IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD A BENCH BEFORE: S H RI PRAMOD KUMAR , ACCOUNTANT MEMBER AND SHR I S. S. GODARA , JUDICIAL MEMBER THE ACIT, CENTRAL CIRCLE 1(3), ROOM NO. 304, 3 RD FLOOR, AAYKAR BHAVAN, ASHRAM ROAD, AHMEDABAD (APPELLANT) VS SAUMYA CONSTRUCTION PVT. LTD. 1 ST FLOOR, ADITYA , NR. KHADAYATA COLONY, ELLISBRIDGE, AHMEDABAD - 380006 PAN: AAFCS3523G (RESPONDENT) REVENUE BY : S H RI R.I. PATEL, CIT - D . R. ASSESSEE BY: S H RI P.M. MEHTA , A.R. DATE OF HEARING : 11 - 05 - 2 016 DATE OF PRONOUNCEMENT : 16 - 06 - 2 016 / ORDER P ER : S. S. GODARA , JUDICIAL MEMBER : - THESE TWO REVENUE S APPEAL S FOR A.Y. 2008 - 09 AND 2009 - 10 , AR ISE FROM A COMMON ORDER OF THE CIT(A) - I, AHMEDABAD DATED 10 - 07 - 2012 IN APPEA L NOS. CIT(A) - I/CC.1(3)/335/336/2011 - 12 , IN PROCEEDINGS UNDER SECT ION 143(3) R.W.S. 153(1)(B) OF THE INCOME TAX ACT, 1961; IN SHORT THE ACT . I T (SS) A NO S . 437 & 438 / A HD/20 12 A SSESSMENT YEAR 200 8 - 09 & 2009 - 10 I.T. (SS) A NO S. 437 & 438 /AHD/20 12 A.Y. 2008 - 09 & 2009 - 10 PAGE NO ACIT VS. SAUMYA CONSTRUCTION PVT. LTD 2 2. IT IS EVIDENT FROM A COMBINED PERUSAL OF REVENUE S GROUNDS PLEADED IN THE INSTANT APPEALS THAT IT SEEKS TO RAISE TWO IDENTICAL SUBSTANTIVE ISSUES. THE FIRST ONE SEEKS TO REST ORE SECTION 14A DISALLOWANCE OF RS. 16,63,952/ - AND RS. 27,35,608/ - MADE BY THE ASSESSING OFFICER IN CORRESPONDING ASSESSMENT ORDERS AND DELETED IN THE LOWER APPELLATE PROCEEDINGS. SECOND SUBSTANTIVE ISSUE SOUGHT TO BE RAISED IN THE INSTANT APPEAL S IS FOR REVIVAL OF INTEREST DISALLOWANCE U/S. 36(1)(III) OF RS. 13,40,273/ - AND RS. 17,73,192/ - ; RESPECTIVELY. 3. WE COME TO THE FORMER ISSUE FIRST. THE ASSESSEE COMPANY IS A BUILDER/DEVELOPER. IT IS ALSO A TRADER IN FABRIC AND GARMENTS. THERE IS NO DISPUT E THAT IT DOES NOT HAVE ANY EXEMPT INCOME IN THE FORMER ASSESSMENT YEAR. THE ASSESSING OFFICER IN ASSESSMENT ORDER DATED 30 - 12 - 2011 DISALLOWED/ADDED THE IMPUGNED SUM OF RS. 16,63,952/ - BY INVOKING RULE 8D OF THE INCOME TAX RULES. THE LATTER ASSESSMENT YE AR INVOLVES THE VERY DISALLOWANCE TO BE OF RS. 27,35,608/ - . THE CIT(A) DELETES THE SAME AS UNDER: - 6. AFTER GOING THROUGH RIVAL SUBMISSIONS FOLLOWING POINTS EMERGE: 1 IT IS SEEN THAT THE ASSESSING OFFICER HAS MADE 14A DISALLOWANCE IN A VERY VAGUE AND P RESUMPTIVE WAY. THERE IS NO INVESTMENT FOR EARNING TAX FREE INCOME IN A.Y. 2008 - 2009 AND 2009 - 2010. THE INVESTMENT HAS BEEN IN A - Y. 2006 - 2007 AND 2007 - 2008 AND EVEN IN THESE YEARS, AS OBVIOUS FROM THE BALANCE SHEETS ENOUGH TAX FREE FUNDS IN THE FORM OF RES ERVES & SURPLUS AND ADVANCE FROM CUSTOMERS (RECEIVED FOR BOOKING OF FLATS, PLOTS ETC) ARE AVAILABLE WRTH THE APPELLANT. FOR EXAMPLE, IN AY 2006 - 07 INVESTMENT OFJRS. 10,00,000 IN ADANI TOWNSHIP & REAL ESTATE COMPANY LIMITED) WAS MADE, WHEREAS THE APPELLANT HAD RESERVES AND SURPLUSES OF RS. 3,40,33,188 AND RS. 19,55,04,341 AS BOOKING ADVANCE FROM CUSTOMERS AS ON 31 ST MARCH. 2006. I.T. (SS) A NO S. 437 & 438 /AHD/20 12 A.Y. 2008 - 09 & 2009 - 10 PAGE NO ACIT VS. SAUMYA CONSTRUCTION PVT. LTD 3 IN AY 2007 - 08 TOTAL INVESTMENTS OF RS. 7,87,49,990 WERE MADE (RS 3,60,00,000 IN AMRASHAGUN INVESTMENTS + RS. 3,75,00,000 IN AMRAKA DAM INVESTMENTS + RS. 15,00,000 IN ADANI TOWNSHIP & REAL ESTATE CO. LIMITED + RS.12,50,000 IN APPLEWOODS ESTATES PVT. LIMITED + RS. 99,990 IN SUYOJAN REALTY PVT. LIMITED + RS. 24,00,000 IN ACQUEST ESTATE PVT. LIMITED) WHEREAS THE APPELLANT HAD INTEREST FRE E FUNDS OF RS. 9,08,71,341 AS RESERVES AND SURPLUS AND OF RS. 62,03,38,566 AS BOOKING ADVANCE FROM MEMBERS AS ON 31 - 3 - 2007. IT WAS EXPLAINED BY THE LEARNED ARS THAT NO INTEREST WAS PAID ON THE ADVANCES RECEIVED FROM THE MEMBERS. THUS, IN AY 2007 - 08 MORE IN TEREST FREE FUNDS WERE AVAILABLE. 2 IN AY 2008 - 09 AND AY 2009 - 10 NO INVESTMENTS HAVE BEEN MADE FOR EARNING TAX FREE INCOME. IN THE RETURN OF AY 2008 - 09 THE APPELLANT HAS NOT SHOWN ANY TAX FREE INCOME LIKE DIVIDEND INCOME OR ANY OTHER INCOME. IN THE RETUR N OF AY 2009 - 10 TAX FREE INCOME OF JUST RS. 2,64,318 HAS BEEN SHOWN AS DIVIDEND RECEIVED FROM MUTUAL FUND INVESTMENT FOR WHICH IT WAS INFORMED THAT INVESTMENT WAS MADE DURING THE YEAR AND SAME WAS ALSO SOLD OFF DURING THE YEAR. IT WAS ALSO EXPLAINED BY THE ID ARS THAT INVESTMENT IN MUTUAL FUND HAS NOT BEEN DISPUTED FOR MAKING DISALLOWANCE U/S 14A BY THE ASSESSING OFFICER. IT WAS FURTHER ARGUED THAT EVEN IN A.Y. 2009 - 2010, AS OBVIOUS FROM THE BALANCE SHEET INTEREST FREE FUNDS OF RS 119 CRORE ARE AVAILABLE AS AGAINST WHICH THERE HAVE BEEN NO FRESH INVESTMENT BUT ONLY ADVANCES OF RS 72 CRORE. 7 IN VIEW OF THE AFOREMENTIONED POINTS IT IS CLEAR THAT AS THE APPELLANT HAS SUFFICIENT INTEREST - FREE FUNDS AVAILABLE FOR MAKING INVESTMENTS, NO DISALLOWANCE OF PROPORTI ONATE INTEREST UNDER SECTION 14A IS CALLED FOR. HON'BLE BOMBAY HIGH COURT DECISION IN THE CASE OF RELIANCE UTILITIES & POWER LIMITED (313 ITR 340) SUPPORTS THE CASE OF THE APPELLANT WHEREIN IT HAS BEEN HELD THAT WHERE FUNDS AVAILABLE, BOTH INTEREST FREE/TO ANS, ARE AVAILABLE SUFFICIENT TO MEET THE INVESTMENTS, NO DISALLOWANCE IS CALLED FOR U/S 36(1)(III). THIS DECISION HAS BEEN FOLLOWED BY HON'BLE ITAT, BENCH - A, AHMEDABAD WHILE DEALING WITH DISALLOWANCE U/S 14A THE CASE OF ACIT V/S HIPOLIN LIMITED (ITA NO. 4259/AHD/2007). 8 IN VIEW OF THE DISCUSSION IN PARA 6 & 7 ABOVE, THE ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION UNDER SECTION 14A OF RS. 16,63,952 IN A.Y. 2008 - 09 AND RS. 27,35,6 08 IN A.Y. 2009 - 10. I.T. (SS) A NO S. 437 & 438 /AHD/20 12 A.Y. 2008 - 09 & 2009 - 10 PAGE NO ACIT VS. SAUMYA CONSTRUCTION PVT. LTD 4 4. WE HAVE HEARD BOTH THE LEARNED REPRESEN TATIVES REITERATING THEIR RESPECTIVE STANDS. THE ASSESSEE SUBMITS THAT IT DOES NOT HAVE ANY EXEMPT INCOME IN THE FORMER ASSESSMENT YEAR. WE FIND THAT HON BLE DELHI HIGH COURT IN CIT V S. HOLCIM INDIA PVT. LTD . ITA NO S. 299 AND 486/2014 DECI DED ON 05 - 09 - 2 014 HOLDS THAT TH E IMPUGNED SECTION 14A DISALLOWANCE DOES NOT APPLY IN ABSENCE OF EXEMPT INCOME SINCE THE SAME IS TO BE MADE IN RELATION TO THE LATTER ONE. WE ARE OF THE VIEW TH AT THE IMPUGNED DISALLOWANCE IS NOT SUSTAINABLE ON T HIS SCORE ALONE. IT FURT HER EMA NATES THAT THE ASSESSEE HAS NOT MADE ANY INVESTMENT FOR EARNING ITS EXEMPT INCOME IN THE TWO IMPUGNED ASSESSMENT YEARS. T HIS IS FOLLOWED BY THE CRUCIAL APPELLATE FINDING THAT IT HAD SUFFICIENT RESERVE S AND SURPLUSES IN THE CORRESPONDING ASSESSMENT YEAR OF INVESTMENTS EXCEEDING THE LATTER SUMS. THE HON BLE JURISDICTIONAL HIGH COURT IN CIT VS. TORRENT POWER LTD. (2014) 44 TAXMANN . COM 441 NEGATES APPLICABILITY OF SECTION 14A DISALLOWANCE IN SUCH AN INSTANCE. THE REVENUE FAILS TO POINT OUT ANY EXCEP TION THERETO IN THE COURSE OF HEARING. THIS FORMER ISSUE IS ACCORDINGLY DECIDED IN ASSESSEE S FAVOUR IN BOTH ASSESSMENT YEARS. THE REVENUE S CORRESPONDING GROUNDS ARE REJECTED . 5. THIS LEAVES US WITH THE LATTER ISS UE OF INTEREST DISALLOWANCE U/S . 36(1 )(III) OF THE ACT TO THE TUNE OF RS. 13,40,273/ - AND RS. 17,73,192/ - ; RESPECTIVELY. THE CIT(A) DEALS WITH THE ISSUE AFTER TAKING NOTE OF THE ASSESSING OFFICER S FINDING AS UNDER: - I.T. (SS) A NO S. 437 & 438 /AHD/20 12 A.Y. 2008 - 09 & 2009 - 10 PAGE NO ACIT VS. SAUMYA CONSTRUCTION PVT. LTD 5 9 GROUND NO. 4 IN BOTH THE ASSESSMENT YEARS RELATES TO DISALLOWANCE OF I NTEREST FOR RS. 13,40,273 IN A.Y. 2008 - 09 AND RS. 17,73,192 IN A.Y. 2009 - 10. THE ADDITION HAS BEEN MADE AS PER PARA 4 OF THE ASSESSMENT ORDERS. ACCORDING TO THE ASSESSING OFFICER, (AS PER TABLE ON PAGE 4 OF THE ORDERS) THE ASSESSEE HAS CHARGED INTEREST ON ADVANCES AT RATE LESS THAN 15%, IN SOME CASES @6% , IN SOME 7% , IN OTHERS 9% AND IN STILL OTHERS @ 12%. THE ASSESSING OFFICER FORMED AN OPINION THAT THE RATE OF INTEREST CHARGED ON ADVANCES SHOULD HAVE BEEN NOT LESS THAN 15% AND PROCEEDED TO DISALLOW INTE REST EXPENSE FOR THE DIFFERENCE BETWEEN 15% AND THE INTEREST CHARGED AT LOWER RATES. THIS RESULTED IN DISALLOWANCE OF RS 13,40,273 IN A.Y. 2008 - 09 AND RS. 17,73,192 IN A.Y. 2009 - 10. 10 DURING THE COURSE OF APPELLATE PROCEEDINGS IT WAS STATED THAT THERE I S NOTHING IN THE ASSESSMENT ORDERS TO ESTABLISH THAT BORROWED FUNDS WERE NOT USED FOR THE PURPOSE OF BUSINESS OF THE APPELLANT HENCE DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT IS UNCALLED FOR. RELIANCE WAS PLACED UPON THE DECISION OF MADH AV PRASAD JATIA V/S CIT 118 ITR 200 . ATTENTION OF THIS OFFICE WAS DRAWN BY THE APPELLANT TOWARDS FOLLOWING FINDINGS OF THE ASSESSING OFFICER: 'AFTER CONSIDERING THE REPLIES FILED AND THE ARGUMENTS PUT FORWARD DURING THE HEARING IT IS SEEN THAT MOST OF TH E LOANS AND ADVANCES WERE GIVEN WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. THE AVAILABLE INTEREST FREE FUND WITH THE ASSESSEE WERE IN EXCEEDS OF THE INVESTMENT YIELDING TAX FREE INCOME AND THUS WERE USED IN MAKING THE ADVANCES.' IT WAS ARGUED THA T AS THE APPELLANT HAS SUFFICIENT INTEREST FREE FUNDS TO COVER BOTH INVESTMENTS YIELDING TAX FREE INCOME AND ADVANCES GIVEN AT LOWER RATE OF INTEREST THAN RATE OF 15% (PRESUMED BY ASSESSING OFFICER TO BE APPROPRIATE RATE OF CHARGING INTEREST) IN THIS BACKG ROUND NO INTEREST COULD BE DISALLOWED U/S 36(1)(III) OF THE ACT.' RELIANCE WAS PLACED UPON DECISION OF HON'BLE SUPREME COURT IN THE CASE OF MUNJAL SALES CORPORATION 298 ITR 298 AND THE DECISION OF AHMEDABAD ITAT IN CASE OF TORRENT FINANCIERS VS. AC1T 73 TT I 624. REGARDING THE REASONABLENESS OF THE INTEREST TO BE CHARGED, RELIANCE WAS PLACED UPON THE DECISION OF HON'BLE SUPREME COURT IN CASE OF S.A. BUILDERS LIMITED VS. CIT 288 ITR 1 WHEREIN IT WAS HELD THAT THE REVENUE CANNOT JUSTIFIABLY CLAIM TO PUT ITSE LF IN THE ARMCHAIR OF THE I.T. (SS) A NO S. 437 & 438 /AHD/20 12 A.Y. 2008 - 09 & 2009 - 10 PAGE NO ACIT VS. SAUMYA CONSTRUCTION PVT. LTD 6 BUSINESSMAN OR IN THE POSITION OF THE BOARD OF DIRECTORS AND ASSUME THE ROLE TO DECIDE HOW MUCH IS REASONABLE EXPENDITURE HAVING REGARD TO THE CIRCUMSTANCE OF THE CASE. 11. AFTER GOING THROUGH RIVAL SUBMISSIONS, IT IS SEEN THAT THE ASSESSING OFFICER IS NOT DISPUTING THE FACT THAT APPELLANT HAS SUFFICIENT INTEREST - FREE FUNDS AND IN THIS BACKGROUND NO DISALLOWANCE IS CALLED FOR IN VIEW OF HON'BLE SUPREME COURT DECISION IN THE CASE MUNJAL SALES CORPORATION 298 ITR 298 WHEREIN AVAILA BILITY OF INTEREST FREE FUNDS WAS FOUND SUFFICIENT TO COVER THE LOAN GIVEN WARRANTING NO DISALLOWANCE OF INTEREST UNDER SECTION 36(1)(III) OF THE ACT. SIMILARLY THE CASE IS COVERED BY HON'BLE SUPREME COURT DECISION IN THE CASE OF S.A. BUILDERS LIMITED VS. CIT 288 ITR 1 WHEREIN IT HAS BEEN HELD THAT THE BUSINESSMAN ALONE CAN DECIDE THE REASONABLENESS OR BUSINESS EXPEDIENCY OF THE EXPENDITURE. THEREFORE, NO DISALLOWANCE CAN BE MADE ON THE GROUND THAT LESS THAN 15% WAS CHARGED AS INTEREST. THE DISALLOWANCE IS ALSO NOT CALLED FOR IN VIEW OF THE UNDISPUTED FACT THAT THE APPELLANT HAD ENOUGH INTEREST FREE FUNDS AVAILABLE WITH IT FOR MAKING ADVANCES AND INVESTMENTS. THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO DELETE THE DISALLOWANCE OF RS. 13,40,273 IN A.Y. 20 08 - 09 AND OF RS. 17,73,192 IN A.Y. 2009 - 10. 6. HEARD BOTH SIDES. CASE FILES PERUSED. IT HAS COME ON RECORD THAT THE ASSESSEE HAD ITS DISPOSAL SUFFICIENT INTEREST FREE FUNDS IN EXCESS OF THE IMPUGNED ADVANCES TO ITS SISTER CONCERNS. THE CIT(A) OBSERVED HEREINABOVE THAT THE ASSESSING AUTHORITY DOES NOT MAKE OUT A CASE OF DIVERSION OF BUSINESS FUNDS TOWARDS THE IMPUGNED LOANS HANDS ADVANCES. THE REVENUE FAILS TO REBUT THESE CRUCIAL FINDINGS IN THE COURSE OF HEARING BEFORE US. WE DO NOT DEEM IT APPROPRI ATE TO VENTURE MUCH IN A DETAILED FACTUAL INVESTIGATION ON THIS COUNT ALONE. WE REJECT REVENUE S CORRESPONDING GROUNDS IN BOTH THE IMPUGNED ASSESSMENT YEARS. I.T. (SS) A NO S. 437 & 438 /AHD/20 12 A.Y. 2008 - 09 & 2009 - 10 PAGE NO ACIT VS. SAUMYA CONSTRUCTION PVT. LTD 7 7 . THESE TWO REVENUE S APPEALS ARE DISMISSED. ORDER PR ONOUNCED IN THE OPE N C OURT ON 16 - 06 - 201 6 SD/ - SD/ - ( PR AMOD KUMAR ) ( S. S. GODARA ) ACCOUNTANT MEMBER JUDICIAL MEMBER AHMEDABAD : DATED 16 /06 /2016 AK / COPY OF ORDER FORWARDED TO: - 1. ASSESSEE 2. REVENUE 3. CONCERNED CIT 4. CIT (A) 5. DR, ITAT, AHMEDABAD 6. GUARD FILE. BY ORDER/ , / ,