Disallowance for diverting interest bearing funds into tax-free income

Dis-allowance on the ground that the assessee has diverted interest bearing funds into tax-free income can not be made where the assessee owes ample interest free funds on the date of investment.

Weikfield Products Co. (I) Pvt. Ltd. Vs. DCIT (ITAT Pune)

Relevant Extract from the Case law

4. At the outset of hearing, the Ld. A.R. pointed out that the issue raised in the grounds of the appeal is fully covered by the decision of Pune Bench of the Tribunal in the case of assessee itself for the A.Y. 2000-01 to 2003-04 vide ITA No. 1053/PN/2007 and others, order dated 30^thJune 2009. The Ld. A.R. pointed out further that similar decision on the issue has been followed by the Pune Bench of the Tribunal in the case of assessee for the A.Y. 2004-05 in ITA No. 1462/PN/2007 and others vide order dated 11 September 2009.

The Ld. A.R. submitted that no interest was charged on advance given to the sister concerns but some interest was debited. He submitted that it was in business expediency and placed reliance on the decision of Honourable Supreme Court in the case of S.A. Builders Ltd. Vs. CIT(2007) 288 ITR 1(SC). He referred page No. 18 & 19 of the Paper Book filed on behalf of the assessee to support his submission that sum advanced was given during the year. He submitted that under similar facts, the Tribunal had allowed the claimed interest u/s. 36(1)(iii) of the Act in earlier five years. The A.O disallowed the entire interest whereas Ld CIT(A) has worked out some formula to distinguish business requirement. The Ld. A.R. drew our attention to page No. 19 of the Paper Book with this submission that there was investment in Mutual Fund shown in item-D in the Schedule F regarding investments. The Ld. A.R. submitted that the issue relating to provisions u/s. 14A in case of Mutual Funds is also covered by the recent decision of Hon’ble jurisdictional Bombay High Court in the case of CIT Vs. Reliance Utilities & Power Ltd. 313 ITR 340 (Bom.) and Godrej & Boyce Mfg. Co. Ltd., v/s. DCIT 328 ITR 81 (Bom.)

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