNSEL FOR THE ASSESSEE HAS NOT A RGUED THE DISALLOWANCE OF THE DIRECT EXPENSE MADE BY THE AUTHORITIES BELOW BEFORE US. THEREFORE WE DO NOT FIND ANY DEFECT IN THE ORDER OF AUTHORITI ES BELOW. HENCE WE CONFIRM THE DISALLOWANCE OF THE DIRECT EXPENSES OF RS. 2,42,517 ONLY. 11.2. AS REGARDS THE INTEREST EXPENSES OF RS. 22 ,47,916/- WE NOTE THAT THE OWN FUND OF THE ASSESSEE EXCEEDS THE AMOUNT OF INVESTMENT AS EVIDENT FROM THE FINANCIAL STATEMENT OF THE ASSESSE E WHICH IS REPRODUCED AS UNDER: SCHEDULE AS AT 31.3.2011 SOURCES OF FUNDS SHARES HOLDERSS FUNDS (A) CAPITAL A 85861025 ( B ) RESERVES & SURPLUS B 687152562 ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 10 - LOAN FUNDS (C) SECURED LOANS C 560373057 ( D ) UNSECURED LOANS D 0 ( E ) DEFERRED TAX LIABILITY (NET) 5375715 TOTAL 1338762359 APPLICATION OF FUNDS FIXED ASSETS (A) GROSS BLOCK (B) LESS : DEPRECIATION (C) NET BLOCK (D) CAPITAL WORK IN PROGRESS E 608929834 359080796 249849038 10066098 TOTAL 259915136 INVESTMENTS F 22477021 11.3. IT IS SETTLED LAW THAT THERE CANNOT BE A NY DISALLOWANCE ON ACCOUNT OF INTEREST EXPENSES IF THE OWN FUND OF THE ASSESSEE EXCEEDS THE INVESTMENT. IN HOLDING SO, WE FIND SUPPORT AND GUID ANCE FROM THE JUDGMENT OF HONBLE BOMBAY HIGH COURT IN THE CASE O F RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 WHEREIN IT WAS HELD AS UNDER:- 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. 11.4. SIMILARLY, WE ALSO RELY ON THE JUDGMENT O F 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:- ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 11 - WHERE ASSESSEE'S CAPITAL, PROFIT RESERVES, SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENT IN TAX-FRE E SECURITIES, IT WOULD 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. 11.5. SIMILARLY, WE ALSO FIND SUPPORT FROM THE JU DGMENT 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. 11.6 IN VIEW OF THE ABOVE PROPOSITION, WE HOLD THAT NO DISALLOWANCE OF INTEREST EXPENSE CLAIMED BY THE ASSESSEE CAN BE MAD E ON ACCOUNT OF INVESTMENTS AS DISCUSSED ABOVE. HENCE, WE REVERSE T HE ORDER OF THE AUTHORITIES BELOW. THE AO IS DIRECTED TO DELETE THE ADDITION MADE BY HIM. 11.7. AS REGARDS THE ADMINISTRATIVE EXPENSE S WE NOTE THAT THERE WAS NO SUBMISSION MADE BY THE ASSESSEE EITHER BEFORE TH E AO OR LD. CIT(A). HOWEVER, WE NOTE THAT THE LD. CIT(A) HAS GIVEN THE DIRECTION TO THE AO TO EXCLUDE THOSE INVESTMENTS WHILE WORKING OUT THE DISALLOWANCE UNDER RULE 8D R.W.S. 14A OF THE ACT, IN RESPECT OF WHICH INCOME IS NOT CHARGEABLE TO TAX. THUS THE INVESTMENTS WHICH ARE NOT CAPABLE OF GENERATING EXEMPTED INCOME WILL NOT BE CONSIDERED F OR THE PURPOSE OF DISALLOWANCE UNDER THE PROVISIONS OF SECTION 14A R. W.R 8D OF THE INCOME TAX RULE. THE REVENUE HAS NOT CHALLENGED THE DIRECT IONS ISSUED BY THE LD. CIT(A) IN ANY APPEAL BEFORE US. THUS THE ORDER OF L D. CIT(A) ATTAINED THE FINALITY. ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 12 - 12. THE NEXT CONTROVERSY ARISES WHETHER ALL THE INVESTMENTS WHICH ARE CAPABLE OF GENERATING THE EXEMPTED INCOME WILL BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCES UNDER SECTION 14A R.W.R 8D OF THE INCOME TAX RULE. IT MEANS THE INVESTMENTS WHICH HAVE NOT GENER ATED ANY EXEMPTED INCOME DURING THE YEAR WILL ALSO BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE UNDER SECTION 14A R.W.R. 8D OF INCOME TAX RULE AS PER THE DIRECTION OF THE LD. CIT(A). HOWEVER, TO THIS EXTEN T, WE DISAGREE WITH THE DIRECTION OF THE LD. CIT(A). AS PER OUR UNDERST ANDING THE INVESTMENTS WHICH HAVE GENERATED EXEMPTED INCOME IN THE YEAR UNDER CONSIDERATION WILL ONLY BE CONSIDERED FOR THE PURPO SE OF DISALLOWANCE UNDER SECTION 14A R.W.R 8D OF INCOME TAX RULE. IN T HIS REGARD, WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE D ELHI HC IN CASE OF CHEMINVEST LTD. VS. CIT REPORTED IN 378 ITR 33 WHER EIN IT WAS HELD AS UNDER: IN THE CONTEXT OF THE FACTS ENUMERATED THE QUESTIO N FRAMED WAS ANSWERED BY HOLDING THAT THE EXPRESSION' DOES NOT F ORM PART OF THE TOTAL INCOME' IN SECTION 14A ENVISAGES THAT THERE S HOULD BE AN ACTUAL RECEIPT OF INCOME, WHICH IS NOT INCLUDIBLE I N THE TOTAL INCOME, DURING THE RELEVANT PREVIOUS YEAR FOR THE P URPOSE OF DISALLOWING ANY EXPENDITURE INCURRED IN RELATION TO THE SAID INCOME. IN OTHER WORDS, SECTION 14A WILL NOT APPLY IF NO EXEMPT INCOME IS RECEIVED OR RECEIVABLE DURING THE RELEVAN T PREVIOUS YEAR 13. THE LEARNED COUNSEL FOR THE ASSESSEE BEFO RE US ALSO SUBMITTED THAT THERE COULD NOT BE ANY DISALLOWANCE ON ACCOUNT OF A DMINISTRATIVE AND INTEREST EXPENSES IN TERMS OF THE JUDGMENT OF HONB LE GUJARAT HIGH COURT ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 13 - IN THE CASE OF PRINCIPAL COMMISSIONER OF INCOME TAX VS. SYNTAX INDUSTRIES LTD. IN TAX APPEAL NO. 268 OF 2017 WHEREIN IT WAS H ELD AS UNDER: 9.CONSIDERING THE AFORESAID FACTS AND CIRCUMSTANCE S, MORE PARTICULARLY THE FACT THAT THE ASSESSEE WAS ALREADY HAVING ITS OWN SURPLUS FUND AND THAT TOO TO THE EXTENT OF RS.2319. 17 CRORES AGAINST WHICH INVESTMENT WAS MADE OF RS.111.09 CROR ES, THERE WAS NO QUESTION OF MAKING ANY DISALLOWANCE OF EXPEN DITURE IN RESPECT OF INTEREST AND ADMINISTRATIVE EXPENSES UND ER SECTION 14A OF THE ACT, THEREFORE, THERE WAS NO QUESTION OF ANY ESTIMATION OF EXPENDITURE IN RESPECT OF INTEREST AND ADMINISTRATI VE EXPENSES OF RS.54,39,916/- UNDER RULE 8D OF THE RULES. UNDER T HE CIRCUMSTANCES AND IN THE FACTS OF THE CASE, NARRATE D HEREINABOVE, IT CANNOT BE SAID THAT THE LEARNED TRIBUNAL HAS COMMIT TED ANY ERROR IN DELETING THE DISALLOWANCE OF EXPENDITURE OF RS.5 4,39,916/- INCURRED IN RESPECT OF INTEREST AND ADMINISTRATIVE EXPENSES UNDER SECTION 14A OF THE ACT. WE ARE IN COMPLETE AGREEME NT WITH THE VIEW TAKEN BY THE LEARNED TRIBUNAL. AT THIS STAGE, DECISION OF DIVISION BENCH OF THIS COURT IN THE CASE OF PRINCIP AL COMMISSIONER OF INCOME-TAX VS. INDIA GELATINE & CHE MICALS LIMITED, REPORTED IN [2015] 376 ITR 553 [GUJARAT] N EEDS A REFERENCE. IN THE SAID DECISION, IT IS OBSERVED AN D HELD BY THE DIVISION BENCH OF THIS COURT THAT WHEN THE ASSESSEE HAD SUFFICIENT INTEREST-FREE FUNDS OUT OF WHICH CONCERNED INVESTME NTS HAD BEEN MADE, DISALLOWANCE UNDER SECTION 14A IS NOT JUSTIFI ED. 14. HOWEVER, WE NOTE THAT THE FACTS OF THE C ASE ON HAND ARE DIFFERENT FROM THE FACTS OF THE CASE AS DISCUSSED IN THE JUDG MENT OF HONBLE GUJARAT HIGH COURT (SUPRA). IN THAT CASE I.E. SYNTA X INDUSTRIES LTD THE ASSESSEE HAS MADE SUO MOTO DISALLOWANCE UNDER SECTI ON 14A R.W.R. 8D OF THE INCOME TAX RULE FOR THE YEAR UNDER CONSIDERATIO N AMOUNTING TO RS. 52,000/- AGAINST THE EXEMPTED INCOME OF RS. 22.50 L ACS. THE AO IN THAT CASE I.E. SYNTAX INDUSTRIES LTD MADE THE DISALLOWAN CE UNDER SECTION 14A ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 14 - R.W.R 8D OF INCOME TAX RULE WITHOUT POINTING OUT AN Y DEFECT IN THE DISALLOWANCE MADE BY THE ASSESSEE IN ITS INCOME TAX RETURN. BUT IN THE CASE BEFORE US, THERE WAS NO DISALLOWANCE MADE BY T HE ASSESSEE AS PER THE PROVISIONS OF RULE 8D R.W. SECTION 14A OF THE ACT. THEREFORE THERE WAS NO OPTION AVAILABLE WITH THE AO TO MAKE THE DISALLOWAN CE AS PER THE PROVISIONS OF SECTION 14A OF THE ACT. THEREFORE WE ARE RELUCTANT TO PLACE OUR RELIANCE ON THE JUDGMENT CITED BY THE LEARNED A R. ACCORDINGLY, WE HOLD THAT THE DISALLOWANCE UNDER SECTION 14A R.W.R. 8D NEEDS TO MADE FOR THE ADMINISTRATIVE EXPENSES IN TERMS OF THE ABOVE. 15. IN VIEW OF ABOVE WE HOLD AS UNDER: 1. THE DIRECT EXPENSES OF RS. 2,42,517/- STANDS DISALL OWED AS DISCUSSED ABOVE. 2. THERE WILL BE NO DISALLOWANCE OF INTEREST EXPENSES FOR THE REASONS DISCUSSED IN THE PRECEDING PARAGRAPH. 3. REGARDING THE ADMINISTRATIVE EXPENSES THE DISALLOWA NCE WILL BE MADE AS PER RULE 8D OF INCOME TAX RULE AFTER TAK ING INTO ACCOUNT ONLY THOSE INVESTMENTS WHICH HAVE GENERATED EXEMPTED INCOME DURING THE YEAR. 15.1. THUS, THE GROUND OF APPEAL OF THE ASSES SEE IS PARTLY ALLOWED. 16. THE SECOND ISSUE RAISED BY THE ASSESSEE IS THAT LD. CIT(A) HAS ERRED IN CONFIRMING THE DISALLOWANCE OF RS. 3,75,084/- ON ACCOUNT OF THE AMOUNT INVESTED IN CAPITAL WORK-IN-PROGRESS. 16.1. THE ASSESSEE IN ITS BALANCE-SHEET AS ON 31.3. 2011 HAS SHOWN CAPITAL WORK-IN-PROGRESS IN ITS SCHEDULE E OF FIXED ASSETS AMOUNTING TO RS.1,00,66,098/- ONLY. ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 15 - 16.2. THE AO DURING THE ASSESSMENT PROCEEDINGS OBSE RVED THAT THE INTEREST EXPENSES INCURRED ON THE BORROWED FUND UTI LIZED FOR SUCH CAPITAL WORK-IN-PROGRESS HAD NOT BEEN CAPITALIZED. THEREFO RE, THE AO WORKED OUT THE PROPORTIONATE INTEREST EXPENSES OF RS.3,75, 084/- AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. 17. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE L D.CIT(A). 18. THE ASSESSEE BEFORE THE LD.CIT(A) SUBMITTED THA T THE ENTIRE INVESTMENT WAS MADE OUT OF ITS FUND. THEREFORE, TH ERE IS NO QUESTION OF CAPITALIZING ANY INTEREST ON THE MONEY INVESTED IN THE CAPITAL WORK-IN- PROGRESS. 18.1. THE LD. CIT(A) DISREGARDED THE CONTENTIONS OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE AO BY OBSERVING AS UNDER :- 4.2. I HAVE CAREFULLY CONSIDERED THE RIVAL CONTENT IONS. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE. IT WAS AN ADMITT ED FACT THAT THE APPELLANTS FUNDS WERE MIXTURE OF OWN FUNDS AS WELL AS BORROWED FUNDS. IN THE FACTS AND CIRCUMSTANCES IT COULD NOT BE SAID THAT WHICH FUND WAS UTILIZED FOR WHICH PURPOSE. THOUGH THE APPELLANT CLAIMED THAT THE INV ESTMENT IN CAPITAL WORK-IN- PROGRESS HAD BEEN MADE OUT OF INTERNAL ACCRUALS AS WELL AS FROM RESERVES AND SURPLUSES, BUT THE APPELLANT FAILED TO FURNISH THE NEXUS DURING ASSESSMENT PROCEEDINGS AS WELL AS DURING APPELLATE PROCEEDINGS TO DISPROVE THE AOS FINDING THAT THE BORROWED FUNDS WERE NOT AT ALL UTI LIZED FOR INVESTMENT IN CAPITAL WIP. THE APPELLANT, ON THE BASIS OF CASH F LOW STATEMENT, HAS ALSO ARGUED THAT THE BORROWED FUNDS WERE NOT UTILIZED FO R INVESTING IN CAPITAL WIP. HOWEVER APPELLANTS CLAIM CANNOT BE ACCEPTED IN ITS ENTIRETY IN VIEW OF THE FACT THAT THE FUNDS WERE POOLED IN A COMMON FUND TO BE U TILIZED BOTH FOR WORKING CAPITAL AS WELL AS CAPITAL WLP. IN THE FACTS AND C IRCUMSTANCES, IN MY ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 16 - CONSIDERED VIEW THE A.O. WAS JUSTIFIED IN CONCLUDIN G THAT THE USE OF BORROWED CAPITAL FOR THE PURPOSE OF INVESTMENT IN CAPITAL WI P COULD NOT BE RULED OUT IN VIEW OF MIXED FUNDS. IN THE FACTS AND CIRCUMSTANCE S, THE A.O. WAS JUSTIFIED IN DISALLOWING PROPORTIONATE INTEREST COST RELATABLE T O CAPITAL WIP U/S.36(1)(III) OF THE ACT AND TRANSFERRING THE SAME TO THE CAPITAL WIP AS PER PROVISO TO SECTION 36(1)(III) OF THE ACT. THIS GROUND OF APPE AL IS THEREFORE DISMISSED. 19. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), ASSESSEE IS IN APPEAL BEFORE US. 20. THE LD.AR BEFORE US REITERATED THE SUBMISSIONS MADE BEFORE THE LD.CIT(A). 21. ON THE OTHER HAND, LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 22. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE OUTSET, WE NOTE THAT T HE OWN INTEREST-FREE FUND AVAILABLE WITH THE ASSESSEE EXCEEDS THE AMOUNT OF I NVESTMENT MADE IN THE CAPITAL WORK-IN-PROGRESS. THEREFORE, WE CAN PRESUM E THAT THE ASSESSEE IN SUCH CAPITAL WORK-IN-PROGRESS INVESTED THE OWN FUND . IN HOLDING SO, WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HON BLE BOMBAY HIGH COURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 WHEREIN IT WAS HELD AS UNDER:- 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 ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 17 - ESTABLISHED CONSIDERING THE FINDING OF FACT BOTH BY THE CIT(A) AND TRIBUNAL. 22.1. SIMILARLY, WE ALSO RELY ON THE JUDGMENT O F 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 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. 22.2. SIMILARLY, WE ALSO FIND SUPPORT FROM THE JU DGMENT 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. 22.3 IN VIEW OF THE ABOVE PROPOSITION, WE HOLD THAT NO DISALLOWANCE OF INTEREST EXPENSE CLAIMED BY THE ASSESSEE CAN BE MAD E ON ACCOUNT OF FUND INVESTED IN THE CAPITAL WORK IN PROGRESS AS DISCUSS ED ABOVE. HENCE, WE REVERSE THE ORDER OF THE AUTHORITIES BELOW. THE AO IS DIRECTED TO DELETE THE ADDITION MADE BY HIM. THUS THE GROUND OF ASSESS EES APPEAL IS ALLOWED. 23. THE NEXT ISSUE RAISED BY THE ASSESSEE IS THAT T HE LD.CIT(A) ERRED IN CONFIRMING THE DISALLOWANCE OF RS.6,49,147/- ON ACC OUNT OF INTEREST EXPENSES ON THE BORROWED FUND INVESTED IN THE FLAT AT MUMBAI. ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 18 - 24. THE ASSESSEE IN ITS BALANCE SHEET HAS SHOWN A S UM OF RS.3,23,39,242/- AS AN INVESTMENT IN A FLAT LOCATED AT MUMBAI. THE POSSESSION OF THE FLAT WAS NOT HANDED OVER TO THE A SSESSEE TILL THE FINALIZATION OF THE BALANCE SHEET DATE. AS THE FLAT IN MUMBAI WAS NOT USED FOR THE PURPOSE OF THE BUSINESS, THEREFORE THE ASSE SSING OFFICER WAS OF THE VIEW THAT INTEREST NEEDS TO BE CAPITALIZED ON T HE MONEY INVESTED IN SUCH FLAT. ACCORDINGLY, THE ASSESSING OFFICER WORK ED OUT A PROPORTIONATE AMOUNT OF INTEREST OF RS. 6,49,147/- AND ADDED TO T HE TOTAL INCOME OF THE ASSESSEE. 25. AGGRIEVED ASSESSEE PREFERRED AN APPEAL TO THE L D.CIT(A). HOWEVER THE LD.CIT(A) DISREGARDED THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE ORDER OF THE ASSESSING OFFICER BY OBS ERVING AS UNDER: 5.2. I HAVE CAREFULLY CONSIDERED THE RIVAL CONTEN TIONS. I HAVE CAREFULLY CONSIDERED THE FACTS OF THE CASE. IT WAS AN ADMITTED FACT THAT THE APPELLANTS FUNDS WERE MIXTURE OF OWN FUNDS AS WELL AS BORROWED FUNDS. IN THE FACTS AND CIRCUMSTANCES IT COULD NOT BE SAID THAT WHICH FUND WAS UTILIZED FOR WHICH PURPOSE. THOUGH THE AP PELLANT CLAIMED THAT THE INVESTMENT IN FLAT HAD BEEN MADE OUT OF INTERNA L ACCRUALS AS WELL AS FROM RESERVES AND SURPLUSES, BUT THE APPELLANT FAIL ED TO FURNISH THE NEXUS DURING ASSESSMENT PROCEEDINGS AS WELL AS DURI NG APPELLATE PROCEEDINGS TO DISPROVE THE AOS FINDING THAT THE B ORROWED FUNDS WERE NOT AT ALL UTILIZED FOR INVESTMENT IN FLAT. IN THE FACTS AND CIRCUMSTANCES, IN MY CONSIDERED VIEW THE A.O. WAS JUSTIFIED IN MAK ING ADDITION AS NO COGENT EVIDENCES HAS BEEN SUBMITTED IN SUPPORT OF T HAT NO BORROWED FUNDS WAS USED. ACCORDINGLY, THE CONTENTION OF THE COMPANY IS REJECTED AS IT IS WITHOUT ANY EVIDENCE AND PROPORTIONATE INT EREST IS DISALLOWED. IN THE FACTS AND CIRCUMSTANCES, THE A.O. WAS JUSTIF IED IN DISALLOWING PROPORTIONATE INTEREST COST RELATABLE TO FLAT. THI S GROUND OF APPEAL IS THEREFORE DISMISSED. ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 19 - 26. BEING AGGRIEVED BY THE ORDER OF THE LD. CIT(A), THE ASSESSEE IS IN APPEAL BEFORE US. 27. THE LD.AR BEFORE US REITERATED THE SUBMISSIONS MADE BEFORE THE LD.CIT(A). 28. ON THE OTHER HAND, LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 29. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE MATERIAL AVAILABLE ON RECORD. AT THE OUTSET, WE NOTE THAT T HE OWN INTEREST-FREE FUND AVAILABLE WITH THE ASSESSEE EXCEEDS THE AMOUNT OF I NVESTMENT MADE IN THE FLAT LOCATED AT MUMBAI. THEREFORE, WE CAN PRESUME T HAT THE ASSESSEE IN SUCH FLAT INVESTED THE OWN FUND. IN HOLDING SO, WE FIND SUPPORT AND GUIDANCE FROM THE JUDGMENT OF HONBLE BOMBAY HIGH C OURT IN THE CASE OF RELIANCE UTILITIES AND POWER LTD. REPORTED IN 313 ITR 340 WHEREIN IT WAS HELD AS UNDER:- 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. ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 20 - 29.1. SIMILARLY, WE ALSO RELY ON THE JUDGMENT O F 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 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. 29.2. SIMILARLY, WE ALSO FIND SUPPORT FROM THE JU DGMENT 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. 29.3. IN VIEW OF THE ABOVE PROPOSITION, WE HOLD THA T NO DISALLOWANCE OF INTEREST EXPENSE CLAIMED BY THE ASSESSEE CAN BE MAD E ON ACCOUNT OF INVESTMENTS IN THE FLAT AS DISCUSSED ABOVE. HENCE, WE REVERSE THE ORDER OF THE AUTHORITIES BELOW. THE AO IS DIRECTED TO DELETE THE ADDITION MADE BY HIM. THUS, THE GROUND RAISED BY THE ASSESSEE IS ALL OWED. 30. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. THIS ORDER PRONOUNCED IN OPEN COURT ON 11/12 /2018 SD/- SD/- (MS.MADHUMITA ROY) (WASEEM AH MED) JUDICIAL MEMBER ACCOUNTANT MEMBER AHMEDABAD; DATED 11/12/2018 &.., .(.. / T.C. NAIR, SR. PS ITA NO.912/AHD/2015 P.G. FOILS LTD. VS. ADDL.CIT ASST .YEAR - 2011-12 - 21 - / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. )*+ , / CONCERNED CIT 4. , ( ) / THE CIT(A)-9, AHMEDABAD 5. /01 ((*+ , *+# , ) / DR, ITAT, AHMEDABAD 6. 145 6 / GUARD FILE. / BY ORDER, / ( //TRUE COPY// / ( DY./ASSTT.REGISTRAR) $%, / ITAT, AHMEDABAD 1. DATE OF DICTATION (WORD PROCESSED BY HONBLE AM IN HIS COMPUTER) 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE THE DICTATING MEMBER .27.11.18 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.11.12.18 7. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK 11.12.18 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