ACIT RG 6(3), MUMBAI v. MAHANAGAR GAS LTD, MUMBAI

I .T.A NO.5761/ MUM/2008 MAHANAGAR GAS LTD 1 IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH MUMBAI. [ CORAM: D.MANMOHAN V.P. AND PRAMOD KUMAR AM ] I.T.A NO.5761/ MUM/2008 ASSESSMENT YEAR: 2004-05 JCIT RANGE 6(3) . APPELLANT AAYAKAR BHAVAN M.K. ROAD MUMBAI. VS MAHANAGAR GAS LTD. .. RESPONDENT MGL HOUSE G-33 BANDRA KURLA COMPLEX OPP ICICI TOWERS BANDRA KURLA COMPLEX BANDRA (E) MUMBAI. PA NO.ABBCM 4604 G APPEARANCES: NARESH KUMAR BALODIA FOR THE APPELLANT P.P.JAYARAMAN FOR THE RESPONDENT O R D E R PER PRAMOD KUMAR: 1. THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER DATED 23 RD JUNE 2008 IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INC OME TAX ACT 1961 FOR THE ASSESSMENT YEAR 2004-05. 2. IN GROUND NO.1 THE REVENUE HAS RAISED THE FOLLOWI NG GRIEVANCE:- 1.(A) ON THE FACTS AND CIRCUMSTANCES OF THE CASE LD C IT (A) ERRED IN DELETING THE DISALLOWANCE OF ` .76 76 000 MADE BY THE AO U/S.36(1)(III) OF THE I.T.ACT. (B) THE LD CIT (A) FAILED TO APPRECIATE THAT INVESTM ENT IN MUTUAL FUNDS TO THE EXTENT OF ` .4147.44 LACS WAS MADE OUT OF COMMON KITTY OF BUSINESS FUNDS INCLUDING LOANS AND THE ASSESSEE FAILED TO DI SCHARGE THE I .T.A NO.5761/ MUM/2008 MAHANAGAR GAS LTD 3 5. WE HAVE NOTED THAT THE CIT(A) HAS GIVEN A CATEGO RICAL FINDING THAT THAT NONE OF THE INVESTMENTS IN MUTUAL FUNDS IS OUT OF INTEREST BEARING BORROWED FUNDS. IT IS ALSO NOTED THAT COMPARE TO INVESTMENT AS NIL AS ON 31.3.2003 THE INVESTMENT WAS MADE DURING THE YEAR UNDER CONSIDERATION. THE ASSESSEE HAS TAKEN LOAN OF ` .30 CRORES AND PAID THE SAME. IT IS ALSO NOTED THAT THE INVESTMENTS IN MUTUAL FUNDS IS DIREC TLY MADE FROM SALES TAX DEFERRAL AMOUNT ON WHICH ASSESSEE HAS NOT CLAIMED I NTEREST. WE HAVE ALSO NOTED THAT IN VIEW OF THE LAW LAID DOWN BY HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS RELIANCE UTILITIES & PO WER LIMITED (313 ITR 340) WHEN SUFFICIENT INTEREST FREE FUNDS ARE AVAIL ABLE TO THE ASSESSEE THE PRESUMPTION HAS TO BE THAT INVESTMENTS ARE MADE OUT OF SUCH INTEREST FREE FUNDS. IN THIS VIEW OF THE MATTER THE CONCLUSIONS ARRIVED AT BY THE CIT(A) ARE CORRECT AND DO NOT CALL FOR ANY INTERFERENCE. I N VIEW OF THESE DISCUSSIONS AS ALSO BEARING IN MIND ENTIRETY OF TH E CASE WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE CIT (A) AND DECLINE T O INTERFERE IN THE MATTER. THIS GROUND IS DISMISSED. 6. GROUND NO.2 RELATES TO DELETION OF DISALLOWANCE OF ` .92 81 341 ON ACCOUNT OF PRIOR PERIOD EXPENSES. 7. THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HA S MADE PRIOR PERIOD ADJUSTMENT OF ` .61.25 LAKHS DURING THE YEAR. IN RESPONSE TO ASSES SING OFFICERS QUERY AS TO WHY PRIOR PERIOD EXPENSES SH OULD NOT BE DISALLOWED IN ENTIRETY IT WAS SUBMITTED BY THE ASSESSEE THAT THE DETAILS OF PRIOR PERIOD EXPENSES AND INCOME WHICH HAVE BEEN NETTED O FF IS AS PER THE LEDGER ACCOUNT AND ON MATCHING PRINCIPLES THE EXPE NSES SHOULD NOT BE DISALLOWED IN THE ENTIRETY. THE AO WAS OF THE VIE W THAT THE TREATMENT GIVEN BY THE ASSESSEE IS NOT IN ACCORDANCE WITH THE PROVISIONS OF THE ACT. HE WAS ALSO OF THE VIEW THAT ANY INCOME OF EARLIER YEAR CLAIMED AS DEDUCTION DURING THE YEAR IS BROUGHT TO TAX U/S.41 OF THE ACT. IT WAS IN THIS BACKDROP THE ASSESSING OFFICER DISALLOWED ` .92.81 LAKHS CONSIDERING AS PRIOR PERIOD INCOME. AGGRIEVED ASSESSEE CARRIE D THE MATTER IN APPEAL BEFORE THE CIT (A). THE CIT (A) DELETED THE DISALL OWANCE INTER ALIA