When interest free funds are available to the assessee which were sufficient to make its investments, it would be presumed that the investments were made from the interest free funds available with the assessee.

Business expenditure—Interest on borrowings—Assessee filed return of income—During assessment proceeding, AO noted that assessee gave interest free loans and advances to related party—AO completed assessment after making disallowance u/s 36(1)(iii)—CIT(A) dismissed appeal of assessee—Held, AO on this issue made addition by following his Order for A.Y. 2011-2012 without giving any independent findings—In A.Y. 2011-2012, CIT(A) had allowed claim of assessee and deleted addition—Though Department had filed an appeal before ITAT, but, no ground was raised on this issue—Those facts itself were sufficient to delete addition—Assessee had own sufficient funds to give advance to M/s. P, out of own funds—There was also an opening balance as contended by Counsel for assessee in preceding year, on which, addition had already been deleted—Assessee had also placed on record correspondence between parties to show that advance was given for commercial expediency—When interest free funds were available to assessee which were sufficient to make its investments, it would be presumed that investments were made from interest free funds available with assessee—Assessee’s ground allowed.

Income—Expenditure incurred in relation to income not includible in total income—During assessment proceeding, AO noted that assessee had received dividend income and had claimed same to be exempted—Since assessee had not made disallowance of expenditure against exempted income, therefore, AO disallowed same u/s 14A r/w Rule 8D—CIT(A) also confirmed AO’s action—Held, investments made by assessee as on 31.03.2012 as argued by Counsel for assessee was not in dispute that case of M/s. ATS, assessee made investment only and in case of M/s. RMF it was NIL because sales and purchases were within year—Thus, while computing disallowance under said provision, rate of 0.5% had to be applied to only those investments which actually resulted in exempt dividend income rather than .05% of average of total investments—AO should have to take average value of such investment—Further AO did not record any satisfaction before making disallowance and merely made addition because assessee had earned dividend income—Thus, those were not sufficient to make any addition against assessee—Assessee’s ground allowed.

ATS INFRASTRUCTURE LTD. vs. ASSISTANT COMMISSIONER OF INCOME TAX