Income Tax Appellate Tribunal - Chandigarh
M/S Trb Exports (P) Ltd., Ludhiana vs Jcit, Ludhiana on 1 February, 2018
IN THE INCOME TAX APPELLATE TRIBUNAL
DIVISION BENCH 'B', CHANDIGARH
BEFORE SHRI SANJAY GARG, JUDICIAL MEMBER
AND MS.ANNAPURNA GUPTA, ACCOUNTANT MEMBER
ITA No.522/Chd/2013
(Assessment Year : 2008-09)
M/s T.R.B Exports(P) Ltd., Vs. The J.C.I.T.,
TRB House, G.T. Road, Range-V,
Ludhiana. Ludhiana.
P A N : AAAC T8590M
ITA No.279/Chd/2014
(Assessment Year : 2009-10)
ITA No.569/Chd/2016
(Assessment Year : 2011-12)
M/s T.R.B Exports(P) Ltd., Vs. The Addl.C.I.T.,
TRB House, G.T. Road, Range-V,
Ludhiana. Ludhiana.
P A N : AAAC T8590M
&
ITA No.570/Chd/2013
(Assessment Year : 2012-13)
M/s T.R.B Exports(P) Ltd., Vs. The A.C.I.T.,
TRB House, G.T. Road, Range-V,
Ludhiana. Ludhiana.
P A N : AAAC T8590M
(Appellant) (Respondent)
Appellant by : Shri .Sudhir Sehgal
Respondent by : Smt.Chandrakanta
Date of hearing : 03.11.2017
Date of Pronouncement : 01.02.2018
ORDER
PER ANNAPURNA GUPTA, A.M.:
A l l t h e a b o v e a pp e a l s h a s b e e n p r e f e r r e d b y t he s a m e a s s e s s e e ag a i n s t t h e o r d e r of L d. C o m m i s si o n e r o f I n c o me Ta x ( A p p e a l s ) - 2 , Ludhiana ( h er e i n a f t e r r e f er re d to as ' CI T( A p p e a l s ) ' ) da t e d 2 7. 2 . 2 0 13 , 3 1 . 1 . 20 1 4 , 1 6 .2 . 2 0 1 6 a n d 2 1 6 . 2 . 2 0 1 6 r e l a t i n g t o a s s e ss m e nt y e a r s 2 0 0 8- 0 9 , 2 0 0 9 - 1 0, 2 0 1 1 - 1 2 an d 2 0 12 - 1 3 r e s pe c t i v el y.
2. S i n c e co m m o n i ss u e s w er e i nv o l ve d i n a l l t h e a p pe a l s , t h e y w e re h e ar d t o g e t h e r a n d ar e b e i n g d i s p o s ed o f f b y t h i s c o n s o l i d at e d o rde r .
3. A t t h e o u t s e t , i t w a s p o i n t e d ou t t o u s t h a t a l l t h e c a p t i o n e d a p p e al s r e l a t e d t o o nl y t w o i s s u es :
a) D i s a l l o wa n c e o f i n t e r e s t ma d e u /s 3 6 ( 1 ) ( i i i ) o f t h e I n co m e Ta x A c t , 1 9 6 1 ( i n s h o r t ' th e A c t ' )
b) D i s a l l o wa n c e o f e x p e n s es m ad e u / s 14 A o f t he I n co m e Ta x A c t , 1 9 6 1 .
4. B r i e f l y s ta t e d , t he f a c t s c o m m on t o a l l t h e a b o ve c a s es a r e t h at t he A O m a d e d i s a l l o wa nc e o f i n t e re s t u /s 3 6 ( 1 ) ( i i i ) o f t h e A ct , o n a cc o u n t o f i n t e r es t f r e e a d va n c e s ma d e b y t he a s s e s s e e , f o r t he r e a s o n t h a t th e a s s e ss e e ha d f a i l e d t o e s t a b l i s h co m m er c i a l e x p e di e n c y f o r t h e a d v a n ce s o m a d e . F u r t h e r t h e A s se s s i n g O f f i c er a l s o f o u nd t h at t he a s s e ss ee h a d e a r n e d d i vi d e n d i n c o m e a nd L o n g Te r m C a p i t a l G a i n s b o t h o f w h i c h we r e c l a i m e d a s e x e m p t . He also noted that t h e a s s e ss e e h ad p a i d i nt e r e s t t o b a n k s d u r i n g t h e y e a r. A c c o r d i n gl y , t he A s s e s s i ng O f fi ce r w o r k ed o u t d i s a l l o w a n ce u n d e r R ul e 8 D of t h e I n c o m e Ta x R u l e , 1 9 6 2 . However no s e p a r a t e d i s a l l o w a n c e o n t h i s a c c o u n t wa s ma d e a s t he w h o l e i n t er e s t e xp e n d i t u r e ha d b ee n d i s a l l o w e d u /s 3 6 ( 1 ( i i i ) o f t h e A ct .
5. The assessee went up in appeal before the Ld.CIT(Appeals) who upheld the order of the Assessing Officer.
3
6. Aggrieved by the same, the assessee has come up in appeal before us challenging the disallowance made u/s 36(1)(iii) of the Act and that computed u/s 14A of the Act.
7. During the course of hearing before us the Ld. counsel for assessee contended that his sole Argument vis-à-vis both the above disallowances was that the assessee had sufficient own interest free funds on account of which no disallowance of interest either u/s 36(1)(iii) or u/s 14A was warranted. The Ld. counsel for assessee relied upon the decision of the Hon'ble Jurisdictional High Court in the case of Bright Enterprises Pvt.Ltd. vs CIT 381 ITR 107(P&H) in support of its contention vis-à-vis disallowance made u/s 36(1)(iii) and further relied upon the decision of the jurisdictional High Court in the case of CIT vs Max India Ltd. in ITA. No.186 of 2013 dt.06-09-16 for the disallowance of interest made u/s 14A of the Act. The Ld. counsel for assessee further filed before us a chart quantifying the amount of advances made in each year and reserves and surplus funds available with the assessee in support of its above contention for the purpose of disallowance made u/s 36(1)(iii) and chart showing the amount of investment earning exempt income and interest free funds available with the assessee during the year. The same is reproduced hereunder:
Assessment Year 2008-09 ITA NO.522/CHD/2013 Grounds of Appeal
1. Ground 1.- Addition of expenditure u/s 14A amounting to Rs.1,92,792 4 Sl. Particulars Amount
1. Total amount of Investments on which dividend was 1,21,79,546 received
2. Total amount of Investment on which long term capital 21,00,000 gain has been earned
3. Reserves and Surplus (Interest free) (Refer Page-58 of 11,01,45,399 Paperbook-l)
4. Share capital (interest free) 65,02,000
2. Ground 2.-Addition of interest u/s 36(1 )(iii) amounting to Rs.8,27,067 (restricted the extent of interest expenditure) Sl. Particulars Amount
1. Advance made to Cee Enn Promoters & Developers 40,00,000 Paperbook III
2. Advance made to Anand Enclave Developers P. Paperbook 3,65,00,000 III
3. Reserves and surplus 11,01,45,399 Assessment Year 2009-10 ITA NO.279/CHD/2014 Grounds of Appeal
1. Disallowance of interest u/s 36(1 )(iii)-Rs. 17.43,272 Sl. Particulars Amount
1. Advance made to Cee Enn Promoters & Developers 40,00,000 (Properties bought in AY 2012-13) Refer
2. Advance made to Anand Enclave Developers P. Ltd. 3,65,00,000 (Properties bought in AY 2012-13) Refer Paperbook III
3. Disallowance of interest made on the Building under 29,72,907 construction (Refer Pg 79 of the Paperbook I)
4. Disallowance of interest on the purchase of land (Refer Pg 56,58,000 79 of the Paperbook I) TOTAL amount liable for disallowance u/s 36(1)(iii) 4,91,30,907
5. Reserves and Surplus as on 31.03.2009 (AY 2009-10) 11,15,01,689 (Refer Page-76 of paperbook I)
6. Share Capital (Refer Page-76) (Interest free) 65,02,000
2. Disallowance of expenditure u/s 14A-Rs.99.795 Sl. Particulars Amount
1. Total amount of Investments on which disallowance was 1,61,38,442 made
2. Reserves and Surplus (Interest free) (Refer Page-76 of 11,15,01,689 Paperbook-l)
3. Share capital (interest free) 65,02,000 Assessment Year 2011-12 ITA NO.569/CHD/2016 Grounds of Appeal
1. Disallowance of interest expenditure u/s 36(1 )(iii)-Rs. 21,18,382 Sl. Particulars Amount
1. Advance made to Gurcharan Singh (Property bought on 12,00,000 15.10.2011) Refer Page-86, 89-98 of Pb
2. Advance made to Ansal Properties and Infra Ltd. (Property 20,08,125 bought in 31.08.2012) Refer Pages-68-71, 72-84 of the paperbook
3. Advance made to Mohinder Singh (Property bought in AY 12,50,000 5 15.10.2011) Refer Pages-87-88, 89-98 of the paperbook
4. Advance made to Gurdev Singh (Property bought in 50,00,000 02.01.2012) Refer Pages-99-100, 101-116 of the Pb
5. Advance made to Baljit Singh 6,00,000
6. Advance made to Cee Enn Promoters & Developers 4,00,000 (Properties bought in AY 2012-13)
7. Advance made to Anand Enclave Developers P. Ltd. 3,65,00,000 (Properties bought in AY 2012-13)
8. Advances made to Silky Goyal 9,23,000
9. Advances made to Sahara India Commercial Corporation 7,74,029 Ltd. (Earnest money forfeited by the party and now in dispute before the consumer forum) TOTAL amount liable for disallowance u/s 36(1)(iii) 4,86,55,154
5. Reserves and Surplus as on 31.03.2009 (AY 2009-10) 11,66,20,200 (Refer Page-6 of the paperbook)
6. Share Capital (Refer Page-6) (Interest free) 65,02,000
2. Disallowance of expenditure u/s 14A-Rs.25,593 Sl. Particulars Amount
1. Total amount of Investments on which disallowance was 57,42,371 made
2. Reserves and Surplus (Interest free) (Refer Page-6 of 11,66,20,200 Paperbook)
3. Share capital (interest free) 65,02,000 Assessment Year 2012-13 ITA NO.570/CHD/2016 Grounds of Appeal
1. Disallowance of interest u/s 36(1 )(iii)-Rs. 37,21,526 Sl. Particulars Amount
1. Advance made to Ansal Properties and Infra Ltd. (Property 25,98,750 bought in 31.08.2012) Refer Pages-64-67, 91-103 of the paperbook I
2. Advance made to Anand Enclave Developers P. Ltd. 3,65,00,000 (Properties bought in AY 2012-13)
3. Advances made to Sahara India Commercial Corporation 7,74,029 Ltd. (Earnest money forfeited by the party and now in dispute before the consumer forum) TOTAL amount liable for disallowance u/s 36(1)(iii) 3,98,72,779 4 Reserves and Surplus as on 31.03.2009 (AY 2009-10) 12,50,02,418 (Refer Page-6 of the paperbook)
5. Share Capital (Refer Page-6) (Interest free) 65,02,000
2. Disallowance of expenditure u/s 14A-Rs.25,593 Sl. Particulars Amount
1. Total amount of Investments on which disallowance was 44,94,741 made
2. Reserves and Surplus (Interest free) (Refer Page-6 of 12,50,02,418 Paperbook)
3. Share capital (interest free) 65,02,000 6 The Ld. counsel for assessee, therefore, contended that in view of the above no disallowance of interest expenditure either u/s 36(1)(iii) or u/s 14A of the Act was warranted.
8. The Ld. DR, on the other hand, supported the order of the Ld.CIT(Appeals).
9. We have heard the contentions of both the parties.
We find merit in the contention of the Ld. counsel for assessee. The Hon'ble Jurisdictional High Court in the case of Bright Enterprises Pvt. Ltd. vs CIT 381 ITR 107(P&H) has held that on the availability of sufficient own interest free funds, the presumption is that the interest free advances have been made out of the same and no disallowance u/s 36(1)(iii) of the Act is warranted in such circumstances. The said proposition has been reiterated by the Hon'ble High Court in the case of CIT vs Kapsons Associates (2016) 381 ITR 204 & Gurudas Garg vs CIT(A),Bathinda reported in 2015(8) TMI 569.
10. We further find that the issue has been decided by the CIT(A) on the aspect of commercial expediency of the advances made and the aforesaid decisions of the Hon'ble High Court and the proposition laid down therein has not been considered for adjudicating the issue. In view of the aforesaid proposition of law laid down by the Hon'ble Jurisdictional High Court and in the interest of justice we hold that the issue of disallowance of interest needs to be examined from the perspective the availability of interest free funds with the assessee as laid down in the aforesaid 7 decision. Since the facts as presented before us need to be examined and verified, we consider it fit to restore the matter back to the file of the Assessing Officer to reconsider the issue and decide the same in accordance with law. The grounds raised by the assessee vis-à-vis disallowance of interest made u/s 36(1)(iii) of the Act, therefore, stand allowed for statistical purposes. As for the disallowance of interest made u/s 14A of the Act, we again find merit in the contention of the Ld. counsel for assessee. We agree with the Ld. counsel for assessee that the Hon'ble Jurisdictional High Court in the case of Max India Ltd.(supra) has held that on availability of enough interest free funds with the assessee no disallowance on account of interest u/s 14A is warranted. Relevant findings of the Hon'ble Jurisdictional High Court in this regard are as under:
12.The Income Tax Appellate Tribunal, however, set-aside the order of the CIT (Appeals) in so far as it disallowed the deduction of ? 4,52,94,905/- under section 14A on account of interest expenditure. The Tribunal, however, sustained the order in so far as it estimated ? 20 lacs towards administrative expenditure relating to the investment from which exempt income was earned.
13. The Tribunal rightly noted that the main thrust of the orders impugned before it was that the assessee had failed to furnish the bank statements and that, therefore, an adverse inference ought to be drawn against it. The Tribunal, however, also observed that the authorities indicated that the presumption as regards the utilization of interest free funds and borrowed funds in a mixed pool ought to be in favour of the assessee. The Tribunal noted that the assessee is a listed company and was required to publish its accounts and submit the same before various statutory authorities such as SEBI, Stock Exchanges as well as to the share holders and financial institutions. In view thereof the Tribunal did not accept the department's contention that the funds flow statements submitted by the assessee which in turn were prepared on the basis of the audit accounts for the year under consideration were not authentic.
14. The Tribunal was certainly entitled to draw such an inference. It is a reasonable inference. The Tribunal addressed itself to the correct question, namely, to determine if there was any nexus between the additional investments with the interest free borrowed funds. The following findings of fact of the Tribunal are of vital importance: the assessee had during the relevant time invested an aggregate amount of ? 152.05 crores out of which an amount of ^ 28.18 crores was made in 8 shares of foreign companies. The dividend from the foreign companies was taxable.
This, therefore, left an amount of ^ 123.87 crores which yielded dividends which were exempt from income tax. The assessee realized 117.97 crores from the sale of its investments in the earlier years; ? 46 crores was generated from the assessee's operating activities; ^6.87 crores was received from sale of fixed assets and there was an opening cash balance of ^ 8.90 crores. The aggregate of surplus funds on which there was no interest burden was ? 179.74 crores. This amount was available during the relevant previous year. Thus such funds were in excess of the investment of ^ 123.87 crores. In addition thereto the assessee had generated cash from its financing activities of an aggregate amount of ^ 24.24 crores. It had purchased fixed assets aggregating only to ? 54.62 crores during the relevant period. The findings, therefore, that the assessee had sufficient interest free funds to make the investment yielding tax free returns cannot be faulted. The absence of bank books in these circumstances would not justify an adverse inference being drawn for whichever way the matter is viewed, the assessee had sufficient funds available to it on which no interest was payable. This brings us to the legal issue of a presumption to be made when there is a pool of funds which include interest bearing funds and interest free funds.
15. Mr. Vohra's reliance upon the judgment of the Supreme Court in East India Pharmaceutical Works Ltd. v. Commissioner of Income Tax 1997 Income Tax Reports 224 (SC) is well founded. The Tribunal referred the following question to the High Court:-
"Whether, on the facts and in the circumstances of the case, the Tribunal was right in holding that the payment of interest of ' 28,488/- on money borrowed for payment of income-tax was not an expenditure laid out wholly and exclusively for the purpose of business as contemplated by sub- section (1) of Section 37 of the Income-tax Act, 1961?"
In that case, the assessee had an over draft account with the bank. It claimed a sum of ? 28,488/- as an allowable expenditure under section 37(1) of the Act which represented the interest paid on the overdraft amount. The overdraft was for payment of income tax. The authorities as well as the High Court came to the conclusion that the payment of income tax would not fall within the scope of the expression 'for the purpose of business". It was contended on behalf of the assessee, however, that it had deposited the entire profits in the over draft account and the amount thus deposited being much more than the tax liability, it should have been presumed that the taxes were paid out of the profits of the relevant year and not out of the over draft account for running of the business. The Supreme Court held as under:-
"3. Mr. Dipak Bhattacharyya, learned counsel appearing for the appellant, argued with vehemence that the assessee having deposited the entire profits in the overdraft account and the amount thus deposited in the overdraft account being much more compared to the income tax liability and the tax paid, 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 business. Consequently the interest paid by the assessee on the overdraft account relatable to the payment of income tax should have been allowed as an admissible deduction in the computation of the assessee's business income. In support of this contention the learned counsel appearing for the appellant relied upon the decisions of the Calcutta High Court in Woolcombers of India Ltd. v. CIT[(1982) 134 ITR 219 : (1981) 23 CTR 204 (Cal)] , Reckitt and Coleman of India Ltd.v. CIT[(1982) 135 ITR 698 :
(1982) 26 CTR 24 (Cal)] , Indian Explosives Ltd. v. 071(1984) 147 ITR 392 : 1983 Tax LR 356 (Cal)l and Alkali & Chemical Corpn. of India Ltd.v.
OF [(1986) 161 ITR 820 (Cal)l . The learned counsel also urged that these decisions having been allowed to be operative for more than 14 years, the principle of stare decisis should be made applicable and, therefore, it must be held that the High Court committed error in not accepting the assessee's contention.................... 9
4. Having considered the rival submissions at the Bar though we find considerable force in the arguments advanced by the learned counsel appearing for the appellant but in the facts and circumstances of the present case, on going through the order of the Tribunal as well as the question referred to by the Tribunal for being answered by the High Court and the arguments advanced before the Tribunal as well as in the High Court by the counsel appearing for the assessee, it is not possible for us to hold that any such contention, as was advanced before this Court by the assessee had in fact been advanced either before the Tribunal or before the High Court. The question whether a presumption can be drawn that the taxes were paid out of the profits of the relevant year and not out of the overdraft account for the running of the business as was drawn in Woolcombers case [(1982) 134 ITR 219 : (1981) 23 CTR 204 (Cal)l by the Calcutta High Court and was followed in 3 other cases of the same High Court, would essentially depend upon the fact as to whether the entire profits had been pumped into the overdraft account, whether such profits were more than the tax amount paid for the relevant year and all other germane factors. But when the assessee never advanced the contention either before the Tribunal or before the High Court and the amplitude of the question posed before the High Court does not bring within its sweep the contention as is advanced by Mr Bhattacharyya, learned counsel in this Court, it would not be appropriate for this Court to look into the additional papers produced by the assessee for entertaining the contention and answering the same. It is true that the Calcutta High Court in Woolcombers case [(1982) 134 ITR 219 : (1981) 23 CTR 204 (Cal)l came to the conclusion that where profits were sufficient to meet the advance tax liability and profits were deposited into the overdraft account of the assessee then 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. But to raise the presumption in that particular case there were sufficient materials and the assessee had urged the contention before the High Court. The aforesaid decision has been followed in the case ofi?ecfcrttf(1982) 135 ITR 698 : (1982) 26 CTR 24 (Cal)l where without any further discussion the Woolcombers case [(1982) 134 ITR 219 : (1981) 23 CTR 204 (Cal)l has been followed. But it may be noticed that the question posed in Reckitt case [(1982) 135 ITR 698 : (1982) 26 CTR 24 (Cal)l was directly to the effect as to where the entire trading receipts deposited by the assessee in the overdraft account and the tax was paid out of the overdraft account whether the interest paid by the assessee for payment of tax out of the overdraft account is an allowable deduction. In Indian Explosives Ltd. case [(1984) 147 ITR 392 :
1983 Tax LR 356 (Cal)l the aforesaid two decisions of the Calcutta High Court had been followed and the question that had been posed was to the effect whether the interest on an overdraft account paid towards the amount drawn for discharging the tax liability could be an allowable expenditure and, therefore, the High Court answered in favour of the assessee and against the Revenue. It may be noticed that in the aforesaid case the Court did not express any opinion on the question whether the interest paid on money borrowed for payment of tax was allowable as business expenditure. To the same effect is the decision of the Calcutta High Court in Alkali Chemical Corpn. of India Ltd. [(1986) 161 ITR 820 (Cal)l .......................emphasis supplied."
16. It may be said that this was a case where the funds were all in a common pool viz. in the overdraft account. It would, however, make no difference even if the funds are in different accounts. The presumption would still apply so long as the interest free funds are available. Our view is supported by the judgment of a Division Bench of the Bombay High Court in Commissioner of Income Tax v. Reliance Utilities and Power Ltd. 2009 (313) ITR (Bombay), where it was held:-
"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 10 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, [19971 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 business 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 advanced earlier it did not require to be answered. It then noted that in Woolcombers of India Ltd.'s case, [19821 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 of 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 are funds available both interest-free and over draft and/or loans taken, then a presumption would arise that investments would be out of the interest- free fund generated or available with the company, if the interest-free funds were sufficient to meet the investments. In this case this presumption is established considering the finding of fact both by the Commissioner of Income-tax (Appeals) and the Income-tax Appellate Tribunal."
We are in respectful agreement with these observations. There is no reason to restrict the presumption to cases where the funds from different sources are mixed in a common pool. The rational for the presumption is that an assessee would utilize its funds prudently ensuring that it derives the greatest financial advantage. If that be the rational we see no reason for the presumption to be restricted to cases where the different funds are mixed in a common pool. It is, however, only a presumption.
17. In HDFC Bank Ltd. v. Deputy Commissioner of Income Tax and others, 2016 (383) ITR 529 (Bombay), the petitioner filed its return of income for the assessment year 2008-09 in which it declared an income of ^ 5.81 crores from the investment and securities which were exempt from tax. It treated these investments as stock in trade. The petitioner had during that year paid interest on borrowed funds and claimed the same as expenditure. The petitioner claimed that the investment in tax free securities was made out of its own tax free funds and therefore no disallowance could be made under section 14A. The petitioner contended that it was possessed of sufficient interest free funds of? 2153 crores as against the investment in tax free securities of ? 52.02 crores and that there was a presumption that the investment which had been made in the tax-free securities had come out of the interest-free funds available with the petitioner. The Division Bench held:-
"15. It is clear that for the first time in the case of HdFC Bank Ltd. (supra) that this Court took a view that the presumption which has been laid down in Reliance Utilities and Power Ltd. (supra) with regard to investment in tax free securities coming out of assessee's own funds in case the same are in excess of the investments made in the securities (notwithstanding fact that assessee concerned may also have taken some funds on interest) applies, when applying Section 14A of Act. Thus, decision of this Court in HDFC Bank Ltd. (supra) for the first time on 23rd July, 2014 has settled the issue by holding that the test of presumption as held by this Court in Reliance Utilities and Power Ltd. (supra) while considering Section 36( 1)(iii) of the Act would apply while considering the application of Section 14A of the Act. The aforesaid decision of this Court in HDFC Bank Ltd. (supra) on the above issue has also been accepted by the Revenue inasmuch as even though they have filed an appeal to the Supreme Court against that order on the other issue therein viz. broken period interest, no appeal has been preferred by the Revenue 11 on the issue of invoking the principles laid down in Reliance Utilities and Power Ltd. (supra) in its application to Section 14A of the Act. Therefore, the issue which arose for consideration before the Tribunal had not been decided by this Court in Godrej and Boyce Manufacturing Co. Ltd. (supra). It arose and was so decided for the first time by this Court in HDFC Bank Ltd. (supra). Thus, there is no conflict as sought to be made out by the impugned order. Thus, the impugned order has proceeded on a fundamentally erroneous basis as the ratio decindi of the order in Godrej and Boyce Manufacturing Co. Ltd. (supra) had nothing to do with the test of presumption canvassed by the petitioner before the Tribunal on the basis of the ratio of the decision of this Court in HDFC Bank Ltd. (supra).
16. At the hearing Mr. Suresh Kumar, learned Counsel for the Revenue urged that on the facts of this case no fault can be found with the order of the Tribunal. It is submitted that, the petitioner was not able to establish before the Assessing Officer and the CIT(A) that the amounts invested in the interest free securities came out of interest free funds available with the petitioner. In that view of the matter, it is submitted by him that the order of this Court in HDFC Bank Ltd. (supra) would not apply to the facts of the present case. We are unable to understand the above submission. The Assessing Officer passed the Assessment order on 22nd December, 2010 under Section 143(3) of the Act. The CIT (A) passed an order on 21st November, 2011 dismissing the petitioner's appeal. On both the dates, when the orders were passed by the Assessing Officer and CIT (A), the authorities did not have the benefit of the order of this Court in HDFC Bank Ltd. (supra) rendered on 23rd July, 2014. Once the issue is settled by the decision of this Court in HDFC Bank Ltd. (supra), there is now no need for the assessee to establish with evidence that the amounts which has been invested in the tax free securities have come out of interest free funds available with it. This is because once the assessee is possessed of interest free funds sufficient to make the investment in tax free securities, it is presumed that it has been paid for out of the interest free funds. Consequently, we do not find any merit in the above submission made at the hearing on behalf of the Revenue.
......................emphasis supplied"
We respectfully agree with these observations. While it is only a presumption, it is one which is in the assessee's favour. The Department could have rebutted this presumption by calling for the records from the bank itself. It chose not do so at though the assessee stated that it was not in possession of the records. There was no application either before the Tribunal or before us for an opportunity to lead further evidence in this regard.
18. A similar view was taken by the Bombay High Court in Commissioner of Income Tax v. HDFC Bank Ltd. 2014 (366) ITR 505.
19. A Division Bench of this Court in Bright Enterprises Pvt. Ltd. v. Commissioner of Income Tax 2016 (381) ITR 107, to which one of us (S.J.Vazifdar, C.J.) was a party, followed the judgment in CIT v. Reliance Utilities and Power Ltd. 2009 (313) ITR (Bombay) (supra). It was held as follows:-
"23. As we noted earlier, the funds/reserves of the appellant were sufficient to cover the interest free advances made by it of Rs. 10.29 crores to its sister company. We are entirely in agreement with the judgment of the Bombay High Court in Commissioner of Income Taxv. Reliance Utilities & Power Ltd., (2009) 313 ITR 340, para-10, that if there are interest free funds available a presumption would arise that investment would be out of the interest free funds generated or available with the company if the interest free funds were sufficient to meet the investment."
20. In the circumstances, question No.(i) is answered in favour of the respondent- assessee.
12
11. In view of the same and considering the fact that the facts relating to the issue need to be examined and verified,we consider it fit to restore the disallowance made u/s 14A of the Act also back to the file of the Assessing Officer to be decided afresh in accordance with law. Grounds raised by the assessee vis-à-vis disallowance of interest u/s 14A also stand allowed for statistical purposes.
12. In the result, all the above appeals of the assessee are allowed for statistical purposes.
O r d e r p r on o u n c ed i n t h e o p e n cou r t .
Sd/- Sd/-
(SANJAY GARG) (ANNAPURNA GUPTA)
JUDICIAL MEMBER ACCOUNTANT MEMBER
Dated : 1 s t February, 2018
*Rati*
Copy to:
1. The Appellant
2. The Respondent
3. The CIT(A)
4. The CIT
5. The DR
Assistant Registrar,
ITAT, Chandigarh