COMMISSIONER OF INCOME TAX Vs. SBI DHFL LTD.

JUDGEMENT

(1.) This appeal of the Revenue challenges the order passed by the Income-tax Appellate Tribunal, Bench at Mumbai, and for the assessment year 2003-04. The order passed on January 31, 2013, and impugned in this appeal deals with the Revenue's questions and grounds. The principal ground on which the Revenue was aggrieved was a relief that the assessee obtained and from the first appellate authority. 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 disallowance made under section 14A was uncalled for and that is the conclusion which was reached by the first appellate authority. 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. The average rate of interest was applied by the Assessing Officer and which he proceeded to disallow in the assessment completed by him.

(2.) The Commissioner of Income-tax (Appeals) and the Tribunal both held that there was no warrant for such an estimation. The Commissioner of Income-tax (Appeals) held that no interest expenditure can be allocated to the earning of the tax-free income received by the assessee on tax-free bonds. The Tribunal held that the Commissioner of Income-tax (Appeals) rightly interfered with the order of the Assessing Officer. The decision of the Commissioner of Income-tax (Appeals) was upheld by the Tribunal and the view taken by the Commissioner of Income-tax (Appeals) as also the Tribunal is inconsonance with the law laid down by this court in the case of CIT v. Reliance Utilities and Power Ltd., 2009 313 ITR 340. The view taken also has been in consonance with the law laid down by this court in the case of Godrej and Boyce Mfg. Co. Ltd. v. Deputy CIT, 2010 328 ITR 81.

(3.) 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 fond cannot be raised. Such a view of the Tribunal, therefore, does not raise any substantial question of law.