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ACIT, Circle 12(1), New Delhi. Vs Hal Offshore Ltd., 25, Bazar Lane, Bengali Market, New Delhi.
May, 04th 2015
ITA No. 4327/Del/2012
Asstt.Year: 2009-10

                IN THE INCOME TAX APPELLATE TRIBUNAL
                     DELHI BENCH `C' NEW DELHI

       BEFORE SHRI R.S. SYAL, ACCOUNTANT MEMBER
                        AND
       SHRI CHANDRAMOHAN GARG, JUDICIAL MEMBER

                        ITA No.4327/Del/2012
                        ASSTT.YEAR: 2009-10

ACIT,                               vs       Hal Offshore Ltd.,
Circle 12(1),                               25, Bazar Lane,
New Delhi.                                  Bengali Market,
                                            New Delhi.
                                            (PAN: AAACH3144B)
(Appellant)                                 (Respondent)
                           Appellant by: Shri T. Vasanthan, Sr. DR
                        Respondent by: Shri Piyush Kaushik, Adv.


                              ORDER

PER C.M. GARG, JUDICIAL MEMBER

       This appeal of the revenue has been directed against the order of the

CIT(A)-XIII, New Delhi dated 24.05.2012 in Appeal No. 201/11-12 for AY

2008-09.


2.     The sole ground raised by the revenue reads as under:-


              "1. Whether ld. CIT(A) was correct on facts and
        circumstances of the case and in law in deleting the
        disallowance of Rs.23,75,256/- made by the AO on account of
        interest payment u/s 36(1)(iii)."
3.     Briefly stated the facts giving rise to this appeal are that the assessee

company is engaged in the business of off shore operations and also engaged in

                                           1
ITA No. 4327/Del/2012
Asstt.Year: 2009-10

running on contract for charter hire of multi-support vessel with ONGCL,

painting of ONGC platform and a running contract for operation and

maintenance of water maker on ONGCL Platforms. During the assessment

proceedings, the AO disallowed interest payment of Rs. 23,75,256/- u/s

36(1)(iii) of the Income Tax Act, 1961 (for short the Act) by observing that the

average interest cost debited in the Profit and loss account on interest free

advances and loans will not be allowed as deduction u/s 36(1)(iii) of the Act.

The aggrieved assessee preferred an appeal before the CIT(A) which was

allowed by passing the impugned order. Now, the aggrieved revenue is before

this Tribunal with the sole ground as reproduced hereinabvove.


4.     We have heard arguments of both the sides and carefully perused the

relevant material placed on record inter alia paper book of the assessee spread

over 34 pages, assessee's written submissions and decision of ITAT `G' Bench

Mumbai in the case of M/s Aplab Limited vs ACIT in ITA No.

3313/Mum/2010 for AY 2006-07 dated 23.12.2011 and another decision of

ITAT Mumbai "D" Bench in the case of ACIT vs M/s Reliance

Communications Infrastructure Ltd. 2009-TIOL-313-ITAT-MUM.


5.     Ld. DR submitted that the CIT(A) was not correct on the facts and

circumstances of the case and in law deleting the impugned disallowance made

by the AO on account of interest payment u/s 36(1)(iii) of the Act. Ld. DR

pointed out that the AO noticed that the assessee has made investment of

                                       2
ITA No. 4327/Del/2012
Asstt.Year: 2009-10

Rs.4,18,79,945 and has borrowed money in the shape of secured and unsecured

loans and has paid interest of Rs.13,07,08,614. Ld. DR further pointed out that

on the one hand, there were interest bearing loans and on the other hand, the

assessee has given interest free advances and the assessee failed to establish

nexus between the surplus funds of the company and interest free advances,

therefore, the AO rightly made disallowance u/s 36(1)(iii) of the Act. Ld. DR

requested that the impugned order may be set aside by restoring that of the AO.


6.     Replying to the above, ld. Counsel of the assessee has drawn our attention

towards operative para no. 2 and 3 at page 12 of the impugned order and

submitted that the assessee has got equity share capital of more Rs. 10 crore and

reserve and surplus of more than Rs. 51 crore which clearly show that there was

huge capital available with the assessee, therefore, investments made by the

assessee amounting to Rs.44,596,370 have no nexus with the interest bearing

loans of the assessee. Ld. Counsel of the assessee vehemently contended that

the assessee, by way of statement of accounts, balance sheet and profit and loss

account submitted before the authorities below, successfully established that no

interest bearing funds were utilized for making investment in the shares of

various companies and the investment in such shares was carried forward from

the last years, therefore, the CIT(A) rightly held that the disallowance of interest

made by the AO on the allegation of diversion of interest bearing funds was not

justified and baseless. Ld. Counsel supported the impugned order.





                                         3
ITA No. 4327/Del/2012
Asstt.Year: 2009-10

7.     On careful consideration of above submissions from operative part of the

impugned order, we note that the CIT(A) granted relief for the assessee with

following observations and conclusion:-


              "It is claimed by the appellant that interest of Rs.
        1,93,54,438/- has been paid on cash credit loans and Rs.
        8,75,50,782/- has been paid on the term loan raised for
        purchase of vessel which has been given to ONGC on hire
        basis, therefore, the interest was on account of purchase of
        vessel. The interest payment shown at S.No. 3 is pertaining to
        the Car loans. The interest of Rs. 27,29,276/- pertains to the
        buyers credit loan and interest of Rs. 11,01,513/- pertains to
        delay in payment of service tax. The balance amount of Rs.
        1,99,12,685/- is bank charges paid on account of guarantee
        commission to various banks. The above analysis shows that
        no interest bearing funds were utilized for making investments
        in the companies listed in the table given above.
               It is also seen that appellant has got equity share capital
        of Rs. 10,03,12,000/- and reserve & Surplus of
        Rs.51,04,71,127/- which shows that there is huge capital base
        available with the appellant. The appellant has claimed that
        investments in the shares of various companies was made out
        of the shares capital and reserve and surplus available with
        the appellant. It is claimed by the appellant that the loans were
        raised for specific purposes and same have been utilized for
        the stated purposes and no amount of such loans has been
        diverted for investment purposes. It is also observed that the
        Assessing Officer has not established any nexus between the
        interest bearing funds taken by the appellant and investments
        made in the shares of various companies. In the absence of
        such nexus it cannot be held that investment was made out of
        interest bearing funds and the natural presumption would be
        that such investments were made out of share capital and
        reserve & surplus. It is also claimed by the appellant that the
        assessment for A. Y. 2008-09 was passed u/s 143(3) of the IT
        Act and investments in shares and securities was more than
        the investments during the year, however, no disallowance of
        interest on account of these investments was made by the
        Assessing Officer in A.Y. 2008-09.

                                         4
ITA No. 4327/Del/2012
Asstt.Year: 2009-10

               In view of the facts discussed above, it is established
        that no interest bearing funds were utilized for making
        investments in shares of various companies listed above and
        the investment in such shares was carried forward from the
        last year. Hence, the disallowance of interest made by the
        Assessing Officer for diversion of interest bearing funds was
        not justified. Therefore, the same is deleted."
8.     On careful perusal of the assessment order, we note that the AO in para

4.12 observed that the average interest cost debited in the profit and loss

account of interest free advances and loans will not be allowed as deduction u/s

36(1)(iii) of the Act and the AO picked up amount of investment of

Rs.4,18,79,945 for calculating the amount of disallowance which was actually

investment as shown in the table at page 10 and 11 of the impugned order. In

view of above uncontroverted details of investment of the assessee, it is vivid

that the amount of Rs.4.18 crore as picked up by the AO was actually amount of

investment at the end of the financial year under consideration. The assessee

has also given details of Rs. 13,07,08,614 which includes bank interest and bank

charges. These fact and figures have also not been controverted by the AO.

From the balance sheet, it is also clear that the assessee has got equity share

capital of more than Rs.10 crore and reserve and surplus of more than Rs.51

crore and, in this situation, the natural presumption would be that such

investments were made out of share capital and reserve and surplus in absence

of any nexus between interest bearing funds taken by the assessee and

investment made in the shares of various companies. Under above noted facts

and circumstances, we are inclined to hold that the AO made disallowance on

                                       5
ITA No. 4327/Del/2012
Asstt.Year: 2009-10

wrong premise which was rightly deleted by the CIT(A) by properly analysing

the facts and figures submitted by the assessee and we have no reason to

interfere with the impugned order in this regard and we uphold the same.


9.     On this issue, we respectfully follow the decision of coordinate bench of

ITAT Mumbai `G' Bench in the case of M/s Aplab Limited vs ACIT (supra)

wherein it was held as under:-


            "13. The Hon'ble jurisdictional High Court in the case of
     CIT vs. Reliance Utilities & Power Ltd. [(2009) 313 ITR 340
     (Bom)] considered almost similar facts. In that case the AO
     recorded a finding that a sum of Rs.213 crores was invested by
     the assessee out of their own funds and Rs.1.74 crores out of
     borrowed funds. Accordingly, disallowance of interest was made
     to the tune of Rs.2.40 crores. It was argued on behalf of the
     assessee that no part of interest bearing funds had gone into
     investment in those two companies in respect of which the AO
     made disallowance of interest. It was also argued that income
     from operations of the company was Rs.418.04 crores and the
     assessee had also raised capital of Rs.7.90 crores, apart from
     receiving interest free deposit of Rs.10.03 crores. It was,
     therefore, submitted before the first appellate authority that the
     balance-sheet of the assessee adequately depicted that there were
     enough interest free funds at its disposal for making investment.
     The ld. CIT(A) got convinced with the assessee's submissions and
     deleted the addition. Before the Tribunal, it was contended on
     behalf of the Revenue that the shareholders' funds were utilized
     for the purchase of its assets and hence the assessee was left with
     no reserve or own funds for making investment in the sister
     concern. Thus, it was argued that the borrowed funds had been
     utilized for the purpose of making investment in the sister
     concern and the disallowance of interest was rightly called for.
     The Tribunal, on appreciation of facts, recorded a finding that
     the assessee had sufficient funds of its owns for making
                                        6
ITA No. 4327/Del/2012
Asstt.Year: 2009-10

     investment without using the interest bearing funds. Accordingly,
     the order of CIT(A) was upheld. When the matter came up before
     the Hon'ble jurisdictional High Court, it was contended by the
     Department that the shareholders' funds stood utilized in the
     purchase of fixed assets and hence could not be construed as
     available for investment in sister concern. Repelling this
     contention, the Hon'ble High Court observed that : "In our
     opinion, the very basis on which the Revenue had sought to
     contend or argue their case that the shareholders' fund to the
     tune of over Rs.172 crores was utilized for the purpose of fixed
     assets in terms of the balance-sheet as on March 31, 1999, is
     fallacious." In upholding the order of the Tribunal, the Hon'ble
     High Court held that : "If there be interest free funds available to
     an assessee sufficient to meet its investment and at the same time
     the assessee had raised a loan, it can be presumed that the
     investments were from the interest free funds available".
     Thereafter, the judgment of the Hon'ble Supreme Court in the
     case of East India Pharmaceutical Works Ltd. Vs. CIT [(1997)
     224 ITR 627 (SC)] and also the judgment of the Hon'ble Calcutta
     High Court in Woolcombers of India Ltd. Vs. CIT [(1981) 134
     ITR 219 (Cal)] were considered. It was finally concluded that :
     "The principle, therefore, would be that if there are funds
     available both interest free and overdraft and/or loans taken,
     then a presumption would arise that the investments would be out
     of interest free funds generated or available with the company, if
     the interest free funds were sufficient to meet the investment".
     Consequently the interest was held to be deductible in full.




     14. From the above judgment, it is manifest that there can be no
     presumption that the shareholders' fund of a company is utilized
     for the purchase of fixed assets. If the assessee has interest free
     funds as well as interest bearing funds at its disposal, then the
     presumption would be that investments were made from interest
     fee funds at the disposal of the assessee. The facts of the instant
     case abundantly show that the shareholders fund is much more
     than the amount advanced by the assessee without any interest to
     its sister concerns. Respectfully following the precedent, we hold
     that the ld. CIT(A) was not justified in sustaining addition under
                                        7
ITA No. 4327/Del/2012
Asstt.Year: 2009-10

       the present circumstances. We, therefore, order for the deletion
       of addition. Ground no.5 is allowed."

10.        In the present case also, the assessee has interest free funds as well as

interest bearing funds at its disposal, then the presumption would be that

investments were made from interest free funds which were at the disposal of

the assessee. Hence, the present case is squarely covered in favour of the

assessee by the aforesaid order of ITAT, Mumbai. Accordingly, sole ground of

the revenue is dismissed.


11.        In the result, the appeal of the revenue is dismissed.


           Order pronounced in the open court on 01/05/2015.


            Sd/-                                         Sd/-

 (R.S. SYAL)                                     (CHANDRAMOHAN GARG)
ACCOUNTANT MEMBER                                    JUDICIAL MEMBER

DT. 1st May, 2015
`GS'

Copy forwarded to:-

      1.   Appellant
      2.   Respondent
      3.   CIT(A)
      4.   C.I.T. 5. DR
                                                         By Order

                                                       Asstt. Registrar




                                             8

 
 
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