DCIT CENTRAL CIRCLE-2(4), MUMBAI vs. PARINEE HOUSING PRIVATE LTD , MUMBAI

The solitary issue raised by the Revenue in appeal is against the findings of CIT(A) in deleting the addition of interest on the loans advanced to the directors and sister concern/related parties. The assessee has filed Cross Objection in appeal filed by the Revenue supporting the order of First Appellate Authority.

Ms. Sudha Ramchandran representing the Department submitted that assessee has advanced interest free loans to the directors that is Shri Vipul Shah and Shri Dhaval Shah and a group company M/s. Parnee Homes Pvt. Ltd. No evidence has been brought on record by the assessee to show that the loans advanced to the directors and the sister concern are on account of business exigency. The Assessing Officer (AO) has rightly attributed interest at the rate of 12% on the loans advanced to related parties and made addition of Rs.4,12,28,051/-. The assessee has advanced interest free loans to the Directors in violation of section 185 of the Companies Act. The ld. Departmental Representative

Per contra, Shri Rajan Vora appearing on behalf of the assessee emphatically supported the impugned order and prayed for dismissing the appeal of Revenue. The ld. Authorised Representative (AR) submits that the assessee is having interest free funds are much more than interest free loans advanced to directors and the group concern. He further submitted that once the assessee has been able to show that interest free funds are sufficient to cover interest free advances, no addition on account of notional interest can be made by the AO. To substantiate availability of own interest free funds, he referred to the Balance Sheet as on 31.03.2018 of the assessee at page 4 of the Paper Book. He further draws our attention to the notes forming part of the financial statement for the year ended 31.03.2018 Shedule-20 giving details of the related parties’ transactions. In support of his contentions, the ld. AR placed reliance on the decision in the case of assessee’s group company Parinee Realty Pvt. Ltd. vs. ACIT in Writ Petition No. 3638 of 2021 decided on 19.01.2022 by Hon’ble Bombay High Court.

We have heard the submissions made by rival sides and have examined the orders of authorities below. Undisputedly, the assessee has advanced interest free loans to the related parties as under:

In the result, appeal of the Revenue is dismissed, being devoid of any merit.

The assessee has filed Cross Objections supporting the order of CIT(A). Since, we have dismissed appeal of the Revenue, Cross Objections filed by the assessee have become infructuous, hence, dismissed as such.