The Dy. Commissioner of Income Tax, Central Circle-2(3), Ahmedabad V. Oswal Salt & Chemicals Inds., Gandhidham-Kutch

ITSSA 163/AHD/2016

• Counselvise Citation: [2022] 104 COUNSELVISE.COM (IT) 3248 (ITAT-RAJKOT)
• Duration Of Justice: 6 year(s) 2 month(s) 1 day(s)
• Appeal Type: Income Tax (Search & Seizure) Appeal
• Pronouncement Date: 09-08-2022
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: DB
• Next Hearing Date: 04-07-2022
• Assessment Year: 2011-2012
• Appeal Filed On: 07-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Advance ruling; Commercial expediency; TDS
• Section: 144; 14A; 40(a)(ia); 195; 142(2A); 44AB; 9(1); 9(1); 9(1); 145(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL RAJKOT BENCH, RAJKOT Before: Shri Waseem Ahmed, Accountant Member And Shri Siddhartha Nautiyal, Judicial Member Th e DCIT, Central Circle-2(3), Ah medabad -3 80014 (Appellant) Vs Os wal Salt & Chemical s Industry, Maitri Bh avan, Plot No. 18, Sector No. 8, Gandhid ham-Kutch -3 70201 PAN: AACF K1 906F (Resp ondent) Os wal Salt & Chemicals In ds. , Maitri Bhavan, Plo t NO. 18, Sector No. 8, Gandhidh am- Kutch- 37020 1 PAN: AACF K190 6F (Appellant) Vs The DCIT, Central Circle-2(3), Ah med abad-3800 14 (Resp ondent) Asses see b y : Shri K. C. Thake r, A. R. Revenue by : Shri Aarsi Pra sad, CIT-D. R. IT(SS)A No. 163/Ahd/2016 Assessment Year 2011-12 C.O. No. 108/Ahd/2016 (in IT(SS)A No. 163/Ahd/2016) Assessment Year 2011-12 I.T(SS)A No. 163/Ahd/2016 & C.O. 108/Ahd/2016 A.Y. 2011-12 Page No. DCIT vs. Oswal Salt & Chemical Industry & Oswal Salt & Chemical Industry vs. DCIT 2 Date of hearing : 05-07 -2 022 Date of pronouncement : 10-08 -2 022 आदेश/ORDER PER BENCH:- The appeal filed by the Revenue and the cross objection filed by the assessee are against the order of the ld. Commissioner of Income Tax (Appeals)-12, Ahmedabad in Appeal No. CIT(A)-12/531-534/CC.2(3)/14- 15 vide order dated 22-02-2016 passed for the assessment year 2011-12. 2. The Revenue has raised the following Grounds of Appeal:-s “1. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the disallowance made by the A.O. of Rs.40,33,392/- on account of brokerage/ commission expenses. 2. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting Rs.21,98,154/- on account of washing/handling loss. 3. On the facts and in the circumstances of the case and in law, the Ld. CIT(A) has erred in law and/or on facts in deleting the addition of Rs.1,34,23,340/- being interest payment though the assessee had made interest free advances out of interest bearing funds. 4. On the facts and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the A.O. 5. It is, therefore, prayed that the order of the CIT (A) be set aside and that of the A.O. be restored to the above extent.” I.T(SS)A No. 163/Ahd/2016 & C.O. 108/Ahd/2016 A.Y. 2011-12 Page No. DCIT vs. Oswal Salt & Chemical Industry & Oswal Salt & Chemical Industry vs. DCIT 3 3. The assessee has raised the following Cross-Objection: “1. The learned CIT (A) has erred in law and on facts in refusing to expunge the AO's unwarranted observation in the assessment order imputing "non-cooperative attitude" on the part of the appellant holding that there is no positive evidence on record justifying expungement thereof and in holding that no prejudice is caused to the appellant on account of the same, disregarding the material placed on record in the appellate proceedings. 2. The learned CIT (A) has further erred in law and on facts in disregarding the material placed before him and holding that the action u/s. 142(2A) of the Act for assigning the case for special audit at the fag end of limitation for completion of assessment was not to unlawfully extend the limitation and that the assessment was not barred by limitation due to illegal exercise of invoking S. 142(2A) of the Act.” 4. At the outset, Ld. Counsel for the assessee has submitted vide letter dated 07-06-2022 that he does not wish to press for the Cross-Objection (CO 108/Ahmedabad/2016) for the captioned year and requested that the same may be treated as withdrawn. Accordingly, the Cross-Objection filed by the assessee is dismissed as withdrawn. Department’s Appeal: Ground No.1: deleting disallowance of Rs. 40,33,392/- being expenditure relating to brokerage/ commission expenses: 5. The brief facts in relation to this ground of appeal are that during the year the assessee made certain payments on account of brokerage and commission on which no TDS was deducted. On being requisitioned by the I.T(SS)A No. 163/Ahd/2016 & C.O. 108/Ahd/2016 A.Y. 2011-12 Page No. DCIT vs. Oswal Salt & Chemical Industry & Oswal Salt & Chemical Industry vs. DCIT 4 AO, the assessee submitted that the amount is rightly claimed as an expenditure and the same is payable, as per the terms of agreement, to agents based in Dubai, Indonesia and Pakistan who found buyers for the exports to be done by the assessee. Accordingly, no TDS was required to be deducted on such payments. The AO however rejected the assessee’s arguments and held that in view of the provisions of section 5(2)(b) r.w.s. section 9(1) of the Act, the expenditure involves income accruing arising to the recipient parties in India and hence TDS was deductible on such income. Therefore, in view of the AAR decision in the case of SKF boilers and Dryers Private Limited reported in 15 Taxman.com 325, the AO made an addition of 40,33,392/- to the income of the assessee. In appeal, Ld. CIT(Appeals) gave complete relief to the assessee on this ground with the following observations: “12.3 Before me, the Ld. AR has more or less reiterated the submissions made before the AO. While vehemently objecting to the addition made by the AO, the Ld. AR also relied on the decision of Rajkot Bench of ITAT in the case of Rimtex Industries JTA No.315/RJT/2013 dated 8/10/2015 to contend, firstly that the payment made to non-residents for services enjoyed outside the territory of India are not within the purview of section 195 as no sum in the hands of the recipients is .chargeable under the Act. Secondly, the Ld. AR submitted that the decisions of AAR are applicable only to the petitioner before AAR and there is express bar against the applicability of AAR's decision as a precedent in other cases and therefore, the Ld. AO has grossly erred in law in relying on the AAR decision in the case of SKF Boilers and Dryers Put. Ltd. (supra). The AR has also made the following written submissions: 3.3. The AO has in his conclusion part stated that the appellant's submission is not acceptable as provision of Sec.5(2)(b) r.w,s,9(l) of the act deals with scope of total income I.T(SS)A No. 163/Ahd/2016 & C.O. 108/Ahd/2016 A.Y. 2011-12 Page No. DCIT vs. Oswal Salt & Chemical Industry & Oswal Salt & Chemical Industry vs. DCIT 5 whereby the income of non-resident includes all income from whatever source derived, which accrues or arises or deemed to accrue or arises in India. According to AO source of commission income earned by non-resident is in India hence provision of Sec. 195 of the act would be applicable, for which he relies on the decision of AAR - New Delhi in the case of SKF Boilers and Driers P. Ltd. (2012) 15 taxmann.com 325. Accordingly the AO disallowed the expense ofRs.40,33,392/- on the ground that the tax was required to be deducted u/s. 195 of the Act. 3.4 While the learned AO has agreed that the claim of brokerage was genuine expense and not a provision but has disallowed the same because according to the AO tax is not deducted u/s. 195 of the Act. In taking this view the AO has relied upon the Advance Ruling of the AAR cited above. In this regard we have to submit that the decision of the AAR would apply only in the case of the applicant and cannot be relied upon in other cases. In fact this issue is squarely covered by the binding decision of the Hon. ITAT, Rajkot Bench in the case of ACIT Vs. Rimtex Industries in ITA No. 315/RJT/2013 rendered on 08-10-2015. A copy of the said decision is enclosed herewith for your Honour's kind perusal and record. The Hon. Tribunal has also considered the AAR Ruling referred to above and has decided the issue in favour of the assesse. We rely upon the same and request your Honour to kindly delete the disallowance ofRs.40,33,392/- 12.4 I have perused the assessment order and submissions on behalf of the appellant. The AO has relied on AAR decision in SKF Boilers (supra) to hold against the appellant with regard to brokerage and commission paid outside India for services enjoyed out of India. The facts are squarely covered by the decision of ITAT Rajkot Bench in Rimtex Industries, (supra) wherein it is held that AAR decisions cannot be applied as precedent in other cases and also that no tax is deductible from payment/credit for services enjoyed outside India. Moreover, there is no doubt about the genuineness of the claim, and expenses. Thus, the addition of Rs. 40,33,392/- made for non- deduction u/s 40(a)(ia) has no basis or merit and hence the same is I.T(SS)A No. 163/Ahd/2016 & C.O. 108/Ahd/2016 A.Y. 2011-12 Page No. DCIT vs. Oswal Salt & Chemical Industry & Oswal Salt & Chemical Industry vs. DCIT 6 deleted. The related ground 3(i) succeeds. Appellant gets a relief of Rs.40,33,392/-.” 6. Before us, the counsel for the assessee submitted that the issue is squarely covered by the decision of ACIT v. Rimtex Industries in ITA number 315/RJT/2013, wherein the ITAT distinguished the above decision of AAR on which the additions have been made by the Ld. Assessing Officer. The said decision is attached at pages 62-69 of the paper book filed by the assessee. The counsel for the assessee submitted that the decision of the AO is based entirely on the AAR decision in this case of SKF Boilers supra and the AO has never doubted the genuineness of the expenses claimed by the assessee. In response, the Ld. DR relied on the observations made by the assessing officer in the assessment order. 7. We have heard the rival contentions and perused the material on record. We observe that in the instant set of facts, the AO has not doubted the genuineness of the expenses. The only reason for making the disallowance was on the ground that the assessee had not deducted TDS on the above brokerage and commission income. The contention of the counsel for the assessee is that the above brokerage and commission income was in respect of services carried out outside of India and therefore there was no requirement of deduction of TDS on the above amounts. The decision on which the AO placed reliance (SKF boilers supra) has been distinguished by the jurisdictional Rajkot ITAT in the case of ACIT v. Rimtex Industries in ITA number 315/RJT/2013. We are of the considered view that in the instant facts, the Ld. CIT(Appeals) has not erred in facts and in law in holding that no TDS was required in respect of such brokerage and I.T(SS)A No. 163/Ahd/2016 & C.O. 108/Ahd/2016 A.Y. 2011-12 Page No. DCIT vs. Oswal Salt & Chemical Industry & Oswal Salt & Chemical Industry vs. DCIT 7 commission payments since no income in respect of the same accrued in India so as to necessitate deduction of TDS. The Rajkot ITAT in the case of DCIT v. DML Exim (P.) Ltd [2020] 118 taxmann.com 491 (Rajkot - Trib.) held that where commission was paid by assessee to foreign parties for rendering services abroad for soliciting customers for its export business activities, assessee was not liable for short deduction of tax at source and, therefore, disallowance under section 40(a)(ia) was not permissible. It may be noted that in the recent case of PCIT v. Puma Sports India (P.) Ltd. [2022] 134 taxmann.com 60 (SC), the Hon'ble supreme Court dismissed Department’s SLP against impugned order of High Court holding that commission paid by assessee-company to its overseas Associated Enterprise (non-resident agent) for purchase orders outside India would not be liable to TDS under section 195 as services were rendered or utilized outside India and commission was also paid outside India. In view of the above discussion, we find no infirmity on the order of Ld. CIT(Appeals) and ground number 1 of the Department’s appeal is hereby dismissed. 8. In the result, ground number 1 of the Department’s appeal is hereby dismissed. Ground No.2: deleting disallowance of Rs. 21,98,154/- being expenditure relating to washing/ handling loss: 9. The brief facts in relation to this ground of appeal are that during the year the assessee had claimed shortages/handling loss of 15,576 MT on production of 72,180 MT. During the course of assessment, the Ld. I.T(SS)A No. 163/Ahd/2016 & C.O. 108/Ahd/2016 A.Y. 2011-12 Page No. DCIT vs. Oswal Salt & Chemical Industry & Oswal Salt & Chemical Industry vs. DCIT 8 Assessing Officer asked the assessee to prove the shortages which have been claimed at the exorbitant rate of 21.58% with the help of proper evidences. At the outset, the assessee submitted that the special auditor is not right in working out the shortage @ 21.58%, but the actual shortage comes to 9.84% since on the total turnover of the total quantity of 1,58,346.555 MT, the shortage of 15,576 MT comes to 9.84%., which could not be considered high considering the particular facts of this line of business. The AO however rejected the assessee’s argument and held that the shortage has to be worked out in respect of the production of salt only and should not be allowed on the total turnover of the assessee. The AO held that the assessee has not furnished any documentary evidences regarding the washing loss claimed by it in different assessment years before the auditor and also before the AO. The assessee has not maintained and produced any basic records maintained at site relating to any such actual loss on day-to-day basis, though specifically called for. Accordingly, the AO allowed 10% of the production/manufacturing lost during the year and accordingly made an addition of 21,98,154/-. In appeal, Ld. CIT(Appeals) gave complete relief to the assessee with the following observations: “9.4 I have perused the assessment order and the submissions made on behalf of the appellant. I have considered the rival submissions made at the time of hearing. I notice that the only substantive ground on which the AO has made the addition is that the appellant has suffered and claimed a quantity of washing and handling loss of salt which is considered by him to be higher than what as per his own standard would be a reasonable loss. The second ground is "non- maintenance of day-to-day quantity records" by the appellant as alleged by him. After considering the material available, at the outset I agree with the AR that arbitrariness and unreasonableness in the I.T(SS)A No. 163/Ahd/2016 & C.O. 108/Ahd/2016 A.Y. 2011-12 Page No. DCIT vs. Oswal Salt & Chemical Industry & Oswal Salt & Chemical Industry vs. DCIT 9 AO' action is written large on the face of the assessment order. The AO, even in the face of the categorical submission of the appellant about field visits by the Special Auditors to witness the process/stock, has preferred to simply go by the observation of the Special Auditor complete; overlooking the appellant's submissions. Second, I fail to understand how and why the simple submission of the appellant that washing loss is to be seen in light, and as a percentage, of the total quantity handled and not merely of the quantity produced, and which comes to only 6.48% of the quantity handled and not 31.4% as alleged failed to find AO's approval. Third, AR is absolutely right that the books of accounts are audited u/s 44AB and have not been rejected u/s 145(3) by the AO. The elementary rule, as rightly pleaded by the AR, that estimated additions cannot be made without rejection of books of accounts u/s 145(3) on the basis of demonstrated defects in books of accounts, and consequent completion of the assessment as provided u/s 144 of the Act, as is held by Jurisdictional Tribunal in the case of Associated Petroleum (supra), has completely been overlooked by the AO while making the addition. Fourth, it is still a mystery as to how the AO has arrived at the figure of "reasonable loss" at 10%, particularly when even the independent experts have opined that the loss is likely in the range of 20.16% to 29.26% , which thus clearly leads to an inescapable conclusion of arbitrariness on the part of the AO. Fifth, the business reality of the appellant, as explained, that loss also occurs on account of natural forces, loading, unloading and inaccuracy inherent in the transactions due to volumetric quantification, and such loss is in the range of 10% on the over-all quantity transacted by the appellant, regardless of whether the quantity is in opening stock, has also been completely brushed aside by the AO. On the other hand, I am of the considered and firm opinion that in view of specific business realities of appellant's business - namely, high physical volume and low monetary value per metric ton of the goods transacted, and also stocks getting stored in open - and also, the submission before the AO that the quantity of loss is a derived figure, noticing of higher washing loss per se can only, if at all, be a starting point for further probe, enquiry and marshalling of evidences by the AO and certainly not in itself a ground for making any addition. I also find that the observation of the Ld. AO that day- to-day quantity records of loss are not maintained, is wholly unrealistic because maintenance of such day-to-day stock records is I.T(SS)A No. 163/Ahd/2016 & C.O. 108/Ahd/2016 A.Y. 2011-12 Page No. DCIT vs. Oswal Salt & Chemical Industry & Oswal Salt & Chemical Industry vs. DCIT 10 patently impossible considering the volume, nature and low value of commodity transacted by the appellant. I also agree with the Ld. AR that the certificates from M/s. Gupta & Associates (Assessors) Pvt. Ltd. and from Central Salt & Marine Chemical Research Institute filed in the case of KSAIL (supra) sufficiently support the fact of loss occurring in the manufacturing process of salt, and thus repels effectively the observation of the AO about non-maintenance of day-to-day records of loss. In view of these factors, I find the addition wholly unsustainable being arbitrary, baseless and founded on pure conjectures and surmises and in complete disregard of the fact that complete quantity records are maintained by the appellant. Similarly, I also find considerable force in the macro-level argument of the AR that the absence of incriminating material or assets even remotely indicative (leave aside evidencing), of unaccounted sale/purchase by the appellant or excess unaccounted stock or other valuable assets found or seized during the course of search must necessarily lead to a positive finding that claim of washing loss is genuine (and reasonable), as obviously, the surplus unaccounted stock, consequent to alleged excess/bogus claim of washing loss, can't vanish in thin air. Similarly, even after marshalling of the evidences (as against noticing of only "higher claim" of loss by the AO) of wrong/bogus claim of washing loss (which is evidently not the case), the AO has to further demonstrate the defects in the books of accounts, reject the books of accounts u/s 145(3) and thereafter, frame a best judgement assessment, as provided u/s 144 so as to validly disturb the book results and make any addition on account of noticing by him of any higher washing loss. This fundamental, legal and jurisdictional requirement for making the estimated addition has also not been met by the Ld. AO. The appellant's case is thus also covered by Jurisdictional Tribunal decision in the case of Associated Petroleum Corporation (supra). Thus and therefore, I am in complete agreement with the submissions of the Ld. AR that the addition as made by the AO is completely arbitrary, devoid of authority in law and not justified on facts. Considering the totality of facts and circumstances, I am of the considered view that there is no merit in the addition and therefore the same to the tune of Rs.52,74,323/- is deleted. The appellant gets a relief of Rs.52,74,323/-. Related ground 3(i) succeeds. I.T(SS)A No. 163/Ahd/2016 & C.O. 108/Ahd/2016 A.Y. 2011-12 Page No. DCIT vs. Oswal Salt & Chemical Industry & Oswal Salt & Chemical Industry vs. DCIT 11 9.5 The same kind of disallowance is made by the Ld. AO for all three subsequent assessment years under appeal also. The facts leading to this disallowance for the A.Yrs.2010-11 to 2012-13 are exactly identical as discussed above. In view of the same, the additions, as under, on account of washing/handling loss of salt is deleted for all these three years under appeal. The appellant gets relief for these three years also as under: A.Y. Relief 2010-11 Rs. 58,32,587/- 2011-12 Rs. 21,98,154/- 2012-13 Rs.32,96,505/- 10. Before us, the Department placed reliance on the observations made by the AO in the assessment order and submitted that all losses claimed by the assessee are based on an estimated basis by the assessee. The assessee does not have any proper record to substantiate the losses claimed by it. Accordingly, in the instant set of facts, the AO has correctly disallowed the excessive loss claimed by the assessee. In response, counsel for the assessee reiterated the submissions made before Ld. CIT(Appeals). He submitted that the disallowances have been made by the AO on the basis of reports submitted by the special audit. The counsel for the assessee has submitted that notably the AO has not rejected the books of accounts of the assessee. There is no allegation that any unspecified stock outside the books of accounts has been sold in the open market. The counsel for the assessee submitted that the assessee has claimed the losses on account of I.T(SS)A No. 163/Ahd/2016 & C.O. 108/Ahd/2016 A.Y. 2011-12 Page No. DCIT vs. Oswal Salt & Chemical Industry & Oswal Salt & Chemical Industry vs. DCIT 12 handling/washing of salt on a very reasonable basis, and no disallowance is called for on this account. 11. We have heard the rival contentions and perused the material on record. In our considered view, Ld. CIT(Appeals) has passed a well reasoned order and we find no infirmity in the same. The AO has not given any sound basis as to why losses should be restricted to 10% and why 10% of the losses can be considered “reasonable” in the light of the instant set of facts. Secondly, the AO has not rebutted the assessee’s argument as to why washing loss should not be computed as a percentage of total quantity of salt handled and why it should be seen merely as a percentage of quantity of salt produced. Thirdly, the AO has not rejected the assessee’s books of accounts audited under section 44 AB of the Act u/s 145(3) of the Act, and it is settled principle that estimated additions cannot be made without rejecting the assessee’s books of accounts. Therefore, in view of the above, we are of the considered view that the Ld. CIT(Appeals) has not erred in facts and in law in allowing the assessee’s appeal with respect to this ground of appeal. 12. In the result, ground number 2 of the Department’s appeal is hereby dismissed. Ground No. 3: deleting addition of Rs. 1,34,23,340/- being payment though the assessee had made interest free advances out of interest- bearing funds: 13. The brief facts in relation to this ground of appeal are that during the course of assessment, the AO observed that the assessee firm had taken loan I.T(SS)A No. 163/Ahd/2016 & C.O. 108/Ahd/2016 A.Y. 2011-12 Page No. DCIT vs. Oswal Salt & Chemical Industry & Oswal Salt & Chemical Industry vs. DCIT 13 on/for hypothecation of stock in trade, FD-OD, machinery, windmills etc. and vehicles and the assessee had paid interest and processing charges and other charges totaling to 2,07,77,806/- on such interest-bearing loan. The AO called for details from the assessee, and on the basis of perusal of the same observed that looking to the capital and the reserves and surplus of the assessee and the investment in fixed assets, it is found that no interest free funds were available with the assessee for giving interest-free advances to Group concerns and thus the interest free advances made are out of interest- bearing funds. The AO further held that assessee has not established that interest free advances are for any business expediency. The AO held that assessee has not proved the nexus that the non-interest-bearing funds have been utilized for the purpose of giving non-interest-bearing loans. The AO accordingly disallowed a sum of Rs. 1,34,23,340/- and added the same to the total income of the assessee. In appeal before Ld. CIT(Appeals), he gave complete relief to the assessee the following observations: “10.9 Similarly, and, on the other hand, having perused the assessment order is the decisions relied upon by the AO therein, I, agree with the Id. AR that there no mention by the AO as to how the decisions, in facts of the appellant's case justify and support the addition made by" the AO or that how the decisions in themselves "establish" that the interest-free advances made by the appellant are indeed from interest-bearing funds or that there is no business expediency in grant of such interest-free advances. I also find that in at least five of the cases, the SC decision in S.A. Builders 158 Taxman 54 (SC) has not been considered. In the only jurisdictional decision in Inamullaq S. Iraki (supra), the decision is based on the fact of absence of commercial expediency in making the interest-free advances, thus not applicable per se without a finding of absence of commercial expediency. The other decisions lay down the principle, in the face of S.A. Builders (SC), that the non-business or personal use I.T(SS)A No. 163/Ahd/2016 & C.O. 108/Ahd/2016 A.Y. 2011-12 Page No. DCIT vs. Oswal Salt & Chemical Industry & Oswal Salt & Chemical Industry vs. DCIT 14 or purely charitable use of the fund by the recipient of interest-free funds would take out the interest-free advances from the purview of "business expediency". But such a finding of non-business use is not borne on records. Thus I agree with the appellant that there is no strength available from any of the decisions cited by the AO in support of the disallowance. I also notice that the decisions cited by AO are indeed not from Jurisdictional Authorities on one hand, are rendered in completely different set of facts on the other, and, SC decision in S.A. Builders (supra) has not been considered in most of the decisions, and that the direct, more recent and Jurisdictional Authorities, including SC decisions relied upon by the appellant need to be considered in deciding the issue. In view of the discussion as above, It is clearly noticeable from the balance-sheet extracts filed by the appellant and extracted in para 10.2 that for all the assessment years under appeal, the thematic average, of interest-free advances is far less than the available interest-free funds, and the borrowed funds also appear to have been deployed in closing stock and trade receivables for which primarily the funds have been borrowed. I accordingly hold, firstly, that broadly, the advances prima facie appear to have been made out of interest-free funds available with the appellant. I secondly hold that the AO has not discharged the onus of establishing clear-cut and direct nexus between interest-bearing loans and interest-free advances so as to justify disallowance in light of ratio of Reliance Utility and Hero Cycles (supra), nor my examination of available accounts could yield such nexus, and therefore, as a matter of fact, it is to be held that such a nexus does not exist warranting any disallowance u/s 36(l)(iii). I thirdly hold that there is clear and self-evident mutuality and business-expediency in sizeable inter-se transactions between appellant and recipients of funds, and, further that there does not appear any noticeable personal or non-business use by recipients of the funds received interest-fr.ee and thus, on fact of the case as also in. view of the law as explained by the Supreme Court in S.A. Builders and Hero Cycles (supra), there is no case to invoke the provision of section 36(1)(iii) of the Act for making any disallowance'. Accordingly, the disallowance of Rs.33,37,265/- made by the AO u/s 36(l)(iii) is deleted. The ground 3(ii) thus succeeds. I.T(SS)A No. 163/Ahd/2016 & C.O. 108/Ahd/2016 A.Y. 2011-12 Page No. DCIT vs. Oswal Salt & Chemical Industry & Oswal Salt & Chemical Industry vs. DCIT 15 10.10 It is seen that the issue of disallowance u/s 36(l)(iii) is also involved in all other three assessment years under appeal. It can immediately be seen from the table on page no. 18 that the interest- free funds available with the appellant is more for each of the assessment year than the thematic average of interest-free advances made by the appellant with regard to which the .disallowance has been made by the ld. AO. Moreover, the appellant both before the AO and before me by way of written submissions, has submitted the details of the parties and the purpose for which the advances were made indicating that most of the advances were directly for the purposes of business and those two group concerns are commercially expedient. Thus, for none of the assessment years under appeal, the disallowance u/s 36(l)(iii) was called for or can be sustained. The related ground succeeds for all the four assessment years under appeal and the appellant gets relief on this ground for these three years also as under: A.Y. Relief 2010-11 Rs.51,10,015/-. 2011-12 Rs.1,34,23,340/- 2012^13 Rs.54,23,861/- 14. Before us, the Ld. DR placed reliance on the observations made by the AO in the assessment order. In response, counsel for the assessee submitted that interest-free funds available are far more than interest-free advances made by the assessee. We have heard the rival contentions and perused the material on record. The Gujarat High Court in numerous decisions has consistently taken the position that if interest-free funds available with the assessee exceed the investments made in funds yielding exempt income, I.T(SS)A No. 163/Ahd/2016 & C.O. 108/Ahd/2016 A.Y. 2011-12 Page No. DCIT vs. Oswal Salt & Chemical Industry & Oswal Salt & Chemical Industry vs. DCIT 16 then no disallowance is called for under section 14A of the Act. In the case of Hitachi Home and Life Solutions (I) Ltd.[2014] 41 taxmann.com 540 (Gujarat), the Gujarat High Court held that where assessee's interest free funds exceeded investment made for earning exempted dividend income, disallowance under section 14A was not justified. Again, in the case of UTI Bank Ltd[2018] 99 taxmann.com 392 (Gujarat), the Gujarat High Court held that no disallowance could be made under section 14A where assessee's interest-free funds far exceeded its interest-free investments. In the case of Gujarat Narmada Valley Fertilizers Co. Ltd[2014] 42 taxmann.com 270 (Gujarat), the Gujarat High Court held that where assessee-company received dividend on UTI and shares and investment in same was made in earlier years and interest free funds available with assessee were much larger as compared to investment, disallowance of assessee's claim for interest expenditure by applying section 14A was incorrect. In case of Gujarat Fluoro chemicals Ltd. [2020] 120 taxmann.com 433 (Gujarat), the Gujarat High Court again reiterated that where interest free funds available with assessee were far more than gross investment, it could safely be harboured that interest bearing funds was not invested by assessee and, thus, no disallowance under section 14A to be made. In view of the consistent position taken by the Gujarat High Court, as applied to the facts instant case, in our considered view, Ld. CIT(Appeals) has not erred in facts and in law in allowing the assessee’s appeal on this issue. 15. In the result, Ground No. 3 of the Revenue’s appeal is dismissed. I.T(SS)A No. 163/Ahd/2016 & C.O. 108/Ahd/2016 A.Y. 2011-12 Page No. DCIT vs. Oswal Salt & Chemical Industry & Oswal Salt & Chemical Industry vs. DCIT 17 16. The other Grounds of Appeal of the Department’s appeal are general and do not require any specific adjudication. 17. In the combined result, both the appeal of the Department and the Cross- Objection filed by the assessee are dismissed. Order pronounced in the open court on 10-08-2022 Sd/- Sd/- (WASEEM AHMED) (SIDDHARTHA NAUTIYAL) ACCOUNTANT MEMBER JUDICIAL MEMBER Ahmedabad : Dated 10/08/2022 आदेश क त ल प अ े षत / Copy of Order Forwarded to:- 1. Assessee 2. Revenue 3. Concerned CIT 4. CIT (A) 5. DR, ITAT, Ahmedabad 6. Guard file. By order, Assistant Registrar, Income Tax Appellate Tribunal, Rajkot