Commissioner of Income-tax v. SBI DHFL Ltd
[Citation -2015-LL-0408-1]

Citation 2015-LL-0408-1
Appellant Name Commissioner of Income-tax
Respondent Name SBI DHFL Ltd.
Court HIGH COURT OF BOMBAY
Relevant Act Income-tax
Date of Order 08/04/2015
Judgment View Judgment
Keyword Tags interest expenditure • rate of interest • tax-free income
Bot Summary: The argument of the Revenue's representative and throughout appears to be that interest bearing borrowed funds were utilised by the assessee entirely for the purpose of its business and investment in tax-free bonds having been made by the assessee out of its own funds. The Assessing Officer, on the other hand, had held that the assessee had kept all the funds in one common pool and in the absence of separate cash flow statement maintained by the assessee, it was not possible to establish that the investment in the tax-free bonds was made only out of its own funds. The Assessing Officer applied an estimation and proceeds to hold that since the borrowed funds of the assessee at the relevant time were 69.9 per cent. Of the total funds, the utilisation of the borrowed funds for making tax-free bonds of Rs. 10.50 crores at Rs. 716.58 lakhs and the interest attributable to the said borrowed funds would have to be taken into account. In these circumstances, we find that merely because that there is a common pool of funds, a presumption that the investment yielding tax-free returns is made by the assessee out of its own funds cannot be raised. The Additional Solicitor General pointed out that reference is made only to the reserves and there is no mention of interest- free funds. The inquiry as to whether the interest-free funds were available on the assets side and in the absence of sufficient proof of such availability, the presumption could not be raised.


JUDGMENT This appeal of Revenue challenges order passed by Incometax Appellate Tribunal, Bench at Mumbai, and for assessment year 2003-04. order passed on January 31, 2013, and impugned in this appeal deals with Revenue's questions and grounds. principal ground on which Revenue was aggrieved was relief that assessee obtained and from first appellate authority. argument of Revenue's representative and throughout appears to be that interest bearing borrowed funds were utilised by assessee entirely for purpose of its business and investment in tax-free bonds having been made by assessee out of its own funds. disallowance made under section 14A was uncalled for and that is conclusion which was reached by first appellate authority. Assessing Officer, on other hand, had held that assessee had kept all funds in one common pool and in absence of separate cash flow statement maintained by assessee, it was not possible to establish that investment in tax-free bonds was made only out of its own funds. Assessing Officer applied estimation and proceeds to hold that since borrowed funds of assessee at relevant time were 69.9 per cent. of total funds, utilisation of borrowed funds for making tax-free bonds of Rs. 10.50 crores at Rs. 716.58 lakhs and interest attributable to said borrowed funds would have to be taken into account. average rate of interest was applied by Assessing Officer and which he proceeded to disallow in assessment completed by him. Commissioner of Income-tax (Appeals) and Tribunal both held that there was no warrant for such estimation. Commissioner of Income-tax (Appeals) held that no interest expenditure can be allocated to earning of tax-free income received by assessee on tax-free bonds. Tribunal held that Commissioner of Income-tax (Appeals) rightly interfered with order of Assessing Officer. decision of Commissioner of Income-tax (Appeals) was upheld by Tribunal and view taken by Commissioner of Income-tax (Appeals) as also Tribunal is inconsonance with law laid down by this court in case of CIT v. Reliance Utilities and Power Ltd. [2009] 313 ITR 340 (Bom). view taken also has been in consonance with law laid down by this court in case of Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT reported in [2010] 328 ITR 81 (Bom). In these circumstances, we find that merely because that there is common pool of funds, presumption that investment yielding tax-free returns is made by assessee out of its own funds cannot be raised. Such view of Tribunal, therefore, does not raise any substantial question of law. However, Mr. Suresh Kumar relied upon paragraphs 71, 72 and 73 in judgment of Godrej and Boyce (supra). He submits that matter be remitted back to Assessing Officer for verification and scrutiny particularly on amounts indicated in this judgment. We do not see any basis to grant his request. Before Division Bench judgment in Godrej and Boyce (supra) at least some material was produced so as to warrant sending back of matter to Assessing Officer. Therefore, Additional Solicitor General pointed out that reference is made only to reserves and there is no mention of interest- free funds. It was urged that reserves shown on liabilities side of balancesheet and are represented by variety of assets on assets side. These assets can be fixed or non-liquid assets and, hence, incapable of any investment. Therefore, inquiry as to whether interest-free funds were available on assets side and in absence of sufficient proof of such availability, presumption could not be raised. That was inquiry which was warranted and that is why matter came to be remitted and restore to file of Assessing Officer. That was to find out whether assessee-Godrej and Boyce had incurred any expenditure in relation to earning of income which does not form part of total income and question of expenditure of disallowance. We do not find that any such inquiry is necessary and in absence of any request in that behalf made to Tribunal, nor necessary materials having been produced either before Tribunal or before us. We, therefore, decline this request of Mr. Suresh Kumar. As result of above discussion, neither of questions are substantial questions of law requiring any determination by this court. issues are fully covered in favour of assessee and against Revenue. appeal is, therefore, dismissed. No costs. *** Commissioner of Income-tax v. SBI DHFL Ltd
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